<PAGE>
As filed with the Securities and Exchange Commission on March 5, 1996
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
_______________
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in its governing instruments)
_______________
400 Centre Street
Newton, Massachusetts 02158
(617) 964-8389
(Address of principal executive offices)
_______________
John G. Murray
Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02158
(617) 964-8389
(Name and address of agent for service)
_______________
Copies to:
Alexander A. Notopoulos, Jr., Esq. Winthrop B. Conrad, Jr., Esq.
Sullivan & Worcester LLP Davis Polk & Wardwell
One Post Office Square 450 Lexington Avenue
Boston, Massachusetts 02109 New York, New York 10017
(617) 338-2800 (212) 450-4000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
____________________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [_]
____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [_]
____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [_]
Calculation of Registration Fee
<TABLE>
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================================================================================================================
Proposed Maximum Proposed Maximum
Amount being Offering Price Per Aggregate Offering Amount of
Title of Securities being registered Registered Share Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest,
$0.01 par value per share(1) 13,800,000 $26.75(2) $369,150,000 $127,293.11
================================================================================================================
(1) Includes 1,800,000 Common Shares of Beneficial Interest issuable upon
exercise of an overallotment option granted to the Underwriters.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee based upon the average of the high and low
sales prices reported on the New York Stock Exchange Composite Tape on
February 27, 1996.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
---------------------
Item Number and Caption Location or Heading in Prospectus
----------------------- ---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus............. Outside Front Cover Page.
2. Inside Front and Outside
Back Cover Pages of
Prospectus........................... Inside Front Cover Page; Outside
Back Cover Page; "Additional
Information."
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Outside Front Cover Page;
"Prospectus Summary;" "Risk
Factors."
4. Determination of Offering Price...... Outside Front Cover Page;
"Underwriting."
5. Dilution............................. Not applicable.
6. Selling Security Holders............. Not applicable.
7. Plan of Distribution................. Outside Front Cover Page;
"Underwriting."
8. Use of Proceeds...................... "Prospectus Summary;" "Use of
Proceeds;" "Underwriting."
9. Selected Financial Data.............. "Selected and Pro Forma
Financial and Operating Data."
10. Management's Discussion and Analysis
of Financial Condition and
Results of Operations................ "Management's Discussion and
Analysis of Financial Condition
and Results of Operations."
11. General Information as to Registrant. "Prospectus Summary;" "The
Company;" "Business;" "Management;"
"Policies with Respect to Certain
Activities;" "Summary of the
Declaration of Trust;" "Additional
Information."
12. Policy with Respect to Certain
Activities........................... "Prospectus Summary;" "The Company;"
"Business;" "Policies with Respect
to Certain Activities;" "Summary of
the Declaration of Trust."
13. Investment Policies of Registrant.... "Prospectus Summary;" "The Company;"
"Business," "Policies with Respect
to Certain Activities," "Summary of
the Declaration of Trust."
14. Description of Real Estate........... "Prospectus Summary;" "The Company;"
"Business."
15. Operating Data....................... "Prospectus Summary;" "Selected and
Pro Forma Financial and Operating
Data;" "Business."
16. Tax Treatment of Registrant and its
Security Holders..................... "Prospectus Summary;" "Federal
Income Tax Considerations;" "Certain
United States Tax Considerations for
Non-U.S. Holders of Shares;" "ERISA
Plans, KEOGH Plans and Individual
Retirement Accounts."
17. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters.......... "Prospectus Summary;" "Risk Factors;"
"Distribution Policy;" "Price
Ranges of Shares;" "Business;"
"Principal Shareholders;" "Shares
Eligible for Future Sale."
18. Description of Registrant's
Securities........................... "Distribution Policy;" "Description
of the Shares," "Summary of the
Declaration of Trust;" "Federal
Income Tax Considerations."
19. Legal Proceedings.................... "Business."
20. Security Ownership of Certain
Beneficial Owners and Management..... "Principal Shareholders."
21. Directors and Executive Officers..... "Management."
22. Executive Compensation............... "Management."
23. Certain Relationships and Related
Transactions......................... Outside Front Cover Page;
"Prospectus Summary," "Risk
Factors," "Management," "Policies
with Respect to Certain Activities.
24. Selection, Management and
Custody of Registrant's Investments.. Outside Front Cover Page;
"Prospectus Summary;" "Business;"
"Management;" "Policies with
Respect to Certain Activities."
25. Policies with Respect to
Certain Transactions................. "Policies with Respect
to Certain Activities."
26. Limitations of Liability............. "Management;" "Summary of the
Declaration of Trust."
27. Financial Statements and Information. "Prospectus Summary," Selected and
Pro Forma Financial and Operating
Data;" "Index to Financial
Statements."
28. Interests of Named Experts
and Counsel.......................... "Experts;" "Legal Matters."
29. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities....... "Summary of the Declaration of
Trust."
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 5, 1996
PROSPECTUS
, 1996
12,000,000 Shares
Hospitality Properties Trust
Common Shares of Beneficial Interest
Hospitality Properties Trust ("HPT" or the "Company") is a real estate
investment trust (a "REIT") which owns hotels and leases them to independent
hotel operating companies. Upon completion of pending acquisitions, HPT will
own 82 Hotels with 11,703 rooms or suites located in 26 states. On March 1,
1996, the last reported sale price for the Company's Common Shares of Beneficial
Interest (the "Shares") on the New York Stock Exchange ("NYSE") was $27 1/2.
All of the Shares offered hereby (this "Offering") are being offered
by the Company. Upon completion of this Offering, Health and Retirement
Properties Trust ("HRP"), a NYSE listed REIT, will own approximately 16%, HRPT
Advisors, Inc. ("Advisors"), the investment advisor to both HPT and HRP, will
own approximately 1% and public Shareholders will own approximately 83% of the
outstanding Shares.
An investment in the Shares offered hereby is not an investment in
HRP, Advisors or in any tenant or Manager of the Company's Hotels or their
affiliates, including Wyndham Hotel Corporation, Host Marriott Corporation or
Marriott International, Inc.
See "Risk Factors" beginning on page 8 for information which should
be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- -------------------------------------------------
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions (1) Company (2)
- -------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
Total (3) $ $ $
- -------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which
will be paid by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 1,800,000 additional Shares at the Price to the Public
less Underwriting Discounts and Commissions, solely to cover
overallotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $
respectively. See "Underwriting."
The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to various prior conditions, including their right to reject orders in whole or
in part. It is expected that delivery of the share certificates will be made in
New York, New York on or about , 1996.
Donaldson, Lufkin & Jenrette
Securities Corporation
Dean Witter Reynolds Inc.
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Legg Mason Wood Walker
Incorporated
McDonald & Company
Securities, Inc.
<PAGE>
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its Trustees or its officers with respect to (i) the declaration or
payments of dividends, (ii) the finalization of the terms of, or the
consummation of, the acquisitions described in this Prospectus, (iii) the
leasing, management or operation of hotels to be acquired, (iv) the adequacy of
reserves for renovation and refurbishment, (v) other potential acquisitions by
the Company, (vi) the use of the proceeds of this Offering, (vii) the Company's
financing plans, (viii) the policies of the Company regarding investments,
dispositions, financings, conflicts of interest or other matters, (ix) the
Company's qualification and continued qualification as a REIT or (x) trends
affecting the Company's or any hotel's financial condition or results of
operations. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors. The accompanying
information contained in this Prospectus, including without limitation the
information under the headings "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Policies with
Respect to Certain Activities" and "Federal Income Tax Considerations,"
identifies important factors that could cause such differences.
___________________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
PROSPECTUS SUMMARY 1
The Company 1
Risk Factors 4
The Offering 5
Summary Selected and Pro Forma Financial and
Operating Data 6
RISK FACTORS 8
THE COMPANY 12
DISTRIBUTION POLICY 13
PRICE RANGES OF SHARES 14
USE OF PROCEEDS 14
CAPITALIZATION 14
SELECTED AND PRO FORMA FINANCIAL
AND OPERATING DATA 15
Hospitality Properties Trust 15
Wyndham I 17
Host I 18
Host II 20
Rent Coverage Analysis 21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 22
Overview 22
The Company: Historical and Pro Forma
Results of Operations 22
The Hotels 23
Liquidity and Capital Resources 24
Seasonality 25
Inflation 25
BUSINESS 26
The Hotels 27
Lessees, Managers, Leases and Management
Agreements 37
Purchase Agreements 42
Competition 42
Environmental Matters 43
Regulatory Matters 44
Ground Leases 44
Mortgages 44
Damage, Destruction or Condemnation 44
Legal Proceedings 45
MANAGEMENT 46
Trustees and Executive Officers 46
Committees of the Board of Trustees 47
Compensation of Trustees and Officers 47
Employees 47
Incentive Share Award Plan 47
Trustees' and Officers' Indemnification 48
Advisors and the Advisory Agreement 48
Certain Transactions 50
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES 50
Investment Policies 50
Disposition Policies 51
Financing Policies 51
Conflict of Interest Policies 52
Policies with Respect to Other Activities 52
DESCRIPTION OF THE SHARES 53
General 53
Common Shares 53
Preferred Shares 53
Transfer Agent 53
SUMMARY OF THE DECLARATION OF
TRUST 53
Trustees 53
Liability of Trustees 54
Limitation of Liability; Shareholder Liability 54
Duration and Termination 55
Prohibited Investments and Activities 55
Transactions with Affiliates, Trustees,
Employees, Officers or Agents 55
Restrictions on Transfer 55
Shareholder Proposals 57
Business Combinations 57
Control Share Acquisitions 57
Amendment; Meetings 57
Antitakeover Provisions 57
PRINCIPAL SHAREHOLDERS 58
SHARES ELIGIBLE FOR FUTURE SALE 59
FEDERAL INCOME TAX
CONSIDERATIONS 60
Taxation of the Company 61
Taxation of Shareholders 65
Other Tax Considerations 67
CERTAIN UNITED STATES TAX
CONSIDERATIONS FOR NON-U.S.
HOLDERS OF SHARES 68
Federal Estate Tax 69
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Backup Withholding and Information
Reporting Requirements 69
Other Tax Consequences 70
ERISA PLANS, KEOGH PLANS AND
INDIVIDUAL RETIREMENT ACCOUNTS 70
General Fiduciary Obligations 70
Prohibited Transactions 70
Special Fiduciary and Prohibited
Transactions Considerations 70
UNDERWRITING 72
EXPERTS 73
LEGAL MATTERS 73
ADDITIONAL INFORMATION 73
GLOSSARY 75
INDEX TO FINANCIAL STATEMENTS F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and the notes thereto appearing
elsewhere in this Prospectus. In this Prospectus, the 37 hotels currently owned
by the Company are referred to as the "Initial Hotels," the 45 hotels to be
acquired by the Company are referred to as the "Additional Hotels," and the
Initial Hotels and the Additional Hotels are collectively referred to as the
"Hotels." References in this Prospectus to the "Company" includes
consolidated subsidiaries. Other capitalized terms used in this Prospectus
without definition have the meanings specified in the Glossary. Unless
otherwise indicated, the information contained in this Prospectus assumes that
(i) the Underwriters' overallotment option is not exercised and (ii) all the
Additional Hotels have been acquired and the new and amended Leases and
Management Agreements for the Hotels have become effective. An investment in
the Shares offered hereby is not an investment in (i) Wyndham Hotel Company,
Ltd., its proposed successor-in-interest, Wyndham Hotel Corporation (together,
"Wyndham"), Host Marriott Corporation ("Host"), Marriott International, Inc.
("Marriott") or any of their affiliates acting as Lessees or Managers of Hotels
owned by the Company or (ii) Health and Retirement Properties Trust ("HRP") or
HRPT Advisors, Inc. ("Advisors").
The Company
The Company is a REIT formed to acquire, own and lease hotels to
unaffiliated tenants. The Company currently owns 37 Courtyard by Marriott/(R)/
Hotels. Upon completion of pending acquisitions of 45 Hotels, the Company will
own 82 Hotels with 11,703 rooms or suites located in 26 states, purchased for
approximately $813 million. The pending acquisitions enhance the diversity of
the Company's portfolio in terms of geography, brand and type of hotel.
Following the completion of the pending acquisitions and the consummation of
this Offering, the Company's pro forma Cash Available for Distribution will
increase from $2.44 per Share to $2.73 per Share.
[The Prospectus contains a pie chart with the three captions shown below each
indicating the pie wedge with percentages as follows: 11 Wyndham
Garden/(R)/ Hotels -- 16.7%; 18 Residence Inn
by Marriott/(R)/ Hotels -- 21.2%; and 53 Courtyard
by Marriott/(R)/ Hotels -- 62.1%.]
11 Wyndham Garden/(R)/ Hotels
Full Service
$135.3 million/1,940 rooms
18 Residence Inn by Marriott/(R)/ Hotels 53 Courtyard by Marriott/(R)/ Hotels
Extended Stay Limited Service
$172.2 million/2,178 suites $505.4 million/7,585 rooms
Distributions
Since its initial public offering in August 1995, the Company has paid regular
quarterly dividends at the rate of $0.55 per Share per quarter, or $2.20 per
Share per year. On March __, 1996, the Company's regular quarterly dividend was
increased to $0.__ per Share per quarter, or $____ per Share per year. The next
quarterly dividend of $0.___ per Share for the calendar quarter ending March 31,
1996, will be paid on May __, 1996 to Shareholders of record on April __, 1996.
Purchasers of Shares in this Offering who continue to hold their Shares on April
__, 1996 will receive this next quarterly dividend.
[The Prospectus contains a horizontal bar chart
showing the following information;
the bottom of the chart will have a scale from $0 to $3]
<TABLE>
<CAPTION>
<S> <C> <C>
Dividend per Share per year [$2.20]
Pro forma Cash Available for [$2.44] 90.2%
Distribution per Share per payout
year
Pro forma Cash Available for [$2.73] 80.6%
Distribution per Share per payout
year, as adjusted for pending
acquisitions and this Offering
</TABLE>
1
<PAGE>
Growth Strategy
The Company's principal growth strategy is to expand its investments in hotels
and to set minimum rents which produce income in excess of the Company's cost of
raising capital. Most other public hotel REITs seek to control the operations
of hotels in which they invest by leasing their properties to affiliated
tenants. The Company seeks to provide capital to unaffiliated hotel operators
who wish to divest their properties while remaining in the hotel business as
tenants. The Company believes that this difference in operating philosophy
affords it a competitive advantage over other hotel REITs in finding high
quality hotel investment opportunities on attractive terms. In addition, the
Company's internal growth strategy is to participate through percentage rents in
increases in Total Hotel Sales (including gross revenues from room rentals, food
and beverage sales and other services) at the Company's Hotels.
Leases
As a REIT, the Company may not operate or manage its Hotels. All 82 Hotels
owned by the Company will be leased to hotel operating companies and managed by
hotel management companies. The Company believes that the Leases which it has
negotiated provide strong rent coverages and credit characteristics and that the
FF&E Reserves, which exceed industry averages, will be adequate to maintain the
competitive appearances of its Hotels. The 11 Wyndham Garden/(R)/ Hotels will be
leased to a special purpose entity ("Wyndham I") and managed by Wyndham or a
Wyndham subsidiary ("Wyndham II"). The 18 Residence Inn by Marriott/(R)/ Hotels
will be leased to a special purpose subsidiary of Host ("Host I") and managed by
a subsidiary of Marriott ("Marriott I"). The 53 Courtyard by Marriott/(R)/
Hotels will be leased to another special purpose subsidiary of Host ("Host II")
and managed by another subsidiary of Marriott ("Marriott II"). The following
table summarizes certain important features of the Company's Leases.
<TABLE>
<CAPTION>
53 Courtyard
11 Wyndham 18 Residence Inn by by Marriott/(R)/ All
Garden/(R)/ Hotels Marriott/(R)/ Hotels Hotels 82 Hotels
----------------- --------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Tenant Wyndham I Host I Host II 3 tenants
Minimum annual rents $13.6 million $17.2 million $50.5 million $81.4 million
Percentage rents 8.0% of amounts 7.5% of amounts in 5.0% of amounts --
in excess of excess of 1996 Total in excess of
1996 Total Hotel Hotel Sales 1994 Total Hotel
Sales Sales (37 Hotels)
and 1995 Total
Hotel Sales
(16 Hotels)
Initial Lease term expirations 2012 2010 2012 --
Renewal options All or none All or none All or none --
4 for 12 yrs 1 for 10 yrs 3 for 12 yrs
2 for 15 yrs
Security Deposits $13.6 million $17.2 million $50.5 million $81.4 million
Cross-defaults Yes Yes Yes --
Management fees Subordi nated Subordinated Subordinated --
Estimated renovation and
refurbishment escrow ("FF&E
Reserve") based upon 5% of
1995 Total Hotel Sales $1,460/room $1,422/suite $1,213/room $1,293/room
or suite
Pro forma rent coverage (1995
Hotel operating results after
FF&E Reserve and before
subordinated management
fees and charges) 1.32 x 1.39 x 1.34 x 1.35 x
</TABLE>
2
<PAGE>
The Hotels
The average age of the Company's 82 Hotels is under six years. The Company
believes that the locations, appearances, designs and operating systems of the
Hotels have contributed to operating performance in recent years in excess of
United States hotel industry averages. Revenue per available room ("REVPAR") at
the Company's 82 Hotels increased by 8.2% and 8.7% in 1994 and 1995,
respectively, exceeding REVPAR growth in the United States hotel industry of
7.3% and 6.2% in comparable periods. The following tables set forth the Total
Hotel Sales, occupancies and REVPAR of the Hotels as compared with all United
States hotels as reported by Smith Travel Research in Lodging Outlook.
<TABLE>
<CAPTION>
Total Hotel Sales
(Dollars in thousands)
1993 1994 1995
<S> <C> <C> <C>
11 Wyndham Garden/(R)/ $ 45,191 $ 50,726 $ 56,642
18 Residence Inn by Marriott/(R)/ 53,582 57,357 61,934
53 Courtyard by Marriott/(R)/ 164,612 173,811 183,964
82 HPT Hotels 263,385 281,894 302,540
All U.S. hotels(1) 45,500,000 48,800,000 52,700,000
Occupancies
1993 1994 1995
11 Wyndham Garden/(R)/ 73.0% 75.1% 77.5%
18 Residence Inn by Marriott/(R)/ 84.5 85.6 86.6
53 Courtyard by Marriott/(R)/ 79.7 80.3 80.3
82 HPT Hotels 79.5 80.4 81.0
All U.S. hotels 63.1 64.7 65.5
REVPAR
1993 1994 1995
11 Wyndham Garden/(R)/ $46.76 $52.34 $59.77
18 Residence Inn by Marriott/(R)/ 63.18 68.12 73.69
53 Courtyard by Marriott/(R)/ 50.49 54.23 58.32
82 HPT Hotels 52.23 56.50 61.41
All U.S. hotels 38.71 41.55 44.14
</TABLE>
- -----------------------------
(1) All U.S. hotel sales represent room sales only, and are affected by
increases of hotel room supply of 1.4% and 1.7% in 1994 and 1995,
respectively.
3
<PAGE>
Risk Factors
An investment in the Shares involves various risks and investors should
consider carefully the matters discussed under "Risk Factors." These risks
include, among others:
- Pending Acquisitions May Not Close. The pending acquisitions of the
Additional Hotels may not close. If a significant portion of the pending
acquisitions do not close, a portion of the proceeds from this Offering will
not have any specific designated use, and the Company may be unable to
recover some or all of the amounts expended and deposited by it in connection
with the pending acquisitions. If any of these events occur, the Company's
Cash Available for Distribution and the level of dividends paid to
Shareholders may decline.
- Dependence on Limited Number of Lessees. As owner and lessor, the Company is
entitled only to receive base and percentage rents under the leases for the
Hotels (the "Leases"). In order to generate cash sufficient to make
distributions to Shareholders, the Company will rely on timely receipt of
rents from Wyndham I, Host I and Host II (collectively, the "Lessees"). The
failure or delay by the Lessees in making rent payments could adversely
affect the ability of the Company to make distributions to Shareholders.
- Dependence on Limited Number of Managers. The Company and the Lessees will
rely on Wyndham II, Marriott I and Marriott II (collectively, the "Managers")
to manage the Hotels pursuant to management agreements for the Hotels (the
"Management Agreements"). The failure of the Managers to manage the Hotels
properly could have a material adverse effect on the ability of the Lessees
to pay rents to the Company.
- Substantial Dependence on Brand Names. The Wyndham Garden/(R)/, Residence Inn
by Marriott/(R)/ and Courtyard by Marriott/(R)/ brand names are not owned by
the Company, and any degradation or adverse market developments relating to
these brand names could adversely affect the results of operations of the
related Hotels and the ability of the applicable Lessee to pay rents.
- Inability to Operate Hotels. As a REIT, the Company is restricted in its
ability to operate hotels. The Company will rely on the Lessees and the
Managers and any additional lessees and managers of future hotels to operate
its hotels.
- Limited Operating History. The Company has only a limited operating history
and has owned hotels for approximately one year.
- Dependence on Key Personnel. The Company is an advised REIT and is highly
dependent on the efforts of Advisors and the Company's Managing Trustees and
officers, all of whom have extensive experience managing a REIT but only
limited experience in the hotel industry.
- Conflicts of Interest. Advisors acts as the financial advisor and provides
management services to the Company and HRP and also has other business
interests. Advisors is owned by Messrs. Barry M. Portnoy and Gerard M.
Martin. Messrs. Portnoy and Martin are each Managing Trustees of the Company,
Managing Trustees of HRP and Directors of Advisors. Under the terms of the
Advisory Agreement, the fees payable to Advisors will increase as a result of
the Company's purchase of the Additional Hotels and future hotels. These
relationships present actual or potential conflicts of interest which could
result in decisions that do not fully represent the interests of the Company.
- Risk of Leverage. The organizational documents of the Company do not limit
the amount of debt the Company may incur. The Company could become highly
leveraged, which could adversely affect the ability of the Company to make
distributions to Shareholders.
- Security Deposits. The Company does not escrow the Security Deposits it
retains under the Leases. Accordingly, in the event of Lease defaults, these
funds may not be available to make distributions to Shareholders.
4
<PAGE>
The Offering
Shares to be offered................. 12,000,000 Shares
Shares to be outstanding after
this Offering................. 24,600,900 Shares
Use of proceeds...................... To repay indebtedness incurred to
purchase the Additional Hotels. In the
event that some or all of the Additional
Hotels have not been acquired prior to
the consummation of this Offering,
unused proceeds will be invested in
investment grade short term securities
and will be used to purchase the
Additional Hotels or to make other hotel
acquisitions.
NYSE symbol.......................... HPT
5
<PAGE>
Summary Selected and Pro Forma Financial and Operating Data
The following table sets forth summary selected financial and operating data
on an historical and a pro forma basis for the Company for the year ended
December 31, 1995. The pro forma data for the 37 Hotels are unaudited and
presented as if the Company's formation transactions, primarily the acquisition
and leasing of the Initial Hotels and the Company's initial public offering of
Shares, and certain other transactions described in the notes to the pro forma
financial statements included elsewhere in this Prospectus have been consummated
for the period presented. The pro forma data for the 82 Hotels are unaudited and
are presented as if: (i) the Company's formation transactions, primarily the
acquisition and leasing of the Initial Hotels and the Company's initial public
offering of Shares; (ii) the acquisition and leasing of the Additional Hotels;
(iii) this Offering and the application of the proceeds thereof; and (iv)
certain other transactions described in the notes to the pro forma financial
statements included elsewhere in this Prospectus have been consummated as of the
date or for the period presented. The pro forma data are not necessarily
indicative of what the actual financial position or results of operations would
have been, nor do they purport to represent the financial position or results of
operations for future periods. The following summary selected and pro forma
financial and operating data should be read in conjunction with the financial
statements and the notes thereto included elsewhere in this Prospectus.
HOSPITALITY PROPERTIES TRUST
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ -------------------------------
February 7, 1995 Year Ended December 31, 1995
(Inception) to
December 31,
1995(1) (37 Hotels) (82 Hotels)
(In thousands, except per Share data)
<S> <C> <C> <C>
Operating Data:
Revenues:
Base rent..................... $ 19,206 $ 32,900 $ 81,360
Percentage rent(2)............ 325 408 408
FF&E Reserve income........... 4,037 6,424 12,295
Interest income............... 74 85 85
-------- -------- --------
Total revenues.............. 23,642 39,817 94,148
Expenses:
Interest expense.............. 5,039 -- 9,952
Depreciation and amortization. 5,844 9,229 23,809
General and administrative.... 1,410 2,616 5,039
-------- -------- --------
Total expenses:............. 12,293 11,845 38,800
-------- -------- --------
Net income(2)................... $ 11,349 $ 27,972 $ 55,348
======== ======== ========
Net income per Share(2)......... $ 2.51 $ 2.22 $ 2.25
Weighted average Shares
outstanding................... 4,515 12,601 24,601
Balance Sheet Data (as of
December 31, 1995):
Real estate properties, net..... $326,752 $815,202
Total assets.................... 338,947 834,344
Total debt...................... -- 144,712
Shareholders' equity............ 297,951 600,176
Other Data:
Cash Available for
Distribution(3)............... $ 13,156 $ 30,777 $ 67,096
Cash provided by operating
activities(4)................. 14,140 31,676 67,761
Cash used in investing
activities(4)................. 303,652 303,652 749,142
Cash provided by financing
activities(4)................. 291,647 268,481 687,451
Cash Available for Distribution
per share..................... $ 2.91 $ 2.44 $ 2.73
</TABLE>
6
<PAGE>
- --------------------------
(1) From inception on February 7, 1995 until completion of its initial public
offering on August 22, 1995, the Company was a 100% owned subsidiary of
HRP. It was initially capitalized with $1 million of equity and $163.3
million of debt. The debt was provided by HRP at rates which were lower
than the market rates which the Company would have paid on a stand alone
basis. Accordingly, the Company does not believe that its results of
operations while it was a wholly owned subsidiary are comparable to
subsequent periods.
(2) Percentage rents for the 11 Wyndham Garden/(R)/ Hotels and the 18 Residence
Inn by Marriott/(R)/ Hotels commence in 1997. Percentage rent for the 16
Courtyard by Marriott/(R)/ Hotels included in the Additional Hotels
commences in 1996.
(3) Some REITs use funds from operations ("FFO"), representing net income
(computed in accordance with GAAP), adjusted for non-recurring items,
before real estate depreciation and amortization, as a measure of financial
performance. Because of the impact of FF&E Reserves on the Company's
calculation of FFO which results from the fact that the FF&E Reserves from
the Residence Inn by Marriott/(R)/ and Courtyard by Marriott/(R)/ Leases
are included in FFO (and escrowed by the Company) but the FF&E Reserves
from the Wyndham Garden/(R)/ Leases are not included in FFO (since they are
escrowed by the Lessee), the Company does not believe FFO represents a
meaningful measure of its performance or offers a meaningful basis for
comparison of its performance with that of other public hotel REITs.
Instead, the Company believes that the best measure of its financial
performance is Cash Available for Distribution, which it defines as net
income from operations, plus depreciation and amortization and less Company
income reserved for renovations and refurbishment (i.e., the FF&E Reserves)
and adjusted for non-recurring items, if any. Moreover, the Company
believes that Cash Available for Distribution provides a meaningful basis
for comparison of the Company's performance with the performance of other
public hotel REITs provided that appropriate amounts are reserved for
renovations and refurbishment in all cases.
(4) Amounts are computed on a pro forma basis in accordance with GAAP, except
that cash provided by (used in) operating activities excludes the effect on
cash resulting from changes in current assets and current liabilities. The
Company does not believe that these excluded items are material to net cash
provided by operating activities.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following
information in conjunction with the other information contained in this
Prospectus before purchasing Shares in this Offering.
Pending Acquisitions May Not Close. The Company has agreements to
acquire the Additional Hotels. However, the Company is still finalizing
definitive terms of the leases for the 11 Wyndham Garden/(R)/ Hotels, and the
purchase of all of the Additional Hotels is subject to the satisfaction of a
number of conditions, certain of which unless satisfied could result in one or
more of the Additional Hotels not being acquired. If such conditions are not
satisfied with respect to a number of the Additional Hotels in a group, the
Company may be unable to purchase the remaining Additional Hotels of the same
group. The Company also has deposited with the sellers approximately $50
million in connection with the purchase of two groups of the Additional Hotels.
If the Company is unable for any reason to complete the purchase of
substantially all of the Additional Hotels of these groups, the Company may be
unable to recover some or all of the amounts expended or deposited by it. Any
inability to complete the purchase of substantially all of the Additional Hotels
could have a material adverse effect upon the Company and the Company's Cash
Available for Distribution, and could cause the level of dividends paid to
Shareholders to decline.
Dependence on Limited Number of Lessees. In order to generate cash
sufficient to make distributions to Shareholders, the Company will rely on
timely receipt of rents from the Lessees. The failure or delay by the Lessees
in paying rents could adversely affect the ability of the Company to make
distributions to Shareholders. In the event of a default under a Lease, the
Company may relet or sell the applicable Hotel and seek recovery of damages from
the applicable Lessee. Each Lessee, however, is a limited purpose entity formed
for the purpose of leasing certain of the Hotels and there can be no assurance
that the Company will be able to recover damages from a Lessee under such
circumstances. See "Business -- Lessees, Managers, Leases and Management
Agreements."
Dependence on Limited Number of Managers. The Company and the Lessees
will rely on the Managers to manage the Hotels properly. The failure by the
Managers to manage the Hotels properly could have a material adverse effect on
the ability of the Lessees to pay rents. See "Business -- Lessees, Managers,
Leases and Management Agreements."
Substantial Dependence on Brand Names. The Wyndham Garden/(R)/,
Residence Inn by Marriott/(R)/ and Courtyard by Marriott/(R)/ brand names are
not owned by the Company and any degradation or adverse market developments
relating to these brand names could adversely affect the results of operations
of the related Hotels and the ability of the applicable Lessee to pay rents.
Inability to Operate Hotels. As a REIT, the Company is restricted in
its ability to operate hotels. As a result, the Company will be unable to make
and implement strategic business decisions with respect to its Hotels, even if
such decisions were in the best interests of the Company. In addition, the
Company will be subject to the risk that, upon termination of a Lease, the Lease
may not be renewed, the affected Hotel may not be relet or the terms of renewal
or reletting may be less favorable than the previous Lease terms. All Leases to
a particular Lessee have all or none renewal provisions which may make it more
likely that such Leases will be renewed, but if, for any reason, the Leases are
not renewed, the adverse consequences to the Company may be more severe as a
result of the all or none renewal feature. Although Advisors may be able
directly to provide for the operation of hotels for up to two years in certain
circumstances, as a result of restrictions imposed on the Company as a REIT, the
Company would likely not be able to operate directly any hotel without thereby
failing to qualify as a REIT for federal income tax purposes. If the Company
were unable promptly to enter into a new lease to replace a terminated Lease or
if the rental rates upon a renewal or reletting were significantly lower than
expected due to market conditions or other factors, then the Company's ability
to make distributions to Shareholders could be adversely affected. See "Federal
Income Tax Considerations -- Taxation of the Company."
Limited Operating History. The Company has only a limited operating
history and has owned hotels for approximately one year. Accordingly, the
Company will be subject to all risks generally associated with a new business.
8
<PAGE>
Dependence on Key Personnel. The Company is an advised REIT and is
highly dependent on the efforts of Advisors and the Company's Managing Trustees
and officers, all of whom have extensive experience managing a REIT but only
limited experience in the hotel industry. The loss of their services could have
a material adverse effect on the Company. See "Management."
Conflicts of Interest. Advisors acts as the financial advisor and
provides management services to the Company and HRP and also has other business
interests. Advisors will not be able to devote all of its business time and
resources to the Company and conflicts could arise with respect to the
allocation of its time and resources. The terms of the Advisory Agreement were
not determined by arms' length negotiation. Messrs. Portnoy and Martin are each
Managing Trustees of the Company, Managing Trustees of HRP and Directors and 50%
shareholders of Advisors. Mr. Portnoy is a partner in the firm of Sullivan &
Worcester LLP, which acts as counsel to the Company, HRP, Advisors and
affiliates of each of the foregoing. To address the foregoing actual or
potential conflicts of interest and competing time demands, the Declaration
provides that a majority of the Company's Trustees will be Independent Trustees.
Certain officers of Advisors devote substantially all of their business time to
the Company. In addition, pursuant to the Advisory Agreement, Advisors and
Messrs. Portnoy and Martin have agreed not to provide advisory services to, or
serve as directors or officers of, any other REIT which is principally engaged
in the business of ownership of hotels or to make competitive direct investments
in hotels without, in each case, the consent of the Independent Trustees. Also,
Advisors and Messrs. Portnoy and Martin will be required by applicable law to
act in accordance with their fiduciary responsibilities to the Company. Under
the terms of the Advisory Agreement, the fees payable to Advisors will increase
as a result of the Company's purchase of the Additional Hotels and future
hotels. See "Policies with Respect to Certain Activities -- Conflict of Interest
Policies."
Risks of Leverage. The organizational documents of the Company do not
limit the level of debt the Company may incur. The Company could become highly
leveraged, which could adversely affect the ability of the Company to make
distributions to Shareholders and increase the risk of default under its
indebtedness. After application of the proceeds of the Offering, the Company
expects to have outstanding secured indebtedness of approximately $144.7 million
under its Line of Credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- The Company" and "Business -- Mortgages."
Security Deposits. The Security Deposits retained by the Company as
security for the Lessees' obligations under the Leases, totaling $81.4 million,
will not be escrowed. The Security Deposits will be repayable by the Company to
the Lessees upon the expiration of the Leases, including renewal terms. The
Company will record any reductions to Security Deposits resulting from failure
by a Lessee to pay rent as non-cash income to the Company. Accordingly, funds
represented by the Security Deposits may not be available to the Company when
they are required to be repaid to the Lessees or to satisfy a Lessee's rent
obligations in the event of a default.
Certain Risks of Recent Acquisitions. Although they were determined
by arms' length negotiation between the Company and the respective sellers, the
purchase prices paid by the Company for the Hotels may not accurately reflect
the market value of those assets. The sellers of the Hotels have made certain
representations to the Company with respect to the Hotels and have agreed to
indemnify the Company against losses resulting from breaches of such
representations. However, the purchase agreements do not require the sellers to
maintain a minimum level of net worth. As a result, there can be no assurance
that the Company would be able to obtain recoveries if an indemnifiable event
were to occur. As is customary in comparable real estate transactions, the
Company will obtain title insurance against losses from certain defects in title
relating to the Hotels. If there were a title defect, however, there could be
no assurance that the Company would be able to obtain recoveries under these
policies or that any recoveries could be invested to provide comparable levels
of return.
Ground Leases. Rights to use the land underlying 10 Hotels are held
by assignments of the leasehold interests under long term ground leases. Under
the Leases for these Hotels, the Lessees are required to pay all rents due and
comply with all other obligations under the ground leases. The terms of the
ground leases, including renewal terms, expire between 2039 and 2077. If a
ground lease terminates, the Lease with respect to the applicable Hotel will
also terminate. Accordingly, Leases for six Hotels may terminate by reason of
termination of a ground lease up to a maximum of nine years prior to the
expiration of their final renewal terms if the Company is unable to acquire the
underlying property or extend the applicable ground leases. If a Lessee does
not perform the obligations under or elects not to renew any ground lease, the
Company must perform such obligations or renew such ground lease in order to
protect its investments in the affected Hotel. Any pledge of the Company's
interests in a ground lease may also require
9
<PAGE>
the consent of the applicable ground lessor and its lenders. The ground leases
generally require the Company to restore the premises following a casualty or
taking and to apply in a specified manner any proceeds received in connection
therewith. The Company may have to restore the premises if a material casualty
occurs, even if the applicable Lessee has terminated its Lease by reason of such
casualty, without regard to the sufficiency of proceeds available to the
Company to effect such restoration.
Tax Risks. The Company operates so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). The Company has not
requested, and does not expect to request, a ruling from the Internal Revenue
Service (the "Service") regarding its status as a REIT. Qualification as a REIT
involves the application of technical and complex provisions of the Code for
which there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control (including termination of a Lease) may affect its ability
to qualify as a REIT and maintenance of such qualification imposes certain
operating requirements on the Company. In addition, no assurance can be given
that legislation, regulations, administrative interpretations or court decisions
will not significantly change the rules applicable to the Company with respect
to its qualification as a REIT or the federal income tax consequences of such
qualification. If the Company were to fail to qualify as a REIT in any taxable
year, such failure could have a material adverse effect on the Company and its
Shareholders. Also, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Trustees, with the consent of two
thirds of the Shareholders, to revoke the REIT election. See "Summary of the
Declaration of Trust" and "Federal Income Tax Considerations."
Concentration of Ownership and Ownership Limitation. Upon completion
of this Offering, HRP will own approximately 16.3% and Advisors will own
approximately 1.0% of the outstanding Shares. Accordingly, HRP alone, and HRP
and Advisors collectively, will have significant influence over the Company.
Such influence may result in Company decisions which may not fully serve the
best interests of all Shareholders. The Declaration prohibits ownership of more
than 9.8% of the Shares by any Shareholder or affiliated group of Shareholders,
except HRP, Advisors and certain other entities (the "Ownership Limitation").
The Ownership Limitation may (i) have the effect of precluding acquisition of
control of the Company by a third party without the consent of the Board of
Trustees, even if a change in control were in the interests of Shareholders, and
(ii) limit the opportunity for Shareholders to receive a premium for their
Shares that might otherwise exist if an investor were attempting to assemble a
block of Shares in excess of 9.8% of the outstanding Shares or otherwise to
effect a change in control of the Company. A transfer of Shares to a person who,
as a result of the transfer, violates the Ownership Limitation may be void under
some circumstances. The Company's Declaration and Bylaws each also contain
provisions that may make it difficult to acquire control of the Company by means
of a tender offer, an open market purchase, a proxy fight or otherwise, if such
acquisition is not approved by the Company's Board of Trustees. See "Principal
Shareholders" and "Summary of the Declaration of Trust."
Increases in Interest Rates. The annual yield from distributions by
the Company on the Shares likely will influence the market price of the Shares.
Accordingly, increases in market interest rates, which may result in higher
yields on other financial instruments, could adversely affect the market price
of the Shares. In addition, increases in market interest rates could adversely
affect the Company's ability to finance additional hotel investments at positive
spreads between its cost of funds and rent yields.
Insurance. Each of the Leases specifies that comprehensive insurance
is to be maintained, at the expense of the Lessee (except to the extent
maintained by a Manager pursuant to a Management Agreement), including liability
and commercial property insurance of the types and amounts customarily obtained
by owners of comparable hotel properties. In the event of a substantial insured
casualty or loss, the proceeds of insurance maintained by Lessees (or Managers
in certain circumstances) may not be sufficient to pay the full current market
value or current replacement cost of the insured Hotel. In such event, unless
the Lessee elects to fund the amount of the deficiency in order to prevent
termination of the applicable Lease, the Company may be required to advance
funds to finance the deficiency. Also, there are certain types of losses, such
as earthquakes, hurricanes, floods and other acts of God, that may not be
insurable or insurable on economically viable terms. See "Business -- Damage,
Destruction or Condemnation."
Hotel Operating Risks. The Company's results of operations will be
affected by factors such as changes in general economic conditions, the level of
demand for guest rooms and related services at the Hotels, cyclical overbuilding
in the hotel industry, the ability of the Lessees to maintain and increase gross
revenues at the Hotels and other factors relating to the operation of the
Hotels. Other operating factors include: (i) the highly competitive nature
10
<PAGE>
of the hotel industry; (ii) changes in regional and local population and
disposable income composition; (iii) the recurring need for renovations,
refurbishment and improvements of the Hotels; (iv) restrictive changes in zoning
and similar land use laws, or in health, safety and environmental laws; (v)
changes in the characteristics of the locales in which the Hotels are located by
reason of relocation of nearby attractions, academic institutions or businesses;
(vi) the cost and availability of property and liability insurance; (vii)
seasonality; (viii) changes or cancellations in local tourist, athletic or
cultural events; (ix) changes in travel patterns which may be affected by
increases in transportation costs or gasoline prices, changes in airline
schedules and fares, strikes, weather patterns or relocation or construction of
highways; and (x) inflationary pressures which could increase operating expenses
of the Hotels above expected levels. Continuing expenditures must be made for
modernizing, refurbishing and maintaining the Hotels. If necessary expenditures
exceed the amounts available in the applicable FF&E Reserves, the applicable
Lessees or Managers fail to otherwise make such expenditures or the Company
fails to make such expenditures (with consequential increases in base rent), the
value of, and operating revenues from, the applicable Hotels may diminish. In
addition, the Hotels compete with existing hotel facilities in their markets as
well as future hotels that may be developed in those markets. Subject to
certain limitations in the Leases and Management Agreements, the Lessees or the
Managers could operate hotels in direct competition with the Company's Hotels.
See "Business -- Competition."
Certain Risks of Acquisition Strategy. The Company competes for hotel
acquisition and financing opportunities with entities which may have
substantially greater financial resources than the Company, including, without
limitation, other publicly owned REITs, banks, insurance companies, pension
plans and public and private partnerships. These entities may be able to accept
more risk than the Company can prudently manage, including risks with respect to
the creditworthiness of a hotel operator. Such competition may reduce the
number of suitable hotel acquisition or financing opportunities offered to the
Company and increase the bargaining power of property owners seeking to sell or
finance their properties. See "Business -- Competition." In addition, the REIT
requirement that the Company distribute 95% of its net taxable income will limit
its ability to rely upon rents to finance acquisitions. As a result, if debt or
equity financing were not available on acceptable terms, further acquisitions
may be curtailed and the Company's ability to increase distributions to
Shareholders may be adversely affected. In addition, all future hotel
investments entail the general risk that investments may not perform in
accordance with expectations.
Americans with Disabilities Act. The public accommodations provisions
of the Americans with Disabilities Act of 1990, as amended ("ADA"), impose
obligations on hotel owners to make reasonable accommodations to patrons who
have physical, mental or other disabilities, including removal of architectural
and communication barriers in many circumstances. The Lessees will generally be
obligated to remedy any ADA compliance matters at their respective Hotels, but
if they fail to do so, the Company may become obligated to incur material
expenses for ADA compliance. See "Business -- Regulatory Matters."
Environmental Matters. Under various environmental laws, the Company,
as an owner of hotel property, may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, in or emanating from
such property or other liabilities arising under environmental laws. Based on
Phase I environmental reports (which may not reveal all potential environmental
liabilities), the Company is aware of certain environmental issues affecting the
Hotels; however, the Company does not believe that these issues will have a
material adverse effect on the Company's business or results of operations. In
addition, the Company cannot predict whether modifications of existing laws or
regulations or the adoption of new laws or regulations or changes in the known
conditions of the Hotels may have a material adverse effect on the Company's
business or results of operations in the future. See "Business -- Environmental
Matters."
General Real Estate Investment Risks. The Company's investments will
be subject to other risks generally incident to the ownership of real property.
The Hotels may be adversely affected by various factors, including: adverse
changes in national economic conditions, local market conditions, interest
rates, real estate tax rates and other operating expenses, zoning and land use
laws, other governmental rules and policies, and the availability, cost and
terms of borrowings; competition; the ongoing need for capital improvements;
civil unrest, acts of war, acts of God, including earthquakes, hurricanes and
other natural disasters (which may result in uninsured losses); and other
factors which are beyond the control of the Company. See "Business -- Damage,
Destruction or Condemnation." In addition, real estate investments are
relatively illiquid, and the ability of the Company to vary its portfolio in
response to changes in economic or other conditions will be limited.
11
<PAGE>
THE COMPANY
The Company was formed in February 1995 as a subsidiary of HRP, which
is in the primary business of owning and leasing retirement living centers and
nursing homes. In March 1995, the Company acquired 21 Courtyard by
Marriott/(R)/ Hotels for approximately $179.4 million. In August 1995, the
Company completed an initial public offering of 8,325,000 Shares at an initial
public offering price of $25.00 per Share, raising gross proceeds of $208.1
million which were principally used to repay indebtedness due to HRP and to
acquire an additional 16 Courtyard by Marriott/(R)/ Hotels for approximately
$149.6 million. In February 1996, the Company entered into agreements to
acquire 11 Wyndham Garden/(R)/ Hotels for approximately $135.3 million, 18
Residence Inn by Marriott/(R)/ Hotels for approximately $172.2 million and an
additional 16 Courtyard by Marriott/(R)/ Hotels for approximately $176.4
million. The Company and HRP are managed by Advisors. In connection with the
initial public offering, HRP invested $100 million in the Company in exchange
for 4,000,000 Shares at a price of $25.00 per Share, and Advisors invested $6.25
million in the Company in exchange for 250,000 Shares at a price of $25.00 per
Share.
The Company's strategy for increasing Cash Available for Distribution
per Share is to provide capital to unaffiliated hotel operators who wish to
divest their properties while remaining in the hotel business as tenants. Most
other public hotel REITs seek to control the operations of hotels in which they
invest by leasing those properties to affiliated tenants. The Company believes
the Leases which it has negotiated provide strong rent coverages and credit
characteristics. To achieve its objectives, the Company seeks to operate as
follows: maintain a strong capital base of Shareholders' equity; invest in high
quality properties operated by unaffiliated hotel operating companies; use
moderate debt leverage to fund additional investments which increase Cash
Available for Distribution per Share because of positive spreads between the
Company's cost of investment capital and rent yields; design leases which
require minimum rents and provide an opportunity to participate in a percentage
of increases in gross revenues at the Company's hotels; when market conditions
permit, refinance debt with additional equity or long term debt; and pursue
diversification so that the Company's Cash Available for Distribution is
received from diverse properties and operators.
As a REIT, the Company may not operate hotels. The Company has
entered into the Leases and the Management Agreements for operation of its
Hotels. The Company's Leases require the Lessees to pay all operating expenses,
including taxes and insurance and to pay to the Company minimum rents plus
percentage rents based upon increases in gross revenues at the Hotels. The base
and percentage rent levels vary depending upon market conditions, the quality of
the Hotels being leased and the credit quality of the Lessees. The Company's
Leases require the Lessees to post Security Deposits in amounts equal to one
year of base rent and to set aside 5% of gross sales as a FF&E Reserve to fund
renovations and refurbishments to the Hotels. The Company believes that the
FF&E Reserves exceed industry averages for similar properties and will be
adequate to maintain the competitive appearances of the Hotels. The Company's
Leases of multiple Hotels with a single Lessee are also subject to crossdefault
provisions, and Lease renewals of Hotels leased to one Lessee are permitted only
on an all or none basis.
The Company is organized as a Maryland real estate investment trust.
The Company's principal place of business is 400 Centre Street, Newton,
Massachusetts 02158 and its telephone number is (617) 964-8389.
12
<PAGE>
DISTRIBUTION POLICY
Since its initial public offering in August 1995, the Company has paid
regular quarterly dividends at the rate of $0.55 per Share per quarter, or $2.20
per Share per year. On March ___, 1996, the Company's regular quarterly dividend
was raised to $0.__ per Share per quarter or $2.__ per Share per year. The next
quarterly dividend of $0.__ per Share for the calendar quarter ended March 31,
1996, will be paid on May __, 1996 to Shareholders of record on April __, 1996.
Purchasers of Shares in this Offering who continue to hold their Shares on April
__, 1996 will receive this next quarterly dividend.
The Company established its current dividend rate based upon its pro
forma estimate of Cash Available for Distribution per Share for the year ended
December 31, 1995, assuming that the Company's initial public offering, this
Offering and the acquisition and leasing of the Initial Hotels and the
Additional Hotels had all occurred on January 1, 1995, as set forth in the
following table:
<TABLE>
<CAPTION>
Dollars in thousands
except per Share data
<S> <C>
Base rent -- Initial Hotels............................ $32,900
Base rent -- Additional Hotels......................... 48,460
Percentage rent -- Initial Hotels...................... 408
Percentage rent -- Additional Hotels (1)............... --
FF&E Reserve (2)....................................... 12,295
Interest income(3)..................................... 85
-------
Total revenue......................................... 94,148
Operating expenses(4).................................. 38,800
-------
Net income............................................ 55,348
Deduct FF&E Reserve.................................... 12,295
Add back depreciation and amortization................. 24,043
-------
Cash Available for Distribution(5)..................... $67,096
=======
Shares outstanding as of December 31, 1995 (in
thousands)............................................ 12,601
Shares offered in this Offering (in thousands)......... 12,000
-------
Total Shares outstanding (in thousands)............... 24,601
=======
Cash Available for Distribution per Share.............. $ 2.73
Current dividend rate per Share........................ $ 2.20
Cash Available for Distribution payout ratio........... 80.6%
</TABLE>
____________________
(1) Percentage rent for the 11 Wyndham Garden/(R)/ Hotels and the 18 Residence
Inn by Marriott/(R)/ Hotels commences in 1997. Percentage rent for the 16
Courtyard by Marriott/(R)/ Hotels included in the Additional Hotels
commences in 1996.
(2) FF&E Reserves for all of the Company's Hotels are calculated as 5% of Total
Hotel Sales. The FF&E Reserves for the 18 Residence Inn by Marriott/(R)/
Hotels and the 53 Courtyard by Marriott/(R)/ Hotels are paid to the Company
and placed in escrow for renovation and refurbishment. Under GAAP these
payments are recorded as rental income. The FF&E Reserve for the
renovation and refurbishment of the 11 Wyndham Garden/(R)/ Hotels remains
the property of Wyndham I during the Lease term. At the end of the Lease
term, any remaining funds in such FF&E Reserve would be paid to the
Company. Under GAAP the FF&E Reserve for the Leases relating to the 11
Wyndham Garden/(R)/ Hotels is not included in rental income or recorded as
expense to the Company.
(3) Represents interest income on $2,000 pro forma cash balances at an average
interest rate of 4.25% per annum. Actual interest income for the period
February 7, 1995 (inception) to December 31, 1995 was $74.
(4) Operating expenses include depreciation of $23,809, interest expense of
$9,952 (including amortization of deferred financing costs of $234) and
general, administrative and advisory expenses of $5,039. See the Company's
Pro Forma Financial Statements and Notes thereto included elsewhere in this
Prospectus.
(5) Some REITs use FFO as a measure of financial performance. Because of the
impact of FF&E Reserves under the Company's Leases on the Company's
calculation of FFO which results from the fact that the FF&E Reserves from
the Residence Inn by Marriott/(R)/ and Courtyard by Marriott/(R)/ Leases
are included in FFO but the FF&E Reserve from the Wyndham Garden/(R)/
Leases is not included in FFO, the Company does not believe FFO represents
a meaningful measure of its performance or offers a meaningful basis for
comparison of its performance with that of other public hotel REITs.
Instead, the Company believes that the best measure of its financial
performance is Cash Available for Distribution, which it defines as net
income from operations, plus depreciation and amortization and less Company
income reserved for renovations and refurbishment (i.e., the FF&E Reserves)
and adjusted for non-recurring items, if any. Moreover, the Company
believes that Cash Available for Distribution provides a meaningful basis
for comparison of the Company's performance with the performance of other
public hotel REITs provided that appropriate amounts are reserved for
renovations and refurbishment in all cases.
13
<PAGE>
PRICE RANGES OF SHARES
The Shares began trading on the NYSE on August 15, 1995, under the symbol
"HPT". On March 1, 1996, the last reported sale price per Share on the NYSE was
$27 1/2, and the Company had 284 Shareholders of record and believes that it had
approximately 12,000 beneficial owners of Shares. The following table sets forth
the quarterly high and low closing sales price per Share reported on the NYSE.
<TABLE>
<CAPTION>
Price Range
---------------------
High Low
<S> <C> <C>
1995
Third quarter (since August 15, 1995) $26 7/8 $24 5/8
Fourth quarter 26 3/4 24 3/4
1996
First quarter (through March 1, 1996) $27 3/4 $25 5/8
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are expected to be
approximately $302.2 million (or $348.2 million if the Underwriters'
overallotment option is exercised in full). The Company currently expects to
fund the pending acquisitions of the Additional Hotels with borrowings under its
credit facilities and to use the proceeds of this Offering and overallotment
proceeds, if any, to repay a portion of that debt. All such borrowings will be
at a floating interest rate based on LIBOR, which, as of February 27, 1996,
would have been approximately 6.81% per annum. In the event that some of the
Additional Hotels are not acquired before the consummation of this Offering, a
portion of the proceeds of this Offering may be held by the Company and later
used to acquire the Additional Hotels or other hotels. Any proceeds held by the
Company pending the use described above will be invested in investment grade
short term securities. For information about the Company's credit facilities
available to fund the acquisition of the Additional Hotels, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- The Company."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1995, as adjusted to give effect to the purchase of the Additional
Hotels and this Offering and the application of the proceeds thereof assuming an
offering price of $27 per Share and no exercise of the Underwriters'
overallotment option.
<TABLE>
<CAPTION>
As of December 31, 1995
-----------------------
(in thousands)
Actual As Adjusted
<S> <C> <C>
Borrowings(1) $ -- $ 144,712
Shareholders' equity:
Common Shares of Beneficial Interest,
par value $0.01 per Share; 100,000,000
authorized, 12,600,900 issued and
24,600,900 as adjusted 126 246
Additional paid in capital 297,962 600,067
Cumulative net income 11,349 11,349
Dividends (declared or paid) (11,486) (11,486)
---------- ----------
Total Shareholders' equity 297,951 600,176
---------- ----------
Total capitalization $ 297,951 $ 744,888
========== ==========
</TABLE>
___________________
(1) Borrowings exclude obligations to refund the Security Deposits upon
expiration of the Leases. See Note 3 of Notes to the Financial Statements
of the Company. If the Underwriters' overallotment option is exercised in
full, the Company expects to use the proceeds to reduce its outstanding
borrowings to approximately $98.7 million, and in such event total
Shareholders' equity would increase to $646.2 million.
14
<PAGE>
SELECTED AND PRO FORMA FINANCIAL AND OPERATING DATA
Hospitality Properties Trust
The following table sets forth selected financial and operating data on an
historical and a pro forma basis for the Company for the year ended December 31,
1995. The pro forma data for the 37 Hotels are unaudited and presented as if the
Company's formation transactions, primarily the acquisition and leasing of the
Initial Hotels and the Company's initial public offering of Shares, and certain
other transactions described in the notes to the pro forma financial statements
included elsewhere in this Prospectus have been consummated for the period
presented. The pro forma data for the 82 Hotels are unaudited and are presented
as if: (i) the Company's formation transactions, primarily the acquisition and
leasing of the Initial Hotels and the Company's initial public offering of
Shares; (ii) the acquisition and leasing of the Additional Hotels; (iii) this
Offering and the application of the proceeds thereof; and (iv) certain other
transactions described in the notes to the pro forma financial statements
included elsewhere in this Prospectus have been consummated as of the date or
for the period presented. The pro forma data are not necessarily indicative of
what the actual financial position or results of operations would have been, nor
do they purport to represent the financial position or results of operations for
future periods. The following selected and pro forma financial and operating
data should be read in conjunction with the financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Historical Pro Forma
---------------- ----------------------------
February 7, 1995 Year Ended December 31, 1995
(Inception) to
December 31,
1995(1) (37 Hotels) (82 Hotels)
<S> <C> <C> <C>
(In thousands, except per Share data)
Operating Data:
Revenues:
Base rent............... $ 19,206 $ 32,900 $ 81,360
Percentage rent(2)...... 325 408 408
FF&E Reserve income..... 4,037 6,424 12,295
Interest income......... 74 85 85
--------- ---------- ----------
Total revenueS.......... 23,642 39,817 94,148
Expenses:
Interest expense........ 5,039 -- 9,952
Depreciation and
amortization........... 5,844 9,229 23,809
General and
administrative......... 1,410 2,616 5,039
--------- ---------- ----------
Total expenses:......... 12,293 11,845 38,800
--------- ---------- ----------
Net income(2)........... $ 11,349 $ 27,972 $ 55,348
========= ========== ==========
Net income per Share(2). $ 2.51 $ 2.22 $ 2.25
Weighted average Shares
outstanding............ 4,515 12,601 24,601
Balance Sheet Data (as of
December 31, 1995):
Real estate properties,
net.................... $326,752 $ 815,202
Total assets............ 338,947 834,344
Total debt.............. -- 144,712
Shareholders' equity.... 297,951 600,176
Other Data:
Cash Available for
Distribution(3)........ $ 13,156 $ 30,777 $ 67,096
Cash provided by
operating
activities(4)...... 14,140 31,676 67,761
Cash used in
investing
activities(4)...... 303,652 303,652 749,142
Cash provided by
financing
activities(4)...... 291,647 268,481 687,142
Cash Available for
Distribution per Share. $ 2.91 $ 2.44 $ 2.73
</TABLE>
15
<PAGE>
_______________
(1) From inception on February 7, 1995 until completion of its initial public
offering on August 22, 1995, the Company was a 100% owned subsidiary of
HRP. It was initially capitalized with $1 million of equity and $163.3
million of debt. The debt was provided by HRP at rates which were lower
than the market rates which the Company would have paid on a stand alone
basis. Accordingly, the Company does not believe that its results of
operations while it was a wholly owned subsidiary are comparable to
subsequent periods.
(2) Percentage rents for the 11 Wyndham Garden/(R)/ Hotels and the 18 Residence
Inn by Marriott/(R)/ Hotels commence in 1997. Percentage rent for the 16
Courtyard by Marriott/(R)/ Hotels included in the Additional Hotels
commences in 1996.
(3) Some REITs use FFO as a measure of financial performance. Because of the
impact of FF&E Reserves on the Company's calculation of FFO which results
from the fact that the FF&E Reserves from the Residence Inn by
Marriott/(R)/ and Courtyard by Marriott/(R)/ Leases are included in FFO
(and escrowed by the Company) but the FF&E Reserves from the Wyndham
Garden/(R)/ Leases are not included in FFO (since they are escrowed by the
Lessee), the Company does not believe FFO represents a meaningful measure
of its performance or offers a meaningful basis for comparison of its
performance with that of other public hotel REITs. Instead, the Company
believes that the best measure of its financial performance is Cash
Available for Distribution, which it defines as net income from operations,
plus depreciation and amortization and less Company income reserved for
renovations and refurbishment (i.e., the FF&E Reserves) and adjusted for
non-recurring items, if any. Moreover, the Company believes that Cash
Available for Distribution provides a meaningful basis for comparison of
the Company's performance with the performance of other public hotel REITs
provided that appropriate amounts are reserved for renovations and
refurbishment in all cases.
(4) Amounts are computed on a pro forma basis in accordance with GAAP, except
that cash provided by (used in) operating activities excludes the effect on
cash resulting from changes in current assets and current liabilities. The
Company does not believe that these excluded items are material to net cash
provided by operating activities.
16
<PAGE>
WYNDHAM I
The following table sets forth selected financial and operating data
of the partnership owning the 11 Wyndham Garden/(R)/ Hotels for the fiscal years
1993, 1994 and 1995 which have been derived from audited financial statements
included elsewhere in this Prospectus. The historical financial and operating
data for fiscal years 1991 and 1992 have been derived from the unaudited
financial statements of the partnership owning the 11 Wyndham Garden/(R)/
Hotels. In the opinion of the Company, the financial and operating data derived
from the unaudited financial statements include all adjustments necessary to
present fairly the information set forth therein and are set forth on a basis
consistent with the audited periods. The following table also sets forth
selected financial and operating data on a pro forma basis for Wyndham I for the
fiscal year ended December 31, 1995. The pro forma data are unaudited and are
presented as if the acquisition and leasing of these 11 Wyndham Garden/(R)/
Hotels by the Company and certain other transactions described in the notes to
pro forma financial statements included elsewhere in this Prospectus have been
consummated as of January 1, 1995. The pro forma data are not necessarily
indicative of what the actual results of operations would have been for the
period indicated, nor do they purport to represent the results of operations
for future periods. The following selected financial and operating data should
be read in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Garden Hotel Associates LP/Wyndham I
---------------------------------------------------
Year Ended December 31,
---------------------------------------------------
Historical Pro Forma
----------------------------------------
1991 1992 1993 1994 1995 1995
- -------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Number of hotels,
end of period................. 11 11 11 11 11 11
Operating Data:
Revenues........................ $35,854 $41,557 $45,191 $50,726 $56,642 $56,642
Operating expenses.............. 23,149 26,421 28,562 30,845 33,254 33,254
Depreciation and amortization... 4,963 4,825 4,809 4,955 5,059 --
Interest expense................ 7,511 5,406 4,614 5,618 7,145 --
Base rent....................... -- -- -- -- -- 13,600
Management fee(1)............... 1,793 2,078 2,415 2,888 3,317 3,134
Other net....................... 2,592 2,462 2,193 2,296 2,320 2,655
------- ------- ------- ------- ------- -------
Net income (loss) before income
tax expense................... $(4,154) $ 365 $ 2,598 $ 4,124 $ 5,547 $ 3,999
Pro forma income tax expense.. -- -- -- -- -- 1,580
------- ------- ------- ------- ------- -------
Pro forma net income (loss)... $(4,154) $ 365 $ 2,598 $ 4,124 $ 5,547 $ 2,419
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Management fees and related company charges payable by Wyndham I to Wyndham
or its affiliates are subordinated to the payment of rents to the Company.
17
<PAGE>
HOST I
The following table sets forth selected combined financial and operating
data of the 18 Residence Inn by Marriott/(R)/ Hotels for the fiscal years 1993,
1994 and 1995 which have been derived from audited financial statements included
elsewhere in this Prospectus. The historical financial and operating data for
fiscal years 1991 and 1992 have been derived from the unaudited financial
statements of these 18 Residence Inn by Marriott/(R)/ Hotels. In the opinion of
the Company, the financial and operating data derived from the unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein and are set forth on a basis consistent with the
audited periods. The following table also sets forth selected combined
financial and operating data on a pro forma basis for Host I for the fiscal year
ended December 29, 1995. The pro forma data are unaudited and are presented as
if the acquisition and leasing of these 18 Residence Inn by Marriott/(R)/ Hotels
by the Company and certain other transactions described in the notes to pro
forma financial statements included elsewhere in this Prospectus have been
consummated as of January 1, 1995. The pro forma data are not necessarily
indicative of what the actual results of operations would have been for the
period indicated, nor do they purport to represent the results of operations
for future periods. The following selected financial and operating data should
be read in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Combined Residence Inn Hotels/Host I
Historical Pro Forma
Fiscal Year Fiscal Year
1991 1992 1993 1994 1995 December 29, 1995
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Other Data:
Number of hotels, end of
period......................... 17 18 18 18 18 18
Total Hotel Sales(1)............ $31,752 $47,119 $ 53,582 $57,357 $61,934 $61,934
Operating Data:
Revenues........................ $15,593 $23,900 $ 27,144 $29,816 $33,166 $33,166
Expenses:
Depreciation and
amortization.................. 6,828 9,908 6,735 6,821 6,814 --
Base rent...................... -- -- -- -- -- 17,220
Percentage rent................ -- -- -- -- -- --
FF&E contribution expense...... -- -- -- -- -- 3,097
Base management fee............ -- -- -- -- -- 1,228
Incentive management fee(2).... -- -- -- 1,358 2,817 2,817
Other hotel expenses........... 4,412 6,451 5,962 6,070 6,110 6,110
Other, net(3).................. -- -- -- -- 3,899 381
------- ------- -------- ------- ------- -------
Revenues over expenses
excluding income taxes before
cumulative effect of change
in accounting principle........ 4,353 7,541 14,447 15,567 13,526 2,313
Cumulative effect of change in
accounting for assets
held for sale................. -- -- (16,500) -- -- --
------- ------- -------- ------- ------- -------
Revenues over (under) expenses
excluding income taxes........ $ 4,353 $ 7,541 $ (2,053) $15,567 $13,526 $ 2,313
======= ======= ======== ======= ======= =======
Pro forma income tax
expense (benefit).............. $ 1,741 $ 3,016 $ (821) $ 6,382 $ 5,546 $ 948
------- ------- -------- ------- ------- -------
Pro forma net income (loss)
after taxes.................... $ 2,612 $ 4,525 $ (1,232) $ 9,185 $ 7,980 $ 1,365
======= ======= ======== ======= ======= =======
</TABLE>
- ---------------
(1) Total Hotel Sales are presented above for the purpose of providing
supplemental information regarding the gross sales volume of the Hotels
described above which is used for purposes of calculating percentage rent
and the FF&E Reserve under the related Leases and Management Agreements,
respectively. As owner and lessor of such Hotels, the Company has no
interest in sales and operations of such Hotels, other than its right to
receive base and percentage rents.
18
<PAGE>
(2) The obligations of Host I to pay base and incentive management fees to
Marriott I and related company charges to Host or affiliates of Host are
subordinated to the payment of rents to the Company. Base management fees
are equal to 2% of Total Hotel Sales, and incentive management fees are
equal to 50% of Available Cash Flow (after payment of rent), as defined in
the applicable Management Agreements. See Notes to Combined Financial
Statements of Residence Inns.
(3) Other, net for historical fiscal year 1995 includes a $3,899 charge related
to the writedown of certain properties to their net realizable value.
19
<PAGE>
HOST II
The following table sets forth selected combined financial and operating
data of the 53 Courtyard by Marriott/(R)/ Hotels for the fiscal years 1993, 1994
and 1995 which have been derived from audited financial statements included
elsewhere in this Prospectus. The historical financial statement and
operating data for the fiscal years 1991 and 1992 have been derived from
the unaudited financial statements of these 53 Courtyard by Marriott/(R)/
Hotels. In the opinion of management, the financial and operating data
derived from the unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein and are set
forth on a basis consistent with the audited periods. The following table
also sets forth selected combined financial and operating data on a pro
forma basis for Host II for the fiscal year ended December 29, 1995. The
pro forma data are unaudited and are presented as if the acquisition of and
leasing of these 53 Courtyard by Marriott/(R)/ Hotels by the Company and
certain other transactions described in the notes to the pro forma
financial statements included elsewhere in this Prospectus have been
consummated as of January 1, 1995. The pro forma data are not necessarily
indicative of what the actual results of operations would have been for the
period indicated, nor do they purport to represent the results of
operations for future periods. The following selected financial and
operating data should be read in conjunction with the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
Combined Courtyard Hotels/Host II
--------------------------------------------------------------
Historical Pro Forma
----------------------------------------------- -----------
Fiscal Years Fiscal Year Ended
-----------------------------------------------
1991 1992 1993 1994 1995 December 29, 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Number of hotels, end of period..... 51 53 53 53 53 53
Total Hotel Sales(1)................ $112,558 $151,925 $164,612 $173,811 $183,964 $183,964
Operating Data:
Revenues............................ $ 50,319 $ 65,060 $ 72,936 $ 83,161 $ 91,022 $ 91,022
Expenses:
Depreciation and amortization...... 20,254 22,319 18,393 20,100 18,128 --
Base rent.......................... -- -- -- -- -- 50,540
Percentage rent.................... -- -- -- -- -- 408
FF&E contribution expense.......... -- -- -- -- -- 9,198
Base management fee(2)............. -- -- -- -- -- 3,679
Incentive management fee (2)....... -- -- -- 2,825 6,222 6,222
Other hotel expenses............... 9,631 13,875 14,928 14,540 13,998 13,998
Other, net(3)...................... -- -- -- -- 8,819 550
-------- -------- -------- -------- -------- --------
Revenues over expenses excluding income
taxes before cumulative effect of
change in accounting princple..... 20,434 28,866 39,615 45,696 43,855 6,427
Cumulative effect of change in
accounting for assets held for
sale.............................. -- -- (17,800) -- -- --
-------- -------- ------- -------- -------- --------
Revenues over expenses
excluding income taxes.............. $ 20,434 $ 28,866 $ 21,815 $ 45,696 $ 43,855 $ 6,427
======== ======== ======== ======== ======== ========
Pro forma income tax expense........ $ 8,174 $ 11,546 $ 8,726 $ 18,736 $ 17,981 $ 2,635
-------- -------- -------- -------- -------- --------
Pro forma net income after taxes.... $ 12,260 $ 17,320 $ 13,089 $ 26,960 $ 25,874 $ 3,792
======== ======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) Total Hotel Sales are presented above for the purpose of providing
supplemental information regarding the gross sales volume of the
Hotels described above which is used for purposes of calculating
percentage rent and the FF&E Reserve under the related Leases and
Management Agreements, respectively. As owner and lessor of such
Hotels, the Company has no interest in sales and operations of such
Hotels, other than its right to receive the base and percentage rents.
(2) The obligations of Host II to pay base and incentive management fees to
Marriott II and related company charges to Host or affiliates of Host are
subordinated to the payment of rents to the Company.
20
<PAGE>
Base management fees are equal to 2% of Total Hotel Sales, and incentive
management fees are equal to 50% of Available Cash Flow (after payment of
rent), as defined in the applicable Management Agreements. See Notes to
Consolidated Financial Statements of Courtyard Hotels.
(3) Other, net for historical fiscal year 1995 includes a $8,819 charge
related to the writedown of certain prroperties to their net realizable
value.
RENT COVERAGE ANALYSIS
The following table shows the calculation of base rent coverage on a
pro forma basis for the 1995 fiscal year of the Lessees of the Company's
Hotels. See The Pro Forma Financial Statements of the Lessees and related notes
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
18 Residence
11 Wyndham Inn by 53 Courtyard
Garden/(R)/ Marriott/(R)/ by Marriott/(R)/
Hotels Hotels Hotels All 82 Hotels
----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Tenant..................... Wyndham I Host I Host II 3 tenants
Gross operating
profit/Revenues........... $23,388 $33,166 $91,022 $147,576
Less unsubordinated
expenses:
Hotel expenses............ 2,655 6,110 13,998 22,763
FF&E Reserve(1)........... 2,832 3,097 9,198 15,127
------- ------- ------- --------
Gross operating
profit/Net Revenues
available for rent....... 17,901 23,959 67,826 109,686
Base rent.................. 13,600 17,220 50,540 81,360
------- ------- ------- --------
Rent coverage.............. $ 4,301 $ 6,739 $17,286 $ 28,326
======= ======= ======= ========
Coverage ratio............. 1.32x 1.39x 1.34x 1.35x
</TABLE>
- --------------------
(1) FF&E Reserves for all of the Company's Hotels are calculated at 5% of Total
Hotel Sales. The FF&E Reserves for the 18 Residence Inn by Marriott/(R)/
Hotels and the 53 Courtyard by Marriott/(R)/ Hotels are paid to the Company
and placed in escrow for renovation and refurbishment. Under GAAP these
payments are recorded as expenses by these Lessees and income by the
Company. The FF&E Reserves for the renovation and refurbishment of the 11
Wyndham Garden/(R)/ Hotels remains the property of Wyndham I during the
Lease terms. At the end of the Lease terms for the 11 Wyndham Garden/(R)/
Hotels, any remaining funds in such FF&E Reserve would be paid to the
Company. Under GAAP the FF&E Reserves for the Leases relating to the 11
Wyndham Garden/(R)/ Hotels are not recorded as expenses by the Lessee or
income by the Company.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized on February 7, 1995 and commenced operations
on March 24, 1995 with the acquisition of the first 21 of the 37 Initial
Hotels. The Company completed its initial public offering of Shares and
acquired the 16 remaining Initial Hotels on August 22, 1995. Since it has been
recently formed and has limited historical financial data, the Company
believes it is meaningful to an understanding of its present and ongoing
operations to discuss the Company's pro forma results of operations as well as
its historical results of operations and the historical results of operation
of its Hotels.
The following discussion should be read in conjunction with "Selected
and Pro Forma Financial and Operating Data," and the historical and pro forma
financial statements and the notes thereto included elsewhere in this
Prospectus. Pro forma results and percentage relationships set forth in the
"Selected and Pro Forma Financial and Operating Data" and in such financial
statements should not be considered indicative of the future operations of the
Company or the Hotels.
THE COMPANY: HISTORICAL AND PRO FORMA RESULTS OF OPERATIONS
February 7, 1995 (inception) Through December 31, 1995
Total revenues for the period from February 7, 1995 (inception)
through December 31, 1995 were $23.6 million, which included base and
percentage rent of $19.5 million and FF&E Reserve income of $4.0 million. Total
expenses for the period were $12.3 million, including interest expense and
depreciation and amortization of $5.0 million and $5.8 million, respectively.
Net income for the period was $11.3 million ($2.51 per Share) and Cash Available
for Distribution for the period was $13.2 million ($2.91 per Share), based in
both cases on average outstanding Shares for the period of 4,515,000.
From inception until completion of its initial public offering on
August 22, 1995, the Company was a 100% owned subsidiary of HRP and was
initially capitalized with $1 million of equity and $163.3 million of debt. The
debt was provided by HRP at rates which were lower than the market rates which
the Company would have paid on a stand alone basis. Accordingly, the Company
does not believe that its results of operations while it was a wholly owned
subsidiary of HRP are comparable to subsequent periods.
Pro Forma Year Ended December 31, 1995
The pro forma results of operations for the 37 Initial Hotels assumes
that the Company's formation transactions, the initial public offering of
Shares and the acquisition and leasing of the 37 Initial Hotels and certain
related transactions all occurred on January 1, 1995, and demonstrates the
Company's rate of operations since becoming a separate public company. On
this pro forma basis, total revenues would have been $39.9 million (principally
base and percentage rents of $33.3 million and FF&E Reserve income of $6.4
million). Total expenses would have been $11.8 million (including
depreciation and amortization of $9.2 million and general and administrative
expenses of $2.6 million). Net income would have been $28.0 million or $2.22
per Share, and Cash Available for Distribution would have been $30.8 million
or $2.44 per Share, based in both cases upon 12,600,900 Shares outstanding.
The pro forma results of operations for the 82 Hotels assumes that the
Company's formation transactions, the initial public offering of Shares, the
acquisition and leasing of both the 37 Initial Hotels and the 45 Additional
Hotels, this Offering and the use of proceeds therefrom, and certain related
transactions all occurred on January 1, 1995, and demonstrates the Company's
expected rate of operations immediately following the completion of this
Offering. On this pro forma basis, total revenues would have been $94.1
million (including base and percentage rents of $81.8 million and FF&E Reserve
income of $12.3 million). Total expenses would have been $38.8 million
(including depreciation and amortization of $23.8 million and general and
administrative expenses of $5.0 million). Net income would have been $55.3
million or $2.25 per Share, and Cash Available for Distribution would have been
$67.1 million or $2.73 per Share, based in both cases upon 24,600,900 Shares
outstanding.
22
<PAGE>
The Hotels
1995 Compared to 1994
11 Wyndham Garden/(R)/ Hotels. Total revenues for the year ended December
31, 1995 were $56.6 million, a $5.9 million or 11.7% increase over the year
ended December 31, 1994. The increase was attributable to a $7.42 increase in
ADR to $77.16 and an increase in occupancy of 2.4 percentage points to 77.5%, as
compared to 1994. Gross operating profit for 1995 was $23.4 million, a $3.5
million or 17.6% increase over 1994. The increases were principally attributable
to improvements in ADR and occupancy reflecting Wyndham's continued focus to
yield a higher percentage of corporate rate business, continued cost control
and improved industry fundamentals generally. Net income for 1995 was $5.5
million, a $1.4 million or 34.5% increase over 1994. The increase was largely
the result of ADR and occupancy gains.
18 Residence Inn by Marriott/(R)/ Hotels. Total Hotel Sales for the fiscal
year ended December 29, 1995 were $61.9 million, a $4.6 million or 8.0% increase
over the fiscal year ended December 30, 1994. The increase was principally
attributable to a $5.49 increase in ADR to $85.07 and an increase in occupancy
of 1.0 percentage point to 86.6%, as compared to 1994. Revenues (Total Hotel
Sales less hotel level expenses) for 1995 were $33.2 million, a $3.4 million or
11.2% increase over 1994. The increase was attributable to improvements in ADR
and occupancy, as well as continued focus on cost control evidenced by an
increase in revenues as a percentage of Total Hotel Sales to 53.6% from 52.0% in
1994. Revenues over expenses excluding income taxes were $13.5 million in 1995,
a $2.0 million decrease compared to 1994. The decrease resulted from a $3.9
million pretax writedown of certain properties to their net realizable value.
53 Courtyard by Marriott/(R)/ Hotels. Total Hotel Sales for the fiscal year
ended December 29, 1995 were $184.0 million, a $10.2 million or 5.8% increase
over the fiscal year ended December 30, 1994. The increase was attributable to a
$5.11 increase in ADR to $72.61 and stable occupancy of 80.3% in 1995, as
compared to 1994. Revenues (Total Hotel Sales less hotel level expenses) for
1995 were $91.0 million, a $7.9 million or 9.5% increase over 1994. The increase
was principally attributable to improvement in ADR, programs to improve weekend
stays and cost containment programs including redefined staffing patterns and
improved use of central purchasing and supply efficiencies. Revenues over
expenses excluding income taxes were $43.9 million in 1995, a $1.8 million
decrease compared to 1994. The decrease resulted from an $8.8 million pretax
writedown of certain properties to their net realizable values.
1994 Compared to 1993
11 Wyndham Garden/(R)/ Hotels. Total revenues for the year ended December
31, 1994 were $50.7 million, a $5.5 million or 12.2% increase over the year
ended December 31, 1993. The increase was attributable to a $5.68 increase in
ADR to $69.74 and an increase in occupancy of 2.1 percentage points to 75.1%, as
compared to 1993. Gross operating profit for 1994 was $19.9 million, a $3.3
million or 19.6% increase over 1993. Net income for 1994 was $4.1 million, a
$1.5 million or 58.8% increase over 1993. The increases in gross operating
profit and net income were primarily attributable to the 8.8% increase in ADR
and occupancy improvements.
18 Residence Inn by Marriott/(R)/ Hotels. Total Hotel Sales for the fiscal
year ended December 30, 1994 were $57.4 million, a $3.8 million or 7.0% increase
over the fiscal year ended December 31, 1993. The increase was principally
attributable to a $4.81 increase in ADR to $79.58 and an increase in occupancy
of 1.1 percentage points to 85.6%, as compared to 1993. Revenues (Total Hotel
Sales, less hotel level expenses) for 1994 were $29.8 million, a $2.7 million or
9.8% increase over 1993. The improvement was attributable to increases in ADR
and occupancy, as well as improved operating efficiencies reflected in an
increase in revenues as a percentage of Total Hotel Sales to 52.0% from 50.7% in
1993. Revenues over expenses excluding income taxes before cumulative effect
of change in accounting principle, was $15.6 million in 1994, a $1.1 million
increase over 1993.
53 Courtyard by Marriott/(R)/ Hotels. Total Hotel Sales for the fiscal year
ended December 30, 1994 were $173.8 million, a $9.2 million or 5.6% increase
over the fiscal year ended December 31, 1993. The increase was attributable to a
$4.18 increase in ADR and an increase in occupancy of 0.6 percentage points to
80.3%, as compared to 1993. Revenues (Total Hotel Sales less hotel level
expenses) for 1994 were $83.2 million, a $10.2 million or 14.0% increase over
1993. The increase was principally attributable to the improvement in ADR.
Revenues over expenses excluding
23
<PAGE>
income taxes before cumulative effect of change in accounting principle, was
$45.7 million in 1994, a $6.1 million increase over 1993.
Following discussions with the Commission, in the second quarter of 1993,
Host changed its method of determining the net realizable value of its assets
held for sale. Host previously determined the net realizable value of such
assets on an aggregate basis in the case of Residence Inn by Marriott/(R)/
Hotels and Courtyard by Marriott/(R)/ Hotels. Beginning in the second quarter of
1993, under Host's new accounting policy, the net realizable value of all assets
held for sale is determined on a property by property basis. The cumulative
pretax effect of this change in accounting policy on periods prior to the second
quarter of 1993 was $16.5 million for the 18 Residence Inn by Marriott/(R)/
Hotels and $17.8 million for the 53 Courtyard by Marriott/(R)/ Hotels,
respectively. This change in accounting policy was accounted for as a cumulative
effect of change in accounting principle for assets held for sale.
Liquidity and Capital Resources
The Company
The Company's primary source of cash to fund its dividends and day to day
operations is the base and percentage rents it receives. Base rents are paid
monthly in advance and percentage rents are paid either monthly or quarterly in
arrears. This flow of funds from rents has historically been sufficient for the
Company to pay dividends and meet day to day operating expenses.
In order to fund acquisitions and to accommodate occasional cash needs
which may result from timing differences between the receipt of rents and the
need to pay dividends or operating expenses, the Company has entered into a line
of credit arrangement with DLJ Mortgage Capital, Inc. ("DLJMC") (the "Line of
Credit"). The Line of Credit is for up to $200 million, of which up to $20
million is available for general business purposes. Drawings under the Line of
Credit are secured by first mortgage liens on certain of the Hotels. Funds may
be drawn, repaid and redrawn until maturity, and no principal repayment is due
until maturity. The Line of Credit matures on December 31, 1998; however, upon
the request of the Company and subject to certain terms and conditions, DLJMC
has the right (but not the obligation) to convert amounts outstanding at
maturity, if any, into an amortizing mortgage loan due on December 31, 2008.
Interest on borrowings under the Line of Credit are payable until maturity at a
spread above one month LIBOR; and interest during the extended term, if any,
will be set at market rates at the time the loan is extended. Fifty-five million
dollars is currently drawn under the Line of Credit and has been principally
used to fund deposits for the Additional Hotels.
The Company has entered into agreements to acquire the Additional Hotels
for $484.0 million. The net funding required to accomplish these acquisitions
after taking into account the hold back Security Deposits and related
expenditures and expenses will be approximately $445 million. In order to
accommodate the Company's acquisition of the Additional Hotels, the Company and
DLJMC have entered into an agreement to expand the funding availability under
the Line of Credit by up to an additional $250 million (the "Expanded Credit
Facility"). The Expanded Credit Facility will have the same rate of interest as
the Line of Credit. Borrowings under the Expanded Credit Facility will be
unsecured, except that the Company is required to provide collateral for any
such borrowings outstanding after December 31, 1996. The Expanded Credit
Facility matures on March 31, 1997. In the event that amounts drawn under the
Expanded Credit Facility are not repaid at maturity, DLJMC has the right to
require that the Company enter into a securitized mortgage transaction by which
these obligations may be publicly sold. The Company intends to use the proceeds
of this Offering to repay amounts outstanding under the Expanded Credit
Facility.
Upon completion of this Offering and the acquisition of the Additional
Hotels, the Company expects to have $144.7 million outstanding under the Line of
Credit. After completion of this Offering, the Company intends to explore
alternatives to repay amounts then outstanding under the Line of Credit. Such
alternatives will include incurring long term debt. Although the Company has not
received any commitments for long term debt financing to repay the Line of
Credit, the Company believes that its improved financial position resulting from
the acquisition of the Additional Hotels and the consummation of this Offering
will enable it to complete such long term debt financing during 1996. The
Company believes it will in the future have access to various types of
financing, including debt or equity securities offerings, with which to finance
its continued operations and future acquisitions.
24
<PAGE>
The Lessees
Wyndham I. Wyndham I is a limited purpose entity which has been organized
to lease and operate the 11 Wyndham Garden/(R)/ Hotels owned by the Company.
Upon completion of this Offering, Wyndham I is expected to have a net worth
(excluding deferred gains resulting from the sale and lease of these Hotels) of
approximately $14.8 million, which is expected to consist principally of a $13.6
million Security Deposit held by the Company. Wyndham I is expected to fund its
cash needs, including payments of base rents and percentage rents (if any), with
cash generated from operations at the 11 Wyndham Garden/(R)/ Hotels. In 1995,
the predecessor partnership owning these 11 Hotels generated cash from (used
by) operating, investing and financing activities of $11.2 million, $(2.3)
million and $(8.6) million, respectively. On a pro forma basis, Wyndham I's 1995
income before income taxes, rents due to the Company and subordinated management
fees and charges, and after deduction of FF&E Reserves required under the
Leases, exceeded base rents due to the Company by $4.3 million, or coverage of
1.32 times the rents due to the Company. Although the Company believes that
Wyndham I will have adequate funds to meet its short term liquidity
requirements, decreases in revenues at these Hotels may adversely affect Wyndham
I's ability to pay rents to the Company.
Host I. Host I is a limited purpose entity which has been organized to
lease and operate the 18 Residence Inn by Marriott/(R)/ Hotels owned by the
Company. Upon completion of this Offering, Host I is expected to have a net
worth (excluding deferred gains resulting from the sale and lease of these
Hotels) of approximately $19.1 million which is expected to consist primarily of
the $17.2 million Security Deposit held by the Company. Host I is expected to
fund its cash needs, including payments of base rents and percentage rents (if
any), with cash generated from operations at the 18 Residence Inn by
Marriott/(R)/ Hotels. In 1995, these 18 Hotels generated cash from (used by)
operating, investing and financing activities of $23.0 million, $(2.2) million
and $(20.8) million, respectively. On a pro forma basis, Host I's 1995 income
before income taxes, rents due to the Company and subordinated management fees
and charges and after deduction of FF&E Reserves required under the Leases,
exceeded base rents due to the Company by $6.7 million, or coverage of 1.39
times the rents due to the Company. Although the Company believes that Host I
will have adequate funds to meet its short term liquidity requirements,
decreases in revenues at these Hotels may adversely affect Host I's ability to
pay rents to the Company.
Host II. Host II is a limited purpose entity which was organized to lease
and operate the Initial Hotels. Upon the completion of the Company's acquisition
of the additional 16 Courtyard by Marriott/(R)/ Hotels, Host II will also lease
these Hotels. Upon completion of this Offering, Host II is expected to have a
net worth (excluding deferred gains resulting from sale and lease of these
Hotels) of approximately $57.5 million, which is expected to consist primarily
of the $50.5 million Security Deposit held by the Company. Since the acquisition
of the Initial Hotels, Host II has funded its cash needs, including payments of
base rents and percentage rents, with cash generated from operations at the
Initial Hotels. Upon the acquisition of the additional 16 Courtyard by
Marriott/(R)/ Hotels, Host II is expected to continue to fund its cash needs,
including monthly payments of base rents and percentage rents (if any), with
cash generated from operations at the 53 Courtyard by Marriott/(R)/ Hotels. On a
pro forma basis, Host II's 1995, income before income taxes, rents due to the
Company and subordinated management fees and charges and after deduction of FF&E
Reserves required under the Leases, exceeded base rents due to the Company by
$17.3 million, or coverage of 1.34 times the rents due to the Company. Although
the Company believes that Host II will have adequate funds to meet its short
term liquidity requirements, decreases in revenues at these 53 Courtyard by
Marriott/(R)/ Hotels may adversely affect Host II's ability to pay rents to the
Company.
Seasonality
The Hotels have historically experienced seasonal differences typical of
the hotel industry with higher revenues in the second and third quarters of
calendar years compared with the first and fourth quarters. This seasonality is
not expected to cause fluctuations in the Company's rental income because the
Company believes that the revenues generated by its Hotels will be sufficient
for the Lessees to pay rents on a regular basis notwithstanding seasonal
fluctuations.
Inflation
The Company believes that inflation should not have a material adverse
effect on the Company. Although increases in the rate of inflation may tend to
increase interest rates which the Company may be required to pay for borrowed
funds, the Company has a policy of obtaining interest rate caps in appropriate
circumstances to protect it from interest rate increases. In addition, the
Company's Leases provide for the payment of percentage rent to the Company based
on increases in Total Hotel Sales and such rent should increase with inflation.
25
<PAGE>
BUSINESS
The Company's principal growth strategy is to expand its investments in
hotels and to set minimum rents which produce income in excess of the Company's
cost of raising capital. Most other public hotel REITs seek to control the
operations of hotels in which they invest by leasing their properties to
affiliated tenants. The Company seeks to provide capital to unaffiliated hotel
operators who wish to divest their properties while remaining in the hotel
business as tenants. The Company believes that this difference in operating
philosophy affords it a competitive advantage over other hotel REITs in finding
high quality investment opportunities on attractive terms. In addition, the
Company's internal growth strategy is to participate through percentage rents in
increases in Total Hotel Sales (including gross revenues from room rentals, food
and beverage sales and other services) at the Company's Hotels.
Upon completion of the acquisitions of the Additional Hotels, the Company
will have purchased 82 Hotels located in 26 states for approximately $813
million.
The Prospectus contains a map of the continental United States
with the states listed below shaded, and the location of the
Company's 11 Wyndham Garden/(R)/ Hotels identified by a star;
the location of the Company's 18 Residence Inn by Marriott/(R)/
Hotels identified by a diamond; and the location of the
Company's 53 Courtyard by Marriott/(R)/ Hotels indicated by a
square.
<TABLE>
<CAPTION>
State Number of Rooms Number of Hotels
- ----- --------------- ----------------
<S> <C> <C>
Arizona 1,164 8
California 1,470 10
Delaware 152 1
Florida 424 3
Georgia 978 7
Illinois 514 3
Indiana 149 1
Iowa 108 1
Maryland 406 3
Massachusetts 1,072 8
Michigan 281 2
Minnesota 358 2
Missouri 298 2
New Jersey 416 3
New Mexico 112 1
New York 403 3
North Carolina 534 4
Ohio 106 1
Pennsylvania 567 4
Rhode Island 148 1
South Carolina 108 1
Tennessee 399 3
Texas 405 3
Virginia 462 3
Washington 522 3
Wisconsin 147 1
------ --
Total: 11,703 82
====== ==
</TABLE>
26
<PAGE>
The Hotels
Wyndham Garden/(R)/ Hotels
Wyndham Garden/(R)/ hotels are mid-size, full service hotels located
primarily near suburban business centers and airports which are designed to
attract business travelers and small business groups in suburban markets. Each
hotel contains 140 to 250 rooms and approximately 1,500 to 5,000 square feet of
meeting space. The amenities and services provided at these hotels are designed
to meet the needs of the upscale business traveler. Amenities and services in
each room include desks large enough to accommodate personal computers, longer
phone cords, high wattage light bulbs for reading, room service and access to
24-hour telecopy and mail/package service. The meeting facilities at Wyndham
Garden/(R)/ hotels generally can accommodate groups of between 10 and 200 people
and include a flexible meeting room design, exterior views, additional phone
lines and audiovisual equipment. Wyndham Garden/(R)/ hotels also feature a
lobby lounge, most of which have a fireplace, a library typically overlooking a
landscaped garden and a swimming pool. In addition, many Wyndham Garden/(R)/
hotels contain a whirlpool and an exercise facility. Unlike many other mid-
priced hotels, each Wyndham Garden/(R)/ hotel contains a cafe restaurant that
serves a full breakfast, lunch and dinner menu. According to Wyndham, as of
December 31, 1995, 38 Wyndham Garden/(R)/ hotels were open and operating in 19
states. The Company believes that the Wyndham Garden/(R)/ brand is one of the
leading brands in the full service suburban segment of the United States lodging
industry.
The following charts set forth the occupancy, average daily rates ("ADR")
and REVPAR for the past three years of the Company's 11 Wyndham Garden/(R)/
Hotels as compared to those averages for all United States hotels as reported by
Smith Travel Research in Lodging Outlook.
[The Prospectus contains three bar charts showing the following information]
<TABLE>
<CAPTION>
Average Occupancy
All U.S. Hotels 11 Wyndham Garden/(R)/ Hotels
---------------- ---------------------------
<S> <C> <C>
1993 63.1% 73.0%
1994 64.7% 75.1%
1995 65.5% 77.5%
<CAPTION>
Average Daily Room Rates
All U.S. Hotels 11 Wyndham Garden/(R)/ Hotels
--------------- ---------------------------
<S> <C> <C>
1993 $61.30 $64.06
1994 64.24 69.74
1995 67.34 77.16
<CAPTION>
REVPAR
All U.S. Hotels 11 Wyndham Garden/(R)/ Hotels
--------------- -----------------------------
<S> <C> <C>
1993 $38.71 $46.76
1994 41.55 52.34
1995 44.14 59.77
</TABLE>
27
<PAGE>
The table below presents certain information provided to the Company by
Wyndham about the size, age, and location of the Company's 11 Wyndham
Garden/(R)/ Hotels.
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
----------------- -------- ------ --------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Arizona
Chandler................ 159 10/87 Firebird International Raceway (1), Intel, Rodgers/Adflax, Allied Signal, ADP,
Arizona State University (12), Airport Avnet, Alcoa, Gould
(12), Harrah's Casino (15), 3
Championship Golf Courses (5), Factory
Outlet Stores (20), Spring Training
Stadiums (7)
North Phoenix........... 166 1/88 MetroCenter Shopping Mall (3), Honeywell, Bull, AG Communications, Cox
Arrowhead Mall (5), Phoenix Airport Cable, American Express Travel, Farmers
(10), Arizona Factory Shops (16), Insurance
American Graduate School of
International Management (6),Downtown
Phoenix (20), Old Town Scottsdale
(23), America West Arena (21)
Phoenix Airport......... 210 10/89 Phoenix Airport (1), Phoenix Motorola, Allied Signal, Cutter, JC
Convention Center (5), America West Penney, Norstan, AT&T, Xerox
Arena (5), Central Scottsdale (8),
Arizona State University (5), Phoenix
Zoo (2)
California
North San Diego......... 180 4/89 La Jolla (8), Del Mar (6), Sea World AT&T, Intuit, Motorola, Nortel, Applied
(10), San Diego Zoo (10), San Diego Digital, Access, General Instruments,
International Airport (15) Jostens, Mycogen, Nokia, Brooktree,
Qualcom, Comstream
Sunnyvale............... 180 8/87 San Jose Airport (7), Great America AT&T, Allied Signal, Boeing, Lockheed,
(2), San Jose Arena (10), Shoreline Intel, IBM, Eastman Kodak, MCI, Texas
Amphitheater (2), San Jose State Instruments, Toshiba, TRW, Digital
University (10) Santa Clara University Equipment, 3Com, CISCO Systems, Synopsys
(10)
Georgia
Atlanta - 143 4/87 Perimeter Mall (2), Atlanta History AT&T, Dun & Bradstreet, Ford, GTE,
Perimeter Center........ Center (5), Cobb Galleria Center (5), Stratus, Unisys, UPS, Xerox
Fernbank Science Center (10), Georgia
World Congress Center (12), CNN
Center/Omni Colesium (12), Georgia
Dome (12), Martin Luther King Center
(12), World of Coca-Cola (13), Fulton
County Stadium (14), Zoo Atlanta (15),
Stone Mountain Park (15), Six Flags
(20)
Illinois
Naperville -
Chicago Area............ 143 9/86 O'Hare Airport (18), Midway Airport Amoco, AT&T, Bechtel, Hewlett-Packard,
(20), Cantony War Museum (8), Budget, Travelers, Allied Van Lines,
Hollywood Casino (15), Morton Wheelabrator
Arboretum (7), Naperville Riverwalk
(3), Naper Settlement (4), North
Central College (3), Wheaton College
(4), Paramount Arts Center (15)
Minnesota
Bloomington/
Minneapolis............. 209 9/88 Mall of America (5), Minneapolis/St. Dairy Queen, Seagate, Honeywell, Sprint,
Paul International Airport (7), Mystic Diversified Pharmaceuticals/Smith Kline
Lake Casino (15), Minneapolis Beecham, National Car Rental, Norwest
Convention Center (12), Valley Fair Bank, AT&T, Nash Finch, Toro, ADP,
Amusement Park (10), Science Museum Jostens, Silicon Graphics, National
(25), University of Minnesota (15), Semiconductor
State Theater (15)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
----------------- -------- ------ --------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Tennessee
Nashville............ 180 12/87 Nashville International Airport CNA Insurance, Square D Company,
(1 1/2), Opryland (7), Downtown Bridgestone/Firestone, UPS, Thomas Nelson
Nashville (12), The Hermitage (9), Music
Row (12), Country Music Hall of Fame (12),
Vanderbilt University/Medical Center
(12), Nashville Convention Center
(12), Grand Ole Opry/Theme Park (7),
Country Music Television (CMT) (7),
The Nashville Network (TNN) (7)
Washington
Bothell.............. 166 6/89 Chateau St. Michelle Winery (5), Motorola, Microsoft, GTE,
Kenmore Air Harbor (6), Bellevue (10), Alliant/Honeywell, Siemens, Allstate
Airport (25) Insurance
Sea-Tac Airport...... 204 8/88 Sea-Tac Airport (adjacent), Seattle Boeing, Lockheed/Martin, McDonnell
Kingdome (11), University of Douglas, Mitre, Northrup, UPS, GTE, IBM,
Washington (15), Downtown Seattle (all of these businesses are within 15
(15), Emerald Downs (10) miles)
</TABLE>
Residence Inn by Marriott/(R)/ Hotels
Residence Inn by Marriott/(R)/ hotels are designed to attract business,
governmental and family travelers who stay more than five consecutive nights.
Residence Inn by Marriott/(R)/ hotels generally have between 80 to 130 studios
and two-bedroom suites. Most Residence Inn by Marriott/(R)/ hotels are designed
as a cluster of residential style buildings with landscaped walkways, courtyards
and recreational areas. Residence Inn by Marriott/(R)/ hotels do not have
restaurants. All offer complimentary continental breakfast and most provide a
complimentary evening hospitality hour. In addition, each suite contains a
fully equipped kitchen and many have wood burning fireplaces. Most Residence
Inn by Marriott/(R)/ hotels also contain swimming pools, exercise rooms,
business centers and guest laundries. According to Marriott, as of December 31,
1995, 196 Residence Inn by Marriott/(R)/ hotels were open and operating in 42
states. The Company believes that the Residence Inn by Marriott/(R)/ brand is
the leading brand in the extended stay segment of the United States lodging
industry.
29
<PAGE>
The following charts set forth the occupancy, ADR and REVPAR for the past
three years of the Company's 18 Residence Inn by Marriott/(R)/ Hotels as
compared to those averages for all United States hotels as reported by Smith
Travel Research in Lodging Outlook.
[The Prospectus contains three bar charts containing the following information]
<TABLE>
<CAPTION>
Average Occupancy
All U.S. Hotels 18 Residence Inn By Marriott/(R)/ Hotels
--------------- --------------------------------------
<S> <C> <C>
1993 63.1% 84.5%
1994 64.7% 85.6%
1995 65.5% 86.6%
<CAPTION>
Average Daily Room Rates
All U.S. Hotels 18 Residence Inn By Marriott/(R)/ Hotels
--------------- --------------------------------------
<S> <C> <C>
1993 $61.30 $74.77
1994 64.24 79.58
1995 67.34 85.07
<CAPTION>
Revenue Per Available Room
All U.S. Hotels 18 Residence Inn by Marriott/(R)/ Hotels
--------------- --------------------------------------
<S> <C> <C>
1993 $38.71 $63.18
1994 41.55 68.12
1995 44.14 73.69
</TABLE>
The table below is derived principally from information published by
Marriott in the Residence Inn by Marriott/(R)/ directory and presents certain
information about the size, age and location of the Company's 18 Residence Inn
by Marriott/(R)/ Hotels.
<TABLE>
<CAPTION>
Key Area Attractions of the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
----------------- -------- ------ --------------------------- -------------------------
<S> <C> <C> <C> <C>
Arizona
Flagstaff............ 102 7/91 Northern Arizona University (6), Airport WL Gore, Ralston Purina, US West
(6)
Scottsdale........... 122 1/91 Sky Harbor Airport (9), Scottsdale Motorola, Dial Corporation, Mayo Clinic
Gallery District (2), Borgata Shopping
Center (1/2), Camelback Mountain (1),
Heard Museum (10), Frank Lloyd Wright
Museum (12)
Tempe................ 126 2/91 Sky Harbor Airport (5), Arizona State Motorola, Allied Signal, First
University (4), Tempe Diablo Stadium (2) Interstate Data Center, Microage
California
Huntington Beach/ 122 3/91 Mile Square Park & Golf Course (1/2), Rockwell, Filenet, Nissan, Hyundai,
Fountain Valley..... Disneyland (14), Knott's Berry Farm ASICS Tiger, FHP
(17), Newport Beach (7), Orange County
Airport (5), Huntington Beach (5),
Pacific Amphitheater (5), Tustin Marine
Base (9), South Coast Plaza (5), Orange
County Performing Arts Center (5)
North San Diego/ 123 10/91 San Diego International Airport (21), Sony, Hewlett-Packard, AT&T, U.S.
Rancho Bernardo..... Downtown San Diego (23), Wild Animal Postal Service, Loral
Park (10), Temecula/Wine Country (30),
Beaches (15), San Diego Zoo (15)
Georgia
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions of the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ --------------------------- -------------------------
<S> <C> <C> <C> <C>
Atlanta/Alphretta... 103 7/90 Hartsfield Airport (31), Downtown Atlanta Digital Equipment Corp., Digital
(28), Harry's Farmers Markets (5), Communications Assoc., AT&T, Siemens,
Wills Park Equestrian Facility (3), Equifax, Nationwide Insurance, UPS,
Lake Lanier (18), North Point (3) Amoco
Illinois
Chicago-Downtown 221 7/91 John Hancock Building (1 block), One American Bar Association, Amoco, IBM,
Magnificent Mile (1 block), Lake Quaker Oats, Arthur Andersen, Sears
Michigan (1 block), McCormick Place (20 Roebuck
blocks), Rush Street (2 blocks),
Wrigley Field (4), O'Hare Airport (18)
Maryland
Annapolis........... 102 5/91 Annapolis Mall (1), U.S. Naval Academy IIT Research Institute, Wartsila Diesel
(4), Historic Annapolis (4), Festival
Plaza ( 1/2)
Massachusetts
Westborough......... 109 7/91 Logan Airport (32), Worcester Airport Data General Corp.
(15), Sturbridge Village (30),
Massachusetts Turnpike (5), Downtown
Boston (38)
Michigan
Warren.............. 133 3/90 Detroit Metropolitan Airport (29), Canada General Motors, TRW, General
(15), Detroit Zoo (9), Pontiac Dynamics, Chrysler, Ford
Silverdome (15), Downtown Detroit (14),
City Airport (6)
New Mexico
Albuquerque......... 112 2/90 Sandia Peak & Tramway (10), Old Town (4), AT&T
Convention Center (4), Zoo (8),
International Balloons Fiesta Grounds
(8), University of New Mexico (3),
Airport (6)
New York
Syracuse............ 102 1/91 Syracuse University (6), Carrier Dome Martin Marietta, Carrier, Chrysler,
(6), NY State Fairgrounds (10) Bristol-Myers
North Carolina
Durham-Research 122 3/91 Duke University (7), University of NC at IBM, Northern Telecom, EPA, Glaxo,
Triangle Park....... Chapel Hill (8), Raleigh/Durham Airport Burroughs Wellcome, Ericsson, GE
(8), Downtown Raleigh (20) Mobile Communications, Motorola, Data
General
Ohio
Columbus/Dublin.... 106 2/92 Metro Center (adjacent), Muirfield Ashland Chemical, Pharmacia,
Village Gold Club (3), Port Columbus CompuServe, Frigidaire
International Airport (20), Ohio State
University (9), Downtown Columbus (15)
Pennsylvania
Willow Grove......... 118 12/90 Downtown Philadelphia (15), Philadelphia General Instruments, Honeywell, Moore
International Airport (20), Philadelphia Products, Prudential, Penn Mutual
Park (8), Willow Grove Naval Air
Station (2), Sesame Place (15), Fort
Washington Expo Center (5)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions of the
Number Date Hotel/Academic Institutions Business with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
----------------- -------- ------ --------------------------- -------------------------
<S> <C> <C> <C> <C>
Tennessee
Nashville/ 110 1/91 Downtown Nashville (8), Nashville Bankers Trust, Comdata Holdings Corp.,
Brentwood........... International Airport (12), Vanderbilt Quorum
University/Medical Center (10),
Tennessee State Fairgrounds (5), Grand
Ole Opry/Theme Park (15), Cool Springs
Galleria (5), Legends Golf Club (8)
Texas
Dallas-Market Center 142 3/89 Love Field Airport (3), Dallas/Fort Worth Mobil Oil, Federal Express
International Airport (13), Texas Stadium
(3), World Trade Center/Info Mart (2 1/2),
Downtown Dallas (5), Six Flags
(15), Medieval Times (2), Convention
Center (5), Restaurant Row (2 1/2)
Dallas-Northpark.... 103 7/90 Dallas/Fort Worth International Airport Texas Instruments, Northern Telecom
(16), Love Field Airport (8), Downtown
Dallas (5), Galleria (6)
</TABLE>
Courtyard by Marriott/(R)/ Hotels
Courtyard by Marriott/(R)/ hotels are designed to attract both business
and leisure travelers. A typical Courtyard by Marriott/(R)/ hotel has 145 guest
rooms. The guest rooms are larger than those in most other moderately priced
hotels and predominately offer king sized beds. Most Courtyard by Marriott/(R)/
hotels are situated on well landscaped grounds and typically are built around a
courtyard containing a patio, pool and socializing area that may be glass
enclosed depending upon location. Most of these hotels have lounges or lobbies,
meeting rooms, an exercise room, a small laundry room available to guests and a
restaurant or coffee shop. Generally, the guest rooms are similar in size and
furnishings to guest rooms in full service Marriott/(R)/ hotels. In addition,
many of the same amenities as would be available in full service Marriott/(R)/
hotels are available in Courtyard by Marriott/(R)/ hotels, except that
restaurants may be open only for breakfast buffets or serve limited menus, room
service is generally not available and meeting and function rooms are limited in
size and number. According to Marriott, as of December 31, 1995, 253 Courtyard
by Marriott/(R)/ hotels were open and operating nationally. The Company believes
that the Courtyard by Marriott/(R)/ brand is a leading brand in the limited
service segment of the United States hotel industry.
The following charts set forth the occupancy, ADR and REVPAR for the past
three years of the Company's 53 Courtyard by Marriott/(R)/ Hotels as compared to
those averages for all United States hotels as reported by Smith Travel Research
in Lodging Outlook.
[The Prospectus contains three bar charts containing the following information]
<TABLE>
<CAPTION>
Average Occupancy
All U.S. Hotels 53 Courtyard by Marriott/(R)/ Hotels
---------------- -------------------------------------
<S> <C> <C>
1993 63.1% 79.7%
1994 64.7% 80.3%
1995 65.5% 80.3%
<CAPTION>
Average Daily Room Rates
All U.S. Hotels 53 Courtyard by Marriott/(R)/ Hotels
--------------- ------------------------------------
<S> <C> <C>
1993 $61.30 $63.32
1994 $64.24 $67.50
1995 $67.34 $72.61
<CAPTION>
Revenue Per Available Room
All U.S. Hotels 53 Courtyard by Marriott/(R)/ Hotels
--------------- ------------------------------------
<S> <C> <C>
1993 $38.71 $50.49
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
1994 $41.55 $54.23
1995 $44.14 $58.32
</TABLE>
The table below is derived principally from information published by Marriott
in the Courtyard by Marriott/(R)/ directory and presents certain information
about the size, age and location the Company's 53 Courtyard by Marriott/(R)/
Hotels.
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Arizona
Phoenix.................. 155 8/90 Downtown Scottsdale (10), Town & Country MCI Communications, Bank of America,
Mall (adjacent), Phoenix Airport (7), Sun AT&T, American Express, Transamerica,
Devil Stadium (8), Arizona State IBM, US West
University (8), Downtown Phoenix (6)
Scottsdale............... 124 1/89 Downtown Scottsdale (11), West World (5), Mayo Clinic (adjacent)
Fountain Hills (5)
California
Camarillo................ 130 10/90 Oxnard (5), Ventura Mission (12), State Unisys, Vitesse, Amgen, Siemens Solar,
Beaches (10), Getty Museum (20), Six Flags Technicolor, 3M Company, Teledyne, Blue
Magic Mountain (45), Ronald Reagan Cross
Presidential Library (15)
Huntington Beach/
Fountain Valley.......... 150 3/91 Orange County Airport (6), Orange County McDonnell Douglas, Safeco Insurance,
Fairgrounds (4), Pacific Amphitheater (4), Rockwell, Hyundai, ASICS Tiger
Huntington Beach (3)
Laguna Hills-
Irvine Spectrum.......... 137 10/90 Orange County Airport (9), Laguna Beach Mazda, Abbott Laboratories, Parker
(7), Mission San Juan Capistrano (10), Hannifin, Toshiba, Unisys, Canon,
US Marine Station El Toro (3), US Olympic Loral
Swim Stadium (5), Laguna Hills Mall (1 1/2)
Los Angeles Airport...... 146 3/87 Los Angeles Airport (1), Universal Studios Chevron, AT&T, Xerox, TRW, Mattel,
(18), Disneyland (28), Hollywood (15), GTE
Marina del Rey (5), UCLA (10)
San Jose Airport......... 151 1/91 San Jose Airport ( 1/2), San Jose IBM, FMC Corp., Ford Aerospace,
Convention Center (3 1/2), San Jose State General Electric, Hewlett-Packard,
University (4), Great America (5), Santa Kodak, Digital, Novell, AT&T
Clara University (2), San Jose Arena (3)
Torrance-South 151 11/90 Los Angeles Airport (10), Redondo Beach Toyota, Honda, Nissan, NEC, Allied
Bay...................... (5), Long Beach (12), Los Angeles Signal, Mobil Oil
Harbor/San Pedro (10), Downtown Los
Angeles (10), Dodger Stadium (12), Knott's
Berry Farm (19), Disneyland (23), Great
Western Forum (8), LA Coliseum (8),
Southbay Galleria (3), Universal Studios (12)
Delaware
Wilmington............... 152 1/91 Christiana Mall ( 1/2), University of Flight Safety International
Delaware (5), Delaware Park Race Track (2),
Winterthur Museum & Garden (15), Longwood
Garden (20), Historic New Castle (5), Hagley
Museum (7), Brandywine Valley Museum (12)
Florida
Boca Raton............... 152 4/92 Palm Beach Airport (22), Ft. Lauderdale IBM, Sony, WR Grace, Unisys, Office
Airport (25), Florida Atlantic University Depot
(1/2), Lynn University (1/2)
Jacksonville/Mayo
Clinic & Beaches
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Area..................... 121 10/87 Mayo Clinic (adjacent), Beaches (3), American Heritage Life
Airport (30), Ponte Vedra/Sawgrass (4),
St. Augustine (30), Downtown Jacksonville
(15), Jaxport (20)
Miami Lakes Area......... 151 9/90 Miami International Airport (9), Opa Locka Northern Telecom, Coulter Corporation,
Airport (3), Miami Lakes Industrial Park Palmetto General Hospital, C.D.
(2), Palmetto Lakes Industrial Park (2), Medical, Telectronics
Miami Lakes Golf Course (1/2), Country Club
of Miami (2), Westland Mall (4), Joe Robbie
Stadium (5)
Georgia
Atlanta Airport
North.................... 152 8/90 Fulton County Stadium (6), Hartsfield Ford, Pratt & Whitney, General
Airport (1), Six Flags (13) Electric, Delta Air Lines
Atlanta-Cumberland
Center................... 182 3/89 Downtown Atlanta (10), Hartsfield Airport IBM, AT&T, Sprint, UPS, Worldspan
(20), Six Flags (12), Stone Mountain
Park (20)
Atlanta-Jimmy Carter
Blvd..................... 122 5/88 Stone Mountain Park (7), Malibu Grand AT&T, UPS, American Express, Lanier,
Prix (3), Delta Peachtree Airport (5), GM, BASF, Whirlpool
Gwinnett Airport (8)
Atlanta-Midtown.......... 168 7/91 Olympic Village and Olympic Venues (/2), BellSouth, AT&T
Woodruff Art Center (1/2), Georgia World
Congress Center (2), Fox Theatre (1/2),
Atlanta Stadium (4), Georgia Dome (2),
Georgia Tech (2)
Macon.................... 108 5/91 Macon Airport (15), Warner-Robbins Air Georgia Farm Bureaus, Brown and
Force Base (20), Mercer University (8), Williamson, YKK, Geico, GE Capital
Wesleyan College (4)
Illinois
Arlington Heights
North.................... 150 5/90 Woodfield Mall and Theatres (7), Long Motorola, Honeywell, Federal Express,
Grove Village (5), Arlington Race Track UARCO, American Honda
(4), O'Hare Airport (15), Downtown
Chicago (40)
Indiana
Indianapolis............. 149 3/90 Downtown Indianapolis (12), Indianapolis Charles Schwab, AT&T, Delta Peerless,
Airport (17), Indianapolis Zoo (15), GTE, Hewlett-Packard, Integrated
Children's Museum (10), Butler University Information Services, MacMillan
(7), Indianapolis Motor Speedway (17), Publishing, NCR
Indiana State Fairgrounds (7)
Iowa
Quad Cities.............. 108 12/90 Moline Regional Airport (13), Riverboat Montgomery Elevator, Rock Island
Casinos (5), Wacky Waters (8), John Deere Arsenal
Historical Tour (10), Museums (3), Quad
City Downs Race Track (15)
Maryland
Columbia................. 152 7/91 Dobbin Center (1/10), Merriweather Post General Physics, S-3 Technologies
Pavilion (4), Baltimore-Washington Sun Micro Systems, AT&T, Baxter Health
International Airport (12), Baltimore Care
Inner Harbor (15), Oriole Park at Camden
Yards (15), National Aquarium (15)
Greenbelt................ 152 6/91 Downtown Washington, D.C. (20), USAir National Agriculture Research Center,
Arena
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ ---------------------------- -------------------------
<S> <C> <C> <C> <C>
(10), Wild World (12), University of Litton America, Digital, Hughes,
Maryland (3), NASA/Goddard Space Bendix, Lockheed, Cellular One,
Center (2), Washington National Computer Sciences Corp.
Airport (20), Baltimore-Washington
International Airport (25)
Massachusetts
Danvers.................. 121 3/90 Fenway Park (18), Logan Airport (18), General Electric, NYNEX, Eaton
Downtown Boston (15), Historic Salem (3)
Foxborough............... 149 6/89 Foxboro Stadium (5), Great Woods Texas Instruments, Forbes, Codex
Performing Arts Center (3), Logan Airport
(35), Downtown Boston (33), Wheaton
College (5), Plymouth Plantation (25)
Lowell................... 121 3/90 Downtown Boston (30), Logan Airport (30), Wang, Sun Microsystems,
Lexington/Concord (15), University of Hewlett-Packard, Raytheon
Massachusetts at Lowell (3)
Milford.................. 152 10/90 Logan Airport (43), Downtown Boston (43) EMC, Dennison, Boston Digital
Norwood.................. 148 9/90 Logan Airport (20), Downtown Boston (20), Analog Devices, LTX Corporation,
Foxboro Stadium (10), Great Woods Microcom, Polaroid, GM, Ciba Corning,
Performing Arts Center (15) Merck
Stoughton................ 152 10/90 Logan Airport (18), Stonehill College (7), Reebok International
Downtown Boston (16), Fenway Park (17),
Foxboro Stadium (20), Great Woods
Performing Arts Center (20)
Woburn................... 120 3/90 Logan Airport (12), Downtown Boston (12), Hewlett-Packard, Alpha Industries
Cambridge (12)
Michigan
Detroit/Auburn 148 10/89 Pontiac Silverdome (1/2), The Palace of Chrysler, ITT Automotive, General
Hills.................... Auburn Hills (3), Oakland University (2) Motors, Volkswagen
Minnesota
Minneapolis/
Eden Prairie............. 149 2/89 Minneapolis/St. Paul International Airport Best Buy, General Electric, Super
(11), Metrodome/Downtown Minneapolis Value, Rosemount, MTS Systems
(12), Met Center (8), Minnesota Zoo (15),
Mystic Lake Casino (15)
Missouri
Kansas City Airport...... 149 9/90 Kansas City Airport (4), Downtown Kansas Farmland Foods, Worldspan, Midland
City (10), Truman Sports Complex (25),
American Royal/Kemper Arena (10)
South Kansas City........ 149 9/90 Kansas City Airport (42), Downtown Kansas Sprint, Marion Merrell Dow, Yellow
City (20), Truman Sports Complex (10), Freight, John Deere, Allied Signal
Worlds of Fund (15)
New Jersey
Hanover.................. 149 7/91 Historic Morristown (5), Livingston Mall Sandoz, Bellcore, Allied Signal, Exxon,
(6), Short Hills Mall (10), Newark Warner Lambert, Nabisco, Prudential,
International Airport (28), Amtrak Train AT&T, Suburban Propane
Station (12), New York City (17)
Mahwah................... 146 4/91 Meadowlands (20), New York City (33) Sharp Electronics, UPS, Phillips, IBM,
Jaguar, Meldisco
Tinton Falls............. 121 6/90 Newark International Airport (30), Great Fort Monmouth, Prudential, Bell Labs,
Adventure Theme Park (20), Atlantic Hughes Aircraft, Roberts Pharmaceutical
Ocean &
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Beaches (5), New York City (50), Atlantic
City (50), Monmouth Park Race Track (2)
New York
Fishkill................. 152 6/91 Cold Spring (10), West Point Military IBM, Texaco
Academy (15), Vassar College (12), Stewart
Airport (10), F.D.R. Historical Site (16),
Vanderbilt Historical Site (17), Danbury,
CT (25), Marist College (13), Stewart
International Airport (15)
Syracuse................. 149 9/88 Hancock International Airport (7), Carrier Corporation, Martin Marietta,
Burnett Park Zoo (12), Everson Museum (8), Crouse-Hinds Company, Bristol-Myers
Shopping Town Dewitt Mall (5), Syracuse
University (6), Carousel Mall (6), Great
Northern Mall (11)
North Carolina
Charlotte-University
Research Park............ 152 8/90 Charlotte Motor Speedway (4), University IBM, Allstate Insurance, Phillip
of NC at Charlotte (1), University Morris, Southern Bell
Place (1/4), Downtown Charlotte (7),
Airport (10), Blockbuster Pavillion (4)
Fayetteville............. 108 1/91 Cape Fear Regional Theatre (5), Museum Fort Bragg
of Art (6), Market House (2)
Raleigh/Durham
Airport.................. 152 11/90 Research Triangle Park (1), Raleigh/Durham IBM, Northern Telecom, SAS Institute,
Airport (1), Downtown Raleigh (15), NC GTE
State (15), Duke University (15),
University of NC at Chapel Hill (18)
Pennsylvania
Philadelphia Airport..... 152 12/91 Downtown Philadelphia (10), Philadelphia Boeing, UPS, Penn Navy Yard
International Airport (1), Veterans
Stadium (4), Spectrum Arena (4), Penns
Landing (8), Civic Center (15), University
of Pennsylvania (11)
Pittsburgh Airport....... 148 8/90 Pittsburgh International Airport (7 1/2), Miles Corporation, Calgon, ADP, USAir,
Downtown Pittsburgh (15), Convention Westinghouse Corp., Roadway Package
Center & Civic Arena (16), Three Rivers System, Robert Morris College, Legent
Stadium (15), Star Lake Ampitheatre (21),
Quicksilver Golf Club (12)
Willow Grove............. 149 7/89 Willow Grove Park Mall (1), Downtown Prudential, Honeywell, Decision Data,
Philadelphia (15), New Hope (14), Valley McNeil Labs, Procter & Gamble
Forge (10), Sesame Place (10), Franklin
Mills (10), Fort Washington Expo Center (5)
Rhode Island
Newport/Middletown....... 148 9/90 Downtown Newport (3), Historic Mansions U.S. Navy Base, General Dynamics,
(4), Cliffwalk & Ocean Drive (4), Hughes, McDonnell Douglas, Unisys,
Hammersmith Farm (5), Tennis Hall of Fame Westinghouse, KPMG Peat Marwick,
(4), Brick Market Place Shopping (3), Raytheon, AT&T
Beaches (3), Golf (1/4)
South Carolina
Spartanburg.............. 108 6/90 University of SC at Spartanburg (1), Michelin
Greenville-Spartanburg Airport (17),
Wofford College (3), Converse College (3),
Spartanburg Auditorium (3)
Tennessee
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Key Area Attractions for the
Number Date Hotel/Academic Institutions Businesses with Facilities
Property Location of Rooms Opened (Distance in Miles) within a Five Mile Radius
- ----------------- -------- ------ ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Chattanooga.............. 109 4/91 Chattanooga Riverboat (18), Ruby Falls Brach's Candy
(15), Rock City (18), Metropolitan Airport
(4), Tennessee Aquarium (10)
Texas
Dallas-Northpark......... 160 7/90 Dallas/Fort Worth International Airport Dr. Pepper, Texas Instruments,
(25), Love Field Airport (7), Prudential
Downtown Dallas (5), Southern Methodist
University (3)
Virginia
Arlington/Rosslyn........ 162 2/92 Georgetown (3), Washington, D.C. (1/5), Gannett, Xerox, Bell Atlantic,
Georgetown University (3) Coopers & Lybrand, USA Today
Fairfax.................. 149 9/90 Fairfax County Offices (3), Washington, AT&T, TRW, Mobil
D.C. (15), Dulles Airport (11), National
Airport (18), George Mason University (4)
Williamsburg............. 151 6/90 Busch Garden (1), Colonial Williamsburg Busch Corporate Center, Ball Metal,
(2 1/2), Pottery Factory (14), Water Cheatham Annex Military Base
Country (1 1/2), College of William &
Mary (2 1/2)
Washington
Bellevue................. 152 9/90 Bellevue City Center (4), Seattle City Microsoft, Allied Signal, Digital,
Center (8), University of Washington (6) Eddie Bauer, Safeco
Wisconsin
Milwaukee/Brookfield..... 147 5/91 Milwaukee County Zoo (5), Milwaukee County Digital, Ameritech, Xerox, Prudential
Stadium (12), Bradley Center (12),
Wisconsin State Fair (6), Airport (18)
</TABLE>
Lessees, Managers, Leases and Management Agreements
Wyndham Garden/(R)/ Hotels
Wyndham is a leading national hotel company operating hotels under the
Wyndham/(R)/ brand name located in 20 states, the District of Columbia and four
Caribbean islands. Wyndham/(R)/ hotels compete in the upscale segment of the
lodging industry with national hotel chains such as Marriott/(R)/, Hyatt/(R)/
and Hilton/(R)/. Wyndham offers three full service hotel products under the
Wyndham/(R)/ brand name that are tailored to urban, suburban and select resort
markets. As of March 1, 1996, Wyndham and its affiliated entities own, lease,
manage or franchise a total of 71 hotels with 18,607 rooms.
Wyndham I is a limited purpose entity that has been organized to lease
and operate the 11 Wyndham Garden/(R)/ Hotels owned by the Company. The Purchase
Agreement for these Hotels requires that Wyndham I engage Wyndham or a Wyndham
subsidiary to manage these Hotels. The terms of any such Management Agreement
are within the discretion of Wyndham I, but the Lease requires that all
management fees be subordinated to rent due to the Company, the Management
Agreements to be terminable by the Company in the event of a termination of the
Lease affecting the same Hotel and that the designation of these Hotels as
Wyndham Garden/(R)/ hotels may not be changed without the Company's approval.
Neither Wyndham nor Wyndham II are liable for obligations due to the Company
under the Wyndham Garden/(R)/ Leases. An investment in the Shares is not an
investment in Wyndham, Wyndham I or Wyndham II.
The principal features of the Company's 11 Wyndham Garden/(R)/ Leases
and any Management Agreements for such Hotels are as follows:
. Each of the Company's Wyndham Garden/(R)/ Hotels is the subject of a
separate Lease. However, in the event any of these Leases is
defaulted, the Company may declare all of these Leases to be in
default.
37
<PAGE>
. The initial term of all of these Leases expires in approximately 17
years on December 31, 2012.
. At the end of the initial Lease term, Wyndham I may renew these Leases
for four consecutive 12 year terms. Renewal options may be exercised
only on an all or none basis for all 11 Wyndham Garden/(R)/ Hotels
owned by the Company.
. The Wyndham Garden/(R)/ Leases require minimum rent payments
aggregating $13.6 million per year.
. In addition to minimum rents, the Wyndham Garden/(R)/ Leases require
percentage rents equal to 8% of Total Hotel Sales in excess of Total
Hotel Sales in 1996. Total Hotel Sales includes gross revenues from
room rentals, food and beverage sales and other services provided at
these Hotels. Percentage rents are calculated on a combined basis for
all 11 Wyndham Garden/(R)/ Hotels and are payable starting in 1997.
Although recent increases in Total Hotel Sales are not necessarily
indicative of future operating performance, Total Hotel Sales at the
Company's 11 Wyndham Garden/(R)/ Hotels were $50.7 million in 1994 and
$56.6 million in 1995, an increase of 11.7%.
. The Wyndham Garden/(R)/ Leases all require that 5% of Total Hotel
Sales be escrowed by Wyndham I periodically to fund refurbishments and
renovations to these Hotels. Funds in this FF&E Reserve are pooled for
all 11 of the Company's Wyndham Garden/(R)/ Hotels and generally may
be withdrawn only for capitalized improvements approved by the
Company. During the Lease term, funds in the FF&E Reserve and personal
property purchased with these funds will be the property of Wyndham I.
At the end of the Lease term any funds remaining in this escrow
account and any property purchased with funds from this account
remaining at these Hotels must be transferred to the Company. The
Company believes that the funding provided through the FF&E Reserve
will be adequate to permit these Hotels to maintain competitive
appearances for the foreseeable future. Based upon 1995 Total Hotel
Sales, the FF&E Reserve required for these Wyndham Garden/(R)/ Hotels
is estimated to aggregate approximately $2.8 million per year or
$1,460 per room per year.
. Under certain circumstances, the Company may be required to fund major
repairs to the 11 Wyndham Garden/(R)/ Hotels, in which event base
rents will be increased by a minimum of 10% of the amount funded.
. A Security Deposit equal to a full year's base rent, $13.6 million,
will be retained by the Company as security for Wyndham I's
obligations under the Wyndham Garden/(R)/ Leases. Provided that
Wyndham I does not default under any of these Leases, the Company must
repay the Security Deposit to Wyndham I at the expiration of the
Leases, including renewal terms. No interest is required to be paid by
the Company on the Security Deposit, and it will not be escrowed.
. The Wyndham Garden/(R)/ Leases are net leases requiring Wyndham I to
pay all operating expenses, including taxes and insurance and any
applicable ground rent.
. During the Lease term and so long as the applicable Leases are not in
default, Wyndham I will have rights of first refusal, in certain
circumstances, on sales of the 11 Wyndham Garden/(R)/ Hotels.
. All fees payable under the Management Agreement between Wyndham I and
Wyndham or Wyndham II are subordinated to rents due to the Company,
and these Management Agreements may be canceled by the Company in the
event the Leases affecting the concerned Hotel or Hotels are then in
default. Similarly, all charges which may be payable by Wyndham I to
Wyndham or its affiliates are subordinated to the obligation of
Wyndham I to pay rents to the Company.
. As owner and lessor of the Wyndham Garden/(R)/ Hotels, the Company has
no interest in the sales and operations of these Hotels other than its
entitlement to base rents and percentage rents. For the year ended
December 31, 1995, Wyndham I's pro forma income before income taxes,
rents due to the Company and subordinated management fees and charges
and after deduction of FF&E Reserves exceeded pro forma base rent due
to the Company by $4.3 million, or coverage of 1.32 times the pro
forma base rent due to the Company.
Residence Inn by Marriott/(R)/ Hotels
38
<PAGE>
Host is a leading hotel ownership company that, as of December 30,
1995, owned 90 lodging properties (including the 34 Additional Hotels to be
acquired by the Company from Host) located throughout the United States and in
foreign countries. Host's lodging properties are generally operated under
proprietary brand names and managed by Marriott. Host also holds interests in
various partnerships that own over 260 additional lodging properties operated by
Marriott. Host's lodging properties span several market segments of the hotel
industry, including full service (primarily Marriott Hotels, Resorts and
Suites/(R)/), moderately priced (Courtyard by Marriott/(R)/), extended stay
(Residence Inn by Marriott/(R)/) and economy (Fairfield Inn by Marriott/(R)/).
Host I is a limited purpose subsidiary of Host formed to lease the Company's 18
Residence Inn by Marriott/(R)/ Hotels.
Marriott is a leading international hotel management company that, as
of December 30, 1995, operated or franchised 1,036 hotels with approximately
208,500 guest rooms. In addition to operating hotels, Marriott is also a
leading developer and operator of vacation time sharing properties (Marriott
Ownership Resorts/(R)/) and conference centers (Marriott Conference
Centers/(R)/) throughout the United States. Through its contract service
business, Marriott provides food service and facilities management to more than
3,000 business, education and health care clients. Marriott also develops and
operates retirement communities offering independent living, assisted living and
skilled nursing care. Marriott I is a subsidiary of Marriott.
None of Host, Marriott or Marriott I are liable for obligations due to
the Company from Host I under the Residence Inn by Marriott/(R)/ Leases. An
investment in the Shares is not an investment in Host, Marriott, Host I or
Marriott I.
The principal features of the Company's 18 Residence Inn by
Marriott/(R)/Leases and Management Agreements are as follows:
. Each of the Company's Residence Inn by Marriott/(R)/ Hotels is the
subject of a separate Lease. However, in the event any of these Leases
is defaulted, the Company may declare all of these Leases to be in
default.
. The initial term of all of these Leases expires in approximately
15 years on December 31, 2010.
. At the end of the initial Lease term, Host I may renew these Leases
for one 10 year and two consecutive 15 year renewal terms. Renewal
options may be exercised only on an all or none basis for all 18
Residence Inn by Marriott/(R)/ Hotels owned by the Company.
. The Residence Inn by Marriott/(R)/ Leases require minimum rent
payments aggregating $17.2 million per year.
. In addition to minimum rents, the Residence Inn by Marriott/(R)/
Leases require percentage rents equal to 7.5% of Total Hotel Sales in
excess of Total Hotel Sales in 1996. Percentage rents are calculated
on a combined basis for all 18 Residence Inn by Marriott/(R)/ Hotels
and are payable starting in 1997. Although recent increases in Total
Hotel Sales are not necessarily indicative of future operating
performance, Total Hotel Sales at the Company's 18 Residence Inn by
Marriott/(R)/ Hotels were $57.4 million in 1994 and $61.9 million in
1995, an increase of 8.0%.
. Both the Leases and Management Agreements for the Company's 18
Residence Inn by Marriott/(R)/ Hotels require that 5% of Total Hotel
Sales be escrowed periodically to fund refurbishments and renovations
to these Hotels. Funds in this FF&E Reserve are pooled for all 18
Residence Inn by Marriott/(R)/ Hotels and generally may be withdrawn
only for capitalized improvements. Funds in the FF&E Reserve and
property purchased with those funds are the property of the Company
and payments into the FF&E Reserve are recorded by the Company under
GAAP as rents. The Company believes that the funding provided through
the FF&E Reserve will be adequate to permit these Hotels to maintain
competitive appearances for the foreseeable future. Based upon 1995
Total Hotel Sales, the FF&E Reserve required for the Company's 18
Residence Inn by Marriott/(R)/ Hotels is estimated to aggregate
approximately $3.1 million per year, or $1,422 per suite per year.
. Under certain circumstances, the Company may be required to fund major
repairs to the 18 Residence Inn by Marriott/(R)/ Hotels, in which
event base rents will be increased by a minimum of 10% of the amount
funded.
39
<PAGE>
. A Security Deposit equal to a full year's base rent, $17.2 million,
will be retained by the Company as security for Host I's obligations
under the Residence Inn by Marriott/(R)/ Leases. Provided that Host I
does not default under any of these Leases, the Company must repay the
Security Deposit to Host I at the expiration of the Leases, including
renewal terms. No interest will be paid by the Company on the Security
Deposit and it will not be escrowed.
. The Residence Inn by Marriott/(R)/ Leases are net leases requiring
Host I to pay all operating expenses, including taxes and insurance
and any applicable ground rent. Under the Management Agreements for
the 18 Residence Inn by Marriott/(R)/ Hotels, substantially all of
Host I's operating responsibilities have been delegated to Marriott I.
. The Management Agreements may be cancelled by Host I (with the consent
of the Company) on a hotel by hotel basis if specified performance
levels are not achieved by Marriott I. Similarly, in the event that
the Leases for individual Residence Inn by Marriott/(R)/ Hotels were
terminated, the Company or the successor lessee would be able to
cancel the corresponding Management Agreements on a hotel by hotel
basis if specified performance levels are not achieved.
. The Management Agreements for the Company's 18 Residence Inn by
Marriott/(R)/ Hotels are not cross defaulted with each other nor with
the Leases for these Hotels. Accordingly, if one or more Management
Agreements were defaulted and terminated, Host I and the Company will
be able to continue the affiliation with Marriott and use the
Residence Inn by Marriott/(R)/ brand name and chain services under the
remaining agreements. Also, if the Leases for these Hotels were
defaulted and terminated, the Company and any successor lessee will be
able to continue the affiliation with Marriott and the Residence Inn
by Marriott/(R)/ brand name and chain services under the existing
Management Agreements.
. The Residence Inn by Marriott/(R)/ Management Agreements expire on
December 31, 2020. Thereafter, they may be renewed by Marriott I for
two consecutive 15 year terms. All such renewals may be exercised only
on an all or none basis for all of the Company's 18 Residence Inn by
Marriott/(R)/ Hotels.
. Borrowings in respect of each of the Courtyard by Marriott/(R)/ Hotels
are limited in accordance with a formula set forth in the applicable
Management Agreements to no more than 70% of the allocable purchase
price of each Hotel in the case of a borrowing secured by a single
Hotel, or 60% of the aggregate allocable purchase prices of these
Hotels in the case of a borrowing secured by two or more of these
Hotels on a combined basis.
. Management fees payable to Marriott I for operation of the 18
Residence Inn by Marriott/(R)/ Hotels are subordinated to minimum
rents due to the Company. All related company charges payable by Host
I to Host or affiliates of Host are likewise subordinated to rents due
to the Company.
. As owner and lessor of the Residence Inn by Marriott/(R)/ Hotels, the
Company has no interest in the sales and operations of these Hotels
other than its entitlement to base rents and percentage rents. For the
year ended December 31, 1995, Host I's pro forma income before income
taxes, rents due to the Company and subordinated management fees and
charges and after deduction of FF&E Reserves, exceeded pro forma base
rents due to the Company by $6.7 million, or coverage of 1.39 times
the pro forma base rents due to the Company.
Courtyard by Marriott/(R)/ Hotels
Host II is a limited purpose subsidiary of Host which leases the
Company's 53 Courtyard by Marriott/(R)/ Hotels. Marriott II is a subsidiary of
Marriott. None of Host, Marriott or Marriott II are liable for obligations due
to the Company from Host II under the Courtyard by Marriott/(R)/ Leases. An
investment in the Shares is not an investment in Host, Marriott, Host II or
Marriott II.
The principal features of the Company's 53 Courtyard by Marriott/(R)/
Leases and Management Agreements are as follows:
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. Each of the Company's 53 Courtyard by Marriott/(R) /Hotels is the
subject of a separate Lease. However, in the event any of these Leases
is defaulted, the Company may declare all of these Leases to be in
default.
. The initial term of all of these Leases expires in approximately
17 years on December 31, 2012.
. At the end of the initial Lease term, Host II may renew these Leases
for three consecutive 12 year renewal terms. Renewal options may be
exercised only on an all or none basis for all 53 Courtyard by
Marriott/(R) / Hotels owned by the Company.
. The Courtyard by Marriott/(R)/ Leases require minimum rent payments
aggregating $50.5 million per year.
. In addition to minimum rents, the Courtyard by Marriott/(R)/ Leases
require percentage rents equal to 5% of Total Hotel Sales in excess of
Total Hotel Sales in 1994 (for 37 Hotels) and 1995 (for 16 Hotels).
Percentage rents are calculated on a combined basis for all 53
Courtyard by Marriott/(R)/ Hotels. Although recent increases in Total
Hotel Sales are not necessarily indicative of future operating
performance, Total Hotel Sales at the Company's 53 Courtyard by
Marriott/(R)/ Hotels were $173.8 million in 1994 and $184.0 million in
1995, an increase of 5.8%.
. Both the Leases and Management Agreements for the Company's 53
Courtyard by Marriott/(R)/ Hotels require that 5% of Total Hotel Sales
be escrowed periodically to fund refurbishments and renovations to
these Hotels. Funds in this FF&E Reserve are pooled for all 53
Courtyard by Marriott/(R)/ Hotels and generally may be withdrawn only
for capitalized improvements. Funds in the FF&E Reserve and property
purchased with those funds are the property of the Company and
payments into this FF&E Reserve are recorded by the Company under GAAP
as rents. The Company believes that the funding provided through the
FF&E Reserve will be adequate to permit these Hotels to maintain
competitive appearances for the foreseeable future. Based upon 1995
Total Hotel Sales, the FF&E Reserve required for these 53 Courtyard by
Marriott/(R)/ Hotels is estimated to aggregate approximately $9.2
million per year or $1,213 per room per year.
. Under certain circumstances, the Company may be required to fund major
repairs to the 53 Courtyard by Marriott/(R)/ Hotels, in which event
base rents will be increased by a minimum of 10% of the amount funded.
. A Security Deposit equal to a full year's base rent, $50.5 million,
will be retained by the Company as security for Host II's obligations
under the Leases. Provided that Host II does not default under any of
the Leases, the Company must repay the Security Deposit to Host II at
the expiration of the Leases, including renewal terms. No interest
will be paid by the Company on the Security Deposit and it will not be
escrowed.
. The Courtyard by Marriott/(R)/ Leases are net leases requiring Host II
to pay all operating expenses, including taxes and insurance and any
applicable ground rent. Under the Management Agreements, substantially
all of Host II's operating responsibilities have been delegated to
Marriott II.
. The Management Agreements may be cancelled by Host II (with the
consent of the Company) on a hotel by hotel basis if specified
performance levels are not achieved by Marriott II. Similarly, in the
event that the Leases for individual Courtyard by Marriott/(R)/ Hotels
were terminated, the Company or the successor lessee would be able to
cancel the corresponding Management Agreements on a hotel by hotel
basis if specified performance levels are not achieved.
. The Management Agreements for the Company's 53 Courtyard by
Marriott/(R)/ Hotels are not cross defaulted with each other nor with
the Leases for these Hotels. Accordingly, if one or more Management
Agreements were defaulted and terminated, Host II and the Company will
be able to continue the affiliation with Marriott and use the
Courtyard by Marriott/(R)/ brand name and chain services under the
remaining agreements. Also, if the Leases for these Hotels were
defaulted and terminated, the Company and any successor lessee will be
able to continue the affiliation with Marriott and use the Courtyard
by Marriott/(R)/ brand name and chain services under existing
Management Agreements.
. The Courtyard by Marriott/(R)/ Management Agreements expire on
December 31, 2012. Thereafter, they may be renewed by Marriott II for
three consecutive 12 year terms. All such renewals may be exercised
only on an all or none basis for all of the Company's 53 Courtyard by
Marriott/(R)/ Hotels.
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<PAGE>
. Borrowings in respect of each of the Courtyard by Marriott/(R)/ Hotels
are limited in accordance with a formula set forth in the applicable
Management Agreements to no more than 70% of the allocable purchase
price of each Hotel in the case of a borrowing secured by a single
Hotel, or 60% of the aggregate allocable purchase prices of these
Hotels in the case of a borrowing secured by two or more of these
Hotels on a combined basis.
. Management fees payable to Marriott II for operation of the 53
Courtyard by Marriott/(R)/ Hotels are subordinated to minimum rents
due to the Company. All related company charges payable by Host II to
Host or affiliates of Host are likewise subordinated to rents due to
the Company.
. As owner and lessor of the Courtyard by Marriott/(R)/ Hotels, the
Company has no interest in the sales and operations of these Hotels
other than its entitlement to base rents and percentage rents. For the
year ended December 31, 1995, Host II's pro forma income before income
taxes, rents due to the Company and subordinated management fees and
charges and after deduction of FF&E Reserves, exceeded pro forma base
rents due to the Company by $17.3 million, or coverage of 1.34 times
the pro forma base rents due to the Company.
Purchase Agreements
Under the Purchase Agreements for the Additional Hotels (the "Purchase
Agreements") , the respective sellers are entitled to receive the purchase price
in cash (net of applicable Security Deposits) in exchange for title to the
Additional Hotels. It is anticipated that the closings under the Purchase
Agreements will occur prior to or concurrently with the completion of this
Offering. The purchase of each Additional Hotel is contingent upon the
satisfactory completion of the Company's due diligence investigation.
Each of the Purchase Agreements contains representations with respect
to the Additional Hotels which are typical in commercial real estate
acquisitions, including, among other things, that: (i) the properties and the
use and operation thereof do not violate applicable laws, (ii) the sellers have
not placed any hazardous substances on the properties and (iii) applicable
Management Agreements (except in the case of the Wyndham Garden/(R)/ Hotels) and
ground leases are in full force and effect. In addition, each seller has
agreed, for the period ending one year after closing, to indemnify and hold the
Company harmless from and against losses that may arise as a result of the
breach of these representations. In connection with the Purchase Agreements,
the Company has engaged or prior to the closing will engage in a due diligence
investigation with respect to each Additional Hotel, including review of title
documents, zoning restrictions, surveys, Phase I environmental reports,
engineering reports, historical financial statements and copies of governmental
permits, franchise or license agreements, leases and other material contracts.
The Company will receive an owner's policy of title insurance for each of the
Additional Hotels acquired pursuant to the Purchase Agreements. See "Risk
Factors -- Certain Risks of Recent Acquisitions." Pursuant to the Purchase
Agreement for the 16 Courtyard by Marriott/(R)/ Additional Hotels and separate
Agreements to Lease between the Company and the respective Lessees of the other
Additional Hotels, the Lessees have agreed to enter into Leases upon the
Company's acquisition of the respective Additional Hotels.
In connection with the purchase of the Initial Hotels, the Company
acquired a right of first offer expiring August 31, 2002 with respect to
substantially all of the interests of Host or its subsidiaries in Courtyard by
Marriott/(R)/ and Residence Inn by Marriott/(R)/ hotels. In connection with the
purchase of 34 Additional Hotels from Host, the Company will pay Host $2.5
million to extend the effective period of this right of first offer until
December 31, 2010.
Competition
The hotel industry is highly competitive. Each of the Hotels is
located in an area that includes other hotels. Increases in the number of hotels
in a particular area could have a material adverse effect on occupancy rates and
ADR of the Hotels located in that area. The Marriott I and Marriott II
Management Agreements restrict the right of Marriott and its affiliates, until
September 25, 1999, to own, build, operate, franchise or manage any other
Courtyard by Marriott/(R)/ hotel within various specified areas around the
Company's Courtyard by Marriott/(R)/ Hotels or any other Residence Inn by
Marriott/(R)/ hotel within various specified areas around the Company's
Residence Inn by Marriott/(R)/ Hotels. The Wyndham Garden/(R)/ Leases restrict
the right of Wyndham and its affiliates during the term of the Wyndham
Garden/(R)/ Leases to own or franchise any other Wyndham Garden/(R)/ hotel
within specified market areas of any of the Company's
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Wyndham Garden/(R)/ Hotels. Neither Marriott nor Wyndham nor any of their
respective affiliates are restricted from operating other branded hotels in the
market areas of any of the Hotels, and after September 25, 1999, Marriott and
its affiliates may also compete with the Courtyard by Marriott/(R)/ Hotels or
Residence Inn by Marriott/(R)/ Hotels by opening, managing or franchising
additional hotels under the same brand name in direct competition with the
Company's Hotels. See " Risk Factors -- Hotel Operating Risks."
The Company expects to compete for hotel acquisition and financing
opportunities with entities which may have substantially greater financial
resources than the Company, including, without limitation, other publicly owned
REITs, banks, insurance companies, pension plans and public and private
partnerships. These entities may be able to accept more risk than the Company
can prudently manage, including risks with respect to the creditworthiness of
hotel operators. Such competition may reduce the number of suitable hotel
acquisition or financing opportunities available to the Company and increase the
bargaining power of hotel owners seeking to sell or finance their properties.
Environmental Matters
Under various environmental laws, 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, in or emanating from 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, and
the liability under such laws has been interpreted to be strict, meaning that
liability is imposed without regard to fault. Liability under such laws has
also been interpreted to be joint and several, meaning that any current or
previous owner or operator or other responsible party might be liable for the
entire amount of the cleanup and remediation costs for a contaminated site. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or lease the property or to
borrow using such 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. In addition, certain environmental laws and common law principles
govern the responsibility for the removal, encapsulation or disturbance of
asbestos containing materials ("ACMs") when these ACMs are in poor condition or
when a property with ACMs is undergoing renovation or demolition. Such laws
could also be used to impose liability upon owners or operators of real
properties for release of ACMs into the air that cause personal injury or other
damage.
The Company received a Phase I environmental assessment report for
each of the 37 Initial Hotels. The Company will also receive a Phase I
environmental assessment report for each of the 45 Additional Hotels under the
terms of the Purchase Agreements. The purpose of these reports is to identify,
to the extent reasonably possible and based on reasonably available information,
any existing and potential conditions resulting from hazardous or toxic
substances, including petroleum products and ACMs, at the Hotels. The scope of
the Phase I environmental assessments generally include: (i) a review of
available maps, aerial photographs and past and present uses of the site; (ii)
an inspection of appropriate public records; and (iii) in certain cases, limited
inquiries of governmental agencies having jurisdiction over certain
environmental matters. Each Phase I environmental assessment also includes an
on site visual inspection of the Hotel to assess visual evidence of past or
present on site waste disposal, visible surface contamination, potential sources
of soil and groundwater contamination, above surface and subsurface storage
tanks, visible drums, barrels and other storage containers, current waste
streams and management practices, ACMs and polychlorinated biphenyl
transformers. In addition, as part of the Phase I environmental assessment,
abutting properties and nearby sources of potential contamination are identified
through publicly available information and evaluated for potential impact on the
Hotels, to the extent reasonably possible. In some instances, the Company also
caused additional investigations to be conducted with respect to certain of the
Initial Hotels and, depending on the results of the Phase I environmental
assessments covering the Additional Hotels, may do the same with respect to
certain of the Additional Hotels.
Some of the Hotels are located on or near properties with former or
existing underground or above ground storage tanks used to store petroleum
products, or on which activities involving hazardous substances have been or
currently are being conducted. The Company is aware of petroleum contaminated
soil and/or groundwater at several Hotels from former or existing on-site or
nearby service stations or leaking underground storage tanks. In addition, the
Company believes that two of the Hotels may have been constructed on sites at
which fill materials containing hazardous substances were used and that one of
the Hotels was constructed over abandoned oil and gas wells. The Company is
also aware of several Hotels that are located in an area of regional groundwater
contamination. The Company does not
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believe that these instances of on-site or regional contamination and historical
or current activities will have a material adverse effect on the Company's
business or results of operations. However, the Company cannot predict whether
modifications of existing laws or regulations, the adoption of new laws or
regulations or changes in conditions at the Hotels may have a material adverse
effect on the Company's business or results of operations in the future.
Except as described above, the Company is not aware of any
environmental condition with respect to the Hotels that could have a material
adverse effect on the Company's business or results of operations. No
assurances can be given, however, that the Phase I environmental assessments
undertaken or to be undertaken with respect to the Hotels have revealed or will
reveal all potential environmental liabilities, that any prior owner or operator
of the real property on which the Hotels are located did not create any material
environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Hotels.
Regulatory Matters
Hotel properties are subject to various laws, ordinances and
regulations, including regulations relating to restaurants and other food and
beverage operations and recreational facilities such as swimming pools, activity
centers and other common areas. The Company believes that each of its Hotels
has the necessary permits and approvals required to enable the applicable Lessee
and or Manager to operate the Hotels in the manner contemplated by the Leases
and the Management Agreements.
Under Title III of the ADA, a hotel with more than five rooms for rent
is considered both a "public accommodation" and a "commercial facility." Under
the public accommodations provisions of the ADA, the Company, as owner of the
Hotels will be obligated to make reasonable accommodations to patrons who have
physical, mental or other disabilities. This will include the obligation to
remove architectural and communication barriers at the Hotels when doing so is
"readily achievable" and to ensure that alterations to the Hotels performed
after January 26, 1992 conform to the specific requirements of the ADA
implementing regulations. The Leases require the Lessees to comply with the
ADA. A Lessee will also generally be obligated to remedy any ADA compliance
matters from the applicable FF&E Reserve, its own funds, financing by third
parties or financing provided by the Company (which would increase base rent
under the Leases). See "Risk Factors -- Americans With Disabilities Act."
Ground Leases
The right to occupy the land underlying 10 of the Hotels were or will
be acquired by an assignment of leasehold interest under long term ground
leases. In each case, the remaining term of the ground lease (including renewal
options) is in excess of 45 years, and the ground lessors are unrelated to the
sellers and the Company.
Rent payable under the 10 ground leases is the responsibility of the
Company's Lessees and is generally calculated as a percentage of hotel revenues.
Eight of the 10 ground leases require minimum annual rent ranging from
approximately $90,000 to $502,900 per year. If a ground lease terminates, the
Lease with respect to the Hotel on such ground-leased land will also terminate.
If a Lessee does not perform the obligations under a ground lease or elects not
to renew any ground lease, the Company must perform such obligations under the
ground lease or renew such ground lease in order to protect its investments in
the affected Hotel. Any pledge of the Company's interests in a ground lease may
also require the consent of the applicable ground lessor and its lenders. See
"Risk Factors -- Ground Leases."
Mortgages
Certain of the Company's Hotels are currently and from time to time
may be made subject to mortgages securing the Line of Credit or the Expanded
Credit Facility. See "Management's Discussion and Analysis of Results and
Operations -- Liquidity and Capital Resources -- Company".
Damage, Destruction or Condemnation
In the event any Hotel is damaged by fire, explosion or other casualty
as a result of which such Hotel cannot be operated in the good faith judgment of
the applicable Lessee or Manager on a commercially practicable basis for its
permitted use and it cannot reasonably be expected to be restored within
specified periods following such damage, either the Company or the applicable
Lessee may terminate the Lease. If either (i) the damage is not extensive
enough to give
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rise to an option to terminate the Lease or (ii) neither the Company nor the
Lessee elects to terminate the Lease, the Lessee is obligated promptly to repair
and replace the improvements to the extent of available insurance proceeds.
During any period of reconstruction or repair of any Hotel, the Lessee is
required to operate its businesses at such Hotel to the extent practicable,
without abatement of rent. In the event that there are inadequate insurance
proceeds to pay for the cost of restoration and the Lessee elects not to fund
the deficiency, the Company may, at its option, finance the shortfall for all
such repairs, and base rent under the applicable Lease will increase by a
minimum of 10% per annum of the amount financed.
In the event that any Hotel or any substantial portion thereof is
taken or condemned or sold by the Company in lieu thereof, the applicable Lease
will terminate, and any related award is to be paid to the Company, a Lessee or
a Manager, as appropriate. In the event only a part of any Hotel is taken or
condemned but such Hotel or the part remaining can still be used for its prior
purpose, the Lease will not terminate and the applicable Lessee is required to
repair and restore the remaining improvements, provided the cost of such repair
and restoration does not exceed the amount of the related award. If the cost of
such repair exceeds such amount and the Lessee is unwilling to pay the amount of
such deficiency, the Lessee may request that the Company fund the amount of the
deficiency, in which event base rent increases by a minimum of 10% per annum of
the amount so funded. If neither party elects to fund the deficiencies, either
party may terminate the Lease.
The ground leases for 10 of the Hotels contain provisions relating to
the obligation of the Company to maintain insurance, restore the premises
following a casualty or a taking and apply in a specified manner proceeds
received by the Company in connection with a casualty or a taking, all of which
obligations are required to be performed by the applicable Lessee pursuant to
the Leases. In instances where a material casualty has occurred prior to the
last five years of a ground lease, however, the Company may be obligated under
certain ground leases to restore the property although the Lessee has terminated
the applicable Lease as a result of a casualty and regardless of whether the
proceeds received are adequate to effect restoration. In addition, in certain
limited circumstances the lenders holding mortgages on the land underlying
certain of such ground leased Hotels may have the right to require that
insurance proceeds or condemnation awards be applied to repayment of debt
secured by such mortgage.
Legal Proceedings
The Company has a limited operating history and is not currently a
party to any legal proceedings. Under the Purchase Agreements, each of the
sellers represented to the Company that there were no pending condemnation,
eminent domain or other actions, suits or proceedings involving the Additional
Hotels, except for certain real estate taxation disputes, certain matters
covered by insurance maintained by the sellers and certain immaterial matters
not covered by such insurance. Although in the ordinary course of business the
Company is or may become involved in legal proceedings, the Company has a
limited operating history and is not aware of any material pending legal
proceeding affecting any of the Hotels for which it might become liable.
In the ordinary course of their business Advisors and HRP are
occasionally involved in litigation. Early in 1995, HRP commenced a foreclosure
action to enforce indemnities given in connection with the surrender of certain
leaseholds to, and the purchase of certain properties by, HRP in 1992. In May
1995, the defendants in the foreclosure action and parties related to HRP's
former tenants and sellers asserted cross claims against HRP, Advisors, Messrs.
Portnoy and Martin and others, including Sullivan & Worcester, counsel to HRP,
Advisors and the Company. The same cross-claim defendants were served in late
February 1996, in an additional action in a federal court. The cross claims and
separate claims allege, among other things, fraud (including violations of
federal securities laws), conflicts of interest, breach of fiduciary duties,
legal malpractice, civil conspiracy and violations of 18 U.S.C. (S)1962 (RICO)
in connection with the leasehold surrenders, the transactions and indemnities
underlying the foreclosure action and certain related transactions, and that the
foreclosure defendants and third party plaintiffs suffered substantial damages
as a result. HRP, Advisors and other parties to this dispute have sought
arbitration of all arbitrable claims arising from this dispute pursuant to the
contract under which the dispute originated and an arbitration proceeding is now
underway. Although the outcome of this litigation is currently indeterminable,
the Company has been advised that each of the third party defendants believes
the claims against it are without merit and intends to defend and deny the
allegations in these cross claims and separate claims, and that HRP intends to
pursue the original foreclosure action. The Company is not a party to this
litigation.
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MANAGEMENT
Trustees and Executive Officers
The following table sets forth certain information with respect to the
persons who are Trustees and officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Barry M. Portnoy........... 50 Managing Trustee (term will expire in 1996)
Gerard M. Martin........... 61 President and Managing Trustee (term will
expire in 1997)
John G. Murray............. 35 Treasurer, Secretary and Chief Financial
Officer
John L. Harrington......... 59 Independent Trustee (term will expire in 1996)
William J. Sheehan......... 51 Independent Trustee (term will expire in 1997)
Arthur G. Koumantzelis..... 65 Independent Trustee (term will expire in 1998)
</TABLE>
The following is a biographical summary of the experience of the Trustees and
officers of the Company.
Barry M. Portnoy is a Managing Trustee of the Company. Mr. Portnoy has been a
partner in the law firm of Sullivan & Worcester LLP since 1978. Mr. Portnoy has
been a Managing Trustee of HRP since its organization in 1986. From 1985 until
the merger of Greenery Rehabilitation Group, Inc. ("Greenery") into Horizon
Healthcare Corporation ("Horizon") in February 1994 (the "Horizon/Greenery
Merger"), Mr. Portnoy served as a Director of Greenery. Mr. Portnoy is
currently a Director of Horizon and a Director and 50% shareholder of Advisors.
Mr. Portnoy has been actively involved in real estate and real estate finance
activities for approximately 20 years.
Gerard M. Martin is a Managing Trustee of the Company. Mr. Martin is a
private investor in real estate. Mr. Martin has been a Managing Trustee of HRP
since its organization in 1986. From 1985 until the Horizon/Greenery Merger,
Mr. Martin served as the Chief Executive Officer and Chairman of the Board of
Directors of Greenery. Mr. Martin is currently a Director of Horizon and a
Director and 50% shareholder of Advisors. Mr. Martin has been active in the
real estate industry for more than 30 years. Mr. Martin is currently acting as
an interim President of the Company. When a full time President is appointed,
Mr. Martin intends to resign the position but to remain a Managing Trustee of
the Company.
John G. Murray is the Treasurer, Secretary and Chief Financial Officer of the
Company. Mr. Murray served in various capacities for HRP and Advisors from 1993
through August 1995. Mr. Murray served as Director of Finance, Business
Analysis and Planning at Fidelity Brokerage Services, Inc. from 1992 to 1993 and
as Director of Acquisitions from 1990 through 1991. Prior to 1990, Mr. Murray
was a senior manager at the accounting firm of Arthur Young & Company (now Ernst
& Young LLP). Mr. Murray is a certified public accountant.
John L. Harrington has been the Chief Executive Officer of the Boston Red Sox
Baseball Club for at least five years and is Executive Director and Trustee of
the Yawkey Foundation and a Trustee of the JRY Trust. Mr. Harrington is also a
director of Shawmut Bank, N.A. Mr. Harrington was a Trustee of HRP from 1991
through August 1995.
William J. Sheehan has been the Chief Financial Officer of Ian Schrager
Hotels, Inc. since May 1995. From 1993 through May 1995, Mr. Sheehan was a self
employed consultant on financial and operating matters to companies in the hotel
industry. From 1982 until 1993 he was employed by Omni Hotels, most recently as
Vice Chairman (1992 to 1993) and President and Chief Executive Officer (1988 to
1992). Prior to that time, he was a partner at Arthur Andersen & Co. (now Arthur
Andersen LLP). Mr. Sheehan is a certified hotel administrator, a Fellow of the
Educational Institute of the American Hotel and Motel Association and has been a
speaker at various hotel industry conferences.
Arthur G. Koumantzelis has been Senior Vice President and Chief Financial
Officer of Cumberland Farms, Inc. since July 1990. Cumberland Farms, Inc. is a
private company engaged in the convenience store business in the northeastern
United States and Florida and in the distribution and retail sale of gasoline in
the northeastern United States. Cumberland Farms, Inc. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in May 1992 and
subsequently emerged from bankruptcy proceedings in December 1993. Mr.
Koumantzelis was a Trustee of HRP from 1992 through August 1995.
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The Declaration of Trust provides that a majority of the Board of Trustees
will be composed of Independent Trustees who are not affiliated with the
Advisors nor serve as officers of the Company. Messrs. Harrington, Sheehan and
Koumantzelis are the Company's Independent Trustees.
Committees of the Board of Trustees
The Board of Trustees maintains an Audit Committee consisting of the three
Independent Trustees. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, considers
the appropriateness of audit and nonaudit fees charged and reviews the adequacy
of the Company's internal accounting controls.
The entire Board of Trustees functions as an Executive Compensation Committee
to implement the Company's Incentive Share Award Plan. See "-- Incentive Share
Award Plan." A subcommittee of the Executive Compensation Committee composed of
the Independent Trustees reviews the performance of Advisors under the Advisory
Agreement. See "-- Advisors and the Advisory Agreement -- Compensation to
Advisors."
Compensation of Trustees and Officers
The Company pays its Independent Trustees an annual fee of $20,000 plus a fee
of $500 for each meeting attended and reimburses expenses incurred by its
Independent Trustees for attending meetings. Each Independent Trustee received
a grant of 300 Shares after the completion of the Company's initial public
offering and will automatically receive an additional annual grant of 300 Shares
at the first meeting of the Board of Trustees following each annual meeting of
Shareholders commencing in 1996. See "-- Incentive Share Award Plan" and "--
Advisors and the Advisory Agreement." In addition, the Independent Trustee
serving as Chairman of the Audit Committee, which position rotates annually
among the Independent Trustees, is paid $2,000 per year for such service.
Employees
The Company is an advised REIT and has no employees. Services which would
otherwise be provided by employees are provided by Advisors pursuant to the
Advisory Agreement and by the Managing Trustees and officers of the Company.
Although officers of the Company do not receive any cash compensation from the
Company, they may be entitled to incentive share awards under the Company's
Incentive Share Award Plan. See "-- Incentive Share Award Plan."
Incentive Share Award Plan
The Company has adopted an Incentive Share Award Plan and has reserved 100,000
Shares for grant thereunder to Independent Trustees and officers of, and
consultants (other than Advisors) to, the Company. The officers of the Company
are employees of Advisors and not of the Company and therefore receive their
salary compensation from Advisors. The Company has established its Incentive
Share Award Plan in order to provide it with a vehicle with which to foster a
continuing identity of interest among the Company's officers and Independent
Trustees and the Company's Shareholders. In addition, the Incentive Share Award
Plan permits the Company to compensate its officers for the performance of
certain duties which fall outside the scope of services covered by the Advisory
Agreement.
The Independent Trustees automatically receive grants of 300 Shares per year
as part of their annual compensation. In granting other incentive share awards,
the Board of Trustees may consider a range of factors, including the complexity
and duration of tasks performed by grantees on behalf of the Company and the
amount and terms of Shares previously granted. The vesting schedule of each
incentive share award is determined at the time of grant. In the event that an
officer who has been granted an incentive share award resigns during the vesting
period of such award, the grantee generally will be entitled to receive only the
number of Shares which will have vested prior to the date of resignation. No
Shares have been granted to date under the Incentive Share Award Plan other than
the initial grant of 300 Shares to each Independent Trustee.
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Trustees' and Officers' Indemnification
The Declaration provides that Trustees, officers, employees and agents of the
Company shall be indemnified by the Company against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims asserted
against them by reason of their status, provided that such claims were not the
result of willful misfeasance, bad faith, gross negligence or reckless disregard
of duty. The Company may in the future purchase insurance including general
liability, securities liability, Trustee and officer liability and other
insurance in such amounts and with such carriers as the Company reasonably deems
appropriate in order to support this indemnity.
Advisors and the Advisory Agreement
Advisors
Advisors is a Delaware corporation owned by Barry M. Portnoy and Gerard M.
Martin. Advisors' principal place of business is 400 Centre Street, Newton,
Massachusetts and its telephone number is (617) 332-3990. Advisors provides
management services and investment advice to the Company. Advisors also acts as
the investment advisor to HRP and has other business interests. The Directors
of Advisors are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The
officers of Advisors are David J. Hegarty, President and Secretary, John G.
Murray, Executive Vice President, John A. Mannix, Vice President, Adam D.
Portnoy, Vice President and Ajay Saini, Treasurer. The following is a
biographical summary of the experience of the Directors and officers of Advisors
who are not described under the caption "Management."
David J. Hegarty, age 39, is the President, Chief Operating Officer and
Secretary of HRP and the President and Secretary of Advisors. Mr. Hegarty has
been employed by HRP and Advisors in various capacities since 1987 and prior to
that he was an audit manager with Arthur Young & Company (now Ernst & Young
LLP). Mr. Hegarty is a certified public accountant.
John A. Mannix, age 40, is a Vice President of Advisors. Mr. Mannix has been
employed by Advisors since 1992. Prior to joining Advisors, he was Director of
Property Management for Greenery.
Adam D. Portnoy, age 25, is a Vice President of Advisors. Mr. Portnoy has
been employed by Advisors since October 1995. Prior to his employment by
Advisors, Mr. Portnoy was employed as Manager of Strategic Planning for Phase
Metrics, Inc. a privately held manufacturer of computer testing equipment, and
as an investment banking analyst at Donaldson, Lufkin and Jenrette Securities
Corporation. Adam Portnoy is the son of Barry Portnoy.
Ajay Saini, age 35, is the Treasurer of HRP and Advisors. Mr. Saini has been
employed by Advisors in various capacities since June 1990 and prior to that he
was a senior accountant at Arthur Young & Company (now Ernst & Young LLP). Mr.
Saini is a certified public accountant.
The Advisory Agreement
Under the Advisory Agreement, Advisors is obligated to use its best efforts to
present to the Company a continuing and suitable investment program consistent
with the investment policies and objectives of the Company. See "Policies with
Respect to Certain Activities -- Investment Policies." Subject to its duty of
overall management and supervision, the Board of Trustees has delegated to
Advisors the power and duty to, among other things:
(i) serve as the Company's investment advisor, with its obligations to
include providing research and economic and statistical data in connection with
the Company's investments and recommending changes in the Company's investment
policies when appropriate;
(ii) investigate and evaluate investment opportunities and recommend them to
the Trustees;
(iii) manage the Company's short term investments, including the acquisition
and sale of money market instruments in accordance with the Company's policies;
(iv) administer the day to day operations of the Company;
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(v) investigate and select prospective tenants for the Company's hotels and
enter into appropriate leases and other contracts on behalf of the Company in
furtherance of the investment activities of the Company;
(vi) upon request by the Trustees, act as attorney in fact or agent in
acquiring and disposing of investments and funds of the Company and in handling,
prosecuting and settling any claims of the Company;
(vii) upon request by the Trustees, invest and reinvest any money of the
Company;
(viii) obtain for the Company, when appropriate, the services of property
managers or management firms to perform customary property management services
with regard to the real estate properties owned by or in the possession of the
Company, and perform such supervisory or monitoring services on behalf of the
Company with respect to the activities of such property managers or management
firms as would be performed by a prudent owner;
(ix) obtain for the Company such services as may be required for other
activities relating to the investment portfolio of the Company;
(x) administer such day to day bookkeeping and accounting functions as are
required for the proper management of the assets of the Company and prepare or
cause to be prepared such reports as may be required by any governmental
authority in connection with the ordinary conduct of the Company's business;
(xi) provide office space, office equipment and the use of accounting or
computing equipment when required, and provide personnel necessary for the
performance of the foregoing services; and
(xii) upon request by the Trustees, make reports thereto of its performance of
the foregoing services to the Company.
In performing its services under the Advisory Agreement, Advisors may utilize
facilities, personnel and support services of various of its affiliates.
Under the Advisory Agreement, Advisors assumes no responsibility other than to
render the services described therein in good faith and is not responsible for
any action of the Board of Trustees in following or declining to follow any
advice or recommendation of Advisors. In addition, the Company has agreed to
indemnify Advisors, its shareholders, directors, officers, employees and
affiliates against liabilities relating to certain acts or omissions of Advisors
undertaken in good faith.
The initial term of the Advisory Agreement expired on December 31, 1995 and
has been renewed for a term through December 31, 1996. Renewal or extension of
the term the Advisory Agreement is subject to the periodic approval of a
majority of the Independent Trustees. Pursuant to the Advisory Agreement,
Advisors and Messrs. Portnoy and Martin have agreed not to provide advisory
services to, or serve as a director or officer of, any other REIT which is
principally engaged in the business of ownership of hotels or to make
competitive direct investments in hotels, in each case, without the consent of
the Company's Independent Trustees. See "Policies with Respect to Certain
Activities --Conflict of Interest Policies."
Compensation to Advisors
The Board of Trustees, including a majority of the Independent Trustees,
determines the amount of compensation which the Company contracts to pay to
Advisors and any renewal, extension or amendment of the Advisory Agreement,
based on such factors as it deems appropriate. Such factors may include the
size of the advisory fee in relation to the size, composition, quality and
profitability of the investment portfolio of the Company, the success of
Advisors in generating opportunities that meet the Company's investment
objectives, the quality and extent of services and advice furnished by Advisors,
the rates charged by other investment advisors performing comparable services
and the costs of similar services incurred by other REITs.
The Advisory Agreement currently provides for (i) an annual advisory fee,
payable monthly and reconciled annually, and (ii) an annual incentive fee. The
annual advisory fee is equal to the sum of 0.70% of the daily weighted average
of the total book value of the Company's real estate assets (before reserves for
depreciation or bad debts or other
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similar non-cash reserves) invested, directly or indirectly, in equity interests
in and loans secured by real estate and personal property owned in connection
with such real estate (the "Average Invested Capital") up to $250.0 million plus
0.50% of Average Invested Capital exceeding $250.0 million. The annual
incentive fee is calculated on the basis of annual increases in the amount of
Cash Available for Distribution per Share. No incentive fees were payable for
the initial term of the Advisory Agreement. Starting in 1996 the incentive fee
payable to Advisors is 15% of annual increases in Cash Available for
Distribution per Share times the weighted average number of Shares outstanding
in each year, but in no event more than $0.02 per Share times the weighted
average number of Shares outstanding in each year. Any incentive fee earned by
Advisors will be paid in Shares.
The Advisory Agreement currently in effect between Advisors and HRP is
substantially similar to the Advisory Agreement between Advisors and the
Company. Amounts invested by HRP in the Company, however, are not counted for
purposes of determining the advisory fees payable by HRP to Advisors.
The Company does not have any employees or administrative officers separate
from Advisors. Services which might otherwise be provided by employees are
provided to the Company by employees of Advisors. Similarly, office space is
provided to the Company by Advisors. Although the Company does not have
significant general and administrative operating expenses, in addition to fees
payable to Advisors, the Company is required to pay various other expenses
relating to its activities, including the costs and expenses of acquiring,
owning and disposing of the Company's real estate interests (including
appraisal, reporting, audit and legal fees), its costs of borrowing money and
its costs of securities listing, transfer, registration and compliance with
reporting requirements. Also, the fees and expenses of the Company's
Independent Trustees are paid by the Company.
Certain Transactions
In March 1995, the Company acquired 21 of the Initial Hotels for $179.4
million. Substantially all of the funding for this acquisition, including start
up, closing and option costs, was provided to the Company by HRP as a demand
loan and through the purchase by HRP of 40,000 Shares for $1.0 million ($25.00
per Share). In August 1995 in connection with the Company's initial public
offering, HRP purchased an additional 3,960,000 Shares at $25.00 per Share by
cancelling $99.0 million of the HRP demand loan, and Advisors purchased directly
from the Company 250,000 Shares at $25.00 per Share. In addition, $64.3 million
of cash proceeds of the Company's initial public offering was used to HRP to
repay the remaining balance of the HRP demand loan. In August 1995, Advisors
entered into the Advisory Agreement with the Company under which it earns
advisory fees. Messrs. Portnoy and Martin are each Managing Trustees of the
Company, Managing Trustees of HRP and Directors and 50% owners of Advisors. See
"-- Advisors and the Advisory Agreement" and "Risk Factors -- Conflicts of
Interest."
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investments, dispositions, financing, conflicts of interest and certain other
activities. These policies have been determined by the Board of Trustees and,
although there is no current intention to do so, these policies may be amended
or revised from time to time at the discretion of the Board of Trustees without
a vote of the Company's Shareholders, except that the Company cannot change its
policy of seeking to maintain its qualification as a REIT nor can it enter into
certain extraordinary transactions (such as a merger or the sale of all or
substantially all of its assets) without the approval of two thirds of the
Shareholders.
Investment Policies
Acquisitions
The Company is committed to pursuing growth through the acquisition of
additional hotels and intends to pursue acquisition opportunities after
completion of this Offering. Generally, the Company prefers to purchase and
lease multiple hotels in one transaction because the Company believes, cross
default covenants and all or none renewal rights for multiple hotels enhance the
credit characteristics of its leases and the security of its investments. In
implementing its acquisition strategy, the Company considers a range of factors
relating to proposed hotel purchases including: (i) historical and projected
cash flows; (ii) the competitive market environment and the current or potential
market position of each proposed hotel; (iii) the availability of a qualified
lessee; (iv) the physical condition of the proposed hotel and
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its potential for redevelopment or expansion; (v) the estimated replacement cost
and proposed acquisition price of the proposed hotel; (vi) the price segment in
which the proposed hotel is operated; and (vii) the strength of the particular
national hotel organization, if any, with which the proposed hotel is or may
become affiliated. In determining the competitive position of a prospective
hotel, the Company examines the proximity of the proposed hotel to business,
retail, academic and tourist attractions and transportation routes, the number
and characteristics of competitive hotels within the proposed hotel's market and
the existence of any barriers to entry within that market, including zoning
restrictions and financing constraints. While the Company focuses on the
acquisition of moderately priced hotel properties, it also considers
acquisitions in all segments of the hotel industry. The Company believes that
its capital position after completion of this Offering will enhance its ability
to pursue attractive acquisition opportunities.
An important part of the Company's acquisition strategy is to identify and
select qualified and experienced hotel lessees and managers. The Company
intends to continue to select hotels for acquisition which will enhance the
diversity of its portfolio in respect to location, brand name, lessees and
managers. The Company has no policies which would limit the purchase price or
the percentage of its assets which may be invested in any individual hotel or
invested in hotels leased to a single lessee or managed by a single manager or
operated with a single franchise affiliation.
Other Investments in Real Estate
Although the Company emphasizes direct wholly owned investments in its hotels,
it may, in its discretion, invest in joint ventures, mortgages and other real
estate interests, consistent with its qualification as a REIT. The Company may
invest in real estate joint ventures if it concludes that by doing so it may
benefit from the participation of coventurers or that the opportunity of the
Company to participate in the investment is contingent on the use of a joint
venture structure. The Company may invest in participating, convertible or
other types of mortgages if it concludes that by doing so it may benefit from
the cash flow or any appreciation in the value of the subject property.
Convertible mortgages are similar to equity participation because they permit
the lender to either participate in increasing revenues from the property or
convert some or all of that mortgage into equity ownership interests. At all
times, the Company intends to make its investments in such a manner as to be
consistent with the requirements of the Code to qualify as a REIT.
Disposition Policies
The Company has no current intention to dispose of any of its hotels, although
it reserves the right to do so. The Company currently anticipates that
disposition decisions, if any, will be made by the Company based on (but not
limited to) factors such as the following: (i) potential opportunities to
increase revenues and property values by reinvesting sale proceeds; (ii) the
proposed sale prices; (iii) the strategic fit of the hotel with the rest of the
Company's portfolio; (iv) the potential for, or the existence of, any
environmental or regulatory problems; (v) the existence of alternative uses or
needs for capital; and (vi) the maintenance of the Company's qualification as a
REIT. For a description of certain tax consequences arising from disposition of
hotels, see "Federal Income Tax Considerations --Taxation of the Company."
Financing Policies
The Company has entered into the Line of Credit and the Expanded Credit
Facility which are available to finance the purchase of the Additional Hotels
and other hotel properties. Under such credit facilities the Company may draw
up to $200.0 million on a secured revolving basis to finance the purchase of the
Additional Hotels or other hotels, and may borrow up to an additional $250.0
million on an initially unsecured, non-revolving basis to finance the purchase
of the Additional Hotels. The Company expects to borrow under these credit
facilities to finance the acquisition of the Additional Hotels and to use the
proceeds of this Offering to repay a substantial portion of such borrowings.
Assuming that (i) all Additional Hotels are acquired by the Company, (ii) the
Company completes this offering, and (iii) no portion of the Underwriters'
overallotment option is exercised, the aggregate amount remaining outstanding
under the Line of Credit is expected to be $144.7 million. See "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Company."
The Company currently intends to employ conservative financial policies in
pursuit of its growth strategies. Although there are no limitations in the
Company's organizational documents on the amount of indebtedness it may
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incur, the Company currently intends to pursue its growth strategies while
maintaining a capital structure under which its debt will not exceed 50% of its
total market capitalization. The Company may from time to time re-evaluate and
modify its current borrowing policies in light of then current economic
conditions, relative costs of debt and equity capital, market values of
properties, growth and acquisition opportunities and other factors and may
increase or decrease its ratio of debt to total market capitalization
accordingly. See "Risk Factors -- Risks of Leverage."
The Board of Trustees of the Company may determine to obtain a replacement for
its current credit facilities or to seek additional capital through additional
equity offerings, debt financings, securitizations, retention of cash flow
(subject to satisfying the Company's distribution requirements under the REIT
rules) or a combination of these methods. To the extent that the Board of
Trustees decides to obtain additional debt financing, the Company may do so on a
secured or unsecured basis. These mortgages may be recourse, non-recourse or
cross collateralized and may contain cross default provisions. The Company has
not established any limit on the number or amount of mortgages that may be
placed on any single property or on its portfolio as a whole. The Company may
also seek to obtain other lines of credit (both secured or unsecured) or to
issue securities senior to the Shares, including preferred shares of beneficial
interest and debt securities (either of which may be convertible into Shares or
be accompanied by warrants to purchase Shares) or to engage in securitization
transactions which may involve a sale or other conveyance of the Company's
hotels to subsidiaries or to unaffiliated special purpose entities. The Company
may also finance acquisitions through an exchange of properties or through the
issuance of additional Shares or other securities. The proceeds from any
financings by the Company may be used to pay distributions, to provide working
capital, to refinance existing indebtedness or to finance acquisitions and
expansions of existing or new properties.
Conflict of Interest Policies
The Declaration requires that a majority of the Company's Trustees be
comprised of Independent Trustees. In addition, the Company has adopted certain
policies designed to eliminate or minimize potential conflicts of interest, as
described below. However, there can be no assurance that these policies always
will be successful in eliminating the influences of such conflicts, and if they
are not successful, decisions could be made that might not fully serve the
interests of all Shareholders.
Advisors acts as the investment advisor to the Company and HRP and also has
other business interests. Advisors will not be able to devote all of its
business time and resources to the Company and conflicts could arise with
respect to the allocation of its business time and resources. Although HRP has
stated that it has no current intention to purchase or finance any additional
hotel properties, a conflict could develop should HRP change its investment
policies and determine to increase its investments in hotel properties. Messrs.
Portnoy and Martin are Managing Trustees of HRP, Managing Trustees of the
Company and each is a Director and 50% shareholder of Advisors. Mr. Portnoy is
a partner in the firm of Sullivan & Worcester LLP, which acts as counsel to the
Company, HRP, Advisors and affiliates of each of the foregoing.
The Company has taken certain measures to address the foregoing potential
conflicts of interest and competing time demands. Certain employees of Advisors
have undertaken to devote substantially all of their business time to the
Company. Pursuant to the Advisory Agreement, Advisors and Messrs. Portnoy and
Martin have agreed not to provide advisory services to, or serve as directors or
officers of, any other REIT which is principally engaged in the business of
ownership of hotel properties or to make competitive direct investments in hotel
facilities, in each case, without the consent of the Independent Trustees.
Also, Advisors and Messrs. Portnoy and Martin are generally required by
applicable law to act in accordance with their fiduciary responsibilities to the
Company.
Policies with Respect to Other Activities
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not
currently intend: (i) to invest in the securities of other issuers for the
purpose of exercising control over such issuer; (ii) to underwrite securities of
other issuers; or (iii) to trade actively in loans or other investments.
The Company may make investments other than as previously described, although
it does not currently intend to do so. The Company has authority to repurchase
or otherwise reacquire Shares or any other securities it may issue and may
engage in such activities in the future. The Board of Trustees has no current
intention of causing the Company
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to repurchase any of the Shares and any such action would be taken only in
conformity with applicable federal and state laws and the requirements for
qualifying as a REIT under the Code and the Treasury Regulations. Although it
may do so in the future, the Company has not issued Shares or any other
securities in exchange for property, nor has it reacquired any of its Shares or
any other securities. Also, although it has no current intention to do so, the
Company may make loans to third parties, including to its officers and joint
ventures in which it decides to participate.
DESCRIPTION OF THE SHARES
General
The authorized capital stock of the Company consists of 100,000,000 Shares,
$0.01 par value per Share, and 100,000,000 preferred shares of beneficial
interest, without par value (the "Preferred Shares"). Upon the completion of
this Offering, 24,600,900 Shares will be issued and outstanding, and there will
be no Preferred Shares outstanding. Except as otherwise may be determined by the
Trustees with respect to any class or series of Preferred Shares, no shares will
have preference, conversion, exchange, sinking fund, redemption or preemptive
rights.
Common Shares
Subject to the provisions described in "Summary of the Declaration of Trust --
Restrictions on Transfer," each outstanding Share entitles the holder thereof to
one vote on all matters voted on by Shareholders, including the election of
Trustees, and there are no cumulative voting rights. All Shares to be issued
will be duly authorized and nonassessable. Distributions will be made to the
holders of Shares if and when declared by the Trustees out of funds legally
available therefor, and all Shares will participate equally in distributions
declared with respect to the Shares. If the Company is liquidated, each
outstanding Share will be entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all known debts and
liabilities of the Company and the rights of holders of any Preferred Shares.
Preferred Shares
Preferred Shares, if and when issued, will entitle holders to such rights and
be subject to such restrictions as may be established by the Trustees at the
time of issuance.
Transfer Agent
State Street Bank and Trust Company has been appointed as transfer agent and
registrar for the Shares.
SUMMARY OF THE DECLARATION OF TRUST
The following summary of the material provisions of the Declaration does not
purport to be complete, and is qualified in its entirety by reference to the
Declaration and Bylaws, copies of which have been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Trustees
Under the Declaration, the number of Trustees may be fixed from time to time
by two thirds of the Trustees or by amendment of the Declaration duly adopted by
holders of two thirds of the outstanding Shares entitled to vote thereon, with a
minimum of three and a maximum of seven Trustees. The Declaration provides that
a majority of the Trustees must be Independent Trustees. The terms of the
Trustees are staggered. See "Management." As the Trustees' terms expire,
replacements are elected by a plurality of the votes cast. The Declaration
provides that only a majority of the Trustees then in office shall have the
authority to fill any vacancies on the Board, including vacancies created by an
increase in the number of Trustees. In addition, the Declaration provides that
a new Trustee elected to fill a vacancy will serve for the remainder of the full
term of his or her class and that no decrease in the number of Trustees shall
shorten the term of an incumbent. Moreover, the Declaration provides that
Trustees may be removed with or without cause only by the affirmative vote of
all the remaining Trustees or by holders of at least two thirds of the voting
power of the Shares entitled to vote at the election of Trustees, voting as a
single class.
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The Company's Bylaws establish an advance notice procedure with regard to the
nomination, other than by the Board, of candidates for election as Trustees (the
"Nomination Procedure") which are not included in the Company's proxy statement.
The Nomination Procedure provides that only persons who are nominated by or at
the direction of the Board of Trustees, or by a Shareholder of record on the
date of the giving of the notice who has given timely prior written notice to
the Secretary of the Company prior to the meeting at which Trustees are to be
elected, will be eligible for election as Trustees. To be timely, notice of a
Shareholder proposal in the case of an annual meeting, other than a proposal to
be included in the Company's proxy, must be received by the Company not less
than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting. Nothing in the Nomination Procedure will
preclude discussion by any Shareholder of any nomination properly made or
brought before an annual or special meeting in accordance with the above
mentioned procedures.
Liability of Trustees
The Declaration provides that, to the fullest extent permitted by Maryland
law, no Trustee, officer, employee or agent will be personally liable to the
Company or its Shareholders for any act or omission. The Company has been
advised that under current Maryland law, such persons will remain liable for
their own willful misfeasance, bad faith, gross negligence or reckless disregard
of duty. The Trustees are fiduciaries of the Company and must at all times
exercise care and loyalty in handling Company affairs. The general legal
principle for evaluating Trustee conduct is the business judgment rule. This
rule is a mechanism developed by courts which presumes that Trustees are acting
properly if they act on an informed basis, in good faith, in a manner they
reasonably believe to be in the best interests of Shareholders and without fraud
or self dealing. This is a rapidly developing and changing area of the law and
potential Shareholders who have questions concerning the duties of the Trustees
should consult with their own counsel.
The Declaration also limits the liability of Trustees and officers of the
Company to the Company or its Shareholders for money damages to the fullest
extent permitted by Maryland law.
The Declaration obligates the Company to indemnify (i) its Trustees and
officers to the full extent permitted by Maryland law, including in respect of
the advancement of expenses and (ii) other employees and agents to such extent
as shall be authorized by the Trustees and permitted by Maryland law. Maryland
law permits a real estate investment trust to indemnify its present and former
trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities, unless it is established that (i) the act or omission
of the trustee or officer was material to the matter giving rise to the
proceeding and (x) was committed in bad faith or (y) was the result of active
and deliberate dishonesty, (ii) the trustee or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the trustee or officer had reasonable cause to believe
that the act or omission was unlawful. The Company has the right but has no
obligation to obtain insurance including general liability, securities
liability, trustee and officer liability and other insurance in such amounts and
with such carriers as the Company reasonably deems appropriate in order to
support the indemnity described above.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to Trustees, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Limitation of Liability; Shareholder Liability
Maryland law permits a REIT to provide, and the Declaration provides, that no
Trustee, officer, Shareholder, employee or agent of the Company will be held to
any personal liability, jointly or severally, for any obligation of or claim
against the Company, and that, as far as practicable, each written agreement of
the Company is to contain a provision to that effect. Despite these facts,
counsel has advised the Company that in some jurisdictions the possibility
exists that Shareholders of a non-corporate entity such as the Company may be
held liable for acts or obligations of the Company. Counsel has advised the
Company that the State of Texas may not give effect to the limitation of
Shareholder liability afforded by Maryland law, but that Texas law would likely
recognize contractual limitations of liability such as those discussed above.
The Company intends to continue to conduct its business in a manner designed to
minimize potential Shareholder liability by, among other things, inserting
appropriate provisions in written agreements of the Company. No assurance can
be given, however, that Shareholders can avoid liability in all instances in all
jurisdictions.
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The Declaration provides that, upon payment by a Shareholder of any such
liability, the Shareholder will be entitled to indemnification by the Company.
There can be no assurance that, at the time any such liability arises, there
will be assets of the Company sufficient to satisfy the Company's
indemnification obligation. The Trustees intend to conduct the operations of
the Company, with the advice of counsel, in such a way as to minimize or avoid,
to the extent practicable, any liability of the Shareholders of the Company for
actions of the Company. The Trustees do not intend to provide insurance
covering such risks to the Shareholders.
Duration and Termination
The Declaration provides that the duration of the Company will be perpetual.
However, the Declaration also permits the holders of two thirds of the then
outstanding Shares entitled to vote thereon to terminate and dissolve the
Company at any time.
Prohibited Investments and Activities
The Declaration prohibits the Company from undertaking any activity that would
disqualify the Company as a REIT under the provisions of the Code as long as a
REIT is accorded substantially the same treatment or benefits under the United
States tax laws from time to time in effect as under Sections 856-860 of the
Code as in effect at the date of adoption of the Declaration; or using or
applying land for farming, agriculture, horticulture or similar purposes in
violation of Section 8-302(b) of the Corporations and Associations Article of
the Annotated Code of Maryland.
Transactions with Affiliates, Trustees, Employees, Officers or Agents
Except as otherwise provided by the Declaration and in the absence of fraud,
any contract or other transaction between the Company and any other Persons, as
defined in the Declaration, in which the Company is interested, will be valid,
and no Trustee or officer, employee or agent of the Company will have any
liability as a result of entering into any such contract, act or transaction,
even though (a) one or more of the Trustees or officers, employees or agents of
the Company are directly or indirectly interested in or connected with or are
trustees, partners, directors, employees, officers or agents of such other
Person, or (b) one or more of the Trustees or officers, employees or agents of
the Company individually or jointly with others, is a party or are parties to,
or are directly or indirectly interested in or connected with, such contract,
act or transaction; provided that in each such case (i) such interest or
connection is disclosed or known to the Trustees and thereafter the Trustees
authorize or ratify such contract, act or other transaction by affirmative vote
of a majority of the Trustees who are not so interested or (ii) such interest or
connection is disclosed or known to the Shareholders, and thereafter such
contract, act or transaction is approved by Shareholders holding a majority of
the Shares then outstanding and entitled to vote thereon. The Trustees are not
restricted by the Declaration from forming a corporation, partnership, trust or
other business association owned by any Trustee, officer, employee or agent or
by their nominees for the purpose of holding title to property of the Company or
managing property of the Company, provided that the Trustees make a
determination that the creation of such entity for such purpose is in the best
interests of the Company.
Restrictions on Transfer
The Declaration contains certain restrictions on the amount of Shares that
individual Shareholders may own. These restrictions are intended to assist the
Company in complying with REIT ownership restrictions of the Code and otherwise
to promote orderly corporate governance. For the Company to qualify as a REIT
under the Code, no more than 50% in value of its capital stock (after taking
into account options to acquire Shares) may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
and constructive ownership among specified family members) during the last half
of a taxable year (other than the first taxable year) or during a proportionate
part of a shorter taxable year. The Shares must also be beneficially owned
(other than during the first taxable year) by 100 or more persons during at
least 335 days of a taxable year or during a proportionate part of a shorter
taxable year. Because the Company expects to qualify as a REIT, the Declaration
contains restrictions on the acquisition of Shares intended to ensure compliance
with these requirements. See "Federal Income Tax Considerations -- Taxation of
the Company -- Share Ownership Tests."
Subject to certain exceptions specified in the Declaration, no holder may own,
directly or indirectly, more than 9.8% of the number or value of the issued and
outstanding Shares of the Company other than HRP, Advisors and their
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affiliates, including persons who are deemed to have beneficial ownership of the
Shares directly owned by HRP and Advisors pursuant to the attribution provisions
of the Code, and other Shareholders exempted by majority vote of the Trustees
(the "Exempted Persons"). As a condition of the exemption of any person, such
person must give written notice to the Company no later than the 15th day prior
to any proposed transfer which, if consummated, would result in such person
owning Shares in excess of the Ownership Limitation, provided, however, that the
Trustees may waive the prior notice requirement upon determination that such
waiver is in the best interests of the Company. In deciding whether to grant an
exemption or waive the prior notice requirement, the Board of Trustees may
consider, among other factors, the general reputation and moral character of the
person requesting an exemption, whether ownership of Shares would be direct or
through ownership attributed to such person, whether such person's ownership of
Shares would adversely affect the Company's ability to acquire additional hotels
or engage in other transactions and whether granting an exemption for the person
requesting an exemption would adversely affect any existing contractual
arrangement of the Company. In addition, the Board of Trustees may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Company's status as a
REIT or otherwise.
The Declaration contains provisions designed to ensure that a transferee
attempting to acquire Shares in violation of the Ownership Limitation will not
acquire rights or economic interests in the Shares purportedly transferred. The
Declaration defines a transfer as any sale, transfer, gift, assignment, devise
or other disposition of Shares, whether voluntary or involuntary, whether of
record or beneficial ownership and whether constructively, by operation of law
or otherwise. Under the Declaration, any transfer of Shares that is in
violation of the Ownership Limitation, that causes the Company to be treated as
"closely held" under Section 856(h) of the Code or that causes the Shares to be
held by fewer than 100 persons, and that is not otherwise permitted under the
Declaration will result in the designation of excess shares ("Excess Shares")
which Shares will be transferred by operation of law to a person that is
unaffiliated with the Company and unaffiliated with the intended transferee as
trustee of a trust for the exclusive benefit of one or more organizations
described in sections 170(b)(1)(a) and 170(c) of the Code ("Charitable
Beneficiary") designated by the Company. The trustee of the trust will be
deemed to own these Excess Shares for the benefit of the Charitable Beneficiary
on the day prior to the date of the violative transfer. Any dividends or
distributions paid prior to the Company discovering that such Excess Shares were
held in trust must be repaid by the intended transferee to the Company and any
dividend declared but unpaid will be rescinded as void ab initio with respect to
the intended transferee. Any dividends so disgorged or rescinded will then be
paid over to the trustee and held in trust for the Charitable Beneficiary. Any
vote taken by an intended transferee prior to the discovery by the Company that
the Shares were held in trust will be rescinded as void ab initio. The owner of
the Shares will be deemed to have given an irrevocable proxy to the trustee to
vote the Shares for the benefit of the Charitable Beneficiary. At the direction
of the Company, the trustee of the trust shall transfer the Shares held in the
trust to a person whose ownership of the Shares will not violate the Ownership
Limitation. If such a transfer is made, the interest of the Charitable
Beneficiary would terminate and proceeds of the sale would be payable to the
intended transferee and to the Charitable Beneficiary. The intended transferee
would receive the lesser of (i) the price paid by the intended transferee for
the Shares or, if the intended transferee did not give value for the Shares, the
market price of the Shares on the day of the event causing the Shares to be held
in trust and (ii) the price per Share received by the trustee from the sale or
other disposition of the Shares held in trust. Any proceeds in excess of the
amount payable to the intended transferee will be payable to the Charitable
Beneficiary. The Declaration also provides that all Shares held in trust for
the benefit of the Charitable Beneficiary will be offered for sale to the
Company or its designee for a 90 day period, at the lesser of the price paid for
the Shares by the intended transferee and the market price of the Shares on the
date that the Company accepts the offer. This period will commence on the date
the Company receives notice of the event causing the Shares to be held in trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above. All persons who own, directly or by virtue of the
attribution provisions of the Code, 5% or more (or such other percentage between
1/2 of 1% and 5%, as provided in the rules and regulations promulgated under the
Code) of the number or value of the outstanding Shares must give written notice
thereof to the Company by January 31 of each year. In addition, each
Shareholder shall upon demand be required to disclose to the Company in writing
such information with respect to the ownership of Shares as the Board of
Trustees deems reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These restrictions will not preclude settlement of transactions through the
NYSE.
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Shareholder Proposals
The Company's Bylaws establish an advance notice procedure with regard to
Shareholder proposals to be brought before an annual meeting of Shareholders
(the "Business Procedure"). The Business Procedure provides that Shareholder
proposals, other than proposals timely submitted for inclusion in the Company's
proxy statement, must be submitted in writing in a timely manner in order to be
considered at any annual meeting. To be timely, such notice must be received by
the Company not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting. Nothing in the
Business Procedure will preclude discussion by any Shareholder of any proposal
properly made or brought before an annual meeting in accordance with the above
mentioned procedure.
Business Combinations
Under the Maryland General Corporation Law (the "MGCL"), certain "business
combinations" (including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the Company's shares are
prohibited or restricted unless exempted. The Declaration provides that the
Company has elected not to be governed by the business combination provisions of
the MGCL.
Control Share Acquisitions
The MGCL imposes limitations on the voting rights of Shares above certain
percentage thresholds acquired in a "control share acquisition" relating to a
Maryland real estate investment trust. The Declaration provides that the
Company has elected not to be governed by the control share acquisition
provisions of the MGCL.
Amendment; Meetings
The Declaration may be amended by the vote of the holders of a majority of the
outstanding Shares entitled to vote thereon, except that the holders of two
thirds of the outstanding Shares entitled to vote thereon must approve any
amendments to those provisions of the Declaration that set forth the procedures
for the Company's investment policies, policies with respect to certain
distributions to Shareholders, the number, term and qualifications of the
Trustees, as well as certain provisions regarding the duration of the Trust, the
amendment process, restrictions on transfer of Shares and the ability of the
Trustees to designate and issue a series of Preferred Shares. The approval of
two thirds of the Trustees is also required for any such amendment. In addition,
two thirds of the Trustees, may, without the approval or consent of the
Shareholders, adopt any amendment that they in good faith determine to be
necessary to permit the Company to qualify as a REIT under the Code.
The Declaration permits the Trustees, without the approval of the
Shareholders, to alter the Company's investment policies if the Trustees
determine in the future that such a change is in the best interests of the
Company and its Shareholders. The Company's investment policies and the methods
of implementing its investment policies may, therefore, vary as new investment
opportunities and financing techniques are developed.
Under the Declaration, annual meetings of Shareholders are required to be held
within six months after the end of each fiscal year. Special meetings of the
Shareholders may only be called by a majority of the Trustees and the
Shareholders may not act by written consent.
Antitakeover Provisions
The Company's Declaration and Bylaws contains several provisions that will
make it difficult to acquire control of the Company by means of a tender offer,
open market purchases, a proxy fight or otherwise, if the acquisition is not
approved by the Board of Trustees, or to change the composition of the Board of
Trustees in a relatively short period of time. The provisions are designed to
reduce the vulnerability of the Company to an unsolicited proposal for a
takeover or an unsolicited proposal for the restructuring or sale of the Company
and to encourage persons seeking to acquire control of the Company to consult
first with the Board of Trustees to negotiate the terms of any proposed business
combination or offer. These provisions may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its Shareholders. These provisions are described above and include: the
Ownership Limitation; the classified Board
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<PAGE>
of Trustees; the Nomination Procedure and the Business Procedure; the ability of
the Board of Trustees to designate and issue series of Preferred Shares and
designate the dividend, voting and other rights of each series; provisions
concerning special meetings and Shareholder actions by written consent; and
provisions concerning amendment of the Declaration. The Company has, however,
elected not to be governed by the provisions of Maryland law concerning control
share acquisitions and business combinations.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Shares (which constitutes the only outstanding class of voting
shares of the Company) by (i) each person known by the Company to own
beneficially more than 5% of the outstanding Shares, (ii) each of the Company's
Trustees and (iii) all Trustees and executive officers of the Company as a
group. Unless otherwise indicated, each person or entity named below has sole
voting and investment power with respect to all Shares shown to the beneficially
owned by such person or entity, subject to the matters set forth in the
footnotes to the table below.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
--------------------- -----------------------
Number Number
of of
Name and Address(1) Shares Percent Shares Percent(2)
<S> <C> <C> <C> <C>
Health and Retirement 4,000,000 31.7% 4,000,000 16.3%
Properties Trust............
HRPT Advisors, Inc........... 4,250,000 33.7 4,250,000 17.3
Barry M. Portnoy(3)........ 4,250,000 33.7 4,250,000 17.3
Gerard M. Martin(3)........ 4,250,000 33.7 4,250,000 17.3
John L. Harrington(4)...... 300 * 300 *
William J. Sheehan(4)...... 300 * 300 *
Arthur G. Koumantzelis(4).. 300 * 300 *
All Trustees and executive
officers as a group (six
persons)(3)................. 4,250,900 33.7 4,250,900 17.3
</TABLE>
- ---------------------
* Less than 1%.
(1) The address of HRP is 400 Centre Street, Newton, MA 02158. The address of
each other named person or entity is c/o Hospitality Properties Trust, 400
Centre Street, Newton, MA 02158.
(2) Assumes no exercise of the Underwriters' overallotment option.
(3) Neither Mr. Portnoy nor Mr. Martin owns Shares directly. HRP, of which
Messrs. Portnoy and Martin are Managing Trustees, owns 4,000,000 Shares and
Advisors, which is owned by Messrs. Portnoy and Martin, owns 250,000
Shares. Messrs. Portnoy and Martin may be deemed to have beneficial
ownership of these Shares.
(4) Each of the Independent Trustees receives a grant of 300 Shares per annum
as part of their annual compensation. See "Management -- Incentive Share
Award Plan."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have 24,600,900
Shares issued and outstanding (26,400,900 Shares if the Underwriters'
overallotment option is exercised in full). The Shares issued or sold by the
Company in this Offering will be freely tradeable except with respect to the
Ownership Limitation set forth in the Company's Declaration. The 4,000,000
Shares owned by HRP and the 250,000 owned by Advisors were acquired in
transactions exempt from the registration requirements of the Securities Act and
may not be resold without registration or exemption therefrom. These Shares also
will not be freely tradeable as a result of restrictions on sales of Shares by
affiliates of the Company arising under the Securities Act and due to certain
"lock-up" agreements described below. HRP and Advisors do not have registration
rights with respect to these Shares.
HRP and Advisors may, in limited circumstances, be able to sell their
Shares without registration in accordance with the exemptions provided by Rule
144 under the Securities Act. In general, under Rule 144 as currently in
effect, a person (or persons whose Shares are aggregated in accordance with Rule
144) who has beneficially owned his or her Shares for at least two years,
including any such persons who may be deemed an "affiliate" of the Company (as
defined below), would be entitled to sell within any three month period a number
of Shares that does not exceed the greater of 1% of the then outstanding number
of Shares or the average weekly trading volume of the Shares during the four
calendar weeks preceding each such sale. After Shares have been held for three
years, a person who is not deemed an affiliate of the Company will generally be
entitled to sell such Shares under Rule 144 without regard to the volume
limitations described above, although sales of such Shares by affiliates will
continue to be subject to the volume limitations. As defined in Rule 144, an
"affiliate" of an issuer is generally a person that directly, or indirectly,
through the use of one or more intermediaries, controls, or is controlled by, or
is under common control with, such issuer. Upon completion of this Offering,
HRP and Advisors will be affiliates of the Company for purposes of Rule 144.
In connection with the Company's initial public offering, each of HRP and
Advisors agreed not to, and agreed to cause its officers, Trustees and
Directors, as applicable, not to, directly or indirectly, offer, sell, contract
to sell, grant any option to purchase or otherwise dispose of any Shares or any
securities convertible into or exercisable or exchangeable for Shares or, in any
manner, transfer all or a portion of the economic consequences associated with
the ownership of Shares, without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation for a period of two years up to August 16,
1997. See "Underwriting."
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
The Company intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the Code.
No assurance can be given, however, that such requirements will be met. The
following is a summary of the federal income tax considerations for the Company
and its Shareholders with respect to the treatment of the Company as a REIT.
Since these provisions are highly technical and complex, each prospective
purchaser of the Company's Shares is urged to consult his own tax advisor with
respect to the federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Shares.
Based upon certain representations described below, in the opinion of
Sullivan & Worcester LLP, counsel to the Company ("Company Counsel"), the
Company has been organized in conformity with the requirements for qualification
as a REIT beginning with its taxable year ending December 31, 1995, and its
proposed method of operation described in this Prospectus and as represented by
the Company will enable it to satisfy the requirements for such qualification.
This opinion is conditioned upon the assumption that the Leases, the Company's
Declaration and Bylaws and all other legal documents to which the Company is a
party will be complied with by all parties thereto and upon certain
representations made by the Company as to certain factual matters relating to
the Company's organization and intended or expected manner of operation. In
addition, this opinion is based on the law existing and in effect on the date
hereof. The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet on a continuing basis, through actual operating
results, asset composition, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code discussed
below. While the Company has represented that it will operate in a manner so as
to satisfy on a continuing basis the various REIT qualification tests, Company
Counsel will not review compliance with these tests on a continuing basis, and
no assurance can be given that the Company will satisfy such tests on a
continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" that generally results from the
use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and its
Shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In such an event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its Shareholders would be reduced or eliminated.
The Board of Trustees of the Company currently expects that the Company
will elect REIT status for the taxable year ended December 31, 1995 and will
continue to operate in a manner that permits it to retain REIT status in each
taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on the
Company continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on the Company's
operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
Shareholder in light of his or her particular circumstances or to certain types
of Shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws.
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Taxation of the Company
General
In any year in which the Company qualifies as a REIT, in general it will
not be subject to federal income tax on that portion of its REIT taxable income
or capital gain which is distributed to Shareholders. The Company may, however,
be subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be
subject to taxation in certain other circumstances. If the Company should fail
to satisfy either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% gross income test,
multiplied by a fraction intended to reflect the Company's profitability. The
Company will also be subject to a tax of 100% on net income from any "prohibited
transaction" as described below, and if the Company has (i) net income from the
sale or other disposition of "foreclosure property" which is held for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company may
also be subject to tax in certain circumstances if it disposes within ten years
of their acquisition of assets acquired in a tax-free reorganization (although
no such transaction is currently contemplated). The Company may also be subject
to the corporate alternative minimum tax. The Company will use the calendar
year both for federal income tax purposes, and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Tests
The Company's Shares must be held by a minimum of 100 persons for at least
335 days in each taxable year (or a proportional number of days in any short
taxable year). In addition, at all times during the second half of each taxable
year, no more than 50% in value of the outstanding Shares of the Company may be
owned, directly or indirectly and by applying certain constructive ownership
rules, by five or fewer individuals, which for this purpose includes certain
tax-exempt entities. However, for purposes of this test, any Shares held by a
qualified domestic pension or other retirement trust will be treated as held
directly by its beneficiaries in proportion to their actuarial interest in such
trust rather than by such trust. These share ownership requirements need not be
met until the second taxable year of the Company for which a REIT election is
made.
In order to ensure compliance with the foregoing share ownership tests, the
Company has placed certain restrictions on the transfer of its Shares to prevent
additional concentration of Share ownership. Moreover, to evidence compliance
with these requirements, under Treasury Regulations the Company must maintain
records which disclose the actual ownership of its outstanding Shares. In
fulfilling its obligations to maintain records, the Company must and will demand
written statements each year from the record holders of designated percentages
of its capital stock disclosing the actual owners of such Shares (as prescribed
by the Treasury Regulations). A list of those persons failing or refusing to
comply with such demand must be maintained as a part of the Company's records.
A Shareholder failing or refusing to comply with the Company's written demand
must submit with his tax return a similar statement disclosing the actual
ownership of Shares of the Company and certain other information. In addition,
the Company's Declaration provides restrictions regarding the transfer of its
Shares that are intended to assist the Company in continuing to satisfy the
Share ownership requirements. See "Summary of the Declaration of Trust --
Restrictions on Transfer."
Asset Tests
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles). First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments.
Second, although
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<PAGE>
the remaining 25% of the Company's assets generally may be invested without
restriction, securities in this class may not exceed (i) in the case of
securities of any one non-government issuer, 5% of the value of the Company's
total assets or (ii) 10% of the outstanding voting securities of any one such
issuer.
Where a failure to satisfy the 25% asset test results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of such quarter. The Company intends to maintain adequate records of the value
of its assets to maintain compliance with the 25% asset test, and to take such
action as may be required to cure any failure to satisfy the test within 30 days
after the close of any quarter.
Gross Income Tests
The Company must satisfy three source of income tests in each taxable year.
The three tests are as follows:
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (as defined below); (ii) interest on obligations secured by
mortgages on, or interests in, real property; (iii) gains from the sale or other
disposition of interests in real property and real estate mortgages, other than
gain from property held primarily for sale to customers in the ordinary course
of the Company's trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs, as well as gain from the sale of such
shares; (v) abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure property");
(vii) commitment fees received for agreeing to make loans secured by mortgages
on real property or to purchase or lease real property; and (viii) qualified
temporary investment income. When the Company receives new capital in exchange
for its Shares or other capital stock (other than dividend reinvestment amounts)
or in a public offering of five-year or longer debt instruments, income
attributable to the temporary investment of such new capital in stock or a debt
instrument, if received or accrued within one year of the Company's receipt of
the new capital, is qualifying temporary investment income.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements only if several conditions are met.
Rents received from a tenant will not qualify as rents from real property if the
Company, or an owner of 10% or more of the Company, directly or constructively
owns 10% or more of such tenant. Thus, in order for gross income from a Hotel
to qualify as rents from real property, the Company must not own, directly or
constructively (applying constructive ownership rules under the Code), 10% or
more of Wyndham I, Host I or Host II (the "10% ownership test"). Such
constructive ownership rules generally provide that, if 10% or more in value of
the Shares of the Company is owned, directly or indirectly, by or for any
person, the Company is considered as owning the stock owned, directly or
indirectly, by or for such Person. With respect to the 10% ownership test, the
Company initially will not own and does not intend to acquire, directly or
constructively, stock of Wyndham I, Host I or Host II. There can be no
assurance, however, that the Company will be able to monitor and enforce such
restrictions, nor will Shareholders necessarily be aware of shareholdings
attributed to them under the attribution rules. The Company has represented
(which representation Company Counsel has relied upon in rendering its opinion
herein on REIT qualification) that it will satisfy the 10% ownership test.
If rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent for the taxable year
under or in connection with the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property.
Accordingly, the rents attributable to the Company's personal property leased
under or in connection with a lease of the real property comprising a Hotel must
not be greater than 15% of the rents received under the applicable Lease. The
rent attributable to the Company's personal property for a Hotel is the amount
that bears the same ratio to total rent for the taxable year as (i) the average
of the adjusted bases of the Company's personal property of such Hotel at the
beginning and at the end of the taxable year bears to (ii) the average of the
aggregate adjusted bases of both the Company's real and personal property of
such Hotel at the beginning and at the end of such taxable year (the "Adjusted
Basis Ratio"). The Company has represented (which representation Company
Counsel has relied upon in rendering its opinion herein on REIT qualification)
that the allocation of purchase price with respect to each Hotel is accurate and
that not more than 15% of the rent for each taxable year with respect to each of
the Hotels or any other hotel property acquired by the Company in the future
will be attributable to the Company's personal property under the foregoing
rules. In addition, the Company intends not to acquire additional personal
property for any Hotels if such acquisition would cause the Adjusted Basis Ratio
for such Hotels to exceed
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15%. While the Company believes that the allocation for tax purposes of the
purchase price for the Hotels to the personal property is accurate, there can be
no assurance that the Service will not assert that a different allocation is
appropriate and that more than 15% of the rents received under a Lease is
attributable to personal property under the foregoing rules, or that a court
would not uphold such assertion. If such a challenge were successfully
asserted, the Company could fail the 15% Adjusted Basis Ratio as to one or more
of its leases, which in turn could cause it to fail to satisfy the 75% or 95%
gross income test and to fail to qualify as a REIT.
An amount received or accrued, directly or indirectly with respect to any
real or personal property, will not qualify as "rents from real property" for
purposes of the 75% or the 95% gross income test if the determination of such
amount depends in whole or in part on the income or profits derived by any
person from such property (except that an amount so derived or accrued generally
will not be excluded from "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales).
In addition, the Company must not manage the property or furnish or render
services to the tenants of such property, except through an independent
contractor from whom the company derives no income. There is an exception to
this rule permitting a REIT to perform certain customary tenant services of the
sort which a tax-exempt organization could perform without being considered in
receipt of "unrelated business taxable income."
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above described qualifying income, dividends,
interest, or gains from the sale or other disposition of stock, securities and
real property that is not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% gross income test, but not for purposes of the 75% gross
income test.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property); however, it does not include a sale of
property if such property is held by the Company for at least four years and
certain other requirements (relating to the number of properties sold in a year,
their tax bases, and the cost of improvements made thereto) are satisfied. See
"-- Taxation of the Company -- General" above. Gain realized by the Company on
the sale of any dealer property generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Under existing
law, whether property is dealer property is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Company intends to hold the Hotels for investment with a view to long-term
appreciation, to engage in the business of acquiring, owning and developing the
Hotels and other hotel properties acquired by the Company in the future, and to
make such occasional sales of such hotels as are consistent with the Company's
investment objectives. Based upon the Company's investment objectives, the
Company believes that overall, the Hotels should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Hotels will generally give rise to
qualifying income in the form of rents, and that gains on sales of the Hotels
generally will also constitute qualifying income. The Company also believes
that, for purposes of the 95% gross income test, if the portion of rent
attributable in any case to furniture, furnishings, equipment and operating
equipment were to be recharacterized as payments from a deemed financing of such
items, any gross income attributable to such payments would be qualifying gross
income in the form of interest and such interest income would not cause the
Company to be unable to satisfy the 75% gross income test.
Even if the Company fails to satisfy one or both of the 75% or the 95%
gross income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information on
such schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or the 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
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The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities (including certain interest rate swap or
cap agreements) held for less than one year; and (iii) property in a prohibited
transaction. The Company does not anticipate that it will have difficulty in
complying with this test. However, if extraordinary circumstances were to occur
that gave rise to dispositions of Hotels within four years after the respective
dates of the Company's acquisition thereof, the Company may be unable to satisfy
the 30% test.
The Company temporarily invests working capital in short term investments,
including shares in other REITs. Although the Company will use its best efforts
to ensure that its income generated by these investments will be of a type which
satisfies the 75% and 95% gross income tests, there can be no assurance in this
regard (see discussion above of the "new capital" rule under the 75% test).
Moreover, the Company may realize short-term capital gain upon sale or exchange
of such investments, and such short-term capital gain would be subject to the
limitations imposed by the 30% gross income test.
Foreclosure Property
The Company will be subject to tax at the maximum corporate rate (currently
35%) on income from any "foreclosure property," other than income that would be
qualified income under the 75% gross income test, less expenses directly
connected with the production of such income. However, gross income from any
such foreclosure property will qualify under the 75% and the 95% gross income
tests.
Foreclosure property is defined as any real property (including interests
in real property) and any personal property incident to such real property,
acquired by a REIT as the result of a REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or default
was imminent) on a lease of such property or on an indebtedness which such
property secured and for which the REIT makes a proper election to treat such
property as foreclosure property. However, a REIT will not be considered to
have foreclosed on a property where it takes control of the property as a
mortgagee in possession and cannot receive any profit or sustain any loss except
as a creditor of the mortgagor. Under the Code, property generally ceases to be
foreclosure property with respect to a REIT on the date which is two years after
the date such REIT acquired such property (or longer if an extension is granted
by the Secretary of the Treasury). However, the foregoing grace period is
terminated and foreclosure property ceases to be foreclosure property on the
first day (i) on which a lease is entered into with respect to such property
which, by its terms, will give rise to income which does not qualify under the
75% gross income test or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day which will
give rise to income which does not qualify under the 75% gross income test, (ii)
on which any construction takes place on such property (other than completion of
a building, or completion of any other improvement, where more than 10% of the
construction of such building or other improvement was completed before default
became imminent), or (iii) which is more than 90 days after the day on which
such property was acquired by the REIT and the property is used in a trade or
business which is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any income).
As a result of the rules with respect to foreclosure property, if a Lessee
defaults on its obligations under a Lease for a Hotel and the respective Manager
is not available to manage such Hotel after the Company terminates the Lessee's
leasehold interest therein, and the Company is unable to find a replacement
lessee for such Hotel within 90 days of such foreclosure and unable to find an
independent contractor to manage it, gross income from hotel operations
conducted by the Company from such property would cease to qualify for the 75%
and the 95% gross income tests. (Advisors should qualify as an independent
contractor which could operate foreclosure property for up to two years.) In
such event, the Company might be unable to satisfy the 75% or the 95% gross
income test, resulting in its failure to qualify as a REIT.
Annual Distribution Requirements
In order to qualify as a REIT the Company is required to distribute
dividends (other than capital gain dividends) to its Shareholders with respect
to each year in an amount at least equal to (A) the sum of (i) 95% of the
Company's REIT taxable income (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash
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income (from certain imputed rental income and income from transactions
inadvertently failing to qualify as like-kind exchanges). Such distributions
must be paid in the taxable year to which they relate, or in the following
taxable year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment after such
declaration. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its REIT
taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains or ordinary corporate tax rates, as the case may
be. The Company will also be required to distribute currently as a dividend an
amount equal to the earnings and profits of any corporation it may acquire in a
tax-free reorganization (although no such transaction is currently
contemplated).
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first and last sentences of
the preceding paragraph. It is possible that the Company may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement,
due to timing differences between the actual receipt of income and actual
payment of expenses on the one hand, and the inclusion of such income and
deduction of such expenses in computing the Company's REIT taxable income on the
other hand. To avoid any problem with the 95% distribution requirement, the
Company will closely monitor the relationship between its REIT taxable income
and cash flow and intends, if necessary, to borrow funds in order to satisfy the
distribution requirement. However, there can be no assurance that such borrowing
would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to Shareholders in any year in which the
Company fails to qualify as a REIT will not be deductible by the Company, nor
generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions to
Shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from reelecting taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
Other Issues
In the case of certain sale leaseback arrangements, the Service could
assert that the Company realized prepaid rental income in the year of purchase
to the extent that the value of a leased property exceeds the purchase price
paid by the Company for that property. In litigated cases involving sale
leasebacks which have considered this issue, courts have concluded that buyers
have realized prepaid rent where both parties acknowledged that the purported
purchase price for the property was substantially less than fair market value
and the purported rents were substantially less than the fair market rentals.
Because of the lack of clear precedent, complete assurance cannot be given that
the Service could not successfully assert the existence of prepaid rental
income.
Depreciation of Properties
For tax purposes, the Company's real property generally is depreciated on a
straight line basis over 40 years and personal property owned by the Company
generally is depreciated over nine years.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic Shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do
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not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the Shareholder has held its Shares. However,
corporate Shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
Shareholder, reducing the tax basis of a Shareholder's Shares by the amount of
such excess distribution (but not below zero), with distributions in excess of
the Shareholder's tax basis being taxed as capital gains (if the Shares are held
as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a Shareholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the Shareholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
Federal income tax rules may also require that certain of the Company's minimum
tax adjustments and preferences be apportioned to Shareholders.
In general, any loss upon a sale or exchange of Shares by a Shareholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from the Company required to be treated by such Shareholder as
long-term capital gains.
Investors (other than certain corporations) who borrow funds to finance
their acquisition of Shares in the Company could be limited in the amount of
deductions allowed for the interest paid on the indebtedness incurred in such an
arrangement. Under Section 163(d) of the Code, interest paid or accrued on
indebtedness incurred or continued to purchase or carry property held for
investment is generally deductible only to the extent of the taxpayer's net
investment income. An investor's net investment income will include the
dividend and (if the investor so elects) capital gain dividend distributions he
receives from the Company; however, distributions treated as a nontaxable return
of the Shareholder's basis will not enter into the computation of net investment
income.
Under Section 469 of the Code, taxpayers (other than certain corporations)
generally will not be entitled to deduct losses from so-called passive
activities except to the extent of their income from passive activities. For
purposes of these rules, distributions received by a Shareholder from the
Company will not be treated as income from a passive activity and thus will not
be available to offset a Shareholder's passive activity losses.
Taxation of Tax-Exempt Shareholders
The Service has ruled that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT,"
based upon such ruling and the statutory framework of the Code, distributions by
the Company to a Shareholder that is a tax-exempt entity would not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Shares with "acquisition indebtedness" within the meaning of the Code, that
the Shares are not otherwise used in an unrelated trade or business of the tax-
exempt entity, and that the Company, consistent with its present intent, does
not hold a residual interest in a REMIC.
If any pension or other retirement trust that qualifies under Section
401(a) of the Code ("qualified pension trust") holds more than 10% by value of
the interests in a "pension-held REIT" at any time during a taxable year, a
portion of the dividends paid to the qualified pension trust by such REIT may
constitute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT
if (i) such REIT would not have qualified as a REIT but for the provisions of
the Code which look through such a qualified pension trust in determining
ownership of shares of the REIT and (ii) at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the interests in such
REIT.
Information Reporting and Backup Withholding Tax
The Company will report to its domestic Shareholders and to the Service the
amount of dividends paid for each calendar year, and the amount of tax withheld,
if any, with respect thereto. Under the back-up withholding rules, a
Shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such Shareholder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and
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otherwise complies with applicable requirements of the backup withholding rules.
A Shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
Shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the company. See "Certain United
States Tax Considerations for Non-U.S. Holders of Shares."
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained provided that the required information is furnished to the Service.
Other Tax Considerations
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective Shareholders should recognize that the present federal income
tax treatment of investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Company.
State and Local Taxes
The Company and its Shareholders may be subject to state or local taxation,
and the Company may be subject to state or local tax withholding requirements,
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its
Shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective Shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Shares.
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CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF SHARES
The following is a discussion of certain anticipated U.S. federal income
and U.S. federal estate tax consequences of the ownership and disposition of
Shares applicable to non-U.S. Shareholders of such Shares. The discussion is
based on current law and is for general information only. The discussion does
not address either aspects of U.S. federal taxation other than income and estate
taxation or all aspects of U.S. federal income and estate taxation. The
discussion does not consider any specific facts or circumstances that may apply
to a particular non-U.S. Shareholder.
In general, a non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in the Company if such investment is
"effectively connected" with the non-U.S. Shareholder's conduct of a trade or
business in the United States, or if the non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year. A corporate non-U.S. Shareholder that receives income that is
(or is treated as) effectively connected with a U.S. trade or business may also
be subject to the branch profits tax under Section 884 of the Code, which is
payable in addition to regular United States corporate income tax. The
following discussion will apply to non-U.S. Shareholders whose investment in the
Company is not so effectively connected and who are not individuals present in
the U.S. for 183 days or more during the taxable year.
A distribution by the Company that is not deemed to be attributable to gain
from the sale or exchange by the Company of a United States real property
interest and that is not designated by the Company as a capital gain dividend
will be treated as an ordinary income dividend to the extent that it is made out
of current or accumulated earnings and profits. A distribution by the Company
that is designated as a capital gain dividend will generally not be subject to
withholding except to the extent that such dividend is attributable to the sale
or exchange by the Company of United States real property interests, as
described below. Generally, an ordinary income dividend will be subject to a
United States withholding tax equal to 30% of the gross amount of the dividend
unless such withholding is reduced by an applicable tax treaty. A distribution
of cash in excess of the Company's earnings and profits will be treated first as
a nontaxable return of capital that will reduce a non-U.S. Shareholder's basis
in its Shares (but not below zero) and then as gain from the disposition of such
Shares, the tax treatment of which is described under the rules discussed below
with respect to disposition of Shares. A distribution in excess of the
Company's earnings and profits may be subject to 30% dividend withholding if at
the time of the distribution it cannot be determined whether the distribution
will be in an amount in excess of the Company's current and accumulated earnings
and profits. If it is subsequently determined that such distribution is, in
fact, in excess of current and accumulated earnings and profits, the non-U.S.
Shareholder may seek a refund from the Service. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a non-U.S. Shareholder in any tax year unless (i) a lower
tax treaty applies and the required form evidencing eligibility for that reduced
rate for such tax year is filed with the Company or (ii) the non-U.S.
Shareholder files IRS Form 4224 for such tax year with the Company claiming that
the distribution is "effectively connected" income.
For any year in which the Company qualifies as a REIT, distributions by the
Company that are attributable to gain from the sale or exchange of a United
States real property interest will be taxed to a non-U.S. Shareholder in
accordance with the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a non-U.S.
Shareholder as if such distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a non-U.S. Shareholder will be
taxed at the normal capital gain rates applicable to a U.S. Shareholder (subject
to any applicable alternative minimum tax and a special alternative minimum tax
in the case of non-resident alien individuals). Distributions subject to FIRPTA
may also be subject to a 30% branch profits tax in the hands of a foreign
corporate Shareholder that is not entitled to treaty exemption. The Company
will be required to withhold from distributions to non-U.S. Shareholders, and
remit to the Service, 35% of the amount of any distribution that could be
designated as capital gain dividends to the extent that such dividends are
attributable to the sale or exchange by the Company of United States real
property interests.
Tax treaties may reduce the Company's withholding obligations. If the
amount of tax withheld by the Company with respect to a distribution to a non-
U.S. Shareholder exceeds the Shareholder's United States liability with respect
to such distribution, the non-U.S. Shareholder may file for a refund of such
excess from the Service. In this regard, it should be noted that the 35%
withholding tax rate on capital gain dividends corresponds to the maximum income
tax rate applicable to corporations but is higher than the 28% maximum rate on
capital gains of individuals.
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If the Shares fail to constitute a "United States real property interest"
within the meaning of FIRPTA, a sale of the Shares by a non-U.S. Shareholder
generally will not be subject to United States taxation unless (i) investment in
the Shares is effectively connected with the non-U.S. Shareholder's United
States trade or business, in which case, as discussed above, the non-U.S.
Shareholder would be subject to the same treatment as U.S. Shareholders on such
gain or (ii) the non-U.S. Shareholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
The Shares will not constitute a United States real property interest if
the Company is a "domestically controlled REIT." A domestically controlled REIT
is a REIT in which at all times during a specified testing period less than 50%
in value of its shares is held directly or indirectly by non-U.S. Shareholders.
It is currently anticipated that the Company will be a domestically controlled
REIT, and therefore that the sale of Shares will not be subject to taxation
under FIRPTA. However, because the Shares will be publicly traded, no assurance
can be given that the Company will continue to be a domestically controlled
REIT. If the Company did not constitute a domestically controlled REIT, whether
a non-U.S. Shareholder's sale of Shares would be subject to tax under FIRPTA as
a sale of a United States real property interest would depend on whether the
Shares were "regularly traded" (as defined by applicable Treasury Regulations)
on an established securities market (e.g., the NYSE, on which the Shares will be
listed) and on the size of the selling Shareholder's interest in the Company.
If the gain on the sale of the Shares were subject to taxation under FIRPTA, the
non-U.S. Shareholder would be subject to the same treatment as a U.S.
Shareholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of Shares from a non-U.S. Shareholder
will not be required under FIRPTA to withhold on the purchase price if the
purchased Shares are "regularly traded" on an established securities market or
if the Company is a domestically controlled REIT. Otherwise, under FIRPTA, the
purchaser of Shares may be required to withhold 10% of the purchase price and to
remit such amount to the Service.
Federal Estate Tax
Shares owned or treated as owned by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes unless an applicable estate
tax treaty provides otherwise.
Backup Withholding and Information Reporting Requirements
The Company must report annually to the Service and to each non-U.S.
Shareholder the amount of dividends paid to and the tax withheld with respect to
such holder. These information reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the non-U.S. Shareholder resides. United States backup
withholding tax (which generally is a withholding tax imposed at the rate of 31%
on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) will generally not
apply to dividends paid on Shares to a non-U.S. Shareholder at an address
outside the United States.
The payment of the proceeds from the disposition of Shares to or through
the United States office of a broker will be subject to information reporting
and backup withholding at a rate of 31% unless the owner, under penalties of
perjury, certifies, among other things, its status as a non-U.S. Shareholder, or
otherwise establishes an exemption. The payment of the proceeds from the
disposition of Shares to or through a non-U.S. office of a broker generally will
not be subject to backup withholding and information reporting. In the case of
proceeds from a disposition of Shares paid to or through a non-U.S. office of a
U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker that is
(i) a "controlled foreign corporation" for United States federal income tax
purposes or (ii) a person 50% or more of whose gross income from all sources for
a certain three-year period was effectively connected with a United States trade
or business, (a) backup withholding will not apply unless the broker has actual
knowledge that the owner is not a non-U.S. Shareholder, and (b) information
reporting will not apply if the broker has documentary evidence in its files
that the owner is a non-U.S. Shareholder (unless the broker has actual knowledge
to the contrary).
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Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. Shareholder will be refunded by the Service (or credited against the
non-U.S. Shareholder's United States federal income tax liability, if any),
provided that the required information is furnished to the Service.
Other Tax Consequences
The Company and its Shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside.
There may be other federal, state, local or foreign income, or estate and
gift, tax considerations applicable to the circumstances of a particular
investor. Shareholders should consult their own tax advisors with respect to
such matters.
ERISA PLANS, KEOGH PLANS AND
INDIVIDUAL RETIREMENT ACCOUNTS
General Fiduciary Obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plan") must consider whether their investment in the
Company's Shares satisfies the diversification requirements of ERISA, whether
the investment is prudent in light of possible limitations on the marketability
of the Shares, whether such fiduciaries have authority to acquire such Shares
under the appropriate governing instrument and Title I of ERISA, and whether
such investment is otherwise consistent with their fiduciary responsibilities.
Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper
delegation of control over or responsibility for "plan assets." Trustees and
other fiduciaries of an ERISA plan may incur personal liability for any loss
suffered by the plan on account of a violation of their fiduciary
responsibilities. In addition, such fiduciaries may be subject to a civil
penalty of up to 20% of any amount recovered by the plan on account of such a
violation (the "Fiduciary Penalty"). Also, fiduciaries of any Individual
Retirement Account ("IRA"), Keogh Plan or other qualified retirement plan not
subject to Title I of ERISA because it does not cover common law employees
("Non-ERISA Plan") should consider that such an IRA or Non-ERISA Plan may only
make investments that are authorized by the appropriate governing instrument.
Fiduciary Shareholders should consult their own legal advisers if they have any
concern as to whether the investment is inconsistent with any of the foregoing
criteria.
Prohibited Transactions
Fiduciaries of ERISA Plans and persons making the investment decision for
an IRA or other Non-ERISA Plan should also consider the application of the
prohibited transaction provisions of ERISA and the Code in making their
investment decision. Sales and certain other transactions between an ERISA
Plan, IRA, or other Non-ERISA Plan and certain persons related to it are
prohibited transactions. The particular facts concerning the sponsorship,
operations and other investments of an ERISA Plan, IRA, or other Non-ERISA Plan
may cause a wide range of other persons to be treated as disqualified persons or
parties in interest with respect to it. A prohibited transaction, in addition
to imposing potential personal liability upon fiduciaries of ERISA Plans, may
also result in the imposition of an excise tax under the Code or a penalty under
ERISA upon the disqualified person or party in interest with respect to the
ERISA or Non-ERISA Plan or IRA. If the disqualified person who engages in the
transaction is the individual on behalf of whom an IRA is maintained (or his
beneficiary), the IRA may lose its tax-exempt status and its assets may be
deemed to have been distributed to such individual in a taxable distribution
(and no excise tax will be imposed) on account of the prohibited transaction.
Fiduciary Shareholders should consult their own legal advisers if they have any
concern as to whether the investment is a prohibited transaction.
Special Fiduciary and Prohibited Transactions Considerations
The Department of Labor ("DOL"), which has certain administrative
responsibility over ERISA Plans as well as over IRAs and other Non-ERISA Plans,
has issued a regulation defining "plan assets." The regulation generally
provides that when an ERISA or Non-ERISA Plan or IRA acquires a security that is
an equity interest in an entity and that security is neither a "publicly offered
security" nor a security issued by an investment company registered under the
Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets
include both the equity interest and an undivided
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<PAGE>
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an operating company or that equity
participation in the entity by benefit plan investors is not significant.
The regulation defines a publicly offered security as a security that is
"widely held," "freely transferable" and either part of a class of securities
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or sold pursuant to an effective registration statement under the
Securities Act (provided the securities are registered under the Exchange Act
within 120 days after the end of the fiscal year of the issuer during which the
offering occurred). The Company's Shares will be registered under the Exchange
Act.
The regulation provides that a security is "widely held" only if it is part
of a class of securities that is owned by 100 or more investors independent of
the issuer and of one another. However, a security will not fail to be "widely
held" because the number of independent investors falls below 100 subsequent to
the initial public offering as a result of events beyond the issuer's control.
The regulation provides that whether a security is "freely transferable" is
a factual question to be determined on the basis of all relevant facts and
circumstances. The regulation further provides that, where a security is part
of an offering in which the minimum investment is $10,000 or less, certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are freely transferable. The restrictions on transfer
enumerated in the regulation as not affecting that finding include: any
restriction on or prohibition against any transfer or assignment which would
result in a termination or reclassification of the Company for federal or state
tax purposes, or would otherwise violate any state or federal law or court
order; any requirement that advance notice of a transfer or assignment be given
to the Company and any requirement that either the transferor or transferee, or
both, execute documentation setting forth representations as to compliance with
any restrictions on transfer which are among those enumerated in the regulation
as not affecting free transferability, including those described in the
preceding clause of this sentence; any administrative procedure which
establishes an effective date, or an event prior to which a transfer or
assignment will not be effective; and any limitation or restriction on transfer
or assignment which is not imposed by the issuer or a person acting on behalf of
the issuer. The Company believes that the restrictions imposed under the
Company's Declaration and Bylaws on the transfer of Shares do not result in the
failure of the Shares to be "freely transferable." Furthermore, the Company
believes that at present there exist no other facts or circumstances limiting
the transferability of the Shares which are not included among those enumerated
as not affecting their free transferability under the regulation, and the
Company does not expect or intend to impose in the future (or to permit any
person to impose on its behalf) any limitations or restrictions on transfer
which would not be among the enumerated permissible limitations or restrictions.
However, the final regulation only establishes a presumption in favor of a
finding of free transferability, and no guarantee can be given that the DOL or
the Treasury Department will not reach a contrary conclusion.
Assuming that the Shares will be "widely held" and that no other facts and
circumstances exist which restrict transferability of the Shares, the Company
has received an opinion from Company Counsel that the Shares should not fail to
be "freely transferable" for purposes of the regulation due to the restrictions
on transfer of the Shares under the Company's Declaration and Bylaws and that
under the regulation the Shares are publicly offered securities and the assets
of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or
other Non-ERISA Plan that invests in the Shares.
If the assets of the Company are deemed to be plan assets under ERISA: (i)
the prudence standards and other provisions of Part 4 of Title I of ERISA would
be applicable to investments made by the Company; (ii) the person or persons
having investment discretion over the assets of ERISA Plans which invest in the
Company would be liable under the aforementioned Part 4 of Title I of ERISA for
investments made by the Company which do not conform to such ERISA standards
unless Advisors registers as an investment adviser under the Investment Advisers
Act of 1940 and certain other conditions are satisfied; and (iii) certain
transactions that the Company might enter into in the ordinary course of its
business and operation might constitute "prohibited transactions" under ERISA
and the Code.
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<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, the
Underwriters named below (the "Underwriters") for whom Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Dean Witter Reynolds Inc., A.G. Edwards
& Sons, Inc., Prudential Securities Incorporated, Smith Barney Inc., Legg Mason
Wood Walker, Incorporated and McDonald & Company Securities, Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company 12,000,000 Shares. The number of Shares that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Dean Witter Reynolds Inc. .....................................
A.G. Edwards & Sons, Inc. .....................................
Prudential Securities Incorporated.............................
Smith Barney Inc. .............................................
Legg Mason Wood Walker, Incorporated...........................
McDonald & Company Securities, Inc. ...........................
----------
Total..................................................... 12,000,000
==========
</TABLE>
The Underwriting Agreement provides that the several Underwriters will
be obligated to purchase all of the Shares offered hereby (other than the Shares
covered by the overallotment option described below) if any are purchased.
The Company has been advised by the Representatives that the
Underwriters propose to offer the Shares to the public initially at the price to
the public set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of $___ per Share; that the
Underwriters may allow, and such dealers may reallow, a discount of not in
excess of $___ per Share on sales to other dealers; and that the price to the
public, concessions and discounts to dealers may be changed by DLJ after the
initial public offering.
The Underwriters have been granted an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 1,800,000 additional Shares
from the Company at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such right of purchase
only for the purpose of covering overallotments, if any, incurred in connection
with the sale of Shares offered hereby. To the extent that such Underwriters
exercise such option, each of the Underwriters will become obligated, subject to
certain conditions, to purchase the same proportion of such additional Shares as
the number of other Shares to be purchased by the Underwriter bears to the total
number of Shares being sold in this Offering on the same terms as those on which
all Shares are being sold in this Offering.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against certain liabilities under the Securities
Act.
The Company has agreed not to, and has agreed to cause its affiliates
not to, directly or indirectly, offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of any Shares or any securities convertible
into or exercisable or exchangeable for Shares or, in any manner, transfer all
or a portion of the economic consequences associated with ownership of the
Shares, without the prior written consent of DLJ, for a period of 90 days from
the date of this Prospectus, other than the Shares being sold in this Offering
or to be issued pursuant to the Company's Incentive Share Award Plan.
Each of HRP and Advisors has agreed not to, and has agreed to cause
its officers, Trustees and Directors, as applicable, not to, directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Shares or any securities convertible into or
exercisable or exchangeable for Shares or, in any manner, transfer all
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<PAGE>
or a portion of the economic consequences associated with ownership of the
Shares, without the prior written consent of DLJ, prior to August 16, 1997.
The Company will pay to DLJ an advisory fee equal to $___ million from
the gross proceeds of this Offering for financial advisory services rendered in
connection with the acquisition by the Company of the 11 Wyndham Garden/(R)/
Hotels and in connection with structuring the Expanded Credit Facility with
DLJMC, an affiliate of DLJ.
EXPERTS
The historical financial statements and schedules of the Company, the
Residence Inn Hotels and the Courtyard Hotels and the financial statements of
HMH HPT Residence Inn, Inc. and HMH HPT Courtyard, Inc. included in this
Prospectus to the extent and for the periods indicated in their reports have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports dated January 19, 1996 and February 23, 1996 with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The combined financial statements and schedule relating to Garden
Hotel Associates LP as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, included in this Prospectus and in
the Registration Statement, have been included herein in reliance on the reports
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
Sullivan & Worcester LLP has passed upon the validity of the issuance
of the Shares offered pursuant to this Prospectus and on certain tax matters as
described under "Federal Income Tax Considerations." Certain legal matters
relating to this Offering will be passed upon for the Underwriters by Davis Polk
& Wardwell. Barry M. Portnoy, a partner in the firm of Sullivan & Worcester
LLP, is a Managing Trustee of the Company, a Managing Trustee of HRP and a
Director and 50% shareholder of Advisors. Sullivan & Worcester LLP and Davis
Polk & Wardwell will rely on the opinion of Piper & Marbury L.L.P with respect
to all matters involving Maryland law.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part) on Form S-11 under the Securities Act with
respect to the Shares offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules hereto. For further information
regarding the Company and the Shares offered hereby, reference is hereby made to
the Registration Statement and such exhibits and schedules.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such reports, proxy
statements and other information can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Reports, proxy statements and other information concerning
the Company may also be inspected at the office of the NYSE, 20 Broad Street,
New York, New York 10005.
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<PAGE>
The Company's Declaration of Trust contains the following provision.
The provision should not be construed as a limitation on the ability of
Shareholders to assert claims for breaches of fiduciary duties.
THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED MAY 12, 1995,
A COPY OF WHICH, TOGETHER WITH ANY AMENDMENTS THERETO, IS DULY FILED IN THE
OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND,
PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES
UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE
COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY
OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE
COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
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<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ACMs" means asbestos containing materials.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Additional Hotels" means the 11 Wyndham Garden/(R)/ Hotels, the 18
Residence Inn by Marriott/(R)/ Hotels and the additional 16 Courtyard by
Marriott/(R)/ Hotels to be acquired by the Company as described in this
Prospectus.
"Adjusted Basis Ratio" means, as to a Hotel, the ratio of (i) the average
of the adjusted bases of the Company's personal property of such Hotel at the
beginning and at the end of the taxable year to (ii) the average of the
aggregate adjusted bases of both the Company's real and personal property of
such Hotel at the beginning and at the end of such taxable year.
"ADR" means average daily room rate.
"Advisors" means HRPT Advisors, Inc., a Delaware corporation.
"Advisory Agreement" means the Advisory Agreement between Advisors and the
Company.
"Audit Committee" means the audit committee of the Company consisting of
the Independent Trustees.
"Average Invested Capital" means, for purposes of the Advisory Agreement,
the daily weighted average of the total book value of the Company's real estate
assets (before reserves for depreciation or bad debts or other similar non-cash
reserves) invested, directly or indirectly, in equity interests in, and loans
secured by real estate and personal property owned in connection with such real
estate.
"Award" means any award, compensation or damage paid in connection with the
taking or condemnation of a hotel or any substantial portion thereof by a public
authority for a public or quasi public use.
"Board of Trustees" means the Board of Trustees of the Company.
"Business Procedure" means the advance notice procedure with regard to
Shareholder proposals specified in the Bylaws.
"Bylaws" means the Bylaws of the Company.
"Cash Available for Distribution" means net income from operations, plus
depreciation and amortization (all computed in accordance with GAAP) and less
Company owned funds escrowed for renovations and refurbishments (i.e., FF&E
Reserves) and adjusted for non-recurring items, if any.
"Charitable Beneficiary" means a qualified trustee of a trust for the
exclusive benefit of one or more organizations described in Section 170(b)(1)(a)
and 170(c) of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means Hospitality Properties Trust, a Maryland real estate
investment trust.
"Company Counsel" means Sullivan & Worcester LLP, counsel to the Company.
"Declaration" means the Declaration of Trust of the Company.
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<PAGE>
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"DLJMC" means DLJ Mortgage Capital, Inc., an affiliate of DLJ.
"DOL" means United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means a pension, profit sharing or other employee benefit plan
subject to Title I of ERISA.
"Excess Shares" means Shares that are in violation of the Ownership
Limitation or which cause the Company to be treated as "closely held "under
Section 856(h) of the Code, and that are not otherwise permitted by the Board of
Trustees.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempted Persons" means HRP, Advisors or their affiliates, including
persons who are deemed to have beneficial ownership of the Shares directly owned
by HRP and Advisors pursuant to the attribution provisions of the Code, and
other Shareholders exempted by majority vote of the Trustees.
"Expanded Credit Facility" means the additional $250.0 million non-
revolving credit line, in excess of the Line of Credit, provided by DLJMC to the
Company.
"FF&E Reserve" means those funds to be escrowed annually pursuant to the
Leases as a reserve for renovations and refurbishments.
"Fiduciary Penalty" means a civil penalty of up to 20% of any amount
recovered by an ERISA Plan on account of a violation by Trustees and other
fiduciaries of their fiduciary responsibilities.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FFO" means net income (computed in accordance with GAAP), adjusted for
non-recurring items, before real estate depreciation and amortization.
"GAAP" means generally accepted accounting principles.
"Host" means Host Marriott Corporation.
"Host I" means HMH HPT Residence, Inc., a limited purpose subsidiary of
Host which is the Lessee of the Company's 18 Residence Inn by Marriott/(R)/
Hotels.
"Host II" means HMH HPT Courtyard, Inc., a limited purpose subsidiary of
Host which is the Lessee of the Company's 53 Courtyard by Marriott/(R)/ Hotels.
"Hotels" means the Initial Hotels and the Additional Hotels.
"HPT" means the Company and is also the Company's trading symbol on the
NYSE.
"HRP" means Health and Retirement Properties Trust, a Maryland business
trust which is a NYSE listed REIT.
"Incentive Share Award Plan" means the Company's incentive Share award plan
pursuant to which 100,000 Shares have been reserved for issuance to Independent
Trustees and officers of, and consultants (other than Advisors) to, the Company.
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"Independent Trustees" means Trustees who are not officers of the Company
or otherwise affiliated with the Company, HRP or Advisors.
"Initial Hotels" means the 37 Hotels with 5,286 guest rooms owned by the
Company immediately after completion of the Company's initial public offering.
"Interested Shareholder" means a person who beneficially owns 10% or more
of the voting power of the Shares.
"IRA" means Individual Retirement Account.
"Leases" means the Company's hotel leases for the Hotels.
"Lessees" means Wyndham I, Host I and Host II.
"Line of Credit" means the $200.0 million revolving credit line provided by
DLJMC to the Company.
"Management Agreements" means the management agreements for the Hotels.
"Managers" means Wyndham II, Marriott I and Marriott II.
"Managing Trustees" means Messrs. Barry M. Portnoy and Gerard M. Martin.
"Marriott" means Marriott International, Inc.
"Marriott I" means the subsidiary of Marriott which manages the Company's
18 Residence Inn by Marriott/(R)/ Hotels.
"Marriott II" means Courtyard Management Corporation, a subsidiary of
Marriott which manages the Company's 53 Courtyard by Marriott/(R)/ Hotels.
"MGCL" means the Maryland General Corporation Law.
"Nomination Procedure" means the advance notice procedure with regard to
the nomination, other than by the Board of Trustees, of Trustees specified in
the Bylaws.
"Non-ERISA Plan" means an IRA, Keogh Plan or other qualified retirement
plan not subject to Title I of ERISA because it does not cover common law
employees.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the public offering of 12,000,000 Shares of the Company
contemplated by this Prospectus.
"Ownership Limitation" means the restriction on ownership of more than 9.8%
of the Shares by any Shareholder or affiliated group of Shareholders, except
HRP, Advisors and certain other entities.
"Preferred Shares" means Preferred Shares of Beneficial Interest of the
Company, without par value.
"Purchase Agreements" means the purchase agreements among the Company and
each of the applicable sellers pursuant to which the Company will acquire the
Additional Hotels.
"Registration Statement" means the Registration Statement on Form S-11
under the Securities Act of which this Prospectus is a part.
"REIT" means a real estate investment trust.
"REMIC" means a real estate mortgage investment conduit, as defined in the
Code.
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"Representatives" means the Representatives of the Underwriters named in
this Prospectus.
"REVPAR" means room revenues per available guest room or suite.
"Rule 144" means the rule promulgated under the Securities Act that permits
holders of restricted securities as well as affiliates of an issuer of the
securities, pursuant to certain conditions and subject to certain restrictions,
to sell their securities publicly without registration under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Deposit" means an amount equal to a full year's base rent for
each of the Hotels which has been retained or is permitted to be retained by the
Company as security for the Lessee's obligations under their respective Leases.
"Service" means the U.S. Internal Revenue Service.
"Shareholders" means the holders of the Shares.
"Shares" means the Common Shares of Beneficial Interest of the Company,
$.01 par value per Share.
"Total Hotel Sales" means all revenues and receipts of every kind derived
from guests or customers related to the operation of the Hotels and has the same
meaning as "Gross Revenues" under the Leases.
"Treasury Regulations" means the income tax regulations that have been
promulgated under the Code.
"UBTI" means unrelated business taxable income.
"Underwriters" means the Underwriters named in this Prospectus.
"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Representatives relating to the purchase of the Shares offered
hereby.
"Wyndham" means Wyndham Hotel Company Ltd. or its proposed successor-in-
interest, Wyndham Hotel Corporation.
"Wyndham I" means the limited purpose subsidiary of Wyndham which leases
the Company's 11 Wyndham Garden/(R)/ Hotels.
"Wyndham II" means the subsidiary of Wyndham which manages the Company's 11
Wyndham Garden/(R)/ Hotels.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Hospitality Properties Trust Financial Statements:
Introduction to Pro Forma Financial Statements........................... F-4
Unaudited Pro Forma Balance Sheet as of December 31, 1995................ F-5
Unaudited Pro Forma Statement of Income for the year ended
December 31, 1995........................................................ F-6
Notes to Pro Forma Financial Statements.................................. F-7
Report of Independent Public Accountants................................. F-11
Balance Sheet as of December 31, 1995.................................... F-12
Statement of Income for the period from February 7, 1995 (inception)
to December 31, 1995..................................................... F-13
Statement of Shareholders' Equity for the period from February 7, 1995
(inception) to December 31, 1995......................................... F-14
Statement of Cash Flows for the period from February 7, 1995 (inception)
to December 31, 1995..................................................... F-15
Notes to Financial Statements............................................ F-16
Report of Independent Public Accountants................................. F-22
Schedule III--Real Estate and Accumulated Depreciation................... F-23
HMH HPT Residence Inn, Inc. (Host I) Financial Statements:
Introduction to Pro Forma Financial Statements........................... F-25
Unaudited Pro Forma Balance Sheet as of December 29, 1995................ F-26
Unaudited Pro Forma Statement of Income for fiscal year
ended December 29, 1995.................................................. F-27
Notes to Pro Forma Financial Statements.................................. F-28
Report of Independent Public Accountants................................. F-30
Balance Sheet as of February 21, 1996.................................... F-31
Notes to Balance Sheet................................................... F-32
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Residence Inn Hotels Combined Financial Statements:
Report of Independent Public Accountants................................. F-33
Combined Statements of Revenues and Expenses Excluding Income Taxes for
the fiscal years ended December 31, 1993, December 30, 1994 and
December 29, 1995........................................................ F-34
Combined Statements of Assets, Liabilities and Net Investment and
Advances as of December 30, 1994 and December 29, 1995................... F-35
Combined Statements of Cash Flows for the fiscal years ended
December 31, 1993, December 30, 1994 and December 29, 1995............... F-36
Notes to Combined Financial Statements................................... F-37
Report of Independent Public Accountants................................. F-45
Schedule III -- Real Estate and Accumulated Depreciation................. F-46
HMH HPT Courtyard, Inc. (Host II) Financial Statements:
Introduction to Pro Forma Financial Statements........................... F-48
Unaudited Pro Forma Balance Sheet as of December 29, 1995................ F-49
Unaudited Pro Forma Statement of Income for the fiscal year ended
December 29, 1995........................................................ F-50
Notes to Pro Forma Financial Statements.................................. F-51
Report of Independent Public Accountants................................. F-53
Balance Sheet as of December 29, 1995.................................... F-54
Statement of Income for the period March 24, 1995 (inception) to
December 29, 1995........................................................ F-55
Statement of Shareholder's Equity for the period March 24, 1995
(inception) to December 29, 1995......................................... F-56
Statement of Cash Flows for the period March 24, 1995 (inception) to
December 29, 1995........................................................ F-57
Notes to Financial Statements............................................ F-58
Courtyard Hotels Combined Financial Statements:
Report of Independent Public Accountants................................. F-64
Combined Statements of Revenues and Expenses Excluding Income Taxes for
the fiscal years ended December 31, 1993, December 30, 1994 and
December 29, 1995........................................................ F-65
Combined Statements of Assets, Liabilities and Net Investment and
Advances as of December 30, 1994 and December 29, 1995................... F-66
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Cash Flows for the fiscal years ended
December 31, 1993, December 30, 1994 and December 29, 1995............... F-67
Notes to Combined Financial Statements................................... F-68
Report of Independent Public Accountants................................. F-77
Schedule III -- Real Estate and Accumulated Depreciation................. F-78
Wyndham I:
Introduction to Pro Forma Financial Statement............................ F-80
Unaudited Pro Forma Balance Sheet as of December 31, 1995................ F-81
Unaudited Pro Forma Statement of Income for the year ended
December 31, 1995........................................................ F-82
Notes to Pro Forma Financial Statements.................................. F-83
Garden Hotel Associates L.P.:
Report of Independent Public Accountants................................. F-84
Balance Sheet as of December 31, 1994 and 1995........................... F-85
Statements of Income for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995.................................. F-86
Statement of Changes in Partners' Capital for the years ended
December 31, 1993, December 31, 1994 and December 31, 1995............... F-87
Statements of Cash Flows for the years ended
December 31, 1993, December 31, 1994 and December 31, 1995............... F-88
Notes to Financial Statements............................................ F-89
Report of Independent Public Accountants................................. F-97
Schedule III -- Real Estate and Accumulation Depreciation................ F-98
</TABLE>
F-3
<PAGE>
Hospitality Properties Trust
Pro Forma Balance Sheet as of December 31, 1995 and
Pro Forma Statement of Income
For the Year Ended December 31, 1995
As described in footnotes (J) and (K), the following unaudited pro forma data
are presented as if: (i) the Company's formation transactions, primarily the
acquisition of the Initial Hotels and the Company's initial public offering of
Shares; (ii) this Offering; (iii) the acquisition of all Additional Hotels; (iv)
the commencement of the Leases relating to the Additional Hotels; and (v)
certain other transactions described in the notes to the pro forma financial
statements included elsewhere in this Prospectus have been consummated as of the
date or for the period presented.
The pro forma information is based in part upon the historical financial
statements of the Company, the Courtyard Hotels, the Residence Inn Hotels and
Garden Hotel Associates L.P. (the Wyndham Hotels). Such information should be
read in conjunction with all of the financial statements and notes thereto
included in this Prospectus. In the opinion of management, all adjustments
necessary to reflect the effects of the transactions discussed above have been
reflected in the pro forma data.
The following unaudited pro forma data is not necessarily indicative of what the
actual financial position or results of operations for the Company would have
been as of the date or for the period indicated, nor does it purport to
represent the financial position or results of operations of the Company for
future periods.
F-4
<PAGE>
Hospitality Properties Trust
Pro Forma Balance Sheet
Assets
<TABLE>
<CAPTION>
As of December 31, 1995
--------------------------------------------
Historical (A) Pro Forma Pro Forma
(37 Hotels) Adjustments (82 Hotels)
--------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Real estate properties, at cost
Land $ 62,311 $ 91,516 $153,827
Buildings and improvements 270,261 396,934 667,195
-------- -------- --------
332,572 488,450 (B) 821,022
Less accumulated depreciation 5,820 - 5,820
-------- -------- --------
326,752 488,450 815,202
Cash and cash equivalents 2,135 - 2,135
Rent receivable 322 - 322
FF&E reserve (restricted cash) 5,342 5,500 (C) 10,842
Other assets, net 4,396 1,447 (D) 5,843
-------- -------- --------
$338,947 $495,397 $834,344
======== ======== ========
<CAPTION>
Liabilities and Shareholder's Equity
<S> <C> <C> <C>
Borrowings $ - $144,712 (E) $144,712
Security deposits 32,900 48,460 (F) 81,360
Dividend payable 6,930 - 6,930
Due to affiliate 770 - 770
Accounts payable and 396 - 396
accrued expenses
Shareholders' equity:
Preferred shares
Common shares of
beneficial interest
$.01 par value,
100,000,000 shares
authorized, 12,600,900
shares issued and
outstanding (24,600,900
shares on a pro forma
basis) 126 120 (G) 246
Additional paid 297,962 302,105 (H) 600,067
in capital
Cumulative net
income 11,349 - 11,349
Dividends (11,486) - (11,486)
-------- -------- --------
Total
shareholders'
equity 297,951 302,225 600,176
-------- -------- --------
$338,947 $495,397 $834,344
======== ======== ========
</TABLE>
See notes to pro forma financial statements.
F-5
<PAGE>
Hospitality Properties Trust
Pro Forma Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------
Historical Pro Forma Pro Forma
February 7, 1995 Year Ended Year Ended
(Inception) to December 31, December 31,
December 31, 1995 (J) 1995,
1995 (I) (37 Hotels) (82 Hotels) (K)
---------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Base rent $ 19,206 $ 32,900 (L) $ 81,360 (L)
Percentage rent 325 408 (M) 408 (M)
FF&E reserve income 4,037 6,424 (N) 12,295 (N)
Interest income 74 85 85
-------- -------- --------
Total 23,642 39,817 94,148
Expenses:
Interest expense 5,039 - 9,952 (O)
Depreciation and
amortization 5,844 9,229 (P) 23,809 (P)
General and
administrative 1,410 2,616 (Q) 5,039
-------- -------- --------
Total expenses 12,293 11,845 38,800
-------- -------- --------
Net income $ 11,349 $ 27,972 $ 55,348
======== ======== ========
Other data:
Cash available for
distribution (R) $ 13,156 $ 30,777 $ 67,096
Cash provided by
operating activities (S) 14,140 31,676 67,761
Cash used in investing
activities (S) 303,652 303,652 749,142
Cash provided by
financing activities (S) 291,647 268,481 687,451
Weighted average shares 4,515 12,601 24,601
Per share data:
Net income (T) $2.51 $2.22 $2.25
Cash available for
distribution (T) 2.91 2.44 2.73
</TABLE>
See notes to pro forma financial statements.
F-6
<PAGE>
Hospitality Properties Trust
Notes to Pro Forma Financial Statements
(Dollars in Thousands)
(A) Represents the historical balance sheet of the Company as of December 31,
1995.
(B) Represents the proposed purchase of the 45 Additional Hotels as follows:
<TABLE>
<CAPTION>
11 Wyndham 18 Residence 16 Courtyard
Hotels Inn Hotels Hotels Total
---------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Cash purchase price $122,400 $155,000 $158,760 $436,160
Purchase price withheld as
security deposit 13,600 17,220 17,640 48,460
Estimated closing costs 780 300 250 1,330
Option cost capitalized to
real estate - 1,250 1,250 2,500
-------- -------- -------- --------
$136,780 $173,770 $177,900 $488,450
======== ======== ======== ========
</TABLE>
(C) Represents the proposed purchase price of existing FF&E reserve escrow
account balances for the 45 Additional Hotels.
(D) Represents financing fee of 1% of pro forma borrowings by the Company on
the line of credit.
(E) Represents proposed borrowings on the Company's line of credit.
(F) Represents Security Deposits equal to one year's base rent for the
Additional Leases for the 45 Additional Hotels.
(G) Represents the par value ($0.01) of 12,000,000 Shares expected to be issued
in the Proposed Offering.
(H) Represents the following:
Gross proceeds from the Offering $324,000
Estimated expenses of the Offering (21,775)
Par value of shares (120)
--------
$302,105
========
F-7
<PAGE>
(I) Represents the historical operating results of the Company for the period
February 7, 1995 (inception), to December 31, 1995.
(J) Represents the pro forma operating results of the Company assuming the
Company's formation transactions, primarily the acquisition and leasing of
the 37 Initial Hotels and the Company's initial public offering, had been
consummated as of January 1, 1995.
(K) Represents the pro forma operating results of the Company assuming the
Company's formation transactions, primarily the acquisition and leasing of
the 37 Initial Hotels, the Company's initial public offering, the proposed
acquisition and leasing of the 45 Additional Hotels and the proposed
Offering.
(L) Represents Base Rent per the Hotel Leases, as follows:
<TABLE>
<S> <C>
Initial Courtyard Hotels $32,900
-------
Additional Hotels:
Courtyard Hotels 17,640
Wyndham Hotels 13,600
Residence Inn Hotels 17,220
-------
48,460
-------
Total, the Hotels $81,360
=======
</TABLE>
(M) Represents 5% of revenue increases over 1994 base year levels for the
Initial Hotels.
(N) Represents amounts paid as rent into an FF&E escrow account for use on
capitalizable hotel expenditures for repairs, refurbishment and
renovations. Escrowed amounts represent 5% of Total Hotel Sales each year.
<TABLE>
<S> <C>
Initial Courtyard Hotels $ 6,424
-------
Additional Hotels:
Courtyard Hotels 2,775
Residence Inn Hotels 3,096
-------
5,871
-------
Total, the Hotels $12,295
=======
</TABLE>
(O) Represents interest at LIBOR plus 150 basis points (approximately 6.8% at
February 27, 1996) on the pro forma $144,712 drawn on the line of credit in
connection with the proposed acquisition of the Additional Hotels and
amortization of the related financing fees. The pro forma impact on
interest expense of a 1/8% change in LIBOR is approximately $1,847 for the
year ended December 31, 1995.
F-8
<PAGE>
(P) Represents the full year effect of the purchase of the Initial Hotels and
Additional Hotels on depreciation expense.
<TABLE>
<S> <C>
Initial Courtyard Hotels $ 9,229
Additional Hotels:
Courtyard Hotels 5,310
Wyndham Hotels 4,083
Residence Inn Hotels 5,187
-------
14,580
-------
Total, the Hotels $23,809
=======
</TABLE>
(Q) Represents estimated expenses of the Company related to advisory fees,
state and local taxes, legal, accounting and investor relations as detailed
below.
<TABLE>
<S> <C>
Initial Courtyard Hotels:
Advisory fee $2,163
Other expenses 453
------
Total $2,616
------
Additional Hotels (Advisory Fees):
Courtyard Hotels $ 882
Wyndham Hotels 680
Residence Inn Hotels 861
------
2,423
------
Total, the Hotels $5,039
======
Advisory fees $4,586
State and local taxes 140
Independent trustees fees 98
Legal fees 40
Accounting fees 100
Investor relations 75
------
Total, the Hotels $5,039
======
</TABLE>
No incentive advisory fees were payable in 1995.
(R) The Company bases its dividend primarily on cash available for
distribution, which is net income, plus depreciation and amortization and
less FF&E Reserve income. Cash available for distribution may not
necessarily equal cash provided by operating activities under GAAP, as the
cash flow of the Company is affected by other factors not included in the
calculation of cash available for distribution, including changes in
working capital.
(S) Amounts are computed on a pro forma basis in accordance with GAAP, except
that cash provided by operating activities excludes the effect on cash
resulting from changes in current assets and current liabilities. The
Company does not believe that these excluded items are material to net cash
provided by operating activities.
F-9
<PAGE>
(T) From inception on February 7, 1995, until completion of its initial public
offering on August 22, 1995, the Company was a 100% owned subsidiary of
HRP. It was initially capitalized with $1 million of equity and $163.3
million of debt. The debt was provided by HRP at its cost which was lower
than the market rates which the Company would have paid on a stand alone
basis. Accordingly, the Company does not believe that net income, net
income per share, cash available for distribution and cash available for
distribution per share while it was a wholly owned subsidiary are
comparable to periods subsequent to such offering.
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited the accompanying balance sheet of Hospitality Properties
Trust (the "Company") as of December 31, 1995, and the related statements of
income, shareholders' equity and cash flows for the period from February 7, 1995
(inception) to December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hospitality Properties Trust
as of December 31, 1995, and the results of its operations and its cash flows
for the period from February 7, 1995 (inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 19, 1996
F-11
<PAGE>
HOSPITALITY PROPERTIES TRUST
BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1995
-----------
ASSETS
<S> <C>
Real estate properties, at cost:
Land $ 62,311
Buildings and improvements 270,261
--------
332,572
Less accumulated depreciation 5,820
--------
326,752
Cash and cash equivalents 2,135
Rent receivable 322
FF&E reserve (restricted cash) 5,342
Other assets, net 4,396
--------
$338,947
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Security deposits $ 32,900
Dividends payable 6,930
Advisory fee to affiliate 770
Accounts payable and accrued expenses 396
Shareholders' equity:
Preferred shares of beneficial
interest, no par value,
100,000,000 shares authorized,
none issued -
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 12,600,900 shares
issued and outstanding 126
Additional paid-in capital 297,962
Cumulative net income 11,349
Dividends (paid or declared) (11,486)
--------
Total shareholders' equity 297,951
--------
$338,947
========
</TABLE>
See Accompanying Notes
F-12
<PAGE>
HOSPITALITY PROPERTIES TRUST
STATEMENT OF INCOME
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
February 7, 1995
(Inception) to
December 31, 1995
-----------------
Revenues:
<S> <C>
Rental income $19,531
FF&E reserve income 4,037
Interest income 74
-------
Total revenues 23,642
Expenses:
Interest to HRP 5,039
Depreciation and amortization 5,844
General, administrative and
advisory 1,410
-------
Total expenses 12,293
-------
Net income $11,349
=======
Weighted average shares outstanding 4,515
Net income per share: $2.51
=======
</TABLE>
See Accompanying Notes
F-13
<PAGE>
HOSPITALITY PROPERTIES TRUST
STATEMENT OF SHAREHOLDERS' EQUITY
February 7, 1995 (inception) to December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Cumulative
Number Of Common Paid In Net
Shares Shares Capital Income Dividends Total
------ ------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Initial
Capitalization
as of February
7, 1995
(inception) 40,000 -- $960 -- -- $960
Issuance of
Common
Shares of
Beneficial
Interest, Net 12,560,000 126 296,980 -- -- 297,106
Stock Grants 900 -- 22 -- -- 22
Net Income -- -- -- 11,349 -- 11,349
Dividends -- -- -- -- (11,486) (11,486)
----------- --------- ---------- -------- --------- ---------
Balance at
December 31,
1995 12,600,900 $126 $297,962 $11,349 ($11,486) $297,951
========== ========= ========== ======== ========= =========
</TABLE>
See Accompanying Notes
F-14
<PAGE>
HOSPITALITY PROPERTIES TRUST
STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
February 7, 1995
(Inception) to
December 31, 1995
------------------
<S> <C>
Cash flows from operating activities:
Net income $ 11,349
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 5,844
Funding of FF&E reserve (4,037)
Changes in assets and liabilities:
Increase in rent receivable and other assets (182)
Increase in accounts payable and accrued expenses 396
Increase in due to affiliate 770
---------
Cash provided by operating activities 14,140
---------
Cash flows from investing activities:
Real estate acquisitions (328,148)
Increase in security deposits 32,900
Payments for purchase option (4,500)
Purchase of FF&E reserve (3,904)
---------
Cash used in investing activities (303,652)
---------
Cash flows from financing activities:
Proceeds from issuance of shares, net 198,088
Borrowings and advances from HRP 165,241
Payments on borrowings and advances from HRP (65,241)
Dividends (including $2,491 to HRP) (4,556)
Financing costs (1,885)
---------
Cash provided by financing activities 291,647
---------
Increase in cash and cash equivalents $ 2,135
Cash and cash equivalents at beginning of period -
---------
Cash and cash equivalents at end of period $ 2,135
=========
Supplemental cash flow information:
Interest paid 5,039
Non-cash activities:
Issuance of shares to HRP $ 100,000
Cancellation of indebtedness to HRP (100,000)
Purchases of fixed assets with FF&E reserve (2,424)
</TABLE>
See Accompanying Notes
F-15
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. Organization and Commencement of Operations
-------------------------------------------
Hospitality Properties Trust (the Company) was incorporated in the
state of Delaware on February 7, 1995. Subsequently, the Company became a
Maryland real estate investment trust and effected a 400-for-1 split of its
common shares of beneficial interest (the Shares). The Company, which invests
in income producing hotel and lodging related real estate, was a 100% owned
subsidiary of Health and Retirement Properties Trust (HRP) from its inception
through August 22, 1995 when it completed its initial public offering of Shares
(the IPO). HRP remains an affiliate of the Company.
The Company commenced operations on March 24, 1995 by acquiring 21
hotels and related replacement and refurbishment reserves (the FF&E Reserves)
for approximately $179,400 from affiliates of Host Marriott Corporation. The
properties are leased to a subsidiary (Host II) of Host Marriott Corporation and
are managed by a subsidiary (Marriott) of Marriott International, Inc. The
acquisition was substantially funded by advances from HRP (the HRP loan).
On August 22, 1995, the Company received net proceeds of approximately
$178,000 from its IPO of 7,500,000 shares to the public and 250,000 shares to
HRPT Advisors, Inc. and the concurrent placement of 3,960,000 shares to HRP
which canceled $99,000 in indebtedness due to HRP. On September 18, 1995, the
Company received additional net proceeds of approximately $19,900 from the sale
of 850,000 Shares in connection with the exercise of the underwriters' over-
allotment option. The proceeds were used to repay remaining loan amounts due to
HRP and to acquire 16 additional hotel properties (together with the 21
properties acquired on March 24, 1995, the Initial Hotels) and related FF&E
reserves for $149,600. The Initial Hotels are leased to Host and managed by
Marriott.
2. Summary of Significant Accounting Policies
------------------------------------------
Real estate properties. Real estate properties are recorded at cost.
Depreciation is provided for on a straight-line basis over the estimated useful
lives ranging up to 40 years.
Cash and cash equivalents. Highly liquid investments with maturities
of three months or less at date of purchase are considered to be cash
equivalents. The carrying amount of cash and cash equivalents is a reasonable
estimate of fair value.
Deferred interest and finance costs. Costs incurred to secure certain
borrowings are capitalized and amortized over the terms of their respective
loans.
F-16
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Revenue recognition. Rental income from operating leases is
recognized on a straight line basis over the life of the lease agreements.
Additional rent and interest revenue is recognized as earned.
Net income per share. Net income per share is computed using the
weighted average number of shares outstanding during the period.
Use of estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts. Actual results
could differ from those estimates.
Income taxes. The Company elected to be taxed as a Real Estate
Investment Trust (REIT) under Sections 856 through 860 of the Internal revenue
Code of 1986 (the "Code"), commencing with its first taxable year ended December
31, 1995, and intends to conduct its operations so as to continue to qualify as
a REIT under the Code. As a REIT, the Company generally will not be subject to
Federal income tax on its net income that it currently distributes to
shareholders. Qualifications and taxation as a REIT depends on the Company's
ability to meet certain dividend distribution tests, stock ownership
requirements and various qualification tests prescribed in the Code.
The dividends paid by the Company during 1995 were taxable as ordinary
income.
3. Real estate properties.
----------------------
The Company's 37 hotels properties are leased pursuant to long term
operating leases expiring in 2006. The leases provide for four automatic
renewal terms totaling 37 years unless the lessee (Host II) properly notifies
the Company in accordance with the leases. Each lease is a triple net lease and
generally requires the lessee to pay: base rent, totaling $32,900 annually for
the 37 hotels; percentage rent, equal to 5% of increases in total hotel sales
over 1994 sales, FF&E reserve rent, equal to 5% of total hotel sales and all
operating costs associated with the leased property. Host II has posted a
security deposit equal to one year's base rent. The FF&E reserve may be used
by Marriott and Host II to maintain the properties in good working order and
repair. If the FF&E reserve is not available to fund such expenditures, Host II
may require the Company to fund such expenditures, in which case annual base
rent will be increased by 10% of the amount so funded.
Under the management agreements with Marriott, borrowings secured by
the Initial Hotels are limited, according to a formula, to amounts less than 70%
of the allocable purchase price of the applicable Initial Hotels.
F-17
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The Company also has options to purchase and/or rights of first
refusal and rights of first negotiation to acquire certain additional properties
from Host Marriott Corporation. The option and rights are carried at cost and
included in other assets in the accompanying financial statements. The option
and rights agreements expire at dates beginning June 30, 1996 and running
through August 31, 2002.
Future minimum lease payments to be received by the Company during the
remaining initial term of the leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996................................. $32,900
1997................................. 32,900
1998................................. 32,900
1999................................. 32,900
2000................................. 32,900
Thereafter........................... 197,400
-------
$361,900
========
</TABLE>
4. Indebtedness
------------
The Company has entered into a $200,000 revolving acquisition credit
facility which provides for borrowings at LIBOR plus 150 basis points.
Borrowings, if any, may be repaid and reborrowed as necessary until December 31,
1998, at which time outstanding balances may, at the Company's option, be either
repaid or converted into a 10-year term loan. As of December 31, 1995, the
Company had not drawn on the credit facility.
Substantially all of the funding for the acquisition of the 21 Initial
Hotels plus closing costs and the cost of the option was provided to the Company
by HRP from borrowings under HRP's revolving credit facility. The Company was a
full and unconditional guarantor of HRP's obligations for payments of interest
and principal under HRP's revolving credit facility until the Company's IPO in
August 1995. The loan from HRP was repaid in 1995 using proceeds from the IPO
and the guarantee was released. Interest incurred on the HRP loan and paid to
HRP totaled $5,039 for the period ended December 31, 1995.
5. Transactions with Affiliates
----------------------------
The Company has an agreement with HRPT Advisors, Inc. ("Advisors") whereby
Advisors provides investment, management and administrative services to the
Company. Advisors is owned by Gerard M. Martin and Barry M. Portnoy. Messrs.
Martin and Portnoy are Managing Trustees of HPT and HRP. Mr. Portnoy is also a
partner in the law firm which provides legal services to the Company. The
Company's officers are also employees of the Advisor.
F-18
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Advisors is compensated at an annual rate equal to 0.7% of HPT's average
real estate investments up to the first $250,000 of such investments and 0.5%
thereafter. Advisory fees earned for the period February 7, 1995 (inception)
through December 31, 1995 were $1,292. Advisors owns 250,000 shares of HPT which
it acquired at the IPO for $6,250.
HRP owns 4,000,000 shares of HPT, 3,960,000 shares of which it received in
consideration of cancellation of a loan receivable totaling $100,000 from the
Company.
Under the provisions of the Company's Incentive Share Award Plan, 100,000
Common Shares have been reserved for issuance to officers of the Company,
consultants to the Company and Independent Trustees of the Company. On December
21, 1995 each of the three Independent Trustees were awarded 300 shares under
this plan.
6. Concentration
-------------
At December 31, 1995, all of the Company's real estate properties net, were
leased to Host II and managed by Marriott.
The Company's 37 hotels contain 5,286 beds and are located in 20 states.
The following table sets forth those states where base rent exceeds 5% of total
annual base rent due of the Company:
State Percentage of Annual Base Rent
- ----- ------------------------------
Massachusetts 18%
Georgia 13%
California 11%
North Carolina 7%
7. Pro forma information (unaudited)
---------------------------------
The following unaudited pro forma income statement gives effect to:
(i) the completion of the Company's initial public offering and the concurrent
placement to HRP and HRPT Advisors, Inc.; (ii) the acquisition of the Initial
Hotels and the commencement of the related leases; (iii) repayment of amounts
due HRP; (iv) and the exercise of the underwriters' over-allotment option as
though such transactions occurred on January 1, 1995.
In the opinion of management, all adjustments necessary to reflect the
effects of the transactions discussed above have been reflected in the pro forma
data.
F-19
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The following unaudited pro forma data is not necessarily indicative
of what the actual results of operations for the Company would have been for the
year, nor does it purport to represent the results of operations for the Company
for future periods.
Pro Forma Income Statement Data:
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
<S> <C>
Revenues:
Rental income $33,398
FF&E reserve income 6,424
Interest income 85
-------
Total revenues 39,907
-------
Expenses:
Interest -
Depreciation and amortization 9,229
General, administrative and advisory 2,616
-------
Total expenses 11,845
-------
Net income $28,062
=======
Weighted average shares outstanding 12,601
Net income per share $2.23
=======
</TABLE>
F-20
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
8. Subsequent Events (unaudited)
-----------------------------
In February 1996, the Company entered into letters of intent for three
transactions totaling $484,600 to acquire and lease 45 hotels (the Additional
Hotels). One transaction will involve 11 Wyndham Garden Hotels with 1,940 guest
rooms in seven states which will be acquired for $136,000. The initial lease
term is expected to be 17 years. The second transaction will involve 18
Residence Inn Hotels with 2,178 guest suites in 14 states which will be acquired
for $172,200. The initial lease term is expected to be 15 years. The third
transaction will involve 16 Courtyard by Marriott hotels with 2,299 guest rooms
in 10 states which will be acquired for $176,400. The initial lease term is
expected to be 17 years. Minimum annual base rent payable to the Company in
connection with the above transactions will total $48,500 and the leases will
include provision for security deposits equal to one year's base rent, reserves
for capital expenditures at 5% of total revenue and participating rent based on
a percentage of increases in total revenue. The participating rent percentage
and base year are 8% and 1996, 7.5% and 1996, and 5% and 1995 for the Wyndham,
Residence Inn, and Courtyard by Marriott transactions, respectively. While the
Company expects to complete these transactions during the first or second
quarter of 1996, no assurance can be given as to the actual timing or that they
will be completed. In addition, as the permanent financing for these
transactions has not been finally determined, the ultimate impact on the
Company's financial position and results of operations has not yet been
determined. In order to accommodate the Company's acquisition of the Additional
Hotels, the Company has entered into an agreement to expand the funding
availability under its revolving credit facility by up to an additional
$250,000.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited in accordance with generally accepted auditing standards
the financial statements of Hospitality Properties Trust and have issued our
report thereon dated January 19, 1996. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedules on pages
F-23 and F-24 are the responsibility of Hospitality Properties Trust's
management and are presented for the purpose of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole .
ARTHUR ANDERSEN LLP
Washington, D.C.
January 19, 1996
F-22
<PAGE>
Hospitality Properties Trust
Real Estate and Accumulated Depreciation Schedule III
December 31, 1995 Page 1 of 2
(Dollars in millions)
<TABLE>
<CAPTION>
Gross Amount at
Initial Costs December 31, 1995
---------------------------------------- Subsequent -------------------
Buildings & Costs Buildings &
Description: Debt Land Improvements Capitalized Land Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C>
37 Courtyard by Marriott hotels - $62 $269 $2 $62 $271 $333
Accumulated Dated of Acquisition Depreciation
Description: Depreciation Life
<S> <C> <C> <C>
37 Courtyard by Marriott hotels $(6) 1995 9-40 years
</TABLE>
The accompanying notes are integral part of this schedule
F-23
<PAGE>
SCHEDULE III
Page 2 of 2
HOSPITALITY PROPERTIES TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- NOTES TO SCHEDULE
December 31, 1995
(In thousands)
Notes:
(A) The change in total cost of properties for the period from February 7, 1995
(inception) to December 31, 1995 is as follows:
<TABLE>
<S> <C>
Balance at February 7,1995....................................... $ -
Additions: Hotel acquisitions and capital
expenditures.................................................... 332,572
--------
Balance at December 31, 1995..................................... $ 332,572
--------
</TABLE>
(B) The change in accumulated depreciation for the period from February 7, 1995
(inception) to December 31, 1995 is as follows:
<TABLE>
<S> <C>
Balance at February 7, 1995...................................... $ -
Additions: Hotel acquisitions and capital
expenditures.................................................... 5,820
-------
Balance at December 31, 1995..................................... $ 5,820
-------
</TABLE>
F-24
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Pro Forma Balance Sheet as of December 29, 1995 and
Pro Forma Statement of Income
For the Fiscal Year Ended December 29, 1995
The following unaudited pro forma balance sheet gives effect to (i) the
formation of Host I; (ii) the transfer of certain assets to Host I related to
the acquisition of the Residence Inn Hotels by the Company and (iii) the
commencement of the related Leases between Host I and the Company as though such
transactions occurred on December 29, 1995.
The following unaudited pro forma statements of income give effect at January 1,
1995 to: (i) the acquisition of the Residence Inn Hotels by the Company; and
(ii) the commencement of the related Leases.
The pro forma information is based in part upon the historical statements of
revenues and expenses excluding income taxes of the Residence Inn Hotels. Such
information should be read in conjunction with all of the financial statements
and notes thereto included in this Prospectus. In the opinion of management,
all adjustments necessary to reflect the effects of the transactions discussed
above have been reflected in the pro forma data.
The following unaudited pro forma data is not necessarily indicative of what the
actual financial position or results of operations for Host I would have been as
of the date or for the period indicated, nor does it purport to represent the
financial position or results of operations of Host I for future periods.
F-25
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Pro Forma Balance Sheet
Assets
<TABLE>
<CAPTION>
As of December 29, 1995
------------------------------------------
Pro Forma
Historical (A) Adjustments Pro Forma
-------------- -------------- ----------
<S> <C> <C> <C>
(unaudited, in thousands)
Advances to Marriott International, Inc. $ - $ 2,230 (C) $ 2,230
Due from Marriott International, Inc. - 204 (C) 204
Security deposit - 17,220 (C)(D) 17,220
Cash - 1 (B) 1
------ -------
$ - $19,655
====== =======
Liabilities and Shareholder's Equity
<CAPTION>
<S> <C> <C> <C>
Accrued expenses $ - $ 560 (C) $ 560
Deferred gain - 12,747 (C) 12,747
Shareholder's equity:
Common stock - - -
Additional paid-in capital - 6,348 (B)(C) 6,348
------ -------
$ - $19,655
====== =======
</TABLE>
F-26
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Pro Forma Statement of Income
<TABLE>
<CAPTION>
Fiscal Year Ended December 29, 1995
---------------------------------------------------
Residence Inn
Host I Hotels
Historical Historical Pro Forma Pro
(E) (F) Adjustments Forma
----------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
(unaudited, in thousands)
Total Hotel Sales (G) $ - $61,934 $ - $61,934
======== ========= ========= =========
Revenues (H) $ - $33,166 $ - $33,166
-------- --------- --------- ---------
Expenses:
Rent and unsubordinated expenses:
Base rent (I) - - 17,220 17,220
FF&E contribution expense (J) - - 3,097 3,097
Other expenses (K) - 6,110 - 6,110
-------- --------- --------- ---------
- 6,110 20,317 26,427
-------- --------- --------- ---------
Revenues in excess of rent and
unsubordinated expenses - 27,056 (20,317) 6,739
-------- --------- --------- ---------
Subordinated expenses:
Percentage rent (L) - - - -
Base management fee (M) - - 1,228 1,228
Incentive management fee (N) - 2,817 - 2,817
Amortization of deferred gain (O) - - (850) (850)
Corporate expenses (P) - - 1,231 1,231
Writedown of property to net
realizable value (Q) - 3,899 (3,899) -
Depreciation and amortization (R) - 6,814 (6,814) -
-------- --------- --------- ---------
- 13,530 (9,104) 4,426
-------- --------- --------- ---------
Income before Taxes - 13,526 (11,213) 2,313
Provision for Income Taxes (S) - - (948) 948
-------- --------- --------- ---------
Net income $ - $ 13,526 $(12,161) $ 1,365
======== ========= ========= =========
</TABLE>
See notes to pro forma financial statements.
F-27
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Notes to Pro Forma Financial Statements
(A) Represents the historical balance sheet of Host I as of December 29, 1995.
(B) Reflects the effects of the formation of Host I as if the formation had
occurred on December 29, 1995. Host I was incorporated in Delaware on
February 21, 1996, as a wholly-owned indirect subsidiary of Host Marriott
Corporation ("Host Marriott"). On February 21, 1996, Host I issued 100
shares of no par common stock for $1,000 to its parent and sole shareholder
("Parent"), a wholly-owned, indirect subsidiary of Host Marriott.
(C) Reflects the effects of the operating assets that are expected to be
contributed to Host I by its affiliates as a result of the consummation of
the sale of the 18 Residence Inn Hotels to the Company and the commencement
of the related Leases between Host I and the Company and the deferred gain
arising from the sale/leaseback transaction between Host I and the Company.
The deferred gain represents the excess of the sales price of the hotels
over the net book value of the hotels and related transaction costs. The
deferred gain will be amortized over the initial terms (approximately 15
years) of the Leases.
(D) Represents Security Deposit required under Leases for the 18 Residence Inn
Hotels.
(E) Reflects the historical operating results of Host I.
(F) Reflects the combined historical operating results of the Residence Inn
Hotels for the fiscal year ended December 29, 1995.
(G) Total Hotel Sales represents all revenues and receipts of every kind
derived from guests or other customers related to Marriott's operation of
the Residence Inn Hotels and is presented for the purpose of providing
supplemental information regarding the gross sales volume of the Residence
Inn Hotels. See notes to historical financial statements of the Residence
Inn Hotels.
(H) Revenues represents house profit from the Residence Inn Hotels. House
profit represents Total Hotel Sales less property level expenses excluding
depreciation and amortization, Residence Inn by Marriott(R) system fee,
property taxes, management fees, ground rent and insurance.
(I) Represents the base rent to be paid by Host I to the Company under the
Leases. The Leases require Host I to pay an aggregate minimum annual base
rent of $17,220,000, a pro rata portion of which is due and payable in
advance on the first day of thirteen predetermined accounting periods per
year.
F-28
<PAGE>
(J) Represents 5% of Total Hotel Sales which the Leases require Host I to
deposit into a Company cash account (the FF&E Reserve) to be available for
the cost of replacements and renovations at the Residence Inn Hotels.
(K) Represents system fee, ground rent and other expenses for which Host I will
remain obligated under the Leases.
(L) Under the terms of the Leases, Host I is to pay percentage rent equal to
7.5% of the excess of Total Hotel Sales over 1996 Total Hotel Sales and, as
such, there is no percentage rent on a pro forma basis for the fiscal years
ended December 29, 1995.
(M) Under the terms of the Management Agreements, Marriott is to be paid base
fees of 2% of Total Hotel Sales. On a historical basis, pursuant to the
terms of certain financial arrangements between Host Marriott Corporation
and Marriott International, Inc., and their respective affiliates, base
fees were waived by Marriott International, Inc. in return for Host
Marriott Corporation's agreement to pay certain other fees upon the sale of
or certain refinancings of such facilities (see Notes 4 and 5 to the
combined financial statements of the Residence Inn Hotels).
(N) Under the terms of the Management Agreements, Marriott is to be paid 50% of
available cash flow, as defined, as an incentive management fee. Available
cash flow is defined as Revenues, less, Residence Inn by Marriott(R) system
fee, real and personal property taxes, insurance, ground rent and a
priority amount equal to $17,220,000.
(O) Amortization of deferred gain represents adjustments to rent expense to
record the effects of the sale/leaseback transaction between Host I and the
Company. Amortization is straight-line over the initial term of the Leases
(approximately 15 years).
(P) Represents Host Marriott Corporation general and administrative expenses to
be allocated to Host I.
(Q) Host I has no ownership interest (other than as a lessee) in the real
estate related to the Residence Inn Hotels and, as such, there is no
expense related to the write-down of property on a pro forma basis.
(R) Host I has no ownership interest (other than as a lessee) in the real
estate related to the Residence Inn Hotels and, as such, there is no
depreciation expense on a pro forma basis.
(S) Adjustment to reflect the impact of federal and state income taxes related
to the pro forma results of operations of Host I, at statutory rates. The
historical amounts exclude an income tax provision, as described in Note 1
to the combined financial statements of the Initial Hotels.
F-29
<PAGE>
Report of Independent Public Accountants
To HMH HPT Residence Inn, Inc.:
We have audited the accompanying balance sheet of HMH HPT Residence Inn, Inc. (a
Delaware corporation, "Host I") as of February 21, 1996. This balance sheet is
the responsibility of the Host I's management. Our responsibility is to express
an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of HMH HPT Residence Inn, Inc., as of
February 21, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 23, 1996
F-30
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Balance Sheet
As of February 21, 1996
Assets
<TABLE>
<S> <C>
Cash $1,000
======
Stockholder's Equity
Common Stock, no par value, 100 shares authorized, issued and outstanding $ --
Additional paid-in capital 1,000
-------
$1,000
=======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-31
<PAGE>
HMH HPT Residence Inn, Inc. (Host I)
Notes to Balance Sheet
As of February 21, 1996
NOTE 1. ORGANIZATION:
HMH HPT Residence Inn, Inc. ("Host I") was incorporated in Delaware on February
21, 1996 as a wholly-owned indirect subsidiary of Host Marriott Corporation
("Host Marriott"). On February 21, 1996, Host I issued 100 shares of no par
common stock to its parent and sole shareholder ("Parent"), a wholly-owned,
indirect subsidiary of Host Marriott.
NOTE 2. FORMATION AND OPERATIONS:
On February 1, 1996, Hospitality Properties Trust ("HPT") entered into a letter
of intent to acquire 18 Residence Inn by Marriott Hotels (the "Residence Inn
Hotels") for approximately $172.2 million from affiliates of Host Marriott.
Host I was formed for among other things the purpose of leasing the Residence
Inn Hotels from HPT. The Residence Inn Hotels are currently subject to
management agreements (the "Management Agreements") between Host Marriott and
Marriott International, Inc. ("Marriott"). In conjunction with the acquisition
of the Residence Inn Hotels by HPT, the Management Agreements will be assigned
to HPT and the Residence Inn Hotels will be managed by a subsidiary of Marriott
pursuant to the Management Agreements.
F-32
<PAGE>
Report of Independent Public Accountants
To the Owners of the
Residence Inn Hotels (as defined in Note 1):
We have audited the accompanying combined statements of assets, liabilities and
net investment and advances of the Residence Inn Hotels, as defined in Note 1,
as of December 29, 1995 and December 30, 1994, and the related combined
statements of revenues and expenses excluding income taxes and cash flows for
each of the three fiscal years in the period ended December 29, 1995. These
financial statements are the responsibility of the Host Marriott Corporation'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 an 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.
The accompanying financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-11 of
Hospitality Properties Trust) as described in Note 1 and are not intended to be
a complete presentation of the Residence Inn Hotels' assets, liabilities and net
investment and advances, revenues and expenses or cash flows.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and net investment and advances
of the Residence Inn Hotels as of December 29, 1995 and December 30, 1994, and
their revenues and expenses excluding income taxes, and their cash flows for
each of the three fiscal years in the period ended December 29, 1995, in
conformity with generally accepted accounting principles.
As explained in Note 3 to the combined financial statements, in 1993 the
Residence Inn Hotels changed their method of accounting for assets held for
sale.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 23, 1996
F-33
<PAGE>
Residence Inn Hotels
Combined Statements of Revenues and Expenses Excluding Income Taxes
For the Fiscal Years Ended December 31, 1993, December 30, 1994
and December 29, 1995
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------
1993 1994 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Total Hotel Sales (Note 1) $53,582 $57,357 $61,934
======= ======= =======
Revenues (Note 1) $27,144 $29,816 $33,166
Expenses:
Depreciation and amortization 6,735 6,821 6,814
Residence Inn system fee 2,129 2,294 2,477
Property taxes 2,845 3,120 3,015
Incentive management fee -- 1,358 2,817
Writedown of property to net realizable value -- -- 3,899
Other 988 656 618
------- ------- -------
Total expenses 12,697 14,249 19,640
------- ------- -------
Revenues over expenses excluding income taxes
before cumulative effect of change in accounting
principle 14,447 15,567 13,526
Cumulative effect of change in accounting for assets
held for sale (16,500) -- --
-------- ------- -------
Revenues (under) over expenses excluding income
taxes $ (2,053) $15,567 $13,526
======== ======= =======
Unaudited pro forma data:
Pro forma income tax expense (benefit) $ (821) $ 6,382 $ 5,546
======== ======= =======
Pro forma net income (loss) after taxes $ (1,232) $ 9,185 $ 7,980
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-34
<PAGE>
Residence Inn Hotels
Combined Statements of Assets, Liabilities
and Net Investment and Advances
Assets
<TABLE>
<CAPTION>
As of As of
December 30, December 29,
1994 1995
------------ ------------
(in thousands)
<S> <C> <C>
Property and equipment, net $165,192 $156,665
Due from Marriott International -- 204
Advances to Marriott International 2,230 2,230
-------- --------
$167,422 $159,099
======== ========
<CAPTION>
Liabilities and Net Investment and Advances
<S> <C> <C>
Accrued expenses $ 397 $ 560
Due to Marriott International 1,237 --
Net investment and advances 165,788 158,539
-------- --------
$167,422 $159,099
======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-35
<PAGE>
Residence Inn Hotels
Combined Statements of Cash Flows
For the Fiscal Years Ended December 31, 1993, December 30, 1994
And December 29, 1995
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------
1993 1994 1995
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Revenues (under) over expenses excluding
income taxes $ (2,053) $ 15,567 $ 13,526
Noncash items:
Depreciation and amortization 6,735 6,821 6,814
Cumulative effect of change in accounting
for assets held for sale 16,500 -- --
Writedown of property to net realizable
value -- -- 3,899
Changes in operating accounts:
Due from Marriott International -- -- (204)
Due to Marriott International 37 1,200 (1,237)
Advances to Marriott International (2,230) -- --
Accrued expenses 177 5 163
------- ------- -------
Cash provided by operations 19,166 23,593 22,961
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment (449) (913) (2,186)
------- ------- -------
Cash flows from financing activities:
Changes in net investment and advances (18,717) (22,680) (20,775)
------- ------- -------
Increase (decrease) in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
------- ------- -------
Cash and cash equivalents at end of year $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-36
<PAGE>
Residence Inn Hotels
Notes to Combined Financial Statements
As of December 30, 1994 and December 29, 1995
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION:
Organization
Hospitality Properties Trust (the "Company") is a Maryland real estate
investment trust which was established to acquire, own and lease hotel
properties. The Company completed its initial public offering in August 1995
and operates as a real estate investment trust under the Internal Revenue Code.
The Company plans to issue additional shares in a secondary public offering (the
"Proposed Offering") in connection with the planned acquisition of certain hotel
properties.
Basis of Presentation
Host Marriott Corporation ("Host Marriott") or a subsidiary thereof designed,
constructed or acquired certain Residence Inn by Marriott Hotels, including the
18 properties listed below (collectively, the "Residence Inn Hotels" and,
individually, the "Hotel" or "Hotels").
Flagstaff, AZ Chicago, IL Syracuse, NY
Scottsdale, AZ Boston, MA Columbus, OH
Tempe, AZ Annapolis, MD Willow Grove, PA
Fountain Valley, AZ Warren, MI Nashville, TN
Rancho Bernardo, CA Durham, NC Dallas Central, TX
Atlanta, GA Albuquerque, NM Dallas Market Center, TX
All of the Hotels are included in the accompanying financial statements for all
periods presented.
The Residence Inn Hotels are expected to be acquired by the Company from a
subsidiary of Host Marriott for approximately $172.2 million with a portion of
the proceeds of the Proposed Offering. All of the Hotels are expected to be
leased by the Company to a subsidiary ("Host I") of Host Marriott, and managed
by a subsidiary ("Marriott" or the "Manager") of Marriott International, Inc.
The management agreements (the "Management Agreements") described in Note 4
between Host Marriott and Marriott related to the Hotels will be assigned to the
Company.
The Hotels include the buildings, improvements and equipment for each of the
Hotels and, the land on which 17 of the Hotels are located and the leasehold
interest in the land under one of the Hotels. Assets and liabilities of the
Hotels have been stated at Host Marriott's historical cost basis.
F-37
<PAGE>
The accompanying combined financial statements have been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
the Company. The Residence Inn Hotels, for the periods presented, were a lesser
component of Host Marriott, and historically operated as an integral part of
Host Marriott. Host Marriott has not historically allocated or charged
individual units for interest on net advances and no such expenses are reflected
in the accompanying combined financial statements. The accompanying combined
financial statements also include no provision or assets or liabilities related
to Federal or state income taxes because the Residence Inn Hotels did not pay
income taxes and Host Marriott does not allocate or charge these expenses to its
individual units. Accordingly, the accompanying combined financial statements
are not intended to be a complete presentation of the Residence Inn Hotels'
assets, liabilities and net investment and advances, revenues and expenses or
cash flows.
There are no allocations of interest, taxes, overhead, general and
administrative or other corporate costs made by Host Marriott to the Hotels.
Changes in net investment and advances represent the combined revenues and
expenses excluding income taxes of the Hotels adjusted for cash transferred
between Host Marriott and the Hotels.
An analysis of the activity in this balance for the three fiscal years ended
December 29, 1995 is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Balance January 2, 1993 $193,671
Revenues under expenses excluding income taxes (2,053)
Net cash transferred to Host Marriott (18,717)
--------
Balance December 31, 1993 172,901
Revenues over expenses excluding income taxes 15,567
Net cash transferred to Host Marriott (22,680)
--------
Balance December 30, 1994 165,788
Revenues over expenses excluding income taxes 13,526
Net cash transferred to Host Marriott (20,775)
--------
Balance December 29, 1995 $158,539
========
</TABLE>
The average net investment and advances for fiscal years 1993, 1994 and 1995 was
approximately $170 million, $158 million, $152 million, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-38
<PAGE>
Hotel Sales and Revenues
Total Hotel Sales ("Total Hotel Sales ") represents all revenues and receipts of
every kind derived from guests or other customers related to Marriott's
operation of the Residence Inn Hotels. Total Hotel Sales are presented in the
accompanying combined statements of revenues and expenses excluding income taxes
for the purpose of providing supplemental information regarding the gross sales
volume of the Residence Inn Hotels which will be used for purposes of
calculating percentage rent and the FF&E Reserve (as defined below) under the
Leases with Host I and the Management Agreements, respectively. As owner and
lessor of the Hotels, the Company will have no interest in the sales or
operating results of the Residence Inn Hotels.
Revenues in the accompanying combined statements of revenues and expenses
excluding income taxes represent house profit from the Residence Inn Hotels.
House profit represents Total Hotel Sales less property level expenses excluding
depreciation and amortization, system fees, real and personal property taxes,
ground rent, insurance and management fees. The system fees (included in other
expenses) and management fees presented on the accompanying combining statements
of revenues and expenses excluding income taxes and the expenses detailed below
represent all the costs incurred directly, allocated or charged by the Manager
(as defined below) to the Residence Inn Hotels. The detail of Total Hotel Sales
and a reconciliation to revenue follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Hotel sales:
Rooms $50,089 $54,006 $58,422
Other 3,493 3,351 3,512
------- ------- -------
Total Hotel Sales 53,582 57,357 61,934
------- ------- -------
Expenses:
Departmental direct costs --
Rooms (A) 9,768 10,486 11,414
Other operating departments (B) 1,248 1,293 1,322
General and administrative (C) 4,884 4,964 5,236
Utilities (D) 2,620 2,716 2,803
Repairs, maintenance and accidents (E) 3,198 3,365 3,033
Marketing and sales (F) 3,513 3,548 3,721
Chain services (G) 1,207 1,169 1,239
------- ------- -------
Total expenses 26,438 27,541 28,768
------- ------- -------
Revenues (House Profit) $27,144 $29,816 $33,166
======= ======= =======
</TABLE>
(A) Includes expenses for linen, cleaning supplies, laundry, guest
supplies, reservations costs, travel agents commissions, walked guest
expenses and wages, benefits and bonuses for employees of the rooms
department.
(B) Includes expenses related to operating the telephone department.
F-39
<PAGE>
(C) Includes management and hourly wages, benefits and bonus, credit and
collection expenses, employee relations, guest relations, bad debt
expenses, office supplies and miscellaneous other expenses.
(D) Includes electricity, gas and water at the properties.
(E) Includes cost of repairs and maintenance and the cost of accidents at the
properties.
(F) Includes management and hourly wages, benefits and bonuses, promotional
expense and local advertising.
(G) Includes charges from the Manager for Chain Services as allowable under the
Management Agreements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
On October 8, 1993 (the "Distribution Date"), Marriott Corporation's operations
were divided into two separate companies: Host Marriott Corporation and
Marriott International, Inc. On December 29, 1995, Host Marriott Corporation's
operations were divided into two separate companies: Host Marriott Corporation
and Host Marriott Services Corporation.
Fiscal Year
The Residence Inn Hotels' fiscal year ends on the Friday nearest to December 31.
The fiscal year is divided into 13 accounting periods of four weeks each.
Property and Equipment
Property and equipment is recorded at cost, including interest and real estate
taxes incurred during development and construction. Replacements and
improvements are capitalized.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, generally 40 years for buildings and improvements
and 3 to 10 years for furniture and equipment.
In cases where management is holding for sale particular lodging properties,
Host Marriott assesses impairment based on whether the net realizable value
(estimated sales price less costs of disposal) of each individual property to be
sold is less than the net book value. A lodging property is considered to be
held for sale when Host Marriott has made the decision to dispose of the
property. Otherwise, Host Marriott assesses impairment of its real estate
properties based on whether it is probable that undiscounted future cash flows
from each individual property will be less than its net book value.
F-40
<PAGE>
Cash and Cash Equivalents
The Residence Inn Hotels consider all highly liquid investments with a maturity
of three months or less at date of purchase to be cash equivalents. Cash and
cash equivalents generated by the Hotels is transferred to Host Marriott.
Operating expenses, capital expenditures and other cash requirements of the
Residence Inn Hotels are paid by Host Marriott and charged directly to the
Hotels.
New Statement of Financial Accounting
Standards
The Residence Inn Hotels adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the fiscal year ended December 29,
1995. The adoption of SFAS No. 121 had no material effect on the Residence Inn
Hotels' financial statements.
Unaudited Pro Forma Data
The accompanying combined statements of revenues and expenses excluding income
taxes present unaudited pro forma income taxes for each period presented based
upon the combined effective Federal and state tax rates of 40% for fiscal 1993,
and 41% for fiscal years 1994 and 1995.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 30, December 29,
1994 1995
------------ ------------
<S> <C> <C>
Land and land improvements $ 39,965 $ 39,965
Buildings and leasehold improvements 122,895 119,423
Furniture and equipment 23,791 24,983
Construction in progress 427 993
----------- -----------
187,078 185,364
Less-accumulated depreciation 21,886 28,699
----------- -----------
Property and equipment, net $165,192 $156,665
=========== ===========
</TABLE>
Most hotels developed by Host Marriott since the early 1980s were reported as
assets held for sale prior to 1992. In early 1992, Host Marriott decided it was
no longer appropriate to view sales of lodging properties, subject to operating
agreements, as a primary means of long-term financing. Accordingly, Host
Marriott discontinued classification of these properties as assets held for
sale.
F-41
<PAGE>
Following discussions with the Staff of the Securities and Exchange Commission,
in the second quarter of 1993, Host Marriott changed its method of determining
net realizable value of assets held for sale. Host Marriott previously
determined net realizable value of such assets on an aggregate basis, in the
case of Residence Inns. Beginning in the second fiscal quarter of 1993 and
thereafter, under Host Marriott's new accounting policy, net realizable value of
all assets held for sale is determined on a property-by-property basis. The
cumulative pre-tax effect of this change on periods prior to the second quarter
of 1993 of $16.5 million is reflected as a cumulative effect of a change in
accounting for assets held for sale in the accompanying combined statement of
revenues and expenses, excluding income taxes, for the fiscal year ended
December 31, 1993. In 1995, Host Marriott adjusted, in accordance with its
accounting policy, the carrying values of three properties included in the
Residence Inn Hotels by approximately $3.9 million to reflect such properties'
net realizable value based on sales price. The reduction in the annual
depreciation charge as a result of these changes was approximately $299,000 and
$97,000, respectively.
NOTE 4. MANAGEMENT AGREEMENTS:
Subsequent to the Distribution Date, the Manager operates the Hotels pursuant to
the long-term Management Agreements with initial terms expiring in 2013. The
Manager has the option to extend the agreements on one or more Hotels for up to
three 10-year terms. The Management Agreements provide for a Residence Inn
system fee equal to 4% of total revenues. In addition, the Manager is
reimbursed for each Hotel's pro rata share of the actual costs and expenses
incurred in providing certain services ("Chain Services") on a central or
regional basis to all hotels operated by the Manager. As franchisor of the
Residence Inn by Marriott system, the Manager maintains a marketing fund to pay
the costs associated with certain system-wide advertising, promotional, and
public relations materials and programs and the operation of a toll-free
reservation system. Each Hotel contributes 2.5% of suite revenues to the
marketing fund. These arrangements regarding system Fees, Chain Services and
marketing fund contributions existed prior to the Distribution Date and as such,
for fiscal years 1993, 1994 and 1995, the Residence Inn Hotels paid a Residence
Inn system fee of $2,128,861, $2,294,287 and $2,477,335, reimbursed the Manager
for $1,206,622, $1,169,007 and $1,238,668 of Chain Services and contributed
$1,252,232, $1,350,144 and $1,460,538 to the marketing fund, respectively.
In addition, the Manager is entitled to an incentive management fee equal to 50%
of available cash flow, not to exceed 20% of operating profit, as defined. No
incentive management fees were earned or paid for the period from the
Distribution Date through December 31, 1993. For the fiscal years ended
December 30, 1994, and 1995, incentive management fees of $1,358,360 and
$2,817,305, respectively, were earned by the Manager.
The Management Agreements provide for a base management fee of 2% of the Hotel's
total revenue. In a separate agreement between the Manager and Host Marriott,
the base management fee through the year 2000 was replaced by a bonus management
incentive fee equal to 2% of the Hotels total revenues, payable only upon sale
of the Hotels. Therefore, no bonus management incentive fee has been reflected
in the accompanying combined statements of revenues and expenses excluding
income taxes. As of December 29, 1995, $1,381,000 of bonus management incentive
fees would be payable to the Manager upon sale or certain financing, as defined,
of the Hotels.
F-42
<PAGE>
Host Marriott is required to provide the Manager with working capital to meet
the operating needs of the Hotels. Marriott as the manager converts cash
advanced by the Parent into other forms of working capital consisting primarily
of operating cash, inventories, and trade receivables and payables which are
maintained and controlled by Marriott. The individual components of working
capital controlled by the Manager are reflected as advances to Marriott
International in the accompanying combined statements of assets, liabilities and
net investment and advances (see Note 1). As of December 29, 1995, $2,230,000
has been advanced to the Manager for working capital.
The Management Agreements provided for the establishment of a property
improvement fund (the "FF&E Reserve") for the Hotels. Contributions to the FF&E
Reserve are 5% of Total Hotel Sales, beginning on the Distribution Date.
Contributions to the FF&E Reserve from the Distribution Date through December
31, 1993 were $584,000, and for the fiscal years ended December 30, 1994 and
December 29, 1995, were $2,868,000 and $3,097,000, respectively.
During 1994, the Management Agreements were amended and $2,538,000, representing
the entire then remaining balance of the FF&E Reserve, was returned to Host
Marriott. It was also agreed that future contributions (until the time of sale
of any of the Residence Inn Hotels) would be retained by Host Marriott and
advanced to the Residence Inn Hotels at such time as improvements are made to
the properties. Such amounts have been included in the change in net investment
and advances in the accompanying combined statements of cash flows.
NOTE 5. CONSOLIDATION AGREEMENT:
The Hotels are subject to the terms of a consolidation agreement ("Consolidation
Agreement") between Host Marriott and Marriott International, Inc. pursuant to
which (i) incentive fees payable under the Management Agreements are determined
on a consolidated basis for all lodging facilities of the same type and (ii)
base fees payable under the Management Agreements are waived in return for
payment upon the sale of certain refinancings of such facilities and as such, no
base management fees expense (equal to 2% of Total Hotel Sales) is reflected in
the accompanying combined statements of revenues and expenses excluding income
taxes.
After the sale of any of the Hotels, the Consolidation Agreement is no longer
applicable to the Hotels and as such, base fees equal to 2% of Total Hotel Sales
is payable under the Management Agreements after the sale of the Hotels.
F-43
<PAGE>
NOTE 6. LEASES:
Future minimum annual rental commitments for all non-cancelable leases entered
into by Host Marriott, or by Marriott on behalf of Host Marriott, including the
ground leases described below, are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Fiscal Year Leases
- ----------- ---------
<S> <C>
1996 $ 515
1997 431
1998 394
1999 282
2000 109
Thereafter 1,980
------
Total minimum lease payments $3,711
======
</TABLE>
The Residence Inn Hotels lease the land under the Syracuse, New York, Hotel
under a ground lease agreement with an initial term expiring in the year 2022,
and 2 ten year renewal options thereafter. Ground rent expense has been
included in other operating costs and expenses in the accompanying combined
statements of revenues and expenses excluding income taxes. The ground rent is
calculated as follows: (i) during the first ten years of the ground lease, the
greater of $90,000 per annum or 3% of Total Hotel Sales; and (ii) thereafter,
the greater of $120,000 per annum or 3% of Total Hotel Sales.
F-44
<PAGE>
Report of Independent Public Accountants
To the Owners of the
Residence Inn Hotels:
We have audited in accordance with generally accepted auditing standards the
financial statements of the Residence Inn Hotels (as defined in Note 1 of those
financial statements) included in this prospectus and have issued our report
thereon dated February 23, 1996. Our audit was made for the purpose of forming
an opinion on those statements taken as a whole. The schedule on pages F-46 and
F-47 is the responsibility of Host Marriott Corporation's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 23, 1996
F-45
<PAGE>
Schedule III
Page 1 of 2
Residence Inn Hotels
Real Estate and Accumulated Depreciation
As of December 29, 1995
(in millions)
<TABLE>
<CAPTION>
Initial Costs
--------------------- Subsequent
Buildings & Costs Asset
Description Debt Land Improvements Capitalized Write-down
- --------------------------- ------- ----- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Residence Inn Hotels: $ - $38 $104 $21 $(4)
<CAPTION>
Gross Amount at
December 29, 1995
--------------------- Date of
Buildings & Accumulated Completion of Date Depreciation
Description Land Improvements Total Depreciation Construction Acquired Life
- --------------------------- ------ ------------- ------- ------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Residence Inn Hotels: $40 $119 $159 $13 Various N/A 40
</TABLE>
F-46
<PAGE>
Schedule III
Page 2 of 2
Residence Inn Hotels
Real Estate and Accumulated Depreciation - Notes to Schedule
As of December 29, 1995
(in thousands)
Notes:
(A) The change in total cost of properties for the year ended December 29, 1995
is as follows:
<TABLE>
<S> <C>
Balance at December 30, 1994 $162,860
Writedown of property to net realizable value (3,899)
Additions: Capital expenditures 427
--------
Balance at December 29, 1995 $159,388
========
</TABLE>
(B) The change in accumulated depreciation and amortization for the year ended
December 29, 1995 is as follows:
<TABLE>
<S> <C>
Balance at December 30, 1994 $10,142
Depreciation and amortization 3,081
--------
Balance at December 29, 1995 $13,223
========
</TABLE>
F-47
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Pro Forma Balance Sheet as of December 29, 1995 and
Pro Forma Statement of Income
For the Fiscal Year Ended December 29, 1995
The following unaudited pro forma balance sheet gives effect to the transfer of
certain assets to Host II related to the acquisition of the Courtyard Hotels by
the Company and the commencement of the related Leases between Host II and the
Company as though such transactions occurred on December 29, 1995.
The following unaudited pro forma statements of income give effect at January 1,
1995 to: (i) the acquisition of the Courtyard Hotels by the Company; and (ii)
the commencement of the related Leases.
The pro forma information is based in part upon the historical statements of
revenues and expenses excluding income taxes of the Courtyard Hotels. Such
information should be read in conjunction with all of the financial statements
and notes thereto included in this Prospectus. In the opinion of management,
all adjustments necessary to reflect the effects of the transactions discussed
above have been reflected in the pro forma data.
The following unaudited pro forma data is not necessarily indicative of what the
actual financial position or results of operations for Host II would have been
as of the date or for the period indicated, nor does it purport to represent the
financial position or results of operations of Host II for future periods.
F-48
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Pro Forma Balance Sheet
Assets
<TABLE>
<CAPTION>
As of December 29, 1995
---------------------------------------------
Pro Forma
Historical (A) Adjustments Pro Forma
-------------- ------------- -----------
<S> <C> <C> <C>
(unaudited, in thousands)
Advances to Marriott International, Inc. $ 3,984 $ 1,494 (B) $ 5,478
Due from Marriott International, Inc. 2,218 940 (B) 3,158
Security deposit 32,900 17,640 (B)(C) 50,540
------- -------
$39,102 $59,176
======= =======
<CAPTION>
Liabilities and Shareholder's Equity
<S> <C> <C> <C>
Accrued expenses $ 45 $ 158 (B) $ 203
Percentage rent payable 141 - 141
Deferred gain 12,908 27,978 40,886
Due to Host Marriott Corporation 1,322 - 1,322
Shareholders' equity:
Common stock - - -
Additional paid-in capital 25,406 (8,062) 17,344
Retained deficit (720) - (720)
-------- --------
$39,102 $59,176
======== ========
</TABLE>
See notes to pro forma financial statements.
F-49
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Pro Forma Statement of Income
<TABLE>
<CAPTION>
Fiscal Year Ended December 29, 1995
---------------------------------------------------
Courtyard
Host II Hotels
Historical Historical Pro Forma Pro
(D) (E) Adjustments Forma
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
(unaudited, in thousands)
Total Hotel Sales (F) $76,192 $107,772 $ - $183,964
======= ======== ======== ========
Revenues (G) $37,813 $ 53,209 $ - $ 91,022
------- -------- -------- --------
Expenses:
Rent and unsubordinated expenses:
Base rent (H) 19,108 - 31,432 50,540
FF&E contribution expense (I) 3,810 - 5,388 9,198
Other expenses (J) 5,859 8,139 - 13,998
------- -------- -------- --------
28,777 8,139 36,820 73,736
------- -------- -------- --------
Revenues in excess of rent and
unsubordinated expenses: 9,036 45,070 (36,820) 17,286
------- -------- -------- --------
Subordinated expenses:
Percentage rent (K) 271 - 137 408
Base management fee (L) 1,524 - 2,155 3,679
Incentive management fee (M) 3,632 2,590 - 6,222
Amortization of deferred gain (N) (675) - (2,370) (3,045)
Corporate expenses (O) 1,059 - 2,536 3,595
Writedown of property to net
realizable value (P) - 8,819 (8,819) -
Depreciation and amortization (Q) - 12,284 (12,284) -
------- -------- -------- --------
5,811 23,693 (18,645) 10,859
------- -------- -------- --------
Income before Taxes 3,225 21,377 (18,175) 6,427
------- -------- -------- --------
Provision for Income Taxes (R) 1,322 - (1,313) 2,635
------- -------- -------- --------
Net income $ 1,903 $ 21,377 $(19,488) $ 3,792
======= ======== ======== ========
</TABLE>
See notes to pro forma financial statements.
F-50
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Notes to Pro Forma Financial Statements
(A) Represents the historical balance sheet of Host II as of December 29, 1995.
(B) Reflects the effects of the assets and liabilities that are expected to be
contributed to Host II by its affiliates as a result of the consummation of
the sale of the 16 additional Courtyard Hotels to the Company and the
commencement of the related Leases between Host II and the Company and the
deferred gain arising from the sale/leaseback transaction between Host Ii
and the Company. The deferred gain represents the excess of the sales price
of the hotels over the net book value of the hotels and related transaction
costs. The deferred gain will be amortized over the initial terms
(approximately 17 years) of the Leases.
(C) Represents Security Deposit required under Leases for the 16 additional
Courtyard Hotels.
(D) Reflects the historical operating results of Host II for the period March
24, 1995 (inception) through December 29, 1995.
(E) Reflects the combined historical operating results of the 37 Initial
Courtyard Hotels for periods prior to their acquisition by the Company and
the combined historical operating results of the 16 additional Courtyard
Hotels for the fiscal year ended December 29, 1995.
(F) Total Hotel Sales represents all revenues and receipts of every kind derived
from guests or other customers related to Marriott's operation of the
Courtyard Hotels and is presented for the purpose of providing supplemental
information regarding the gross sales volume of the Courtyard Hotels. See
notes to historical financial statements of the Courtyard Hotels.
(G) Revenues represents house profit from the Courtyard Hotels. House profit
represents Total Hotel sales loss property level expenses excluding
depreciation and amortization, Courtyard by Marriott(R) system fee, property
taxes, management fees, ground rent and insurance.
(H) Represents the base rent to be paid by Host II to the Company under the
Leases. The Leases require Host II to pay an aggregate minimum annual base
rent of $50,540,000, a pro rata portion of which is due and payable in
advance on the first day of thirteen predetermined accounting periods per
year.
F-51
<PAGE>
(I) Represents 5% of Total Hotel Sales which the Leases require Host II to
deposit into a Company cash account (the FF&E Reserve) to be available for
the cost of replacements and renovations at the Courtyard Hotels.
(J) Represents Courtyard by Marriott(R) system fee, ground rent and other
expenses for which Host II will remain obligated under the Leases.
(K) Represents percentage rent to be paid by Host II to the Company under the
Leases. Percentage rent under the Leases is equal to 5% of the excess of
Total Hotel Sales over 1994 Total Hotel Sales for the 37 Initial Courtyard
Hotels and 5% of the excess of Total Hotel Sales over 1995 Total Hotel Sales
for the 16 additional Courtyard Hotels.
(L) Under the terms of the Management Agreements, Marriott is to be paid base
fees of 2% of Total Hotel Sales. On an historical basis, pursuant to the
terms of certain financial arrangements between Host Marriott Corporation
and Marriott International, inc. and their respective affiliates, base fees
were waived by Marriott International, Inc. in return for Host Marriott
Corporation's agreement to pay certain other fees upon the sale of or
certain refinancings of such facilities (see Note 4 and Note 5 to the
Combined Financial Statements of the Courtyard Hotels).
(M) Under the terms of the Management Agreements, Marriott is to be paid 50% of
available cash flow, as defined, as an incentive management fee. Available
cash flow is defined as Revenues, less base management fees, Courtyard by
Marriott(R) system fee, real and personal property taxes, insurance, ground
rent and a priority amount equal to $50,540,000.
(N) Amortization of deferred gain represents adjustments to rent expense to
record the effects of the sale/leaseback transaction between Host II and the
Company. Amortization is straight-line over the initial term of the Lease
(17 years).
(O) Represents Host Marriott Corporation general and administrative expenses
allocated to Host II. (See Note 1 to Combined Financial Statements of Host
II).
(P) Host II has no ownership interest (other than as lessee) in the real estate
related to the Courtyard Hotels and, as such, there is no expense related to
the writedown of property on a pro forma basis.
(Q) Host II has no ownership interest (other than as a lessee) in the real
estate related to the Courtyard Hotels and, as such, there is no
depreciation expense on a pro forma basis.
(R) Adjustment to reflect the impact of federal and state income taxes related
to the pro forma results of operations of Host, at statutory rates. The
historical amounts exclude an income tax provision, as described in Note 1
to the combined financial statements of the Initial Hotels.
F-52
<PAGE>
Report of Independent Public Accountants
To HMH HPT Courtyard, Inc.:
We have audited the accompanying balance sheet of HMH HPT Courtyard, Inc.
(a Delaware corporation, "Host II") as of December 29, 1995, and the related
statements of income, shareholder's equity and cash flows for the period March
24, 1995 (inception) through December 29, 1995. These financial statements are
the responsibility of Host II's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HMH HPT Courtyard, Inc., as of
December 29, 1995, and the results of its operations and its cash flows for the
period March 24 (inception) through December 29, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
February 23, 1996
F-53
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Balance Sheet
Assets
<TABLE>
<CAPTION>
As of
December 29, 1995
-----------------
(in thousands)
<S> <C>
Advances to manager $ 3,984
Due from Marriott International, Inc. 2,218
Security deposit 32,900
-------
Total assets $39,102
=======
<CAPTION>
Liabilities and Shareholder's Equity
<S> <C>
Accrued expenses $ 45
Percentage rent payable 141
Deferred gain 12,908
Due to Host Marriott Corporation 1,322
-------
Total liabilities 14,416
Shareholder's equity:
Common Stock, no par value, 100 shares
authorized, issued and outstanding -
Additional paid-in capital 25,406
Retained deficit (720)
-------
Total liabilities and
shareholder's equity $39,102
=======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-54
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Statement of Income
<TABLE>
<CAPTION>
Period March 24, 1995
(Inception) through
December 29, 1995
---------------------
(in thousands)
<S> <C>
Total Hotel Sales (Note 1) $76,192
========
Revenues (Note 1) $37,813
--------
Expenses:
Base rent 19,108
Percentage rent 271
FF&E contribution expense 3,810
Base management fee 1,524
Incentive management fee 3,632
Other expenses 5,859
--------
Total expenses 34,204
--------
Amortization of deferred gain 675
Corporate expenses (1,059)
--------
Income before taxes 3,225
Provision for income taxes (1,322)
--------
Net income $ 1,903
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Statement of Shareholder's Equity
<TABLE>
<CAPTION>
Period March 24, 1995 (Inception)
through December 29, 1995
-----------------------------------
(in thousands)
Additional
Common Paid-In Retained
Stock Capital Deficit
--------- ------------ -----------
<S> <C> <C> <C>
Initial capitalization $ - $21,451 $ -
Capital contribution - 3,955 -
Cash transferred to Host
Marriott Corporation - - (2,623)
Net income - - 1,903
--------- ------------ -----------
Balance, December 29, 1995 $ - $25,406 $ (720)
========= ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-56
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Statement of Cash Flows
<TABLE>
<CAPTION>
Period March 24, 1995
(Inception) through
December 29, 1995
-----------------------
(in thousands)
<S> <C>
Cash flows from operating activities:
Net income $ 1,903
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of deferred gain (675)
Changes in operating accounts:
Decrease in prepaid rent 2,531
(Increase) in due from Marriott (2,218)
International, Inc.
Increase in percentage rent payable 141
(Decrease) in accrued expenses (381)
Increase in due to Host Marriott
Corporation 1,322
--------
Cash provided by operations 2,623
--------
Cash flows from financing activities:
Cash transferred to Host Marriott Corporation (2,623)
--------
Increase in cash and cash equivalents -
Cash and cash equivalents at beginning of period -
--------
Cash and cash equivalents at end of period $ -
========
Supplemental information, non-cash activity-
Balances transferred to Host II by Parent upon
commencement of leases related to 37 Courtyard
by Marriott hotels-
Advances to manager 3,984
Prepaid rent 2,531
Other assets 32,900
Accrued expenses (426)
Deferred gain (13,583)
-------
Net capital contributed by Parent $ 25,406
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-57
<PAGE>
HMH HPT Courtyard, Inc. (Host II)
Notes to Financial Statements
As of December 29, 1995
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization and Initial Capitalization
HMH HPT Courtyard, Inc. ("Host II") was incorporated in Delaware on February 7,
1995 as a wholly-owned indirect subsidiary of Host Marriott Corporation ("Host
Marriott"). On February 2, 1995, Host II issued 100 shares of no par common
stock to its parent and sole shareholder ("Parent"), a wholly-owned, indirect
subsidiary of Host Marriott. Host II had no operations prior to March 24, 1995
(the "Commencement Date" or "Inception"). As a result, the accompanying
statements of income, cash flows and shareholder's equity present activity of
Host II from the Commencement Date through December 29, 1995.
On the Commencement Date, affiliates of Host Marriott (the "Sellers") sold 21
Courtyard by Marriott hotel properties to Hospitality Properties Trust ("HPT"),
a wholly-owned subsidiary of Health and Retirement Properties Trust. On August
22, 1995, HPT acquired an additional 16 Courtyard by Marriott hotel properties
from the Sellers, increasing the total properties sold to 37 Courtyards by
Marriott (the "Hotels"). The Sellers contributed to Host II its assets and
liabilities related to the operations of such properties, including working
capital advances to the hotel manager, prepaid rent under leasing arrangements
(the "Leases") and rights to other assets as described in Note 3. Such assets
have been accounted for at the Parent's carryover basis.
Fiscal Year
Host II operates on a fiscal year which ends on the Friday closest to December
31. The fiscal year is divided into thirteen accounting periods of four weeks
each.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Hotel Sales and Revenues
Total Hotel Sales ("Hotel Sales") represents all revenues and receipts of every
kind derived from guests or other customers related to Marriott International
Inc.'s, the manager of the
F-58
<PAGE>
hotels (the "Manager"), operation of the Hotels. Total Hotel Sales are presented
in the accompanying statement of income for the purpose of providing
supplemental information regarding the gross sales volume of the Hotels which is
used for purposes of calculating Percentage Rent (as defined below) and the FF&E
Reserve under the Leases and Management Agreements (as defined below),
respectively (See Note 2). As owner and lessor of the Hotels, HPT has no
interest in the sales and operating results of the Hotels.
Revenues in the accompanying statement of income represent house profit from the
Hotels because Host II has delegated substantially all of the operating
decisions relating to the generation of house profit from the Hotels to the
Manager. House profit reflects the net revenues flowing to Host II as lessee
and represents total hotel sales less property level expenses excluding
depreciation and amortization, system fees, real and personal property taxes,
ground rent, insurance and management fees. The system fees (included in other
expenses) and management fees presented on the accompanying statement of income
and the expenses detailed below represent all the costs incurred directly,
allocated or charged by the Manager to the Hotels.
The following table presents the detail of house profit for the period from
March 24, 1995 (Inception) to December 29, 1995:
<TABLE>
<CAPTION>
(in thousands)
Hotel Sales:
<S> <C>
Rooms $66,968
Food and beverage 6,225
Other 2,999
---------
Total Hotel Sales 76,192
---------
Expenses:
Departmental direct costs-
Rooms (A) 14,713
Food and beverage (B) 5,044
Other operating departments (C) 827
General and administrative (D) 7,768
Utilities (E) 2,955
Repairs, maintenance and accidents (F) 2,899
Marketing and sales (G) 1,121
Chain services (H) 3,052
---------
Total expenses 38,379
---------
Revenues (House Profit) $37,813
=========
</TABLE>
(A) Includes expenses for linen, cleaning supplies, laundry, guest supplies,
reservations costs, travel agents' commissions, walked guest expenses and
wages, benefits and bonuses for employees of the rooms department.
(B) Includes costs of food and beverages sold, china, glass, silver, paper, and
cleaning supplies and wages, benefits and bonuses for employees of the food
and beverage department.
F-59
<PAGE>
(C) Includes expenses related to operating the telephone department.
(D) Includes management and hourly wages, benefits and bonuses, credit and
collection expenses, employee relations, guest relations, bad debt
expenses, office supplies and miscellaneous other expenses.
(E) Includes electricity, gas and water at the properties.
(F) Includes cost of repairs and maintenance and the cost of accidents at the
properties.
(G) Includes management and hourly wages, benefits and bonuses, promotional
expense and local advertising.
(H) Includes charges from the Manager for Chain Services as allowable under the
Management Agreements.
Corporate Expenses
As a wholly owned indirect subsidiary of Host Marriott, Host II shares certain
general and administrative functions with Host Marriott and its other
subsidiaries. The functions generally include accounting, data processing,
payroll, human resources, legal and other administrative services. The expenses
related to these functions are generally allocated between Host Marriott and its
subsidiaries based on gross sales. From the period March 24, 1995 (Inception)
through December 29, 1995, corporate expenses allocated to Host II totaled
$1,059,000.
NOTE 2. COMMITMENTS AND CONTINGENCIES:
The Leases
On the Commencement Date, Host II entered into leases for 21 Courtyard by
Marriott properties. On August 22, 1995, Host II entered into leases for an
additional 16 Courtyard by Marriott properties (collectively, the "Leases").
The initial term of the Leases expires at the end of fiscal 2006. Thereafter,
the Leases automatically renew for one seven-year term and three consecutive
ten-year terms, unless Host II properly notifies HPT in accordance with the
Leases.
The Leases require Host II to pay rents equal to aggregate minimum annual rent
of $32,900,000 ("Base Rent"), and percentage rent equal to 5% of the excess of
Total Hotel Sales, as defined, over 1994 Total Hotel Sales ("Percentage Rent").
A pro rata portion of Base Rent is due and payable in advance on the first day
of thirteen predetermined accounting periods. Percentage Rent is due and payable
quarterly in arrears.
F-60
<PAGE>
The Leases also require Host II to make payments when due on behalf of HPT for
real estate taxes and other taxes, assessments and similar charges arising from
or related to the Hotels and their operation, utilities, premiums on required
insurance coverage, rents due under ground and equipment leases and all amounts
due under the terms of the Management Agreements described below. Host II is
also required to provide the Manager with working capital to meet the operating
needs of the Hotels. The Sellers had previously made such advances related to
the Hotels in the amount of $3,984,000 and transferred their interest in such
amounts to Host II on the Commencement Date.
The Leases require Host II to escrow, or cause the Manager to escrow, an amount
equal to 5% of the annual Total Hotel Sales into an HPT-owned reserve (the "FF&E
Reserve"), which amount shall be available for the cost of required replacements
and renovation. Any requirements for funds in excess of amounts in the FF&E
Reserve shall be provided by HPT ("HPT Fundings") at the request of Host II. In
the event of HPT Fundings, Base Rent shall be adjusted upward by an amount equal
to 10% of HPT Fundings.
The Leases require Host II to maintain a minimum net worth, as defined, equal to
one year's base rent. For purposes of this covenant, the deferred gain is
excluded from the calculation of net worth.
Management Agreements
As part of the sale of the Hotels, the Sellers' rights and obligations under
management agreements (the "Management Agreements") with the Manager, with an
initial term expiring in 2013, were transferred to HPT, and the Manager has the
option to extend the Management Agreement on all of the Hotels for up to three
10-year terms.
The Management Agreements provide that the Manager be paid a system fee equal to
3% of Hotel Sales, a base management fee of 2% of Hotel Sales ("Base Management
Fee") and an incentive management fee equal to 50% of available cash flow, not
to exceed 20% of operating profit, as defined ("Incentive Management Fee"). In
addition, the Manager is reimbursed for each Hotel's pro rata share of the
actual costs and expenses incurred in providing certain services on a central or
regional basis to all Courtyard by Marriott hotels operated by the Manager.
Base Rent is to be paid prior to payment of Base Management Fees and Incentive
Management Fees. To the extent Base Management Fees are so deferred, they must
be paid in future periods. If available cash flow is insufficient to pay
Incentive Management Fees, no Incentive Management Fees are earned by the
Manager.
NOTE 3. SECURITY DEPOSIT:
Pursuant to the terms of the agreement for the sale of the Hotels, HPT held
$32,900,000 as a security deposit for the obligations of Host II under the
Leases (the "Security Deposit"). The Security Deposit is due upon termination
of the Leases, including renewal terms.
F-61
<PAGE>
NOTE 4. INCOME TAXES:
Host II and Host Marriott are members of a consolidated group for federal income
tax purposes and have agreed that Host II will not be responsible for any tax
liability associated with the Security Deposit and, accordingly, no such
deferred tax liability has been reflected in the accompanying balance sheet.
The components of Host II's effective income tax rate follow:
<TABLE>
<S> <C>
Statutory Federal tax rate 35%
State income tax, net of Federal tax benefit 6
-----
41%
=====
</TABLE>
There is no difference between the basis of assets and liabilities for income
tax and financial reporting purposes other than for the Security Deposit.
NOTE 5. OPERATING LEASE COMMITMENTS:
As of December 29, 1995, future minimum annual rental commitments for the Leases
on the Hotels and other non-cancelable leases entered into by Host II, or by the
Manager on behalf of Host II, including the ground leases described below, are
as follows (in thousands):
<TABLE>
<CAPTION>
Other
Leases Operating
Fiscal Year (See Note 2) Leases
- ----------- ------------- -----------
<S> <C> <C>
1996 $ 32,900 $1,506
1997 32,900 1,220
1998 32,900 929
1999 32,900 335
2000 32,900 132
Thereafter 197,400 2,750
--------- -------
Total minimum lease payments $361,900 $6,872
========= =======
</TABLE>
The land under five of the Hotels is leased from third parties. The ground
leases have remaining terms (including all renewal options) expiring between the
years 2039 and 2067. The ground leases provide for rent based on specific
percentages of certain sales categories subject to minimum amounts. The minimum
rentals are adjusted at various anniversary dates throughout the lease terms, as
defined in the agreements.
F-62
<PAGE>
NOTE 6. SUBSEQUENT EVENT (UNAUDITED):
On February 1, 1996, HPT entered into a letter of intent to acquire 16
additional Courtyard by Marriott hotels from the Sellers for approximately
$176.4 million. It is expected that subsequent to the acquisition, the hotels
will be leased to Host II through December 31, 2012 under terms substantially
similar to the existing leases between HPT and Host II. Annual Base Rent
payable by Host II will be increased by approximately $1,357,000. Also in
February 1996, the existing leases between HPT and Host II were amended to among
other things, extend the lease terms through December 2012.
Each of the 16 properties to be acquired, as with the 37 currently owned by HPT
are subject to management agreements with the Manager. It is expected that all
management agreements will be amended in conjunction with the transaction to,
among other things extend the agreement terms through December 31, 2015, and to
require exercise of renewal options and calculation of FF&E Reserve and Base and
Incentive Management Fees on a consolidated basis for all Courtyard by Marriott
hotels owned by HPT.
While the transaction is expected to be completed by June 30, 1996, no assurance
can be given as to the actual timing or that it will be completed.
F-63
<PAGE>
Report of Independent Public Accountants
To the Owners of the Courtyard Hotels (as defined in Note 1):
We have audited the accompanying combined statements of assets, liabilities and
net investment and advances of the Courtyard Hotels, as defined in Note l, as of
December 29, 1995 and December 30, 1994 and the related combined statements of
revenues and expenses excluding income taxes, and cash flows for each of the
three fiscal years in the period ended December 29, 1995. These financial
statements are the responsibility of Host Marriott Corporation'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 an 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.
The accompanying financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-11 of
Hospitality Properties Trust) as described in Note 1 and are not intended to be
a complete presentation of the Courtyard Hotels' assets, liabilities and net
investment and advances, revenues and expenses or cash flows.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and net investment and advances
of the Courtyard Hotels as of December 29, 1995 and December 30, 1994, and their
revenues and expenses excluding income taxes, and their cash flows for each of
the three fiscal years in the period ended December 29, 1995, in conformity with
generally accepted accounting principles.
As explained in Note 3 to the combined financial statements, in 1993 the
Courtyard Hotels changed their method of accounting for assets held for sale.
Washington, D.C.,
February 23, 1996 ARTHUR ANDERSEN LLP
F-64
<PAGE>
Courtyard Hotels
Combined Statements of Revenues and Expenses Excluding Income Taxes
For the Fiscal Years Ended December 31, 1993, December 30, 1994
and December 29, 1995
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Total Hotel Sales (Note 1) $164,612 $173,811 $107,772
======== ======== ========
Revenues (Note 1) $ 72,936 $ 83,161 $ 53,209
Expenses:
Depreciation and
amortization 18,393 20,100 12,284
Courtyard system fee 4,939 5,214 3,233
Property taxes 7,103 6,316 4,074
Incentive management fee - 2,825 2,590
Writedown of property to
net realizable value - - 8,819
Other 2,886 3,010 832
-------- -------- --------
Total expenses 33,321 37,465 31,832
-------- -------- --------
Revenues over expenses
excluding income taxes
before cumulative effect
of change in accounting
principle 39,615 45,696 21,377
Cumulative effect of change
in accounting for assets
held for sale (17,800) - -
-------- -------- --------
Revenues over expenses
excluding income taxes $ 21,815 $ 45,696 $ 21,377
======== ======== ========
Unaudited pro forma data:
Pro forma income tax expense $ 8,726 $ 18,736 $ 8,765
-------- -------- --------
Pro forma net income after
taxes $ 13,089 $ 26,960 $ 12,612
======== ======== ========
</TABLE>
F-65
<PAGE>
Courtyard Hotels
Combined Statements of Assets, Liabilities
And Net Investment and Advances
Assets
<TABLE>
<CAPTION>
As of As of
December 30, December 29,
1994 1995
------------- --------------
(in thousands)
<S> <C> <C>
Property and equipment, net $470,302 $145,676
Due from Marriott International 1,277 940
Advances to Marriott International 5,152 1,494
-------- --------
$476,731 $148,110
======== ========
<CAPTION>
Liabilities and Net Investment and Advances
<S> <C> <C>
Accrued expenses $ 766 $ 158
Net investment and advances 475,965 147,952
-------- --------
$476,731 $148,110
======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-66
<PAGE>
Courtyard Hotels
Combined Statements of Cash Flows
For the Fiscal Years Ended December 31, 1993, December 30, 1994
and December 29, 1995
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Revenues over expenses excluding
income taxes $ 21,815 $ 45,696 $ 21,377
Noncash items:
Depreciation and amortization 18,393 20,100 12,284
Writedown of property to net
realizable value - - 8,819
Cumulative effect of change in
accounting for assets held for sale 17,800 - -
Changes in operating accounts:
Due from Marriott International (333) (944) 337
Advances to Marriott International (5,152) - 3,658
Accrued expenses 777 (352) (608)
------- ------- -------
Cash provided by operations 53,300 64,500 45,867
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment (1,594) (4,771) (8,177)
Change in property improvement fund (697) 697 -
------- ------- -------
Cash used in investing activities (2,291) (4,074) (8,177)
------- ------- -------
Cash flows from financing activities:
Changes in net investment and
advances (51,009) (60,426) (37,690)
------- ------- -------
Increase (decrease) in cash and cash
equivalents - - -
Cash and cash equivalents at beginning
of year - - -
------- ------- -------
Cash and cash equivalents at end of
year $ - $ - $ -
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-67
<PAGE>
Courtyard Hotels
Notes to Combined Financial Statements
As of December 30, 1994 and December 29, 1995
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION:
Organization
Hospitality Properties Trust (the "Company") is a Maryland real estate
investment trust which was established to acquire, own and lease hotel
properties. The Company completed its initial public offering (the "Initial
Offering") in August 1995 and operates as a real estate investment trust under
the Internal Revenue Service Code. The Company plans to issue additional shares
in a secondary public offering (the "Proposed Offering") in connection with the
planned acquisition of certain hotel properties.
Basis of Presentation
Host Marriott Corporation ("Host Marriott") or a subsidiary thereof designed,
constructed or acquired certain Courtyard by Marriott Hotels, including 37
properties acquired by the Company in 1995 (the "Initial Hotels") and 16 hotels
expected to be acquired by the Company from a subsidiary of Host Marriott,
listed below (collectively, the "Courtyard Hotels" and, individually, the
"Hotel" or "Hotels").
<TABLE>
<CAPTION>
Initial Hotels
- --------------------------------------------------------------------------
Group A Hotels Group B Hotels Group C Hotels
- -------------------------------------------------------------------------- --------------------
<S> <C> <C>
Phoenix, AZ Camarillo, CA Miami, FL
Scottsdale, AZ Huntington Beach/Fountain Valley, CA Tinton Falls, NY
Atlanta Airport North, GA Los Angeles Airport, CA Syracuse, NY
Atlanta-Cumberland Center, GA San Jose Airport, CA Laguna Hills, CA
Atlanta-Jimmy Carter Blvd., GA Wilmington, DE Williamsburg, VA
Atlanta-Midtown, GA Boca Raton, FL Hanover, NJ
Indianapolis, IN Macon, GA Jacksonville, FL
Danvers, MA Columbia, MD Greenbelt, MD
Foxborough, MA Norwood, MA Willow Grove, PA
Milford, MA Woburn, MA Tonance, CA
Lowell, MA Kansas City Airport, MO Pittsburgh, PA
Stoughton, MA Fayetteville, NC Arlington/Rosslyn, VA
Detroit/Auburn Hills, MI Charlotte-University Research Park, NC Fishkill, NY
Minneapolis/Eden Prairie, MN Chattanooga, TN Quad Cities, LA
South Kansas City, MO Dallas/Northpark, TX Arlington Heights, IL
Mahwah, NJ Milwaukee/Brookfield, WI Middletown, RI
Raleigh/Durham Airport, NC
Philadelphia Airport, PA
Spartanburg, SC
Fairfax, VA
Bellevue, WA
</TABLE>
F-68
<PAGE>
All of the Courtyard Hotels are included in the accompanying combined financial
statements for all periods presented except: (i) information for 16 Initial
Hotels (Group B) is excluded for the period between August 22, 1995 and December
29, 1995, and (ii) information for 21 Courtyard Hotels (Group A) is excluded for
the period between March 25, 1995 and December 29, 1995. Footnote 7 presents
the Courtyards Hotels on a pro forma basis as if the properties were retained by
Host Marriott during the fiscal year ended December 29, 1995.
The Group A Hotels were acquired by the Company on March 24, 1995 for
approximately $179.4 million from affiliates of Host Marriott. As a result, as
of March 24, 1995, the ownership of the Group A Hotel assets are reflected in
the financial statements of the Company and the results of operations of the
Group A Hotels are reflected in the financial statements of a subsidiary (HMH
HPT Courtyard, Inc.) ("Host II") of Host Marriott. The accompanying combined
financial statements include the results of operations, financial position and
cash flows of the Group A Hotels through March 24, 1995. Substantially all of
the funding for this acquisition was provided to the Company by HRP as a demand
loan. The Group B Hotels were acquired by the Company on August 23, 1995 from a
subsidiary of Host Marriott for approximately $149.6 million with a portion of
the proceeds of the Initial Offering. As a result, as of August 23, 1995, the
ownership of the Group B Hotels' assets are reflected in the financial
statements of the Company and the results of operations of the Group B Hotels
are reflected in the financial statements of Host II. The accompanying combined
financial statements include the results of operations, financial position and
cash flows of the Group B Hotels through August 22, 1995. All of the Courtyard
Hotels have been leased by the Company to Host II, and are managed by a
subsidiary ("Marriott" or the "Manager") of Marriott International, Inc. The
management agreements (the "Management Agreements") described in Note 4 between
Host Marriott and Marriott related to the Hotels have been assigned to the
Company.
The Group C Hotels are expected to be acquired by the Company from a subsidiary
of Host Marriott for approximately $176.4 million with a portion of the proceeds
of the Proposed Offering. The Group C Hotels are expected to be leased to Host
II and managed by Marriott. The Management Agreements described in Note 4
between Host Marriott and Marriott related to the Group C Hotels will be
assigned to the Company.
The Courtyard Hotels include the buildings, improvements and equipment for each
of the Hotels, the land on which 45 of the Hotels are located and the leasehold
interest in the land under eight of the Hotels. Assets and liabilities of the
Courtyard Hotels have been stated at Host Marriott's historical cost basis.
The accompanying combined financial statements have been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
the Company. The Courtyard Hotels, for the periods presented, were a lesser
component of Host Marriott, and historically operated as an integral part of
Host Marriott. Host Marriott has not historically allocated or charged
individual units for interest on net advances and no such expenses are reflected
in the accompanying combined financial statements. The accompanying combined
financial statements also include no provision or assets or liabilities related
to federal or state income taxes because the Courtyard Hotels did not pay income
taxes and Host Marriott does not allocate or charge these expenses to its
individual units. Accordingly, the accompanying
F-69
<PAGE>
combined financial statements are not intended to be a complete presentation of
the Courtyard Hotels' assets, liabilities and net investment and advances,
revenues and expenses or cash flows.
There are no allocations of interest, taxes, overhead, general administrative or
other corporate costs made by Host Marriott to the Courtyard Hotels. Changes in
net investment and advances represent the revenues and expenses excluding income
taxes of the Courtyard Hotels adjusted for cash transferred between Host
Marriott and the Courtyard Hotels and, for the fiscal year ended December 29,
1995, the effects of the transfer of net assets related to the sale of the Group
A and Group B Hotels to the Company.
An analysis of the activity in this balance for each of the three fiscal years
in the period ended December 29, 1995 is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Balance January 1, 1993 $ 519,889
Revenues over expenses excluding income taxes 21,815
Net cash transferred to Host Marriott (51,009)
---------
Balance December 31, 1993 490,695
Revenues over expenses excluding income taxes 45,696
Net cash transferred to Host Marriott (60,426)
---------
Balance December 30, 1994 475,965
Revenues over expenses excluding income taxes 21,377
Net cash transferred to Host Marriott (37,690)
---------
Transfer of net assets related to the sale of
the Group A and Group B Hotels (311,700)
---------
Balance December 29, 1995 $ 147,952
=========
</TABLE>
The average net investment and advances for each of the fiscal years 1993, 1994
and 1995 was approximately $505 million, $483 million and $312 million,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Hotel Sales and Revenues
Total Hotel Sales ("Total Hotel Sales") represents all revenues and receipts of
every kind derived from guests or other customers related to Marriott's
operation of the Courtyard Hotels. Total Hotel Sales are presented in the
accompanying combined statements of revenues and expenses excluding income taxes
for the purpose of providing supplemental information regarding the gross sales
volume of the Courtyard Hotels which is used for purposes
F-70
<PAGE>
of calculating percentage rent and the FF&E Reserve (as defined below) under the
Leases with Host II and the Management Agreements, respectively. As owner and
lessor of the Courtyard Hotels, the Company has no interest in the sales or
operating results of the Courtyard Hotels.
Revenues in the accompanying combined statements of revenues and expenses
excluding income taxes represent house profit from the Courtyard Hotels. House
profit represents Total Hotel Sales less property level expenses excluding
depreciation and amortization, system fees (included in other expenses), real
and personal property taxes, ground rent, insurance and management fees. The
system fees and management fees presented on the accompanying combined
statements of revenues and expenses excluding income taxes detailed below
represent all the costs incurred directly, allocated or charged by the Manager
(as defined below) to the Courtyard Hotels. The detail of Total Hotel Sales and
a reconciliation to revenue follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------
1993 1994 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Hotel sales:
Rooms $139,710 $150,122 $ 94,572
Food and beverage 18,523 16,672 9,115
Other 6,379 7,017 4,085
-------- -------- --------
Total Hotel Sales 164,612 173,811 107,772
-------- -------- --------
Expenses:
Departmental direct costs-
Rooms (A) 31,341 32,776 20,258
Food and beverage (B) 14,433 13,197 7,392
Other operating departments (C) 2,127 2,127 1,197
General and administrative (D) 17,629 17,525 11,057
Utilities (E) 7,879 7,700 4,605
Repairs, maintenance and accidents (F) 7,839 7,319 4,467
Marketing and sales (G) 3,514 3,305 1,688
Chain services (H) 6,914 6,701 3,899
-------- -------- --------
Total expenses 91,676 90,650 54,563
-------- -------- --------
Revenues (House Profit) $ 72,936 $ 83,161 $ 53,209
======== ======== ========
</TABLE>
(A) Includes expenses for linen, cleaning supplies, laundry, guest
supplies, reservations costs, travel agents commissions, walked guest
expenses and wages, benefits and bonuses for employees of the rooms
department.
(B) Includes costs of food and beverages sold, china, glass, silver, paper, and
cleaning supplies and wages, benefits and bonuses for employees of the food
and beverage department.
(C) Includes expenses related to operating the telephone department.
F-71
<PAGE>
(D) Includes management and hourly wages, benefits and bonuses, credit and
collection expenses, employee relations, guest relations, bad debt expenses,
office supplies and miscellaneous other expenses.
(E) Includes electricity, gas and water at the properties.
(F) Includes cost of repairs and maintenance and the cost of accidents at the
properties.
(G) Includes management and hourly wages, benefits and bonuses, promotional
expense and local advertising.
(H) Includes charges from the Manager for Chain Services as allowable under the
Management Agreements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
On October 8, 1993 (the "Distribution Date"), Marriott Corporation's operations
were divided into two separate companies: Host Marriott Corporation and Marriott
International, Inc. On December 29, 1995, Host Marriott Corporation's
operations were divided into two separate companies: Host Marriott Corporation
("Host Marriott") and Host Marriott Services Corporation.
Fiscal Year
The Courtyard Hotel's fiscal year ends on the Friday nearest to December 31.
The fiscal year is divided into 13 accounting periods of four weeks each.
Property and Equipment
Property and equipment is recorded at cost, including interest and real estate
taxes incurred during development and construction. Replacements and
improvements are capitalized.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, generally 40 years for buildings and improvements
and 3 to 10 years for furniture and equipment.
In cases where management is holding for sale particular lodging properties,
Host Marriott assesses impairment based on whether the net realizable value
(estimated sales price less costs of disposal) of each individual property to be
sold is less than the net book value. A lodging property is considered to be
held for sale when Host Marriott has made the decision to dispose of the
property. Otherwise, Host Marriott assesses impairment of its real estate
properties based on whether it is probable that undiscounted future cash flows
from each individual property will be less than its net book value.
F-72
<PAGE>
Amortization - Pre-Opening Costs
Costs of an operating nature incurred prior to opening of the Hotels are
deferred and amortized over twelve months. Amortization expense was $94,000 in
1993. Pre-opening costs were fully amortized in 1993.
Cash and Cash Equivalents
The Courtyard Hotels consider all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents. Cash and cash
equivalents generated by the Hotels is transferred to Host Marriott. Operating
expenses, capital expenditures and other cash requirements of the Courtyard
Hotels are paid by Host Marriott and charged directly to the Courtyard Hotels.
New Statement of Financial Accounting
Standards
The Courtyard Hotels adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the fiscal year ended December 29,
1995. The adoption of SFAS No. 121 had no material effect on the Courtyard
Hotels' financial statements.
Unaudited Pro Forma Data
The accompanying combined statements of revenues and expenses excluding income
taxes present unaudited pro forma income taxes for each period presented based
upon the effective combined Federal and state tax rates of 40% for fiscal year
1993 and 41% for fiscal years 1994 and 1995.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 30, December 29,
1994 1995
------------- --------------
<S> <C> <C>
Land and land improvements $104,118 $ 34,200
Buildings and leasehold improvements 375,497 118,446
Furniture and equipment 70,626 22,371
Construction in progress 666 1,256
-------- --------
550,907 176,273
Less- accumulated depreciation 80,605 30,597
-------- --------
Property and equipment, net $470,302 $145,676
======== ========
</TABLE>
F-73
<PAGE>
Most hotels developed by Host Marriott since the early 1980s were reported as
assets held for sale prior to 1992. In early 1992, Host Marriott decided it was
no longer appropriate to view sales of lodging properties, subject to operating
agreements, as a primary means of long-term financing. Accordingly, Host
Marriott discontinued classification of these properties as assets held for
sale.
Following discussions with the Staff of the Securities and Exchange Commission,
in the second quarter of 1993, Host Marriott changed its method of determining
net realizable value of assets held for sale. Host Marriott previously
determined net realizable value of such assets on an aggregate basis, in the
case of Courtyard by Marriott hotels. Beginning in the second fiscal quarter of
1993 and thereafter, under Host Marriott's new accounting policy, net realizable
value of all assets held for sale is determined on a property-by-property basis.
The cumulative pre-tax effect of this change on periods prior to the second
quarter of 1993 of $17.8 million is reflected as a cumulative effect of a change
in accounting for assets held for sale in the accompanying combined statement of
revenues and expenses excluding income taxes for the fiscal year ended December
31, 1993. In 1995, Host Marriott adjusted, in accordance with its accounting
policy, the carrying value of 3 properties included in the Courtyard Hotels by
approximately $8.8 million to reflect such properties' net realizable value
based on sales price. The reductions in the annual depreciation charge as a
result of the accounting change and the write-down were approximately $445,000
and $220,000, respectively.
NOTE 4. MANAGEMENT AGREEMENTS:
Subsequent to the Distribution Date, the Manager operates the Courtyard Hotels
pursuant to long-term management agreements with initial terms expiring in 2013.
The Manager has the option to extend the agreements on one or more Hotels for up
to 3 consecutive 10 year terms. The Management Agreements provided for a
Courtyard by Marriott system fee equal to 3% of Total Hotel Sales. In addition,
Marriott is reimbursed for each Hotel's pro rata share of the actual costs and
expenses incurred in providing certain services ("Chain Services") on a central
or regional basis to all hotels operated by Marriott. These arrangements
regarding the Courtyard by Marriott system fee and Chain Services existed prior
to the Distribution Date and as such, for fiscal years 1993, 1994 and 1995, the
Courtyard Hotels paid a Courtyard by Marriott system fee of $4,939,000,
$5,214,000 and $3,233,000, respectively and reimbursed Marriott for $6,914,000,
$6,701,000 and $3,899,000, respectively, of Chain Services.
In addition, Marriott is entitled to an incentive management fee equal to 50% of
available cash flow, not to exceed 20% of operating profit, as defined,
calculated on a combined basis for all Courtyard by Marriott hotels owned by
Host Marriott. Available cash flow is defined as revenues less base management
fees, Courtyard by Marriott system fee, property taxes, other expenses and a
stated annual priority amount. Incentive management fees were not earned by
Marriott from the Distribution Date through December 31, 1993, due to the fact
that there was no available cash flow, as defined. The incentive management
fees earned by Marriott of $2,825,000 and $2,590,000 for fiscal years 1994 and
1995, respectively, have been allocated to the Courtyard Hotels in the
accompanying combined financial statements based on Total Hotel Sales.
F-74
<PAGE>
The Management Agreements provided that Marriott was to be entitled to a base
fee equal to 2% of Total Hotel Sales. However, this fee has been waived as more
fully described in Note 5, below.
Host Marriott is required to provide Marriott with working capital to meet the
operating needs of the Hotels. Marriott as the manager converts cash advanced
by Host Marriott into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by Marriott. The individual components of working
capital controlled by Marriott are not reflected in the accompanying combined
statements of assets, liabilities and net investment and advances (see Note 1).
As of December 30, 1994 and December 29, 1995, $5,152,000 and $1,494,000,
respectively, has been advanced to Marriott for working capital.
The Management Agreements provided for the establishment of a property
improvement fund (the "FF&E Reserve") for the Hotels. Contributions to the FF&E
Reserve are 5% of Total Hotel Sales, beginning on the Distribution Date.
Contributions to the FF&E Management Agreements provided for the establishment
of a property improvement fund (the "FF&E Reserve") for the Hotels.
Contributions to the FF&E Reserve are 5% of Total Hotel Sales, beginning on the
Distribution Date. Contributions to the FF&E Reserve from the Distribution Date
through December 31, 1993 were $2,403,000, and for the fiscal years ended
December 30, 1994 and December 29, 1995 were $8,894,000 and $5,389,000,
respectively.
During 1994, the Management Agreements were amended to return the remaining
balance of the FF&E Reserve to Host Marriott. It was agreed that future
contributions (until the time of sale of any of the Courtyard Hotels) would be
retained by Host Marriott and advanced to the Courtyard Hotels at such time as
improvements are made to the properties. Such amounts have been included in the
change in net investment and advances in the accompanying combined statements of
cash flows.
NOTE 5. CONSOLIDATION AGREEMENT:
The Courtyard Hotels are subject to the terms of a consolidation agreement
("Consolidation Agreement") between Host Marriott and Marriott International,
Inc. pursuant to which (i) incentive fees payable under the Management
Agreements are determined on a consolidated basis for all lodging facilities of
the same type and (ii) base fees payable under the Management Agreements are
waived in return for payment upon the sale of or certain refinancings of such
facilities and as such, no base management fees expense (equal to 2% of Total
Hotel Sales) is reflected in the accompanying combined statements of revenues
and expenses excluding income taxes.
After the sale of any of the Courtyard Hotels, the Consolidation Agreement is no
longer applicable to the Courtyard Hotels and as such, base fees equal to 2% of
Total Hotel Sales is payable under the Management Agreements after the sale of
the Courtyard Hotels.
F-75
<PAGE>
NOTE 6. LEASES
As of December 29, 1995, future minimum annual rental commitments for all non-
cancelable leases entered into by Host Marriott, or by Marriott on behalf of
Host Marriott, including the ground leases related to the Group C hotels
described below, are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Fiscal Year Leases
<S> <C>
1996 $ 476
1997 407
1998 351
1999 350
2000 142
Thereafter 2,340
------
Total minimum lease payments $4,066
======
</TABLE>
The Courtyard Hotels lease the land under three of the Group A Hotels, two of
the Group B Hotels and three of the Group C Hotels under ground lease agreements
with third parties. The ground leases have remaining terms (including all
renewal options) expiring between the years 2038 and 2067. The ground leases
provide for rent based on specific percentages of certain sales categories
subject to minimum amounts. The percentages are adjusted at various anniversary
dates throughout the lease terms, as defined in the agreements.
NOTE 7. PRO FORMA RESULTS OF OPERATIONS:
As discussed in Note 1, the Group A Hotels and Group B Hotels were acquired by
the Company on March 24, 1995 and August 22, 1995, respectively. The Group D
Hotel assets are expected to be acquired by the Company in 1996. Assuming that
such transactions were consummated as of January 1, 1995, the pro forma
condensed results of operations of the Hotels are set forth below:
<TABLE>
<CAPTION>
Year Ended
December 29, 1995
<S> <C>
Total hotel sales $183,964
========
Revenues $ 91,022
Depreciation expense 18,128
Other expenses 29,039
--------
Revenues over expenses excluding income taxes 43,855
Pro forma income tax expense (Note 2) 17,981
--------
Pro forma net income after tax $ 25,874
========
</TABLE>
F-76
<PAGE>
Report of Independent Public Accountants
To the Owners of the Courtyard Hotels:
We have audited in accordance with generally accepted auditing standards the
financial statements of the Courtyard Hotels (as defined in Note 1 of those
financial statements) included in this prospectus and have issued our report
thereon dated February 23, 1996. Our audit was made for the purpose of forming
an opinion on those statements taken as a whole. The schedule on pages F-78 and
F-79 is the responsibility of Host Marriott Corporation's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Washington, D.C.,
February 23, 1996 ARTHUR ANDERSEN LLP
F-77
<PAGE>
Schedule III
Page 1 of 2
Courtyard Hotels
Real Estate and Accumulated Depreciation
As of December 29, 1995
(in millions)
<TABLE>
<CAPTION>
Gross Amount at
Courtyard Costs December 29, 1995
------------------ Subsequent ------------------- Date of
Buildings & Costs Asset Buildings & Accumulated Completion of
Description Debt Land Improvements Capitalized Write-Down Land Improvements Total Depreciation Construction
- ----------------- ---- ---- ------------ ----------- ---------- ---- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Courtyard Hotels: $- $34 $122 $2 $(6) $34 $118 $152 $16 Various
<CAPTION>
Date Depreciation
Description Acquired Life
- ----------------- -------- ------------
<S> <C> <C>
Courtyard Hotels: N/A 40
</TABLE>
Note 1: This schedule represents the Group C Hotels, as defined in Note 1 to
the accompanying combined financial statements. Amounts for Group A
Hotels and Group B Hotels are excluded from this schedule as the
properties were sold prior to December 29, 1995.
F-78
<PAGE>
Schedule III
Page 2 of 2
Courtyard Hotels
Real Estate and Accumulated Depreciation - Notes to Schedule
As of December 29, 1995
(in thousands)
Notes:
(A) The change in total cost of properties for the year ended December 29, 1995
is as follows:
<TABLE>
<S> <C>
Balance at December 30, 1994 $ 479,615
Dispositions: Sales of Group A Hotels and Group B Hotels (332,419)
Additions: Capital expenditures 5,450
---------
Balance at December 29, 1995 $ 152,646
=========
</TABLE>
(B) The change in accumulated depreciation and amortization for the year ended
December 29, 1995 is as follows:
<TABLE>
<S> <C>
Balance at December 30, 1994 $ 264,198
Dispositions: Sales of Group A Hotels and Group B Hotels (257,486)
Depreciation and amortization 9,372
---------
Balance at December 29, 1995 $ 16,084
=========
</TABLE>
F-79
<PAGE>
Wyndham I
PRO FORMA BALANCE SHEET AND
PRO FORMA STATEMENT OF INCOME AS OF AND
FOR THE YEAR ENDED DECEMBER 31, 1995
The following unaudited pro forma balance sheet gives effect to (i) the
formation of Wyndham I; (ii) the transfer of certain assets and liabilities to
Wyndham I related to the acquisition of 11 Wyndham Garden Hotels by the Company
and (iii) the commencement of the related Leases between Wyndham I and the
Company as though such transactions occurred on December 31, 1995.
The following unaudited pro forma statements of income give effect at
January 1, 1995 to: (i) the acquisition of the 11 Wyndham Garden Hotels by the
Company; and (ii) the commencement of the related Leases.
The pro forma information is based in part upon the historical financial
statements of a predecessor limited partnership, Garden Hotel Associates Ltd.
Partnership ("GHALP"). Such information should be read in conjunction with all
of the financial statements and notes thereto included in this Prospectus. In
the opinion of management, all adjustments necessary to reflect the effects of
the transactions discussed above have been reflected in the pro forma data.
The following unaudited pro forma data is not necessarily indicative of
what the actual financial position or results of operations for Wyndham I would
have been as of the date or for the period indicated, nor does it purport to
represent the financial position or results of operations of Wyndham I for
future periods.
F-80
<PAGE>
WYNDHAM I
PRO FORMA BALANCE SHEET
(UNAUDITED, $ IN THOUSANDS)
<TABLE>
<CAPTION>
As of December 31, 1995
---------------------------------------
Pro Forma Wyndham I
ASSETS Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
FF&E Reserves -- 1,167(b) 1,167
Security deposit -- 13,600(b) 13,600
---------- ---------- --------
Total assets $ -- $ 14,767 $ 14,767
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Common Stock -- 1(b) 1
Paid in capital -- 14,766(b) 14,766
---------- ---------- --------
Total stockholders' equity -- 14,767 14,767
---------- ---------- --------
Total liabilities and
stockholders' equity $ -- $ 14,767 $ 14,767
========== ========== ========
</TABLE>
F-81
<PAGE>
WYNDHAM I
PRO FORMA STATEMENT OF INCOME
(UNAUDITED, $ IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------------------------------------
Garden Hotel
Associates Ltd.
Partnership Pro Forma Wyndham I
Historical (c) Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 56,642 $ -- $ 56,642
Department expenses 19,622 -- 19,622
Undistributed expenses 13,632 -- 13,632
-------- ----------- -----------
Gross operating profit 23,388 -- 23,388
Base Rent -- 13,600 (d) 13,600
Percentage Rent -- -- (e) --
Depreciation and amortization 5,059 (5,059)(h) --
Other (f) 2,655 -- 2,655
Base & incentive management fee (g) 3,317 (183) 3,134
--------- ---------- -----------
Operating income 12,357 (8,358) 3,999
Interest income 334 (334) --
Interest expense (7,145) 7,145 --
--------- ---------- -----------
Income before income taxes 5,547 (1,548) 3,999
Provision for income taxes (i) -- (1,580) (1,580)
--------- ---------- -----------
Net income $ 5,547 $ (3,127) $ 2,419
========= ========== ===========
</TABLE>
F-82
<PAGE>
(A) Wyndham I was not formed as of December 31, 1995.
(B) Reflects the effects of the assets that are expected to be contributed to
Wyndham I by its affiliates as a result of the sale of the 11 Wyndham
Garden(R) Hotels to the Company.
(C) Reflects the combined historical operating results of the 11 Wyndham
Garden(R) Hotels for the year ended December 31, 1995.
(D) Represents the base rent to be paid by Wyndham I to the Company under the
Leases. The Leases require Wyndham I to pay an aggregate minimum annual
base rent of $13,600, a pro rata portion of which is due and payable in
advance on the first day of each month.
(E) Under the terms of the Leases, Wyndham I is to pay percentage rent equal to
8% of the excess of Total Hotel Sales over 1996 Total Hotel Sales and, as
such, there is no percentage rent on a pro forma basis for the fiscal year
ended December 31, 1995.
(F) Represents ground rent and other expenses for which Wyndham I will remain
obligated under the Leases.
(G) Under the terms of the Management Agreements, Wyndham II is to be paid base
fees of 5% of Revenues and incentive fees equal to approximately 20% of
adjusted net operating income (as defined in the applicable Management
Agreements).
(H) Wyndham I has no ownership interest (other than as a lessee) in the real
estate related to these 11 Wyndham Garden(R) Hotels and, as such, there is
no depreciation expense on a pro forma basis.
(I) Adjustment to reflect the impact of federal and state income taxes relate
to the pro forma results of operations of Wyndham I, at an effective income
tax rate of approximately 39.5%, assumimg Wyndham I's change in tax status
to a corporation.
F-83
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Garden Hotel Associates L.P.
We have audited the accompanying balance sheets of Garden Hotel Associates L.P.
as of December 31, 1994 and 1995 and the related statements of income, changes
in partners' capital, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Partnership'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 Garden Hotel Associates L.P. as
of December 31, 1994 and 1995, and its results of operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Dallas, Texas
February 27, 1996 COOPERS & LYBRAND L.L.P.
F-84
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
ASSETS 1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,398,475 $ 5,632,647
Accounts receivable, less allowance of
$19,000 in 1994 and $31,000 in 1995 1,276,316 1,248,115
Due from affiliate -- 155,009
Inventories 199,543 189,658
Prepaid expenses 151,322 149,415
------------ ------------
Total current assets 7,025,656 7,374,844
Property and equipment, net 105,947,174 103,797,560
Other assets, net of accumulated amortization
of $4,338,000 and $4,175,000 in 1994 and
1995, respectively 1,919,689 1,342,372
------------ ------------
Total assets $114,892,519 $112,514,776
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $ 3,935,116 $ 4,087,035
Due to Operator 357,940 475,200
Advance deposits 79,734 486,967
------------ ------------
Total current liabilities 4,372,790 5,049,202
Long-term debt 93,000,000 93,000,000
------------ ------------
Total liabilities 97,372,790 98,049,202
Commitments and contingencies
Partners' capital 17,519,729 14,465,574
------------ ------------
Total liabilities and partners' capital $114,892,519 $112,514,776
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Revenues:
Rooms $ 33,181,540 $ 37,024,696 $ 42,310,485
Food and beverage 9,610,737 11,035,165 11,532,474
Operating departments 2,398,859 2,666,340 2,798,687
------------- ------------ ----------
45,191,136 50,726,201 56,641,646
------------- ------------ ----------
Operating costs and expenses:
Departmental expenses:
Rooms 8,137,637 8,787,104 10,088,389
Food and beverage 7,111,756 7,868,263 8,304,422
Operating departments 1,249,043 1,224,981 1,228,868
Operating expenses:
Administrative and general 4,750,200 4,940,904 5,102,092
Management fees 2,414,658 2,888,211 3,317,170
Sales and marketing 3,278,057 3,816,964 3,953,177
Property operating costs 4,035,318 4,206,628 4,576,842
Property insurance, rent and taxes 2,085,483 2,310,649 2,450,743
Depreciation and amortization 4,808,530 4,955,340 5,058,767
Other 217,441 175,619 204,026
------------- ----------- -----------
Total operating costs and expenses 38,088,123 41,174,663 44,284,496
------------- ----------- -----------
Operating income 7,103,013 9,551,538 12,357,150
Interest Income 108,293 190,621 334,467
Interest expense (4,613,594) (5,617,689) (7,144,673)
------------- ----------- -----------
Net income $ 2,597,712 $ 4,124,470 $ 5,546,944
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<S> <C>
Balance at January 1, 1993 $25,516,448
Distributions (8,752,000)
Net Income 2,597,712
-----------
Balance at December 31, 1993 19,362,160
Contributions 498,000
Distributions (6,464,901)
Net Income 4,124,470
-----------
Balance at December 31, 1994 17,519,729
Distributions (8,601,099)
Net Income 5,546,944
-----------
Balance at December 31, 1995 $14,465,574
===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-87
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,597,712 $ 4,124,470 $ 5,546,944
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of interest rate
contracts 39,732 134,127 134,127
Depreciation and amortization 4,808,530 4,955,340 5,058,767
Provision for bad debt 98,269 25,170 47,119
Changes to operating assets and
liabilities:
Accounts receivable 572,269 (211,458) (18,919)
Due from affiliate -- -- (155,009)
Inventories (17,074) 11,961 9,885
Prepaid expenses (2,851) 13,508 1,907
Other assets (198,260) (36,567) (118,424)
Accounts payable and accrued
expenses 550,318 (44,672) 151,919
Due to Operator (444,488) 202,839 117,260
Advance deposits 41,208 (4,579) 407,233
----------- ----------- -----------
Net cash provided by operating
activities 8,045,365 9,170,139 11,182,809
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,280,571) (1,663,612) (2,347,538)
Proceeds from land sale 17,057 -- --
----------- ----------- -----------
Net cash used in investing
activities (1,263,514) (1,663,612) (2,347,538)
----------- ----------- -----------
Cash flows from financing activites:
Other (498,000) -- --
Partners' contributed capital -- 498,000 --
Partners' capital distributions (8,752,000) (6,464,901) (8,601,099)
Proceeds from long-term debt 3,000,000 -- --
----------- ----------- -----------
Net cash used in financing
activities (6,250,000) (5,966,901) (8,601,099)
----------- ----------- -----------
Increase in cash and cash equivalents 531,851 1,539,626 234,172
Cash and cash equivalents at beginning
of year 3,326,998 3,858,849 5,398,475
----------- ----------- -----------
Cash and cash equivalents at end
of year $ 3,858,849 $ 5,398,475 $ 5,632,647
=========== =========== ===========
Supplemental disclosure of cash flow
Information:
Cash paid during the year for
interest $ 4,568,403 $ 5,292,070 $ 6,977,768
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-88
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
------------
Garden Hotel Associates LP (the "Partnership") was formed May 11, 1990, for
the purpose of acquiring, owning and operating eleven Wyndham Garden Hotels
throughout the United States of which three are located in or near Phoenix,
Arizona.
The partners contributed $36,000,000 upon formation of the Partnership.
The general partner is required to and the limited partner may, at its
discretion, make additional contributions necessary to fund operating
deficits as defined in the Partnership agreement. Profits and losses are
allocated to the partners in accordance with the Partnership agreement.
USE OF ESTIMATES AND ASSUMPTIONS
--------------------------------
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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
CASH AND CASH EQUIVALENTS
-------------------------
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Designated cash totaling $816,858 and $605,259 as of December 31, 1994 and
1995, respectively, consists of amounts designated for repairs and
replacement of property and equipment.
The Partnership maintains cash and cash equivalents in accounts with
various financial institutions in excess of amounts insured by the Federal
Deposit Insurance Corporation.
F-89
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INVENTORIES
-----------
Inventories consist of food, beverages, china, linen, glassware,
silverware, uniforms, and supplies and are stated at cost, which
approximates market, with cost determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
----------------------
Buildings are carried at cost and depreciated over forty years using the
straight-line method. Furniture and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives,
which range from three to seven years. Normal repairs and maintenance are
charged to expense as incurred.
In 1995, the Partnership adopted Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." Impairment losses are recognized in operating
income as they are determined.
The Partnership periodically reviews its property and equipment to
determine if its carrying cost will be recovered from future operating cash
flows. In cases when the Partnership does not expect to recover its
carrying cost, the Partnership recognizes an impairment loss. No such
losses have been recognized to date.
OTHER ASSETS
------------
Other assets consist primarily of deferred finance costs totaling
approximately $1,387,243 and $819,759 at December 31, 1994 and 1995,
respectively, and are stated at net cost. Amortization of loan costs is
computed using the effective yield method over the lives of the related
loans. The remaining balance consists primarily of security deposits
totaling approximately $404,189 and $522,613 at December 31, 1994 and 1995,
respectively, and are stated at cost.
Preopening costs, which are classified as other assets, are recorded at
cost and amortized over twelve months using the straight-line method.
Fully amortized preopening expenses of $859,256 were written off in 1995.
F-90
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES
------------
The Partnership is not a taxable entity and the results of its operations
are included in the tax returns of the partners. The Partnership's tax
returns and the amount of allocable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes to income or loss, the tax liability of the partners
could be charged accordingly.
REVENUE RECOGNITION
-------------------
Room, food and beverage, telephone and other revenues are recognized when
earned.
SELF-INSURANCE
--------------
The Partnership is self insured for various levels of general liability,
workers' compensation and employee medical coverages. Accrued expenses
include the estimated cost from unpaid incurred claims.
INTEREST RATE CONTRACTS
-----------------------
The Partnership enters into interest rate contracts to manage its exposure
to interest rate volatility. These contracts have been interest rate caps,
where the Partnership pays a lump-sum for the right to receive future
payments should interest rates exceed an agreed upon rate. The Partnership
is exposed to credit loss in the event of nonperformance by the
counterparties to its interest rate contracts. The Partnership does not
anticipate nonperformance by the counterparties. The Partnership accounts
for interest rate cap contracts by amortizing the up-front premium to
interest expense over the life of the contract.
ADVERTISING COSTS
-----------------
The Partnership participates in various advertising and marketing programs
with a related party. All costs are expensed in the period incurred. The
Partnership recognized advertising expenses of $1,003,589, $1,198,335 and
$1,148,385 for the years ended December 31, 1993, 1994 and 1995,
respectively.
F-91
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
RECLASSIFICATIONS
-----------------
Certain amounts previously reported have been reclassified to conform with
the current year presentation.
3. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1995
-------------- ---------------
<S> <C> <C>
Land $ 17,428,111 $ 17,428,111
Buildings 91,467,248 91,467,248
Furniture, fixtures and equipment 15,493,480 17,841,018
------------ ------------
124,388,839 126,736,377
Less accumulated depreciation 18,441,665 22,938,817
------------ ------------
$105,947,174 $103,797,560
============ ============
</TABLE>
4. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS:
---------------------------------------------------
On May 21, 1990, the Partnership and Wyndham Hotel Company, Ltd. (the
"Operator"), a related party, entered into a management agreement which
provides for a base management fee and chain services fee equal to 5% of
gross revenues plus an incentive fee equal to 15% of total operating cash
flow. Due to Operator includes management fees and other expenses payable
to the Operator. As provided for in the management agreement, cash in
excess of amounts required for on-site operations is held in a central
account in the name of the Operator.
The Partnership receives sales and marketing, centralized reservations,
accounting and other support services from affiliates which are reimbursed
as an adjustment to management fees in the normal course of business.
F-92
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
-------------------------------------
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1995
-------------- ---------------
<S> <C> <C>
Accounts payable $ 1,003,836 $ 977,184
Taxes 1,051,706 1,061,058
Payroll and related costs 1,100,642 1,176,514
Accrued interest 563,862 596,640
Other 215,070 275,639
----------- -----------
$ 3,935,116 $ 4,087,035
=========== ===========
</TABLE>
6. LONG-TERM DEBT:
--------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1995
-------------- ---------------
<S> <C> <C>
Acquisition loan $90,000,000 $90,000,000
Revolver loan 3,000,000 3,000,000
----------- -----------
$93,000,000 $93,000,000
=========== ===========
</TABLE>
The Acquisition and Revolver loans are payable to an affiliate. During
1993, two interest rate caps were purchased for $498,000 which fixed
$60,000,000 of the acquisition loan balance at a 6% interest rate effective
September 30, 1994 for the remainder of the loan. The remaining balances
of these loans bear interest at various rates which ranged from 4.63% to
6.5%, 4.5% to 9% and 7.1% to 7.9% during the years ended December 31, 1993,
1994 and 1995, respectively. Interest only is payable for both the
Acquisition and Revolver loans until maturity at May 21, 1997, when the
principal is due.
The Partnership's debt is collateralized principally by property and
equipment.
F-93
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. EMPLOYEE BENEFIT PLANS:
----------------------
The Partnership participates in a 401(k) retirement savings plans.
Employees who are over 21 years of age and have completed one year of
service are eligible to participate in the plan. The Partnership matches
employee contributions up to 4% of an employee's salary. The Partnership
expensed $31,628, $44,185, and $77,075 for the years ended December 31,
1993, 1994 and 1995, respectively, related to the plan.
The Partnership participates in a self-insured group health plan through a
Voluntary Employee Benefit Association ("VEBA") for its employees. This
plan is funded to the limits provided in the Internal Revenue Code, and
liabilities have been recorded for unpaid claims. Aggregate and stop loss
insurance exists at amounts which limit exposure to the partnerships. The
Partnership has recognized expenses under the plan of $419,817, $443,277
and $511,643 for the years ended December 31, 1993, 1994 and 1995,
respectively.
8. FAIR VALUE:
----------
The Partnership has estimated the fair value of its financial instruments
at December 31, 1995 as required by Statement of Financial Accounting
Standards No. 107. The carrying values of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses are reasonable
estimates of their fair values. The carrying values of variable and fixed
rate debt are reasonable estimates of their fair values.
F-94
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Partnership has entered into a land lease for one of the Partnership's
hotels. The following is a schedule of the future minimum rental payments
required under the operating lease, which has an initial and remaining
noncancelable term in excess of one year, as of December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 160,000
1997 160,000
1998 160,000
1999 160,000
2000 160,000
Thereafter 8,200,000
----------
$9,000,000
==========
</TABLE>
The lease which expires March 2052 includes a renewal option of 25 years
and contingent lease payments which are based on a percentage of the
hotel's gross income. The related renewal rental expense was $160,000 for
the years ended 1993, 1994 and 1995, and contingent rental expense was
$75,333, $112,464 and $153,862 for the years ended December 31, 1993, 1994
and 1995, respectively.
The Partnership is subject to environmental regulations related to the
ownership of real estate (hotels). As part of due diligence procedures,
the Partnership has conducted Phase I environmental assessments on each
property prior to acquisition. The cost of complying with the
environmental regulations was not material to the Partnership's statements
of income for any of the years in the three-year period ended December 31,
1995. The Partnership is not aware of any environmental condition on any
of its properties which is likely to have a material adverse effect on the
Partnership's financial statements.
F-95
<PAGE>
GARDEN HOTEL ASSOCIATES LP
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. SUBSEQUENT EVENT:
----------------
It is the intent of an affiliated entity to acquire a 70% ownership
interest in the Partnership. The acquiring entity and the Operator are
affiliated through common ownership. In addition, a letter of intent has
been entered into with a third party real estate investment trust ("REIT").
This transaction will result in a sale/leaseback that provides for the sale
of all eleven hotels containing 1,940 rooms for $135,320,000 to the REIT
and eleven long-term operating leases back to the Operator. Each lease has
an initial term of seventeen years and four optional twelve-year extensions
exercisable at the Operator's option for all hotels. Annual minimum base
rents aggregate $13,600,000 plus a contingent rent payment is required
based on a percentage of excess revenue over base year revenues. The leases
will require the Operator to pay substantially all expenses associated with
the operation of the leased hotels, real estate taxes and insurance.
F-96
<PAGE>
To: The Partners
Garden Hotel Associates L.P.:
In connection with our audits of the financial statements of Garden Hotel
Associates L.P. as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, such financial statements are
included in this Prospectus, we have also audited the financial statement
schedule on the following page F-98.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included herein.
Dallas, TX
February 27, 1996 Coopers & Lybrand L.L.P.
F-97
<PAGE>
Schedule III
Page 1 of 2
GARDEN HOTEL ASSOCIATES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Gross Amount at
Initial Costs December 31, 1995
---------------------------- Subsequent ----------------------
Buildings & Costs Buildings &
Description Debt Land Improvements Capitalized Land Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C>
11 Wyndham Garden Hotels $93 $17 $90 $2 $17 $92 $109
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date of Depreciation
Description Depreciation Acquisition Life
<S> <C> <C> <C>
11 Wyndham Garden Hotels $13 May, 1990 40
</TABLE>
F-98
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the Shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall create any implication that
the information contained herein is correct as of any time subsequent to its
date.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................................... 1
Risk Factors......................................... 8
The Company.......................................... 12
Distribution Policy.................................. 13
Price Ranges of Shares............................... 14
Use of Proceeds...................................... 14
Capitalization....................................... 14
Selected and Pro Forma Financial and Operating Data.. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 22
Business............................................. 26
Management........................................... 46
Policies with Respect to Certain Activities.......... 50
Description of the Shares............................ 53
Summary of the Declaration of Trust.................. 53
Principal Shareholders............................... 58
Shares Eligible for Future Sale...................... 59
Federal Income Tax Considerations.................... 60
Certain United States Tax Considerations for
Non-U.S. Holders of Shares...................... 68
ERISA Plans, KEOGH Plans and Individual
Retirement Accounts............................. 70
Underwriting......................................... 72
Experts.............................................. 73
Legal Matters........................................ 73
Additional Information............................... 73
Glossary............................................. 75
Index to Financial Statements........................ F-1
</TABLE>
12,000,000 Shares
Hospitality Properties Trust
Common Shares of
Beneficial Interest
-------------
PROSPECTUS
-------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Dean Witter Reynolds Inc.
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Smith Barney Inc.
Legg Mason Wood Walker
Incorporated
McDonald & Company
Securities, Inc.
, 1996
================================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the Shares being registered. All the amounts
shown are estimates except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. fee
<TABLE>
<CAPTION>
Item Amount
- ---- ------
<S> <C>
SEC Registration Fee.................................... $127,293
NASD Fee................................................ 30,500
Transfer Agent's and Registrar's Fees................... *
Printing Fees........................................... *
Legal Fees and Expenses (other than Blue Sky)........... *
Accounting Fees and Expenses............................ *
Blue Sky Fees and Expenses (including fees of counsel).. *
Miscellaneous Expenses.................................. *
--------
Total............................................ $ *
========
</TABLE>
- ----------------------------
*To be filed by amendment.
Item 31. Sales to Special Parties.
See Item 32.
Item 32. Recent Sales of Unregistered Securities.
On February 7, 1995, the Registrant was initially capitalized through the
issuance of 100 Shares to Health and Retirement Properties Trust ("HRP") for
an aggregate cash contribution of $1.0 million. The Registrant was initially
organized as a Delaware corporation and subsequently merged
II-1
<PAGE>
on May 12, 1995 with a Maryland real estate investment trust and effected a
400-for-1 stock split for each outstanding Share. On August 16, 1995,
concurrently with the Registrant's initial public offering, HRP purchased an
additional 3,960,000 Shares at $25.00 per Share by canceling $99.0 million of
debt owed by the Company to HRP and HRPT Advisors, Inc. ("Advisors")
purchased 250,000 Shares at $25.00 per Share. The 4,000,000 Shares currently
owned by HRP and the 250,000 Shares currently owned by Advisors were purchased
for investment purposes. The Registrant believes that the issuance and sale
of all such securities were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"). In December
1995 the Company issued 300 Shares to each of the Company's three Independent
Trustees pursuant to Rule 701 promulgated under the Securities Act.
Item 33. Indemnification of Directors and Officers.
The Trustees and officers of the Company are and will be indemnified against
certain liabilities in accordance with Section 2-405.2 of the Maryland General
Corporation Law and the Company's Declaration of Trust (the "Declaration").
Certain provisions of the Declaration permit the Company to indemnify its
Trustees and officers and persons serving in other capacities for or on behalf
of the Company against all liabilities, costs and expenses arising out of any
action, suit or proceeding in which such Trustee, officer or other person may
be involved by reason of such person serving as a Trustee, officer or in
certain other capacities unless such claim shall have been adjudicated to have
arisen out of or be based upon such person's willful malfeasance, bad faith,
gross negligence or reckless disregard of duty.
The form of Underwriting Agreement to be filed as Exhibit 1.1 to this
Registration Statement will provide for the reciprocal indemnification by the
Underwriters of the Registrant and its Trustees, officers and controlling
persons, and by the Registrant of the Underwriters and their respective
directors, officers and controlling persons, against certain liabilities under
the Securities Act.
Item 34. Treatment of Proceeds from Shares being Registered.
The consideration to be received by the Registrant for the Shares registered
will be credited to the appropriate capital stock account.
Item 35. Financial Statements and Exhibits.
(a) Financial Statements
II-2
<PAGE>
Reference is made to Page F-1 of the Prospectus filed as part of this
Registration Statement.
(b) Financial Statement Schedule III (included in the financial statements
included in the Prospectus filed as part of this Registration Statement)
All Schedules other than those indicated above have been omitted as the
required information is either not applicable or presented in the
financial statements or related notes thereto.
(c) Exhibits
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
Item 36. Undertakings.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933, as amended, shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts on March 4,
1996.
HOSPITALITY PROPERTIES TRUST
By: /s/ Gerard M. Martin
--------------------------------------
Gerard M. Martin, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated. Each of the undersigned Trustees
and officers of Hospitality Properties Trust hereby severally constitute and
appoint John G. Murray, Gerard M. Martin, Barry M. Portnoy and Alexander A.
Notopoulos, Jr., and each of them, to sign for him, and in his name in the
capacity indicated below, this Registration Statement for the purposes of
registering such securities under the Securities Act of 1933, as amended, and
any and all amendments thereto, and any other registration statement filed by
Hospitality Properties Trust pursuant to Rule 462(b) which registers
additional amounts of such securities for the offering or offerings
contemplated by this Registration Statement (a "462(b) Registration
Statement") hereby ratifying and confirming our signatures as they may be
signed by our attorneys to this Registration Statement, any 462(b)
Registration Statement and any and all amendments to either thereof.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Gerard M. Martin President and Managing March 5, 1996
- --------------------------------- Trustee (Principal
Gerard M. Martin Executive Officer)
/s/ John G. Murray Treasurer & Chief March 5, 1996
- --------------------------------- Financial Officer
John G. Murray (Principal Accounting and
Financial Officer)
/s/ Barry M. Portnoy Managing Trustee March 5, 1996
- ---------------------------------
Barry M. Portnoy
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ John L. Harrington Trustee March 5, 1996
- ---------------------------------
John L. Harrington
/s/ William J. Sheehan Trustee March 5, 1996
- ---------------------------------
William J. Sheehan
/s/ Arthur G. Koumantzelis Trustee March 5, 1996
- ---------------------------------
Arthur G. Koumantzelis
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Document Description Sequential
Number -------------------- Page No.
- ------- --------
<C> <S> <C>
1.1 ** Form of Underwriting Agreement.............................
3.1 * Declaration of Trust of the Registrant.....................
3.2 * Bylaws of the Registrant...................................
4.1 * Form of Share Certificate..................................
5.1 ** Opinion of Sullivan & Worcester LLP........................
5.2 ** Opinion of Piper & Marbury L.L.P. .........................
8.1 ** Opinion of Sullivan & Worcester LLP as to certain tax
matters....................................................
10.1 * Purchase-Sale and Option Agreement dated as of February 3,
1995 by and among HMH Courtyard Properties, Inc., HMH
Properties, Inc. and Hospitality Properties, Inc., as
amended....................................................
10.2 Fifth Amendment to Purchase-Sale and Option Agreement
dated February 26, 1996, by and between HPT and HMH
Properties, Inc. ..........................................
10.3 * Form of Courtyard Management Agreement between HMH
Courtyard Properties, Inc., d/b/a HMH Properties, Inc. and
Courtyard Management Corporation...........................
10.4 * Form of First Amendment to Courtyard Management Agreement
between Courtyard Management Corporation and Hospitality
Properties, Inc. and Consolidation Letter Agreement by and
between Courtyard Management Corporation and Hospitality
Properties, Inc. ..........................................
10.5 * Form of Lease Agreement between Hospitality Properties,
Inc. and HMH HPT Courtyard, Inc. ..........................
10.6 * Form of Assignment and Assumption of Leases, Contracts and
Agreements in favor of Hospitality Properties, Inc. .......
10.7** Purchase and Sale Agreement, by and between Garden Hotel
Associates Limited Partnership and Hospitality Properties
Trust......................................................
10.8** Agreement to Lease by and between Garden Hotel Associates
II Limited Partnership and Hospitality Properties Trust....
10.9** Form of Lease Agreement between Garden Hotel Associates II
Limited Partnership Ltd. and Hospitality Properties Trust..
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
10.10 Purchase, Sale and Exchange Agreement dated February 26,
1996 by and between HMH Properties, Inc. and Hospitality
Properties Trust...........................................
10.11 Agreement to Lease dated February 26, 1996 by and between
HMH HPT Residence Inn Inc., and Hospitality Properties
Trust......................................................
10.12 Form of Lease Agreement between HMH HPT Residence Inn,
Inc. and Hospitality Properties Trust......................
10.13* Advisory Agreement.........................................
10.14 Amended and Restated Revolving Credit Agreement, dated as
of December 29, 1995 by and between DLJ Mortgage Capital,
Inc. and Hospitality Properties Trust......................
10.15 Amendment No. 1 to Acquisition Line Credit Agreement, as
amended and restated to such date..........................
10.16 Revolving Credit Agreement, dated as of February 28, 1996,
by and between DLJ Mortgages Capital, Inc. and Hospitality
Property Trust.............................................
10.17 Form of Residence Inn Management Agreement between HMH
Properties, Inc. and Residence Inn by Marriott/(R)/, Inc. .
10.18* Hospitality Properties Trust 1995 Incentive Share Award
Plan.......................................................
23.1 Consent of Arthur Andersen LLP.............................
23.2 Consent of Coopers & Lybrand L.L.P. .......................
23.3 ** Consent of Sullivan & Worcester LLP (to be included in
Exhibit 5.1 to this Registration Statement)................
23.4 ** Consent of Piper & Marbury L.L.P. (to be included in
Exhibit 5.2 to this Registration Statement)................
</TABLE>
- ----------------------
Each exhibit marked by an (*) is incorporated by reference to the
corresponding document or instrument filed as an exhibit to the Company's
Registration on Form S-11 (File No. 33-93330) in the form in which it was
declared effective by the Securities and Exchange Commission on August 16,
1995. Each exhibit marked by an (**) will be filed by Amendment to this
Registration Statement.
ii
<PAGE>
EXHIBIT 10.2
FIFTH AMENDMENT TO PURCHASE-SALE AND OPTION AGREEMENT
-----------------------------------------------------
THIS FIFTH AMENDMENT TO PURCHASE-SALE AND OPTION AGREEMENT (this
"Amendment") is entered into as of this 26th day of February, 1996, by and
---------
between HMH PROPERTIES, INC., a Delaware corporation (the "Seller"), and
------
HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust and the
successor by merger to Hospitality Properties, Inc. (the "Purchaser").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to a Purchase-Sale and Option Agreement, dated as of
February 3, 1995, as amended by letter agreements dated February 28, 1995, April
7, 1995 and May 5, 1995 and by Fourth Amendment to Purchase-Sale and Option
Agreement, dated as of June 19, 1995 (as so amended, the "Purchase Agreement"),
------------------
the Seller and HMH Courtyard Properties, Inc., a Delaware corporation ("HMH
---
Courtyard") agreed to sell certain properties and grant certain options to the
- ---------
Purchaser, all subject to and upon the terms and conditions set forth in the
Purchase Agreement; and
WHEREAS, HMH Courtyard has been merged into the Seller and the Seller is
the successor in interest to HMH Courtyard by reason of such merger; and
WHEREAS, the Seller and the Purchaser now wish to amend certain terms and
conditions of the Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the mutual receipt and legal
sufficiency of which are hereby acknowledged, the Seller and the Purchaser
hereby agree as follows:
1. Capitalized terms used and not otherwise defined in this Amendment
shall have the meanings ascribed to such terms in the Purchase Agreement. As
used herein, the term "Other Agreement" shall mean that certain Purchase, Sale
---------------
and Exchange Agreement, dated as of the date hereof, by and between the
Purchaser and the Seller.
2. The Purchase Price for the Schedule D Properties shall be One Hundred
Seventy-Six Million Four Hundred Thousand Dollars ($176,400,000).
<PAGE>
-2-
3. Payment of the Purchase Price for the Group D Properties shall be made
as follows:
$ 50,000,000 aggregate deposit pursuant to this Agreement and the Other
Agreement.
$158,760,000 the non-contingent balance of the Purchase Price for the
Group D Properties, less any portion of the Deposit plus
interest accrued thereon as provided in the Other Agreement
allocated to the Group D Properties, will be paid at the
closing of the Group D Properties, which will occur
simultaneously with the closing under the Other Agreement.
$ 17,640,000 the Option Retained Funds with respect to the Purchase Price
for the Group D Properties will be paid as provided in the
Purchase Agreement and the Leases.
4. Schedule D of the Purchase Agreement is hereby amended to delete the
reference to "Chicago/Wabash Ave." therefrom, change the total number of units
listed thereon to "2,299" and change the Purchase Price to "$176,400,000".
5. The obligations of the Purchaser to acquire the Group D Properties
shall be subject to the following additional conditions precedent:
(a) The Closing (as defined therein) under the Other Agreement shall occur
simultaneously;
(b) The initial term pursuant to the Leases for the Group D Properties and
pursuant to all existing Leases shall be extended through December 31, 2012;
(c) The Leases with respect to the Group D Properties shall provide and the
existing Leases shall be amended to provide the Tenant with three consecutive
twelve (12) year renewal terms exercisable on two (2) years' notice and
otherwise in accordance with the existing terms and conditions of the existing
Leases;
(d) The Tenant and the Purchaser shall enter into an amendment to the
existing Leases, in form and substance reasonably satisfactory to the Purchaser
and Tenant, with respect to the matters described in paragraphs (b) and (c)
above and also (x) amending Exhibit A to each of the Leases to include all of
---------
the Properties (y) confirming the obligation of any mortgagee of the landlord
under the Leases to provide copies of notices of default to the Tenant and (z)
confirming that, under any Leases
<PAGE>
-3-
with respect to Properties located in California, the landlord's mortgagees
shall be subject to the disbursement obligations of the landlord thereunder in
the event of casualty damage resulting from earthquake;
(e) The initial term of the Management Agreements pursuant to the
Management Agreements for the Group D Properties and pursuant to all existing
Management Agreements shall be extended through December 31, 2012;
(f) The Management Agreements with respect to the Group D Properties and
the existing Management Agreements shall be further amended (x) to provide for
three (3) consecutive twelve (12) year renewal terms, (y) to require the Manager
to obtain and provide to the Purchaser such financial information and other data
as may be required by securities registration and reporting laws, regulations
and rules of the Securities and Exchange Commission applicable to the Purchaser,
including, but not limited to, providing an allocated breakdown of operating
costs of the Properties, permitting the Purchaser to publish such information
and/or incorporate by reference into the Purchaser's public filings the public
information filed by Marriott International, Inc. and generally requiring the
Manager and Marriott International, Inc. to cooperate with the Purchaser in
complying with the requirements of the Securities and Exchange Commission, and
(z) to permit the Purchaser to obtain secured financing with respect to all of
the Courtyard Properties owned by the Purchaser in an amount of up to sixty
percent (60%) of the consolidated Priority Basis of all such Properties (as such
term is defined in the Management Agreements); and
(g) The Manager and the Purchaser shall enter into an amendment to the
Management Agreements, in form and substance reasonably satisfactory to the
Purchaser and the Manager, with respect to the matters described in paragraphs
(e) and (f) above.
6. The obligations of the Seller to sell the Group D Properties shall be
subject to the following additional condition precedents:
(a) The Closing (as defined therein) under the Other Agreement shall occur
simultaneously; and
(b) The Purchaser shall have paid to the Seller the sums described in
paragraph 7 below.
7. At the closing of the Group D Properties, the Purchaser shall pay to
the Seller the sum of Two Million Five Hundred Thousand Dollars ($2,500,000),
whereupon, the First Offer Period shall be extended through December 30, 2010.
<PAGE>
-4-
8. (a) In the event, notwithstanding diligent and good faith efforts, the
Seller shall be unable to obtain the approval of the Boards of Directors of the
Seller to the transactions contemplated by this Amendment, this Amendment may be
terminated by the Seller by the giving of written notice thereof to the
Purchaser within five (5) Business Days after the date of this Amendment; it
being expressly understood and agreed that time shall be of the essence with
respect to the giving of such notice. If the Seller shall give such notice to
the Purchaser within the time period hereinabove provided, this Amendment shall
terminate and be of no further force or effect and the Seller shall refund the
Deposit to the Purchaser, together with interest thereon, in accordance with
Section 10.1 of the Other Agreement. If the Seller shall fail to give such
- ------------
notice within the time period and in the manner hereinabove provided, the Seller
shall have no further right to terminate this Amendment pursuant to this
section.
(b) In the event, notwithstanding diligent and good faith efforts, the
Purchaser shall be unable to obtain the approval of the Board of Directors of
the Purchaser to the transactions contemplated by this Amendment, this Amendment
may be terminated by the Purchaser by the giving of written notice thereof to
the Seller within five (5) Business Days after the date of this Amendment; it
being expressly understood and agreed that time shall be of the essence with
respect to the giving of such notice. If the Purchaser shall give such notice
to the Seller within the time period hereinabove provided, this Amendment shall
terminate and be of no further force or effect and the Seller shall refund the
Deposit to the Purchaser, together with interest thereon, in accordance with
Section 10.1 of the Other Agreement. If the Purchaser shall fail to give such
- ------------
notice within the time period and in the manner hereinabove provided, the
Purchaser shall have no further right to terminate this Amendment pursuant to
this section.
9. The Purchase Agreement is hereby further amended by inserting therein
the following as Section 12 thereof:
SECTION 12. EXCHANGE CONTRACT MATTERS.
---------- -------------------------
12.1 Exchanges. The Seller desires to effectuate and the Purchaser
---------
agrees to cooperate in effectuating eight (8) separate tax deferred exchanges of
Exchange Properties for the Exchange Parcels on the terms and conditions set
forth in this Agreement.
12.2 Exchange Property Credit. In connection with the consummation of
------------------------
any Exchange Closing, the Purchaser shall direct that all or any portion of the
Allocable Purchase Price of the applicable Exchange Property equal to the
Exchange Value be applied to the acquisition of the applicable Exchange Parcel
or
<PAGE>
-5-
held in escrow by the Title Company for such purpose pursuant to Section 12.13
-------------
(each such designated amount, an "Exchange Property Credit"). The Purchaser
------------------------
shall be obligated (subject to the terms hereof) to expend cash in an amount not
to exceed the Exchange Property Credit to acquire and convey to the Seller
pursuant to Exchange Contracts such Exchange Parcels as the Seller may
designate. Any Exchange Property Credit shall, from time to time, be reduced by
any payments made in connection with the acquisition of the applicable Exchange
Parcels. The Title Company shall disburse, at the direction of the Purchaser
and the Seller, the unapplied portion of any applicable Exchange Property Credit
as may from time to time be required to pay amounts then due under the
applicable Exchange Contract. Notwithstanding the foregoing, if the Seller
notifies the Purchaser in writing at least five (5) days prior to the Closing
Date or Exchange Closing Date that it has elected not to designate any Exchange
Parcels, the Exchange Value shall be paid to the Seller on such Exchange Closing
Date as herein described.
12.3 Designation of Exchange Parcels.
-------------------------------
(a) The Seller may from time to time after the date of this Agreement but,
in any event, no later than forty-five (45) days after the Closing Date,
designate one or more parcels of real property as Exchange Parcels, which
Exchange Parcels the Purchaser shall acquire and transfer to the Seller, in
exchange for the Exchange Properties, upon the terms and subject to the
conditions of this Agreement. The Seller shall be unconditionally obligated to
accept any Exchange Parcel acquired by the Purchaser pursuant to the terms of
this Agreement.
(b) In the event that the Seller does not designate any Exchange Parcels
on or before the day within forty-five (45) days after the Closing Date, or if
the Exchange Property Credit has not been reduced to zero on or before the Final
Exchange Closing Date, the provisions of Section 12.11 shall apply.
-------------
12.4 Exchange Contracts.
------------------
(a) At the request of the Seller and subject to all of the applicable
terms and conditions of this Agreement, the Purchaser shall, upon 5 days' prior
notice from the Seller, execute and deliver a purchase and sale agreement or an
assignment and assumption agreement of the Seller's interest under any purchase
and sale agreement, in either case, for the acquisition of one or more Exchange
Parcels (any such purchase and sale agreement or assignment thereof, an
"Exchange Contract"), it being expressly understood and agreed, however, that
-------- --------
the Purchaser's obligation to execute or accept assignment of any Exchange
Contract shall be subject to the conditions that:
<PAGE>
-6-
(i) Pursuant to the terms of such Exchange Contract, the closing
thereunder shall be scheduled to occur within one hundred eighty
(180) days after the Closing Date;
(ii) The aggregate amount of payments required to be made under or in
connection with such Exchange Contract, as reasonably estimated by
the Purchaser, shall not exceed the unapplied portion of the
applicable Exchange Property Credit, unless the Seller shall provide
the Purchaser with such assurances regarding the payment of such
amounts by the Seller as the Purchaser shall require;
(iii) The Purchaser shall have no rights or obligations under such
Exchange Contract, monetary or nonmonetary, including, without
limitation, the performance of any due diligence or the giving of
any notices, other than the payment of amounts less than or equal to
the unapplied portion of the applicable Exchange Property Credit;
(iv) Such Exchange Contract shall permit the Purchaser to designate the
Seller as the Purchaser's designee or nominee to receive title to
the Exchange Parcel to be conveyed thereunder (the Seller agreeing
to accept such title); and
(v) The Purchaser shall be under no duty or obligation to find or assist
the Seller in finding or selecting Exchange Parcels suitable for
exchange or negotiating its purchase and the Purchaser shall have no
responsibility for the failure of the purchase of any Exchange
Parcel to be closed or settled by the Exchange Closing Date other
than by reason of the Purchaser's willful failure to perform its
obligations under this Agreement.
(b) It is further expressly understood and agreed that anything herein to
the contrary notwithstanding, the Purchaser shall have no obligation to
participate in any exchange contemplated by this Agreement if such exchange
would or reasonably could (as determined by the Purchaser's legal counsel)
result in (i) the recognition of any gain by the Purchaser, (ii) a tax basis in
any Property lower than the tax basis therein that the Purchaser would have had
such Property been sold to the Purchaser for an amount equal to the Allocable
Purchase Price (subject to adjustment as provided in this Agreement) as
contemplated by this Agreement other than the provisions in this Section 12, or
----------
(iii) any other federal or state income tax consequences different from those
that would have resulted had
<PAGE>
-7-
such Property been sold to the Purchaser for an amount equal to the Allocable
Purchase Price (subject to adjustment as provided in this Agreement) as
contemplated by this Agreement other than the provisions in this Section 12.
----------
12.5 Conveyance of Exchange Parcels. At the time of any Exchange
------------------------------
Closing, title to the applicable Exchange Parcel shall be conveyed directly to
the Seller as the nominee and designee of the Purchaser and the Seller shall
accept such title as shall be conveyed thereunder; it being expressly understood
and agreed that the Purchaser makes no representations, warranties or covenants
with respect to such title, the satisfaction of any conditions precedent under
any Exchange Contract or any other matter in regard or pertaining thereto.
12.6 Failure of Exchange Parcels to Close. At any time upon the request
------------------------------------
of the Seller, the Purchaser shall assign any Exchange Contract to the Seller
(without representation or warranty other than that the Purchaser has not
created any liens or encumbrances thereon, such assignment to be made on the
date specified in the Seller's notice (but not less than 3 days after the giving
of such notice). The Purchaser shall have a unilateral right to assign any
Exchange Contracts to the Seller at any time after the date one hundred eighty-
one (181) days after the Closing Date.
12.7 Assignment Upon Exhaustion of Credit. At such time as the
------------------------------------
applicable Exchange Property Credit shall be reduced to zero, the Purchaser
shall assign (unless sooner assigned to the Seller as herein provided) the
Exchange Contract to the Seller (without representation or warranty other than
that the Purchaser has not created any liens or encumbrances thereon). Upon
assignment of an Exchange Contract to the Seller, the Purchaser shall have no
further obligations hereunder with respect to the applicable Exchange Parcels or
Exchange Contract.
12.8 Closing Period. Purchaser shall not be obligated to participate in
--------------
any Exchange Closing prior to the Closing Date or after the date which is one
hundred eighty (180) days after the Closing Date.
12.9 Reductions to Exchange Property Credit. The applicable Exchange
--------------------------------------
Value and the Purchase Price payable under this Agreement shall be reduced from
time to time by (a) the aggregate cash consideration paid by the Purchaser under
any Exchange Contract, (b) any costs and expenses incurred by or on behalf of
Purchaser in connection with any Exchange Parcel, (c) the amount of any claim or
indemnity owing to the Purchaser by or at the direction of the Seller pursuant
to this Agreement, (d) the amount of any consideration paid by the Purchaser to
the Seller pursuant to this Agreement and (e) the costs and expenses
<PAGE>
-8-
incurred in good faith by or on behalf of the Purchaser in connection with the
proposed acquisition of an Exchange Parcel, whether or not an Exchange Contract
is executed in connection therewith and whether or not the proposed transaction
is consummated.
12.10 Increases to Exchange Property Credit. Regardless of the actual
-------------------------------------
interest earned thereon, there shall be credited to the Exchange Property Credit
an amount equal to the interest which would be earned on the amount of such
credit outstanding from time to time if it had been deposited with the Title
Company earning interest equivalent to the Federal Reserve Bank Discount Rate.
12.11 Final Exchange Closing Date. On a Final Exchange Closing Date, the
---------------------------
Title Company shall pay to the Seller an amount equal to the then remaining
balance of the Exchange Property Credit, if any, less any payments, if any, then
due and unpaid by the Seller to the Purchaser pursuant to this Agreement. Upon
such payment, and upon payment of any other sums then due by any party to
another party pursuant to this Agreement, such Exchange Contract shall be
finally closed and no party shall have any further rights or obligations
pursuant thereto, except as otherwise provided herein. Any excess balance in
the escrow account then held by Escrow Agent shall be returned to Purchaser.
12.12 Indemnification. The Seller acknowledges that the Purchaser is
---------------
agreeing to enter into each Exchange Contract and to acquire Exchange Parcels
solely as an accommodation to the Seller and that it is not intended that the
Purchaser will incur any costs or liabilities with respect to the Exchange
Parcels or any Exchange Contract in carrying out its obligations pursuant to
this Agreement. Accordingly, the Seller hereby agrees to indemnify, defend and
hold the Purchaser and its successors and assigns harmless from, against and in
respect of, and shall on demand reimburse the Purchaser and its successors and
assigns for, any and all loss, liability, damage or expense arising out of or in
any way connected with the exchanges contemplated by this Section 12, any
----------
Exchange Contract or the Exchange Parcels. The provisions of this Section 12.12
-------------
shall survive the Closing and the Exchange Closings.
12.13 Escrow Provision. The Title Company shall establish eight (8)
----------------
separate interest-bearing escrow accounts, one for each Exchange Parcels. The
Exchange Property Credit shall be held by the Title Company, in trust, in
accordance with the following terms and conditions:
(a) The Title Company, shall not be liable to any party for holding the
Exchange Property Credit in escrow in accordance with the provisions of this
Section 12.13 in the event of any
- -------------
<PAGE>
-9-
contested claims by either party relating to any Exchange Contract.
(b) The Title Company shall deliver the Exchange Property Credit, and any
interest earned thereon, to the Purchaser or the Seller, as the case may be,
upon the following conditions:
(i) To the Purchaser, any amount remaining in the escrow account on
the Final Exchange Closing Date in excess of the remaining
Exchange Property Credit balance.
(ii) To the Seller, upon receipt of a written notice from the Seller
stating that the Seller is entitled under this Agreement to the
Exchange Property Credit and demanding payment of the same;
provided, however, that the Title Company will not honor such
-------- -------
demand until not less than ten (10) days after the date on
which the Title Company shall have given such notice to the
Purchaser of such demand, nor thereafter if, prior to or during
such ten (10) day period, the Title Company shall have received
written notice of objection from the Purchaser.
(iii) To the Purchaser, upon receipt of a written notice from the
Purchaser stating that the Purchaser is entitled under this
Agreement to the return of the Exchange Property Credit and
demanding return of the same; provided, however, that the Title
-------- -------
Company will not honor such demand until not less than ten (10)
days after the date on which the Title Company shall have given
notice to the Seller of such demand, nor thereafter if prior to
or during such ten (10) day period, the Title Company shall
have received written notice of objection from the Seller.
(c) Any notice to the Title Company shall be sufficient only if received
by the Title Company within the applicable time periods set forth herein. All
mailings and notices to and from the Title Company shall be sent as provided in
Section 11.5.
- ------------
(d) If the Title Company shall receive a written demand for the Exchange
Property Credit or written notice of objection to the return of the Exchange
Property Credit or if there is any disagreement or dispute shall arise between
or among any of the parties hereto and/or any other persons resulting in adverse
claims and demands being made for the Exchange Property Credit, whether or not
litigation has been instituted, the Title Company shall continue to hold the
Exchange Property Credit subject to
<PAGE>
-10-
such adverse claims and the Title Company shall not be or become liable in any
way or to any person for its refusal to comply with such claims or demand and
(i) in the event of any joint direction from the Seller and the Purchaser, the
Title Company shall then disburse the Exchange Property Credit in accordance
with said direction, (ii) in the event the Title Company shall receive a written
notice advising that a litigation over entitlement to the Exchange Property
Credit has been commenced, the Title Company may deposit the Exchange Property
Credit with the clerk of the court in which said litigation is pending or (iii)
the Title Company may (but shall not be required to) take such affirmative steps
as it may, at its option, elect in order to substitute another impartial party
satisfactory to the Seller and the Purchaser to hold the Exchange Property
Credit subject to such adverse claims including the commencement of an action
for interpleader in a court of competent jurisdiction, the cost thereof to be
borne by whichever of the Seller and the Purchaser is the losing party and,
thereupon, the Title Company shall be released of and from all liability
hereunder. The Seller and the Purchaser jointly and severally agree to
reimburse the Title Company for any and all expenses incurred in the discharge
of its duties under this Article, including, without limitation, attorneys'
fees. Nothing herein, however, shall affect the liability of a defaulting party
to another party for reimbursement of any amount paid to the Title Company under
this Section 12.13(d).
----------------
(e) It is expressly understood that the Title Company acts hereunder as an
accommodation to the Seller and the Purchaser and as a depository only and is
not responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any instrument deposited with it, or for
the form or execution of such instruments or for the identity, authority or
right of any person executing or depositing the same, or for the terms and
conditions of any instrument pursuant to which the Title Company or the parties
may act.
(f) The Title Company shall not have any duties or responsibilities except
those set forth in this Section and shall not incur any liability in acting upon
any signature, notice, request, waiver, consent, receipt or other paper or
document believed by the Title Company to be genuine and the Title Company may
assume that any person purporting to give it any notice on behalf of any party
in accordance with the provisions hereof has been duly authorized to do so.
(g) The Title Company may act or refrain from acting in respect of any
matter referred to herein in full reliance upon and by and with the advice of
counsel which may be selected by it and shall be fully protected in so acting or
refraining from acting upon the advice of such counsel.
<PAGE>
-11-
(h) The Title Company shall not be responsible for any act or failure to
act on its part except in the case of its own willful default or gross
negligence. The Title Company shall be automatically released from all
responsibility and liability under this Agreement upon the Title Company's
delivery or deposit of the Exchange Property Credit in accordance with the
provisions of this Agreement.
(i) The Seller and the Purchaser agree that if either shall deliver to the
Title Company a written demand for the Exchange Property Credit, the party
making such demand shall, promptly after delivering such demand to the Title
Company, deliver a copy of such demand to the other party, together with a
statement of the facts and circumstances underlying the demand; provided,
however, that nothing in this part shall have any effect whatsoever upon the
Title Company's rights, duties and obligations under the preceding parts of this
Section 12.
- ----------
Definitions. As used in this Section 12, the following terms shall have
----------- ----------
the meanings set forth below.
(a) "Exchange Closing" shall mean the consummation of the transactions
----------------
contemplated by and Exchange Contract.
(b) "Exchange Closing Date" shall mean the date on which any Exchange
---------------------
Closing shall occur.
(c) "Exchange Properties" shall mean the following Properties:
-------------------
Williamsburg
Miami Lakes
Quad Cities
Newport Middletown
Pittsburgh Airport
Jacksonville/Mayo
Syracuse
Willow Grove
(d) "Exchange Parcels" shall have mean the parcels of real estate to be
----------------
designated by the Seller.
(e) "Exchange Value" shall mean, with respect to any Exchange Property,
--------------
the Allocable Purchase Price of such Property.
(f) "Exchange Contract" shall have the meaning given such term in Section
----------------- -------
12.4(a).
- -------
(g) "Final Exchange Closing Date" shall mean, with respect to any Exchange
---------------------------
Closing, the first Business Day following the Exchange Closing Date; provided,
--------
however, that in no event shall
- -------
<PAGE>
-12-
the Final Exchange Closing Date occur later than one hundred eighty (180) days
after the Closing Date unless the parties agree otherwise; provided, further,
-------- -------
however, that, in the event that the Seller does not designate any Exchange
- -------
Parcel on or before the day which is forty-five (45) days after the Closing
Date, the Final Exchange Closing Date shall be the fifth Business Day following
the expiration of such forty-five (45) day period unless the parties otherwise
agree.
10. As amended hereby, the Purchase Agreement is ratified and confirmed
and declared to be in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal as of the date above first written.
SELLER:
HMH PROPERTIES, INC.
By: /s/ P.J. Murch
---------------------------------
Its: Vice President
By: N.R. Eldred
---------------------------------
Its: Assistant Secretary
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
---------------------------------
Its: Treasurer
ACKNOWLEDGED AND AGREED:
HOST MARRIOTT CORPORATION
By: /s/ Pamela J. Murch
--------------------------
Its: Assistant Secretary
--------------------
<PAGE>
EXHIBIT 10.10
PURCHASE, SALE AND EXCHANGE AGREEMENT
BY AND BETWEEN
HMH PROPERTIES, INC., as Seller,
and
HOSPITALITY PROPERTIES TRUST,
as Purchaser
___________________________
February 26, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION 1. DEFINITIONS.................................................. 1
1.1 Agreement...................................................... 1
1.2 Agreement to Lease............................................. 2
1.3 Allocable Purchase Price....................................... 2
1.4 Assets......................................................... 2
1.5 Business Day................................................... 2
1.6 Closing........................................................ 2
1.7 Closing Date................................................... 2
1.8 Contracts...................................................... 2
1.9 Defective Property............................................. 2
1.10 Deposit........................................................ 2
1.11 Documents...................................................... 2
1.12 Exchange Closing............................................... 2
1.13 Exchange Closing............................................... 3
1.14 Exchange Closing Date.......................................... 3
1.15 Exchange Contract.............................................. 3
1.16 Exchange Parcels............................................... 3
1.17 Exchange Properties............................................ 3
1.18 Exchange Property Credit....................................... 3
1.19 Exchange Value................................................. 3
1.20 Excluded Assets................................................ 3
1.21 Fee Properties................................................. 3
1.22 FF&E........................................................... 3
1.23 FF&E Reserve................................................... 3
1.24 Final Exchange Closing Date.................................... 4
1.25 Ground Lease Properties........................................ 4
1.26 Ground Leases.................................................. 4
1.27 Host........................................................... 4
1.28 Improvements................................................... 4
1.29 Intangible Property............................................ 4
1.30 Interest Rate.................................................. 4
1.31 Leases......................................................... 4
1.32 LIBOR Rate..................................................... 4
1.33 Management Agreement Amendments................................ 5
1.34 Management Agreements.......................................... 5
1.35 Manager........................................................ 5
1.36 Other Agreement................................................ 5
1.37 Permitted Encumbrances......................................... 5
1.38 Property....................................................... 6
1.39 Purchase Price................................................. 6
1.40 Purchaser...................................................... 6
1.41 Real Property.................................................. 6
1.42 Retained Funds................................................. 6
1.43 Review Period.................................................. 6
<PAGE>
-ii-
1.44 Sale Properties................................................ 6
1.45 Seller......................................................... 6
1.46 Seller's Knowledge............................................. 6
1.47 Surveys........................................................ 7
1.48 Syracuse Ground Lease.......................................... 7
1.49 Tenant Leases.................................................. 7
1.50 Title Commitments.............................................. 7
1.51 Title Company.................................................. 7
SECTION 2. PURCHASE, SALE AND EXCHANGE; DILIGENCE....................... 7
2.1 Purchase, Sale and Exchange..................................... 7
2.2 Diligence Inspections........................................... 7
2.3 Defective Properties............................................ 8
2.4 Title Matters.................................................. 10
2.5 Survey Matters................................................. 11
SECTION 3. PURCHASE AND SALE........................................... 12
3.1 Closing........................................................ 12
3.2 Purchase Price................................................. 12
SECTION 4. CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE............... 13
4.1 Closing Documents.............................................. 13
4.2 Condition of Properties........................................ 14
4.3 Title Policies................................................. 15
4.4 Opinions of Counsel............................................ 15
4.5 FF&E Reserve................................................... 15
4.6 Appraisal...................................................... 16
4.7 Hart Scott Rodino.............................................. 16
4.8 Other Approvals................................................ 16
4.9 Other Agreement................................................ 16
SECTION 5. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE.................. 16
5.1 Other Agreement................................................ 16
5.2 Purchase Price................................................. 16
5.3 Closing Documents.............................................. 16
5.4 Opinion of Counsel............................................. 17
5.5 Hart Scott Rodino.............................................. 17
5.6 Other Approvals................................................ 17
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER..................... 17
6.1 Status and Authority the Seller................................ 17
6.2 Action of the Seller........................................... 17
6.3 No Violations of Agreements.................................... 18
6.4 Litigation..................................................... 18
6.5 Existing Leases, Agreements, Etc............................... 18
6.6 Disclosure..................................................... 18
<PAGE>
-iii-
6.7 Utilities, Etc................................................. 18
6.8 Compliance With Law............................................ 19
6.9 Taxes.......................................................... 19
6.10 Not A Foreign Person........................................... 19
6.11 Hazardous Substances........................................... 19
6.12 Insurance...................................................... 19
6.13 Operating Statements........................................... 20
6.14 Ground Leases.................................................. 20
6.15 Management Agreements.......................................... 20
6.16 FF&E Reserve................................................... 20
SECTION 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.................. 21
7.1 Status and Authority of the Purchaser.......................... 21
7.2 Action of the Purchaser........................................ 22
7.3 No Violations of Agreements.................................... 22
7.4 Litigation..................................................... 22
SECTION 8. COVENANTS OF THE SELLER..................................... 22
8.1 Compliance with Laws, Etc...................................... 22
8.2 Approval of Agreements......................................... 23
8.3 Compliance with Agreements..................................... 23
8.4 Estoppel Certificates.......................................... 23
8.5 Notice of Material Changes or Untrue
Representations........................................... 23
8.6 Operation of Properties........................................ 23
SECTION 9. APPORTIONMENTS.............................................. 23
9.1 Real Property Apportionments................................... 23
9.2 Closing Costs.................................................. 24
9.3 Hart Scott Rodino.............................................. 24
SECTION 10. DEFAULT.................................................... 24
10.1 Default by the Seller.......................................... 24
10.2 Default by the Purchaser....................................... 25
SECTION 11. MISCELLANEOUS.............................................. 25
11.1 Agreement to Indemnify......................................... 25
11.2 Brokerage Commissions.......................................... 26
11.3 Publicity...................................................... 27
11.4 Corporate Approvals............................................ 27
11.5 Notices........................................................ 28
11.6 Waivers, Etc................................................... 29
11.7 Assignment; Successors and Assigns............................. 29
11.8 Severability................................................... 29
11.9 Counterparts, Etc.............................................. 30
11.10 Governing Law.................................................. 30
<PAGE>
-iv-
11.11 Performance on Business Days................................... 31
11.12 Attorneys' Fees................................................ 31
11.13 Section and Other Headings..................................... 31
11.14 Nonliability of Trustees....................................... 31
11.15 Nonliability of Officers....................................... 31
SECTION 12. EXCHANGE CONTRACT........................................... 31
12.1 Exchanges...................................................... 31
12.2 Exchange Property Credit....................................... 31
12.3 Designation of Exchange Parcels................................ 32
12.4 Exchange Contracts............................................. 32
12.5 Conveyance of Exchange Parcels................................. 34
12.6 Failure of Exchange Parcels to Close........................... 34
12.7 Assignment Upon Exhaustion of Credit........................... 34
12.8 Closing Period................................................. 34
12.9 Reductions to Exchange Property Credit......................... 34
12.10 Increases to Exchange Property Credit.......................... 35
12.11 Final Exchange Closing Date.................................... 35
12.12 Indemnification................................................ 35
12.13 Escrow Provision............................................... 35
Schedule A - Allocable Purchase Prices of Properties and
Designations
Schedule B-1-18 - Legal Descriptions
Schedule C - Form of Surveyor's Certificate
Schedule D - Management Agreements
Schedule E - Operating Statements
Schedule F - FF&E Reserve Amounts
<PAGE>
PURCHASE, SALE AND EXCHANGE AGREEMENT
-------------------------------------
THIS PURCHASE, SALE AND EXCHANGE AGREEMENT is made as of the 26th day of
February, 1996, by and between HMH PROPERTIES, INC., a Delaware corporation, as
seller (the "Seller") and HOSPITALITY PROPERTIES TRUST, a Maryland real estate
------
investment trust, as purchaser (the "Purchaser").
---------
W I T N E S S E T H :
--------------------
WHEREAS, the Seller is the owner and holder of the Properties (this and
other capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Section 1); and
---------
WHEREAS, the Purchaser wishes to acquire the Exchange Properties from the
Seller and the Seller is willing to convey the Exchange Properties to the
Purchaser in exchange for one or more other parcels of real property to be
designated by the Seller (collectively, the "Exchange Parcels"), subject to and
----------------
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Seller desires to effectuate tax deferred exchanges of the
Exchange Properties with other like-kind property pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Purchaser desires to purchase the Sale Properties, as more
fully set forth below; and
WHEREAS, the Seller is willing to sell the Sale Properties to the
Purchaser, subject to and upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the mutual receipt and legal
sufficiency of which are hereby acknowledged, the Seller and the Purchaser
hereby agree as follows:
SECTION 1. DEFINITIONS.
--------- -----------
Capitalized terms used in this Agreement shall have the meanings set
forth below or in the Section of this Agreement referred to below:
1.1 "Agreement" shall mean this Purchase, Sale and Exchange Agreement,
---------
together with Schedules A through F attached hereto, as it and they may be
---------------------
amended from time to time as herein provided.
<PAGE>
-2-
1.2 "Agreement to Lease" shall mean that certain Agreement to Lease,
------------------
dated as of the date hereof, by and between HMH HPT Residence Inn, Inc. and the
Purchaser.
1.3 "Allocable Purchase Price" shall mean, with respect to any of the
------------------------
Properties, the amount set forth in Schedule A opposite the name of such
----------
Property.
1.4 "Assets" shall mean, with respect to any Property, collectively,
------
all of the Real Property, the FF&E, the Contracts, the Documents, the
Improvements, the Intangible Property and the Tenant Leases now owned or
hereafter acquired by the Seller in connection with or relating to such Property
other than any Excluded Assets with respect to such Property.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday or
------------
any other day on which banking institutions in The Commonwealth of Massachusetts
or the State of Maryland are authorized by law or executive action to close.
1.6 "Closing" shall have the meaning given such term in Section 3.1.
------- -----------
1.7 "Closing Date" shall have the meaning given such term in Section
------------ -------
3.1.
- ---
1.8 "Contracts" shall mean, with respect to any Property, all hotel
---------
licensing agreements and other service contracts, equipment leases, booking
agreements and other arrangements or agreements to which the Seller is a party
affecting the ownership, repair, maintenance, management (including, without
limitation, the Management Agreements), leasing or operation of such Property,
to the extent the Seller's interest therein is assignable or transferable.
1.9 "Defective Property" shall have the meaning given such term in
------------------
Section 2.3(a).
- --------------
1.10 "Deposit" shall mean an aggregate amount pursuant to this
-------
Agreement and the Other Agreement of Fifty Million Dollars ($50,000,000) paid by
the Purchaser to the Seller and to the sellers under the Other Agreement within
five (5) Business Days after the date of this Agreement.
1.11 "Documents" shall mean, with respect to any Property, all books,
---------
records and files relating to the leasing, maintenance, management or operation
of such Property belonging to the Seller.
1.12 "Exchange Closing" shall have the meaning given such term in
----------------
Section 12.1.
- ------------
<PAGE>
-3-
1.13 "Exchange Closing" shall mean the consummation of the
------------------
transactions contemplated by and Exchange Contract.
1.14 "Exchange Closing Date" shall mean the date on which any Exchange
---------------------
Closing shall occur.
1.15 "Exchange Contract" shall have the meaning given such term in
-----------------
Section 12.4.
- ------------
1.16 "Exchange Parcels" shall have the meaning given such term in the
----------------
preambles to this Agreement.
1.17 "Exchange Properties" shall mean the Properties designated as
-------------------
"Exchange Properties" in Schedule A.
----------
1.18 "Exchange Property Credit" shall have the meaning given such term
------------------------
in Section 12.2.
------------
1.19 "Exchange Value" shall mean, with respect to any Exchange
--------------
Property, the Allocable Purchase Price of such Property.
1.20 "Excluded Assets" shall mean, with respect to any Property, (i)
---------------
except as otherwise provided in the Leases or the Management Agreements, any
right, title or interest in the name or signage containing the name "Marriott,"
"Residence Inn" and other marks used by the Seller, Host, the Manager or any of
their subsidiaries or affiliates, (ii) all property owned by the Seller, Host,
the Manager or any of their subsidiaries or affiliates, not normally located at
such Property and used, but not exclusively, in connection with the operation of
such Property and (iii) any other property which is the property of the Manager
or an affiliate or subsidiary of the Manager, including, without limitation, the
Proprietary Marks, Proprietary Signage and Software (as such terms are defined
in the Management Agreements) and all computer equipment proprietary to the
Manager or any affiliate or subsidiary of the Manager.
1.21 "Fee Properties" shall mean all of the properties identified on
--------------
Schedule A other than the Ground Lease Properties.
- ----------
1.22 "FF&E" shall mean, with respect to any Property, all appliances,
----
machinery, devices, fixtures, appurtenances, equipment, furniture, furnishings
and articles of tangible personal property of every kind and nature whatsoever
owned by the Seller and located in or at, or used in connection with the
ownership, operation or maintenance of such Property.
1.23 "FF&E Reserve" shall have the meaning given such term in the
------------
Management Agreements.
<PAGE>
-4-
1.24 "Final Exchange Closing Date" shall mean, with respect to any
---------------------------
Exchange Closing, the first Business Day following the Exchange Closing Date;
provided, however, that in no event shall the Final Exchange Closing Date occur
- -------- -------
later than one hundred eighty (180) days after the Closing Date unless the
parties agree otherwise; provided, further, however, that, in the event that the
-------- ------- -------
Seller does not designate any Exchange Parcel on or before the day which is
forty-five (45) days after the Closing Date, the Final Exchange Closing Date
shall be the fifth Business Day following the expiration of such forty-five (45)
day period unless the parties otherwise agree.
1.25 "Ground Lease Properties" shall mean the Property identified as a
-----------------------
ground lease property on Schedule A.
----------
1.26 "Ground Leases" shall mean the Syracuse Ground Lease.
-------------
1.27 "Host" shall mean Host Marriott Corporation, a Delaware
----
corporation.
1.28 "Improvements" shall mean, with respect to any Property, all
------------
buildings, fixtures, walls, fences, landscaping and other structures and
improvements situated on, affixed or appurtenant to the Real Property with
respect to such Property.
1.29 "Intangible Property" shall mean, with respect to any Property,
-------------------
all transferable or assignable permits, certificates of occupancy, operating
permits, sign permits, development rights and approvals, certificates, licenses,
warranties and guarantees, rights to deposits, trade names, service marks, the
Contracts, telephone exchange numbers identified with such Property held by the
Seller, and all other transferable intangible property, miscellaneous rights,
benefits and privileges of any kind or character with respect to such Property
held by the Seller other than the Excluded Assets.
1.30 "Interest Rate" shall mean a per annum rate of interest equal to
-------------
the LIBOR Rate on the Closing Date plus one hundred fifty (150) basis points.
1.31 "Leases" shall mean, collectively, the leases to be entered into
------
between the Purchaser, as landlord, and HMH HPT Residence Inn, Inc. an affiliate
of the Seller, as tenant, with respect to the Properties pursuant to the
Agreement to Lease.
1.32 "LIBOR Rate" shall mean the per annum rate of interest reported in
----------
The Wall Street Journal as the London Interbank Offered Rate for United States
- -----------------------
dollars for a six (6) month term in the amount of the Deposit or, if such rate
shall cease to be published, the per annum rate of interest of the 14-day moving
average closing trading price of 180-day Treasury Bills.
<PAGE>
-5-
1.33 "Management Agreement Amendments" shall mean, collectively, an
-------------------------------
amendment to each of the Management Agreements to be entered into on or prior to
the Closing Date (i) confirming the Manager's consent to the purchase and sale
contemplated hereunder, (ii) extending the initial terms of the Management
Agreements to December 31, 2020, (iii) providing renewal options to the Manager
of two (2) consecutive fifteen (15) year terms, (iv) providing that, as long as
the Properties are owned by the Purchaser and managed by the Manager (x) all
renewals of the Management Agreements may only be exercised with respect to all
of such Properties or none of such Properties; (y) all calculations of the FF&E
Reserve, expenditures from the FF&E Reserve and Base and Incentive Management
Fees (as defined in the Management Agreements) shall be done on a consolidated
basis for all such Properties; and (z) in the event any of the Leases are
terminated for any reason, the Purchaser shall have the right to designate
another person as "Owner" under the Management Agreements subject to the terms
and conditions of the Management Agreements, (v) requiring the Manager to obtain
and provide to the Purchaser such financial information and other data as may be
required by securities registration and reporting laws, regulations and rules of
the Securities and Exchange Commission, including, but not limited to, providing
an allocated breakdown of operating costs of the Properties, permitting the
Purchaser to publish such information and/or to incorporate by reference in the
Purchaser's public filing the public information filed by Marriott
International, Inc., and generally requiring the Manager and Marriott
International, Inc. to cooperate with the Purchaser in complying requirements of
the Securities and Exchange Commission, and (vi) amending the financing
restrictions in the Management Agreements to permit secured financing on all of
the Properties in an amount up to sixty percent (60%) of the consolidated
Priority Basis (as defined in the Management Agreement) of the Properties.
1.34 "Management Agreements" shall mean the management agreements
---------------------
between the Seller and the Manager, with respect to the Properties, which
Management Agreements are more particularly described in Schedule D.
----------
1.35 "Manager" shall mean Residence Inn by Marriott, Inc., a Delaware
-------
corporation.
1.36 "Other Agreement" shall mean the Purchase-Sale and Option
---------------
Agreement, dated as of February 3, 1995, by and among HMH Courtyard Properties,
Inc. and HMH Properties, as sellers, and the Purchaser, as purchaser, as amended
from time to time.
1.37 "Permitted Encumbrances" shall mean, with respect to any Property,
----------------------
(a) liens for taxes, assessments and governmental charges with respect to such
Property not yet due and payable or
<PAGE>
-6-
due and payable but not yet delinquent; (b) applicable zoning regulations and
ordinances provided the same do not prohibit or impair in any material respect
use of such Property as a Residence Inn hotel as currently operated and
constructed; (c) such other nonmonetary encumbrances as do not, in the
Purchaser's reasonable opinion, impair marketability and do not materially
interfere with the use of such Property as a fully functioning Residence Inn
hotel as currently operated and constructed; (d) the Ground Leases; (e) UCC
Financing Statements which would be permitted pursuant to the terms of Section
21.9 of the Leases; and (f) such other nonmonetary encumbrances with respect to
such Property which are not objected to by the Purchaser in accordance with
Sections 2.4 and 2.5.
- --------------------
1.38 "Property" shall mean all of the Assets relating to the properties
--------
identified on Schedule A, the legal descriptions of which are set forth in
----------
Schedules B1-18.
- ---------------
1.39 "Purchase Price" shall have the meaning given such term in Section
-------------- -------
3.2.
- ---
1.40 "Purchaser" shall have the meaning given such term in the
---------
preambles to this Agreement.
1.41 "Real Property" shall mean, with respect to any Property which is
-------------
a Fee Property, the real property described in the applicable Schedule B-1
------------
through 18, and, with respect to any Property which is a Ground Lease Property,
- ----------
the leasehold estate created by the applicable Ground Lease, together with all
easements, rights of way, privileges, licenses and appurtenances which the
Seller may now own or hereafter acquire with respect thereto.
1.42 "Retained Funds" shall mean an amount equal to ten percent (10%)
--------------
of the Acquisition Purchase Price.
1.43 "Review Period" shall mean the period commencing on the date of
-------------
this Agreement and expiring forty-five (45) days thereafter or, if sooner, on
the Closing Date.
1.44 "Sale Properties" shall mean the Properties designated "Sale
---------------
Properties" in Schedule A.
----------
1.45 "Seller" shall have the meaning given such term in the preambles
------
to this Agreement.
1.46 "Seller's Knowledge" shall mean the actual knowledge of Bruce D.
------------------
Wardinski, Robert Parsons, Pamela J. Murch, Pamela J. Block and Jerry Kraisinger
after inquiry to Nina Eldred, Nina Eldred having been directed to consult with
the general manager of the Property and the Manager's litigation department, if
<PAGE>
-7-
appropriate, and any other appropriate representatives of the Manager.
1.47 "Surveys" shall have the meaning given such term in Section 2.5.
------- -----------
1.48 "Syracuse Ground Lease" shall mean the Land Lease, dated as of
---------------------
February 15, 1989, between MBF Development Co., as landlord, and Marriott
Corporation, as tenant, as the same has been amended.
1.49 "Tenant Leases" shall mean, with respect to any Property, all
-------------
leases, rental agreements or other agreements (including all amendments or
modifications thereto) which entitle any person to have rights with respect to
the use or occupancy of any portion of such Property.
1.50 "Title Commitments" shall have the meaning given such term in
-----------------
Section 2.4.
- -----------
1.51 "Title Company" shall mean such title insurance company as shall
-------------
have been reasonably approved by the Purchaser and the Seller.
SECTION 2. PURCHASE, SALE AND EXCHANGE; DILIGENCE.
--------- --------------------------------------
2.1 Purchase, Sale and Exchange. In consideration of the mutual
---------------------------
covenants herein contained, the Purchaser hereby agrees to purchase from the
Seller and the Seller hereby agree to sell to the Purchaser, all of the Seller's
right, title and interest in and to the Properties for the Purchase Price or, in
the case of the Exchange Properties, in exchange for one or more Exchange
Parcels, subject to and in accordance with the terms and conditions of this
Agreement.
2.2 Diligence Inspections. For the Review Period, the Seller shall
---------------------
permit the Purchaser and its representatives to inspect the Properties and the
Improvements (including, without limitation, all roofs, electric, mechanical and
structural elements, and HVAC systems therein), to perform due diligence, soil
analysis and environmental investigations, to examine the books of account and
records of the Seller and the Manager with respect to the Properties (other than
the Excluded Assets), including, without limitation, all leases and agreements
affecting the Properties, and make copies thereof, at such reasonable times as
the Purchaser or its representatives may request by notice to the Seller and the
Manager (which notice may be oral). To the extent that, in connection with such
investigations, the Purchaser, its agents, representatives or contractors,
damages or disturbs any of the Real Property or the
<PAGE>
-8-
Improvements located thereon, the Purchaser shall return the same to
substantially the same condition which existed immediately prior to such damage
or disturbance. The Purchaser shall indemnify, defend and hold harmless the
Seller from and against any and all expense, loss or damage which the Seller may
incur as a result of any act or omission of the Purchaser or its
representatives, agents or contractors in connection with such examinations and
inspections, other than any expense, loss or damage arising from any act or
omission of the Seller or the Manager. The foregoing indemnification agreement
shall survive the termination of this Agreement and the Closing.
2.3 Defective Properties. (a) In the event that (i) the Purchaser
--------------------
reasonably determines that a Property has structural, environmental, legal or
other operational defects or conditions such that (x) expenditures equal to or
greater than seven and one-half percent (7.5%) of the Allocable Purchase Price
of such Property are required in order to bring such Property into a
satisfactory condition in accordance with prevailing Marriott standards for like
hotels or (y) the calculation with respect to such Property of Operating Profit
(as defined in the Management Agreements) less ground rent varies by fifteen
percent (15%) or more of that set forth in the Operating Statements described in
Section 6.13 and other financial data provided by the Seller to the Purchaser
- ------------
prior to the date hereof (any such Property being hereinafter referred to as a
"Defective Property"), and (ii) the Purchaser gives written notice thereof to
- -------------------
the Seller no later than the expiration of the Review Period (time being of the
essence with respect to the giving of such notice), identifying the Defective
Property or Properties and the specific defects with respect thereto, the
Seller, shall, subject to paragraph (c) below, be required to permit the
Purchaser to acquire all of the Properties other than such Defective Property or
Properties. Prior to the Closing, the Seller shall enforce all rights available
against third parties, including, without limitation, the Manager, and shall
cause any and all defects or conditions so identified by the Purchaser to be
corrected, it being expressly understood and agreed that nothing contained
herein shall be construed to relieve any such parties from any obligations with
respect to such matters.
(b) If, prior to the Closing, (i) any Property, as applicable, suffers a
casualty or condemnation which would cause such Property or Properties to become
a Defective Property, (ii) such Property is not, prior to the Closing, restored
to a condition substantially the same as the condition thereof immediately prior
to such casualty or condemnation, and (iii) the Purchaser provides written
notice of same to the Seller no later than the Closing Date, time being of the
essence, the Seller shall, subject to paragraph (c) below, be required to permit
the Purchaser to acquire all of the Properties other than such
<PAGE>
-9-
Defective Property or Properties. Promptly upon learning of the same, the
Seller covenants and agrees to provide the Purchaser with prompt written notice
of any casualty or condemnation affecting any Property.
(c) If the Purchaser timely identifies any Defective Property and the
Purchaser and the Seller shall, acting reasonably and in good faith be unable or
unwilling to agree that (x) the Seller shall, at its sole cost, remedy the
applicable defect prior to the applicable Closing, (y) the Purchaser shall,
notwithstanding such defect, acquire the Defective Property subject to a
reduction in the Allocable Purchase Price of the Defective Property sufficient
to compensate the Purchaser for such defect, or (z) on the substitution of
another property owned by the Seller for such Defective Property, this Agreement
shall terminate with respect to such Defective Property and the Purchase Price
shall be reduced by the Allocable Purchase Price of such Defective Property.
Notwithstanding the foregoing, if more than an aggregate of three (3) Properties
are identified as Defective Properties or rejected by the Purchaser pursuant to
Section 2.4 or 2.5, either party may terminate this Agreement and the
- ------------------
transactions contemplated hereby, in which case the Deposit shall be returned to
the Purchaser, together with interest thereon as provided in Section 10.1 and no
------------
party shall have any further obligations hereunder; provided, however, that in
-------- -------
the event the Seller shall be the terminating party, the Purchaser shall have
the right, exercisable by notice given within ten (10) Business Days after the
Seller's notice to terminate, to proceed to closing on one or more such
Defective Properties (or Properties rejected pursuant to Section 2.4 or 2.5)
------------------
such that the total amount of Properties deleted by the Purchaser pursuant to
this Section 2.3, Section 2.4 and Section 2.5 shall not be greater than three
----------- ----------- -----------
(3). In the event the Purchaser shall elect to proceed to closing as aforesaid,
(x) any notice of termination given by the Seller shall be null and void and of
no further force or effect and (y) in the event that any Property shall have
been affected by a casualty or taking, the Seller shall pay over and assign to
the Purchaser the entire amount of any insurance proceeds or award paid or
payable with respect thereto less any amounts previously expended by the Seller
in connection with repair or restoration, provided that any such repair or
restoration shall have been approved by the Purchaser (which approval shall not
be unreasonably withheld or delayed).
(d) In the event that the Purchaser reasonably determines that the
calculation, with respect to the Properties in the aggregate, of Operating
Profit (as defined in the Management Agreements) less ground rent varies by
seven and one-half percent (7.5%) or more from that set forth in the Operating
Statements described in Section 6.13 and other financial data provided by the
------------
Seller to the Purchaser, the Purchaser shall have the right
<PAGE>
-10-
to terminate this Agreement and the transactions contemplated hereby, in which
case the Deposit shall be returned to the Purchaser, together with interest
thereon as provided in Section 10.1 and no party shall have any further
------------
obligations hereunder.
2.4 Title Matters. Prior to the date of this Agreement, the Seller has
-------------
ordered from the Title Company and directed the Title Company promptly to
deliver to the Purchaser and the Seller a preliminary title commitment, having
an effective date after the date of this Agreement, for an ALTA extended owner's
policy of title insurance with respect to each of the Properties, together with
complete and legible copies of all instruments and documents referred to as
exceptions to title (collectively, the "Title Commitments"). At the Seller's
-----------------
election, they may also obtain a leasehold policy of title insurance for the
tenant under the Leases.
Within ten (10) Business Days after receipt of the Title Commitments (the
Purchaser agreeing, however, to respond as promptly as reasonably possible), the
Purchaser shall give the Seller notice of any title exceptions (other than
Permitted Encumbrances) which adversely affect such Property in any material
respect and as to which the Purchaser reasonably objects. If, for any reason,
the Seller is unable to take such actions as may be required to cause such
exceptions to be removed from the Title Commitments, the Seller shall give the
Purchaser notice thereof; it being understood and agreed that the failure of the
Seller to give such notice within ten (10) Business Days after the Purchaser's
notice of objection shall be deemed an election by the Seller to remedy such
matters. If the Seller shall be unable to remove any title defects to which the
Purchaser has reasonably objected, the Purchaser may elect (i) to terminate this
Agreement with respect to the affected Property, in which event, the Purchase
Price shall be reduced by the Allocable Purchase Price of the affected
Properties and this Agreement shall be of no further force and effect with
respect to the affected Properties or (ii) to consummate the transactions
contemplated hereby, notwithstanding such title defect, without any abatement or
reduction in the Purchase Price on account thereof. The Purchaser shall make
any such election by written notice to the Seller given on or prior to the fifth
Business Day after the Seller's notice of its inability to cure such defect.
Failure of the Purchaser to give such notice shall be deemed an election by the
Purchaser to proceed in accordance with clause (ii) above. If the Purchaser
shall elect to terminate this Agreement with respect to an aggregate of more
than three (3) of the Properties pursuant to this Section 2.4, Section 2.3 and
----------- -----------
Section 2.5, either the Purchaser or the Seller may elect to proceed in
- -----------
accordance with Section 2.3(c).
--------------
<PAGE>
-11-
2.5 Survey Matters. Prior to the date of this Agreement, the Seller has
--------------
arranged for the preparation of an ALTA survey with respect to each of the
Properties (the "Surveys"), by a licensed surveyor in the jurisdiction in which
-------
each such Property is located, which (i) contains an accurate legal description
of the applicable Property, (ii) shows the exact location, dimension and
description (including applicable recording information) of all utilities,
easements, encroachments and other physical matters affecting such Property, the
number of striped parking spaces located thereon and all applicable building
set-back lines, (iii) states whether the applicable Property is located within
a 100-year flood plain and (iv) includes a certification in the form set forth
in Schedule C, addressed to the Purchaser, the Title Company and any other
----------
persons requested by the Purchaser or designated by the Seller.
Within ten (10) Business Days after receipt of the Surveys (the Purchaser
agreeing, however, to respond as promptly as reasonably possible), the Purchaser
shall give the Seller notice of any matters shown thereon (other than Permitted
Encumbrances) which adversely affect any such Property in any material respect
and as to which the Purchaser reasonably objects. If, for any reason, the
Seller is unable to take such actions as may be required to remedy the
objectionable matters, the Seller shall give the Purchaser prompt notice
thereof; it being understood and agreed that the failure of the Seller to give
such notice within ten (10) Business Days after the Purchaser's notice of
objection shall be deemed an election by the Seller to remedy such matters. If
the Seller shall be unable to remove any survey defect to which the Purchaser
has reasonably objected, the Purchaser may elect (i) to terminate this Agreement
with respect to the affected Property, in which event, the Purchase Price shall
be reduced by the Allocable Purchase Price of the affected Properties and this
Agreement shall terminate and be of no further force or effect with respect to
the affected Properties or (ii) to consummate the transactions contemplated
hereby, notwithstanding such defect, without any abatement or reduction in the
Purchase Price on account thereof. The Purchaser shall make any such election
by written notice to the Seller given on or prior to the fifth Business Day
after the Seller's notice of its inability to cure such defect and time shall be
of the essence with respect to the giving of such notice. Failure of the
Purchaser to give such notice shall be deemed an election by the Purchaser to
proceed in accordance with clause (ii) above. If the Purchaser shall elect to
terminate this Agreement with respect to an aggregate of more than three (3) of
the Properties pursuant to this Section 2.5, Section 2.3 and Section 2.4, either
----------- ----------- -----------
the Purchaser or the Seller may elect to proceed in accordance with Section
-------
2.3(c).
- ------
<PAGE>
-12-
SECTION 3. PURCHASE AND SALE.
--------- -----------------
3.1 Closing. The purchase and sale of the Properties shall be
-------
consummated at a closing (the "Closing") to be held at the offices of Sullivan &
-------
Worcester, One Post Office Square, Boston, Massachusetts, or at such other
location as the Seller and the Purchaser may agree, at 10:00 a.m. local time, on
a date (the "Closing Date") which is the later to occur of (i) March 22, 1996,
------------
and (ii) the date as of which all conditions precedent to the Closing herein set
forth have either been satisfied or waived by the party in whose favor such
conditions run; provided, however, that the Purchaser shall have the right, by
-------- -------
written notice to the Seller, to adjourn the Closing Date for up to forty-five
(45) days. In the event that the Closing shall not have occurred on or before
December 31, 1996, provided that no action for specific performance shall have
been commenced by the Purchaser to enforce this Agreement, any party shall have
the right, by the giving of written notice, to terminate this Agreement and, in
such event, the Deposit, together with interest thereon, shall be refunded to
the Purchaser in accordance with Section 11.1.
------------
3.2 Purchase Price. (a) At the Closing, the Purchaser shall pay to
--------------
the Seller, for the Properties, a purchase price (the "Purchase Price") in the
--------------
amount of One Hundred Seventy Two Million Two Hundred Thousand Dollars
($172,200,000), subject to the following adjustments:
(i) Except to the extent that the Purchaser has received a credit
therefor under the Other Agreement, there shall be deducted
from the Purchase Price the sum of interest accrued at the
Interest Rate on the Deposit from the date received to, but
not including, the Closing Date;
(ii) There shall be deducted from the Purchase Price the Allocable
Purchase Price of any Property as to which this Agreement
shall have been terminated pursuant to Sections 2.3, 2.4 or
--------------------
2.5;
---
(iii) There shall be added to or deducted from the Purchase Price
such amounts as may be required pursuant to Section 9; and
---------
(iv) There shall be added to the Purchase Price an amount equal to
Five Million Hundred Thousand Dollars ($5,500,000), which
amount represents the purchase price of the FF&E Reserve.
<PAGE>
-13-
(b) The Purchase Price shall be payable as follows:
(i) The Deposit shall be paid by the Purchaser as herein provided
by wire transfer of immediately available funds to an account
or accounts to be designated by the Seller;
(ii) Except as otherwise provided in Article 12, at the Closing, the
----------
balance of the Purchase Price less the Retained Funds shall be
payable by wire transfer of immediately available funds on the
Closing Date to an account or accounts to be designated by the
Seller prior to the Closing; and
(iii) The Retained Funds shall be payable by wire transfer of
immediately available funds on a pro rata basis upon the
expiration or sooner termination of any of the Leases of the
Properties (other than any termination arising from the
occurrence of any Default or Event of Default (as defined
therein)) by the tenant under the Leases, to an account or
accounts to be designated by the Seller prior to such date.
SECTION 4. CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE.
--------- ---------------------------------------------
The obligation of the Purchaser to acquire the Properties on the Closing
Date shall be subject to the satisfaction of the following conditions precedent
on and as of the Closing Date:
4.1 Closing Documents. The Seller shall have delivered to the
-----------------
Purchaser:
(a) A good and sufficient warranty deed with covenants against grantor's
acts, or its local equivalent, with respect to all of the Properties which are
Fee Properties, in proper statutory form for recording, duly executed and
acknowledged by the Seller, conveying good and marketable title to the
applicable Fee Properties, free from all liens and encumbrances other than the
Permitted Encumbrances;
(b) With respect to all of the Properties which are Ground Lease
Properties, an assignment and assumption agreement, in form and substance
reasonably satisfactory to the Seller and the Purchaser, duly executed and
acknowledged by the Seller, with respect to all of the Seller's right, title and
interest in, to and under the Ground Leases together with the written consent of
each of the lessors under the applicable Ground Leases if such consent is
required pursuant to the terms of such Ground Leases;
<PAGE>
-14-
(c) An estoppel certificate, in form and substance reasonably
satisfactory to the Purchaser, from each of the lessors under the applicable
Ground Leases, confirming, to such lessor's knowledge, that each such Ground
Lease is in full force and effect, the amount of the rents and other sums
payable thereunder, that no default or event which with the giving of notice
and/or lapse of time could constitute a default has occurred and is continuing
thereunder, and regarding such other matters as the Purchaser may reasonably
require;
(d) A bill of sale and assignment agreement, in form and substance
reasonably satisfactory to the Seller and the Purchaser, duly executed and
acknowledged by the Seller, with respect to all of the Seller's right, title and
interest in, to and under the FF&E, the Contracts, the Documents, the Intangible
Property and the Tenant Leases with respect to the Properties;
(e) A certificate of a duly authorized officer of the Seller confirming
the continued truth and accuracy of the representations and warranties of the
Seller in this Agreement;
(f) To the extent the same are in the Seller's possession, originally,
fully executed copies of agreements pertaining to the Properties;
(g) Duly executed copies of the Leases and all of the Incidental
Documents (as such term is defined in the Leases);
(h) An estoppel certificate, in form and substance reasonably
satisfactory to the Purchaser and the Seller, regarding such matters with
respect to the Management Agreements, as the Purchaser may reasonably require;
(i) Duly executed copies of the Management Agreement Amendments;
(j) Certified copies of all charter documents, applicable corporate
resolutions and certificates of incumbency with respect to the Seller, the
tenant under the Leases and the Manager; and
(k) Such other conveyance documents, certificates, deeds, affidavits and
other instruments as the Purchaser, the Seller, the tenant under the Leases or
the Title Company may reasonably require.
4.2 Condition of Properties. (a) All of the Properties and all
-----------------------
Improvements located thereon shall, except as otherwise provided in Section 2.3,
-----------
be in substantially the same physical condition as on the date of this
Agreement, ordinary wear and tear excepted;
<PAGE>
-15-
(b) No material default or event which with the giving of notice and/or
lapse of time could constitute a material default shall have occurred and be
continuing under any of the Ground Leases, the Management Agreements or any
other material agreement benefiting or affecting the Properties in any respect;
(c) No action shall be pending or threatened for the condemnation or
taking by power of eminent domain of all or any material portion of the
Properties; and
(d) All material licenses, permits and other authorizations necessary
for the current use, occupancy and operation of the Properties.
4.3 Title Policies. The Title Company shall be prepared, subject only
--------------
to payment of the applicable premium and delivery of all conveyance documents in
recordable form, to issue title insurance policies to the Purchaser, in form and
substance satisfactory to the Purchaser in accordance with Section 2.4, together
-----------
with such affirmative coverages as the Purchaser may reasonably require and
shall have been determined by the Title Company as available prior to the
expiration of the Review Period.
4.4 Opinions of Counsel. (a) The Purchaser shall have received a
-------------------
written opinion from Pamela J. Murch, assistant general counsel to Host and as
counsel to the Seller, in form and substance reasonably satisfactory to the
Purchaser, regarding the organization and authority of Host, the Seller and the
tenant under the Leases, the enforceability of this Agreement, the Leases and
the Incidental Documents (as defined in the Leases) and such other matters with
respect to the transactions contemplated by this Agreement as the Purchaser may
reasonably require.
(b) The Purchaser shall have received a written opinion from counsel to
Marriott International, Inc., in form and substance reasonably satisfactory to
the Purchaser, regarding the organization and authority of the Manager and the
enforceability of the Management Agreements as amended by the Management
Agreement Amendments.
(c) The Purchaser shall have received a written opinion from local
counsel to the Purchaser, in form and substance reasonably satisfactory to the
Purchaser, regarding the compliance of the Properties with respect to zoning,
licensing and such other matters as the Purchaser may reasonably require.
4.5 FF&E Reserve. The Seller shall transfer to the Purchaser the FF&E
------------
Reserve, including interest accrued thereon,
<PAGE>
-16-
which the Purchaser shall hold and apply in accordance with the Management
Agreements.
4.6 Appraisal. As of the Closing Date, the Purchaser shall have
---------
received and approved an original appraisal report, dated within sixty (60) days
prior to the Closing Date, addressed to the Purchaser, prepared by a qualified
real estate appraiser reasonably satisfactory to the Purchaser and indicating an
aggregate fair market value for the Properties of not less than the Purchase
Price (and an allocation among such properties consistent with the Allocable
Purchase Prices), such appraisals to be otherwise in form and substance
reasonably acceptable to the Purchaser.
4.7 Hart Scott Rodino. The Seller and the Purchaser shall have
-----------------
complied with all applicable provisions of the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended.
4.8 Other Approvals. The Seller and the Purchaser shall have received,
---------------
in form and substance reasonably satisfactory to the Seller and the Purchaser,
all required approvals and waivers, as may be necessary or appropriate to
consummate the transactions contemplated by this Agreement.
4.9 Other Agreement. The closing with respect to the Group D
---------------
Properties (as defined therein) shall simultaneously occur under the Other
Agreement.
SECTION 5. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE.
--------- ------------------------------------------
The obligation of the Seller to convey the Properties on the Closing Date
to the Purchaser is subject to the satisfaction of the following conditions
precedent on and as of the Closing Date:
5.1 Other Agreement. The closing of the Group D Properties (as defined
---------------
therein) shall simultaneously occur under the Other Agreement.
5.2 Purchase Price. The Purchaser shall deliver to the Seller the
--------------
balance of the Purchase Price (less the amount of the Retained Funds), payable
hereunder, adjusted as herein provided.
5.3 Closing Documents. The Purchaser shall have delivered to the
-----------------
Seller:
(a) Duly executed and acknowledged counterparts of the documents
described in Section 4.1, where applicable and the Management Agreement
-----------
Amendments;
<PAGE>
-17-
(b) A certificate of a duly authorized officer of the Purchaser
confirming the continued truth and accuracy of the representations and
warranties of the Purchaser in this Agreement; and
(c) Certified copies of all charter documents, applicable resolutions and
certificates of incumbency with respect to the Purchaser.
5.4 Opinion of Counsel. The Seller shall have received a written
------------------
opinion from Sullivan & Worcester, counsel to the Purchaser, in form and
substance reasonably satisfactory to the Seller, regarding the organization and
authority of the Purchaser, the enforceability of this Agreement and such other
matters with respect to the transactions contemplated by this Agreement as the
Seller may reasonably require.
5.5 Hart Scott Rodino. The Seller and the Purchaser shall have
-----------------
complied with all applicable provisions of the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended.
5.6 Other Approvals. The Seller and the Purchaser shall have received,
---------------
in form and substance reasonably satisfactory to the Seller and the Purchaser,
all required approvals and waivers, as may be necessary or appropriate to
consummate the transactions contemplated by this Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER.
--------- ----------------------------------------
To induce the Purchaser to enter into this Agreement, the Seller
represent and warrant to the Purchaser as follows:
6.1 Status and Authority of the Seller. The Seller is a corporation
----------------------------------
duly organized, validly existing and in corporate good standing under the laws
of its state of incorporation, and has all requisite power and authority under
the laws of such state and its respective charter documents to enter into and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. The Seller has duly qualified to transact business in each
jurisdiction in which the nature of the business conducted by it requires such
qualification.
6.2 Action of the Seller. The Seller has taken all necessary action to
--------------------
authorize the execution, delivery and performance of this Agreement, and upon
the execution and delivery of any document to be delivered by the Seller on or
prior to the Closing Date, such document shall constitute the valid and binding
obligation and agreement of the Seller, enforceable against the Seller in
accordance with its terms,
<PAGE>
-18-
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting the
rights and remedies of creditors.
6.3 No Violations of Agreements. Neither the execution, delivery or
---------------------------
performance of this Agreement by the Seller, nor compliance with the terms and
provisions hereof, will result in any breach of the terms, conditions or
provisions of, or conflict with or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any Property pursuant to the
terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness
or any other agreement or instrument by which the Seller is bound.
6.4 Litigation. The Seller has received no written notice of and, to
----------
the Seller's Knowledge, no action or proceeding is pending or threatened and no
investigation looking toward such an action or proceeding has begun, which (a)
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto, (b) will result in any material adverse change in the business,
operation, affairs or condition of any of the Properties, (c) result in or
subject the Properties to a material liability, or (d) involves condemnation or
eminent domain proceedings against any part of the Properties.
6.5 Existing Leases, Agreements, Etc. To the Seller's Knowledge, other
---------------------------------
than the Management Agreements, the Ground Leases and any other agreements
provided to the Purchaser on or before March 1, 1996, there are no other
material agreements affecting the Properties which will be binding on the
Purchaser subsequent to the Closing Date.
6.6 Disclosure. To the Seller's Knowledge, there is no fact or
----------
condition which materially and adversely affects the business or condition of
the Properties which has not been set forth in this Agreement, or in the other
documents, certificates or statements furnished to the Purchaser in connection
with the transactions contemplated hereby.
6.7 Utilities, Etc. To the Seller's Knowledge, all utilities and
---------------
services necessary for the use and operation of the Properties (including,
without limitation, road access, gas, water, electricity and telephone) are
available thereto, are of sufficient capacity to meet adequately all needs and
requirements necessary for the use and operation of such Properties and for
their respective intended purposes. To the Seller's Knowledge, no fact,
condition or proceeding exists which would result in the termination or
impairment of the furnishing of such utilities to the Properties.
<PAGE>
-19-
6.8 Compliance With Law. To the Seller's Knowledge, (i) the Properties
-------------------
and the use and operation thereof do not violate any material federal, state,
municipal and other governmental statutes, ordinances, by-laws, rules,
regulations or any other legal requirements, including, without limitation,
those relating to construction, occupancy, zoning, adequacy of parking,
environmental protection, occupational health and safety and fire safety
applicable thereto; and (ii) there are presently in effect all material
licenses, permits and other authorizations necessary for the current use,
occupancy and operation thereof. The Seller has not received written notice of
any threatened request, application, proceeding, plan, study or effort which
would materially adversely affect the present use or zoning of any of the
Properties or which would modify or realign any adjacent street or highway.
6.9 Taxes. To the Seller's Knowledge, other than the amounts disclosed
-----
by tax bills, no taxes or special assessments of any kind (special, bond or
otherwise) are or have been levied with respect to any of the Properties, or any
portion thereof, which are outstanding or unpaid, other than amounts not yet due
and payable or, if due and payable, not yet delinquent, and, to the Seller's
Knowledge, none will be levied prior to the Closing Date.
6.10 Not A Foreign Person. The Seller is a not "foreign person" within
--------------------
the meaning of Section 1445 of the United States Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
6.11 Hazardous Substances. Except as disclosed to the Purchaser or as
--------------------
described in any environmental report delivered to the Purchaser, to the
Seller's Knowledge, none of the Seller nor any tenant or other occupant or user
of any of the Properties, or any portion thereof, has stored or disposed of (or
engaged in the business of storing or disposing of) or has released or caused
the release of any hazardous waste, contaminants, oil, radioactive or other
material on any of the Properties, or any portion thereof, the removal of which
is required or the maintenance of which is prohibited or penalized by any
applicable Federal, state or local statutes, laws, ordinances, rules or
regulations, and, to the Seller's Knowledge, except as disclosed to the
Purchaser or as described in any environmental report delivered to the
Purchaser, the Properties are free from any such hazardous waste, contaminants,
oil, radioactive and other materials, except any such materials maintained in
accordance with applicable law.
6.12 Insurance. The Seller has received no written notice from any
---------
insurance carrier of defects or inadequacies in the Properties which, if
uncorrected, would result in a termination
<PAGE>
-20-
of insurance coverage or an increase in the premiums charged therefor.
6.13 Operating Statements. Attached hereto as Schedule E are the most
-------------------- ----------
current operating statements for the Properties. To the Seller's Knowledge,
such operating statements fairly represent the operating history for the
Properties for the periods covered thereby, contain no material misstatement and
do not omit any statement or fact necessary to make the information contained
therein not materially misleading (the Purchaser acknowledging that such
operating statements relate solely to historical performance and in no way
represent a projection of future performance and the Seller makes no
representations as to the future performance of any Property).
6.14 Ground Leases. The copies of the Ground Leases heretofore
-------------
delivered by the Seller to the Purchaser are true, correct and complete copies
thereof; the Ground Leases have not been amended except as evidenced by
amendments similarly delivered and constitute the entire agreement between the
Seller and the applicable other parties. To the Seller's Knowledge, the Ground
Leases are in full force and effect and no default or event which with the
giving of notice and/or lapse of time could constitute a default thereunder has
occurred with respect to the Seller or, to the Seller's Knowledge, the
applicable ground lessor.
6.15 Management Agreements. The copies of the Management Agreements
---------------------
heretofore delivered by the Seller to the Purchaser are true, correct and
complete copies thereof; the Management Agreements have not been amended except
as evidenced by amendments similarly delivered or as required by this Agreement
and constitute the entire agreement between the Seller and the Manager. To the
Seller's Knowledge, the Management Agreements are in full force and effect and
no default or event which with the giving of notice and/or lapse of time could
constitute a default thereunder has occurred with respect to the Seller or, to
the Seller's Knowledge, the Manager.
6.16 FF&E Reserve. To the Seller's Knowledge, the FF&E Reserve for
------------
each Property is, as of the date hereof, in the amount set forth on Schedule F.
----------
To the Seller's Knowledge, the FF&E Reserve for each Property has been
maintained in accordance with the Management Agreement for such Property.
The representations and warranties made in this Agreement by the Seller
shall be continuing and shall be deemed remade by the Seller as of the Closing
Date with the same force and effect as if made on, and as of, such date;
provided, however, that, the Seller shall have the right, from time to time
- -------- -------
prior to the Closing Date, to modify the representations and warranties as a
<PAGE>
-21-
result of changes in condition of the Properties by notice to the Purchaser and,
in such event, the Purchaser shall have the rights provided in Section 2.3. All
-----------
representations and warranties made in this Agreement by the Seller with respect
to the Properties shall survive the Closing for a period of one year.
Except as otherwise expressly provided in this Agreement or any documents
to be delivered to the Purchaser at the Closing, the Seller disclaims the making
of any representations or warranties, express or implied, regarding the
Properties or matters affecting the Properties, whether made by the Seller, on
the Seller's behalf or otherwise, including, without limitation, the physical
condition of the Properties, title to or the boundaries of the Real Property,
pest control matters, soil conditions, the presence, existence or absence of
hazardous wastes, toxic substances or other environmental matters, compliance
with building, health, safety, land use and zoning laws, regulations and orders,
structural and other engineering characteristics, traffic patterns, market data,
economic conditions or projections, and any other information pertaining to the
Properties or the market and physical environments in which they are located.
The Purchaser acknowledges (i) that the Purchaser has entered into this
Agreement with the intention of making and relying upon its own investigation or
that of third parties with respect to the physical, environmental, economic and
legal condition of each Property and (ii) that the Purchaser is not relying upon
any statements, representations or warranties of any kind, other than those
specifically set forth in this Agreement or in any document to be delivered to
the Purchaser at the Closing made (or purported to be made) by the Seller or
anyone acting or claiming to act on the Seller's behalf. The Purchaser further
acknowledges that it has not received from or on behalf of the Seller any
accounting, tax, legal, architectural, engineering, property management or other
advice with respect to this transaction and is relying solely upon the advice of
third party accounting, tax, legal, architectural, engineering, property
management and other advisors. Subject to the provisions of this Agreement, the
Purchaser shall purchase the Properties in their "as is" condition on the
Closing Date.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
--------- -------------------------------------------
To induce the Seller to enter in this Agreement, the Purchaser represents
and warrants to the Seller as follows:
7.1 Status and Authority of the Purchaser. The Purchaser is a Maryland
-------------------------------------
real estate investment trust duly organized, validly existing under the laws of
the State of Maryland, and has all requisite power and authority under the laws
of such state and under its charter documents to enter into and perform its
<PAGE>
-22-
obligations under this Agreement and to consummate the transactions contemplated
hereby. The Purchaser has duly qualified and is in good standing as a trust or
unincorporated business association in each jurisdiction in which the nature of
the business conducted by it requires such qualification.
7.2 Action of the Purchaser. The Purchaser has taken all necessary
-----------------------
action to authorize the execution, delivery and performance of this Agreement,
and upon the execution and delivery of any document to be delivered by the
Purchaser on or prior to the Closing Date such document shall constitute the
valid and binding obligation and agreement of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application affecting the rights and remedies of creditors.
7.3 No Violations of Agreements. Neither the execution, delivery or
---------------------------
performance of this Agreement by the Purchaser, nor compliance with the terms
and provisions hereof, will result in any breach of the terms, conditions or
provisions of, or conflict with or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of the
Purchaser pursuant to the terms of any indenture, mortgage, deed of trust, note,
evidence of indebtedness or any other agreement or instrument by which the
Purchaser is bound.
7.4 Litigation. No investigation, action or proceeding is pending and,
----------
to the Purchaser's actual knowledge, no action or proceeding is threatened and
no investigation looking toward such an action or proceeding has begun, which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto.
The representations and warranties made in this Agreement by the
Purchaser shall be continuing and shall be deemed remade by the Purchaser as of
the Closing Date with the same force and effect as if made on, and as of, such
date. All representations and warranties made in this Agreement by the
Purchaser shall survive the Closing for a period of one year.
SECTION 8. COVENANTS OF THE SELLER.
--------- -----------------------
The Seller hereby covenants with the Purchaser between the date of this
Agreement and the Closing Date as follows:
8.1 Compliance with Laws, Etc. To comply, and direct the Manager to
--------------------------
comply, in all material respects, with (i) all laws, regulations and other
requirements from time to time applicable of every governmental body having
jurisdiction of the Properties
<PAGE>
-23-
or the use or occupancy of the Improvements located thereon and (ii) all terms,
covenants and conditions of all of the Management Agreements, the Ground Leases,
instruments of record and other agreements affecting Properties.
8.2 Approval of Agreements. Except as otherwise authorized by this
----------------------
Agreement, not to enter into, modify, amend or terminate the Management
Agreements, the Ground Leases or any other agreement with respect to the
Properties which would encumber or be binding upon such Properties from and
after the Closing Date without in each instance obtaining the prior written
consent of the Purchaser.
8.3 Compliance with Agreements. To comply, and direct the Manager to
--------------------------
comply, with each and every material term, covenant and condition contained in
the Management Agreements, the Ground Leases and any other document or agreement
affecting the Properties.
8.4 Estoppel Certificates. To request, and use reasonable efforts to
---------------------
obtain, from the Manager and the landlords under the Ground Leases,
certifications, in form and substance reasonably satisfactory to the Purchaser,
regarding the status of the Management Agreements and the Ground Leases, as the
case may be.
8.5 Notice of Material Changes or Untrue Representations. Upon learning
----------------------------------------------------
of any material change in any condition with respect to any of the Properties or
of any event or circumstance which makes any representation or warranty of the
Seller to the Purchaser under this Agreement untrue or misleading, promptly to
notify the Purchaser thereof (the Purchaser agreeing, on learning of any such
fact or condition, promptly to notify the Seller thereof).
8.6 Operation of Properties. To direct the Manager (and exercise all
-----------------------
rights of the Seller with respect thereto pursuant to the Management Agreement)
to continue to operate each of the Properties as a Residence Inn hotel in a good
and businesslike fashion consistent with their past practices and to cause each
of the Properties to be maintained in good working order and condition in a
manner consistent with their past practice.
SECTION 9. APPORTIONMENTS.
--------- --------------
9.1 Real Property Apportionments. Representatives of the Purchaser and
----------------------------
the Seller shall perform any and all of the adjustments and apportionments which
are appropriate and usual for a transaction of this nature, taking into account
the applicable provisions of the Leases and the Management Agreements. The
adjustments hereunder shall be calculated or
<PAGE>
-24-
paid in an amount based upon a fair and reasonable estimated accounting
performed and agreed to by representatives of the Seller and the Purchaser at
the Closing. Subsequent final adjustments and payments shall be made in cash or
other immediately available funds as soon as practicable after the Closing Date
and in any event within ninety (90) days after such Closing Date, based upon an
agreed accounting performed by representatives of the Seller and the Purchaser.
In the event the parties have not agreed with respect to the adjustments
required to be made pursuant to this Section 9.1 within such ninety-day period,
-----------
upon application by either party, a certified public accountant reasonably
acceptable to the Purchaser and the Seller shall determine any such adjustments
which have not theretofore been agreed to between the Seller and the Purchaser.
The charges of such accountant shall be borne fifty percent (50%) by the Seller
and fifty percent (50%) by the Purchaser.
9.2 Closing Costs. The Seller and the Purchaser shall share equally
-------------
all costs and expenses associated with the transaction contemplated hereby
(other than any costs incurred by either party pursuant to Section 10) except
----------
that (x) all costs and expenses incurred in connection with any purchase money
financing obtained by the Purchaser, including, without limitation, all costs
and expenses relating to a lender's title insurance policy, surveys and all
mortgage recording taxes and filing fees, shall be paid by the Purchaser and (y)
each party shall pay its own attorneys' and accountants' fees and costs in
connection with this transaction.
9.3 Hart Scott Rodino. The Seller and the Purchaser shall share
-----------------
equally any filing fees and other costs incurred in connection with compliance
with the requirements of the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended.
The obligations of the parties under this Section 9 shall survive the
---------
Closing.
SECTION 10. DEFAULT.
---------- -------
10.1 Default by the Seller. If the Seller shall have made any
---------------------
representation or warranty herein which shall be untrue or misleading in any
material respect, or if the Seller shall fail to perform any of the material
covenants and agreements contained herein to be performed by them and such
failure continues for a period of ten (10) days after notice thereof from the
Purchaser or if the Other Agreement shall be terminated for any reason other
than default by the Purchaser, the Purchaser may terminate this Agreement and/or
the Purchaser may pursue any and all remedies available to it at law or in
equity, including, but not limited to, a suit for specific performance or other
equitable
<PAGE>
-25-
relief. In addition to, and not in limitation of, the foregoing, the Purchaser
may require the Seller to return the Deposit, together with interest accrued
thereon at the Interest Rate from the date such amounts were paid to the Seller
to, but not including, the date of refund.
10.2 Default by the Purchaser. If the Purchaser shall have made any
------------------------
representation or warranty herein which shall be untrue or misleading in any
material respect, or if the Purchaser shall fail to perform any of the covenants
and agreements contained herein to be performed by it and such failure shall
continue for a period of ten (10) days after notice thereof from the Seller or
if the Other Agreement shall be terminated for any reason other than default by
the Seller thereunder, the Seller may terminate this Agreement. The damages
that the Seller would sustain as a result of any such termination would be
substantial but would be impracticable and excessively costly and difficult to
establish or ascertain and the parties hereto have therefore agreed that, in
such event, the Seller shall, as their sole remedy at law and in equity, retain
an aggregate amount pursuant to this Agreement and the Other Agreement of Two
Million Dollars ($2,000,000), as liquidated damages, whereupon the Seller shall
refund to the Purchaser the balance of the Deposit, together with interest
accrued on such balance at the Interest Rate from the date such amounts were
paid to the Seller to, but not including, the date of refund.
SECTION 11. MISCELLANEOUS.
---------- -------------
11.1 Agreement to Indemnify. (a) Subject to any express provisions of
----------------------
this Agreement to the contrary, (i) the Seller shall indemnify and hold harmless
the Purchaser from and against any and all obligations, claims, losses, damages,
liabilities, and expenses (including, without limitation, reasonable attorneys'
and accountants' fees and disbursements) arising out of (x) events, contractual
obligations, acts or omissions of the Seller that occurred in connection with
the ownership or operation of any Property prior to the Closing or (y) any
damage to property of others or injury to or death of any person or any claims
for any debts or obligations occurring on or about or in connection with any
Property or any portion thereof at any time or times prior to the Closing, and
(ii) the Purchaser shall indemnify and hold harmless the Seller from and against
any and all obligations, claims, losses, damages, liabilities and expenses
(including, without limitation, reasonable attorneys' and accountants' fees and
disbursements) arising out of (x) events, contractual obligations, acts or
omissions of Purchaser that occur in connection with the ownership or operation
of any Property after the Closing, or (y) any damage to property of others or
injury to or death of any person or any claims for any
<PAGE>
-26-
debts or obligations occurring on or about any Property or any portion thereof
at any time or times after the Closing.
(b) Whenever it is provided in this Agreement that an obligation of the
Seller will be assumed by the Purchaser after the Closing, the Purchaser shall
be deemed to have also agreed to indemnify and hold harmless the Seller and its
respective successors and assigns from and against all claims, losses, damages,
liabilities, costs, and expenses (including, without limitation, reasonable
attorneys' and accountants' fees and expenses) arising from any failure of the
Purchaser to perform the obligation so assumed after the Closing.
(c) Whenever either party shall learn through the filing of a claim or
the commencement of a proceeding or otherwise of the existence of any liability
for which the other party is or may be responsible under this Agreement, the
party learning of such liability shall notify the other party promptly and
furnish such copies of documents (and make originals thereof available) and such
other information as such party may have that may be used or useful in the
defense of such claims and shall afford said other party full opportunity to
defend the same in the name of such party and shall generally cooperate with
said other party in the defense of any such claim.
(d) The provisions of this Section 11.1 shall survive the Closing and the
------------
termination of this Agreement.
11.2 Brokerage Commissions. Each of the parties hereto represents to
---------------------
the other parties that it dealt with no broker, finder or like agent in
connection with this Agreement or the transactions contemplated hereby, and that
it reasonably believes that there is no basis for any other person or entity to
claim a commission or other compensation for bringing about this Agreement or
the transactions contemplated hereby. The Seller shall indemnify and hold
harmless the Purchaser and its respective legal representatives, heirs,
successors and assigns from and against any loss, liability or expense,
including, reasonable attorneys' fees, arising out of any claim or claims for
commissions or other compensation for bringing about this Agreement or the
transactions contemplated hereby made by any broker, finder or like agent, if
such claim or claims are based in whole or in part on dealings with the Seller.
The Purchaser shall indemnify and hold harmless the Seller and its legal
representatives, heirs, successors and assigns from and against any loss,
liability or expense, including, reasonable attorneys' fees, arising out of any
claim or claims for commissions or other compensation for bringing about this
Agreement or the transactions contemplated hereby made by any broker, finder or
like agent, if such claim or claims are based in whole or in part on dealings
with the Purchaser. Nothing contained in this
<PAGE>
-27-
section shall be deemed to create any rights in any third party. The provisions
of this Section 11.2 shall survive the Closing and any termination of this
------------
Agreement.
11.3 Publicity. The parties agree that no party shall, with respect to
---------
this Agreement and the transactions contemplated hereby, contact or conduct
negotiations with public officials, make any public pronouncements, issue press
releases or otherwise furnish information regarding this Agreement or the
transactions contemplated to any third party without the consent of the other
parties, which consent shall not be unreasonably withheld. No party, or its
employees shall trade in the securities of any parent or affiliate of the Seller
or of the Purchaser until a public announcement of the transactions contemplated
by this Agreement has been made. No party shall record this Agreement or any
notice thereof.
11.4 Corporate Approvals. (a) In the event, notwithstanding diligent
-------------------
and good faith efforts, the Seller shall be unable to obtain the approval of the
Boards of Directors of the Seller to the transactions contemplated by this
Agreement, this Agreement may be terminated by the Seller by the giving of
written notice thereof to the Purchaser within five (5) Business Days after the
date of this Agreement; it being expressly understood and agreed that time shall
be of the essence with respect to the giving of such notice. If the Seller
shall give such notice to the Purchaser within the time period hereinabove
provided, this Agreement shall terminate and be of no further force or effect
and the Seller shall refund the Deposit to the Purchaser, together with interest
thereon, in accordance with Section 10.1. If the Seller shall fail to give such
------------
notice within the time period and in the manner hereinabove provided, the Seller
shall have no further right to terminate this Agreement pursuant to this
section.
(b) In the event, notwithstanding diligent and good faith efforts, the
Purchaser shall be unable to obtain the approval of the Board of Directors of
the Purchaser to the transactions contemplated by this Agreement, this Agreement
may be terminated by the Purchaser by the giving of written notice thereof to
the Seller within five (5) Business Days after the date of this Agreement; it
being expressly understood and agreed that time shall be of the essence with
respect to the giving of such notice. If the Purchaser shall give such notice
to the Seller within the time period hereinabove provided, this Agreement shall
terminate and be of no further force or effect and the Seller shall refund the
Deposit to the Purchaser, together with interest thereon, in accordance with
Section 10.1. If the Purchaser shall fail to give such notice within the time
- ------------
period and in the manner hereinabove provided, the Purchaser shall have no
further right to terminate this Agreement pursuant to this section.
<PAGE>
-28-
11.5 Notices. (a) Any and all notices, demands, consents, approvals,
-------
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same shall be
delivered either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier, addressed
to the recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a Business Day or is
required to be delivered on or before a specific day which is not a Business
Day, the day of receipt or required delivery shall automatically be extended to
the next Business Day.
(c) All such notices shall be addressed,
if to the Seller to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Mr. Bruce D. Wardinski
Treasury Department 902
[Telecopier No. (301) 380-6338]
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Pamela J. Murch, Esq.
Law Department 923
[Telecopier No. (301) 380-6332 or 3558]
If to the Purchaser, to:
Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. John G. Murray
[Telecopier No. (617) 969-5730]
<PAGE>
-29-
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Jennifer B. Clark, Esq.
[Telecopier No. (617) 338-2880]
(d) By notice given as herein provided, the parties hereto and their
respective successor and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America.
11.6 Waivers, Etc. Any waiver of any term or condition of this
-------------
Agreement, or of the breach of any covenant, representation or warranty
contained herein, in any one instance, shall not operate as or be deemed to be
or construed as a further or continuing waiver of any other breach of such term,
condition, covenant, representation or warranty or any other term, condition,
covenant, representation or warranty, nor shall any failure at any time or times
to enforce or require performance of any provision hereof operate as a waiver of
or affect in any manner such party's right at a later time to enforce or require
performance of such provision or any other provision hereof. This Agreement may
not be amended, nor shall any waiver, change, modification, consent or discharge
be effected, except by an instrument in writing executed by or on behalf of the
party against whom enforcement of any amendment, waiver, change, modification,
consent or discharge is sought.
11.7 Assignment; Successors and Assigns. This Agreement and all rights
----------------------------------
and obligations hereunder shall not be assignable by any party without the
written consent of the other parties, except that the Purchaser may assign this
Agreement to any entity wholly owned, directly or indirectly, by HPT; provided,
--------
however, that, in the event this Agreement shall be assigned to any entity
- -------
wholly owned, directly or indirectly, by HPT, HPT shall remain liable for the
obligation of the "Purchaser" hereunder. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement is not
intended and shall not be construed to create any rights in or to be enforceable
in any part by any other persons.
11.8 Severability. If any provision of this Agreement shall be held or
------------
deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in
<PAGE>
-30-
all cases, because of the conflict of any provision with any constitution or
statute or rule of public policy or for any other reason, such circumstance
shall not have the effect of rendering the provision or provisions in question
invalid, inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to the extent that such other
provisions are not themselves actually in conflict with such constitution,
statute or rule of public policy, but this Agreement shall be reformed and
construed in any such jurisdiction or case as if such invalid, inoperative or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case.
11.9 Counterparts, Etc. This Agreement may be executed in two or more
------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and shall supersede and take the place of any other
instruments purporting to be an agreement of the parties hereto relating to the
subject matter hereof. This Agreement may not be amended or modified in any
respect other than by the written agreement of all of the parties hereto.
11.10 Governing Law. This Agreement shall be interpreted, construed,
-------------
applied and enforced in accordance with the laws of the State of Maryland
applicable to contracts between residents of Maryland which are to be performed
entirely within Maryland, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required by this
Agreement is made or required to be made; or (iii) where any breach of any
provision of this Agreement occurs, or any cause of action otherwise accrues; or
(iv) where any action or other proceeding is instituted or pending; or (v) the
nationality, citizenship, domicile, principal place of business, or jurisdiction
of organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Maryland; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to enforce,
arising out of, or relating in any way to, any of the provisions of this
Agreement may be brought and prosecuted in such court or courts located in the
State of Maryland as is provided by law; and the parties consent to the
jurisdiction of said court or courts located in the State of Maryland and to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.
<PAGE>
-31-
11.11 Performance on Business Days. In the event the date on which
----------------------------
performance or payment of any obligation of a party required hereunder is other
than a Business Day, the time for payment or performance shall automatically be
extended to the first Business Day following such date.
11.12 Attorneys' Fees. If any lawsuit or arbitration or other legal
---------------
proceeding arises in connection with the interpretation or enforcement of this
Agreement, the prevailing party therein shall be entitled to receive from the
other party the prevailing party's costs and expenses, including reasonable
attorneys' fees incurred in connection therewith, in preparation therefor and on
appeal therefrom, which amounts shall be included in any judgment therein.
11.13 Section and Other Headings. The headings contained in this
--------------------------
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
11.14 Nonliability of Trustees. THE DECLARATION OF TRUST
------------------------
ESTABLISHING THE PURCHASER, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS
THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS
-----------
AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE PURCHASER SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
PURCHASER. ALL PERSONS DEALING WITH THE PURCHASER, IN ANY WAY, SHALL LOOK ONLY
TO THE ASSETS OF THE PURCHASER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF
ANY OBLIGATION.
11.15 Nonliability of Officers. NO TRUSTEE, OFFICER, SHAREHOLDER,
------------------------
EMPLOYEE OR AGENT OF THE SELLER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY
OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE SELLER. ALL PERSONS
DEALING WITH THE SELLER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE SELLER
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
SECTION 12. EXCHANGE CONTRACT MATTERS.
---------- -------------------------
12.1 Exchanges. The Seller desires to effectuate and the Purchaser
---------
agrees to cooperate in effectuating three (3) separate tax deferred exchanges of
Exchange Properties for the Exchange Parcels on the terms and conditions set
forth in this Agreement.
12.2 Exchange Property Credit. In connection with the consummation of
------------------------
any Exchange Closing, the Purchaser shall direct
<PAGE>
-32-
that all or any portion of the Allocable Purchase Price of the applicable
Exchange Property equal to the Exchange Value be applied to the acquisition of
the applicable Exchange Parcel or held in escrow by the Title Company for such
purpose pursuant to Section 12.13 (each such designated amount, an "Exchange
------------- --------
Property Credit"). The Purchaser shall be obligated (subject to the terms
- ---------------
hereof) to expend cash in an amount not to exceed the Exchange Property Credit
to acquire and convey to the Seller pursuant to Exchange Contracts such Exchange
Parcels as the Seller may designate. Any Exchange Property Credit shall, from
time to time, be reduced by any payments made in connection with the acquisition
of the applicable Exchange Parcels. The Title Company shall disburse, at the
direction of the Purchaser and the Seller, the unapplied portion of any
applicable Exchange Property Credit as may from time to time be required to pay
amounts then due under the applicable Exchange Contract. Notwithstanding the
foregoing, if the Seller notifies the Purchaser in writing at least five (5)
days prior to the Closing Date or Exchange Closing Date that it has elected not
to designate any Exchange Parcels, the Exchange Value shall be paid to the
Seller on such Exchange Closing Date as herein described.
12.3 Designation of Exchange Parcels.
-------------------------------
(a) The Seller may from time to time after the date of this Agreement
but, in any event, no later than forty-five (45) days after the Closing Date,
designate one or more parcels of real property as Exchange Parcels, which
Exchange Parcels the Purchaser shall acquire and transfer to the Seller, in
exchange for the Exchange Properties, upon the terms and subject to the
conditions of this Agreement. The Seller shall be unconditionally obligated to
accept any Exchange Parcel acquired by the Purchaser pursuant to the terms of
this Agreement.
(b) In the event that the Seller does not designate any Exchange Parcels
on or before the day within forty-five (45) days after the Closing Date, or if
the Exchange Property Credit has not been reduced to zero on or before the Final
Exchange Closing Date, the provisions of Section 12.11 shall apply.
-------------
12.4 Exchange Contracts.
------------------
(a) At the request of the Seller and subject to all of the applicable
terms and conditions of this Agreement, the Purchaser shall, upon 5 days' prior
notice from the Seller, execute and deliver a purchase and sale agreement or an
assignment and assumption agreement of the Seller's interest under any purchase
and sale agreement, in either case, for the acquisition of one or more Exchange
Parcels (any such purchase and sale agreement or assignment thereof, an
"Exchange Contract"), it being expressly understood and agreed, however, that
- --------- --------
the Purchaser's obligation
<PAGE>
-33-
to execute or accept assignment of any Exchange Contract shall be subject to the
conditions that:
(i) Pursuant to the terms of such Exchange Contract, the closing
thereunder shall be scheduled to occur within one hundred
eighty (180) days after the Closing Date;
(ii) The aggregate amount of payments required to be made under or
in connection with such Exchange Contract, as reasonably
estimated by the Purchaser, shall not exceed the unapplied
portion of the applicable Exchange Property Credit, unless the
Seller shall provide the Purchaser with such assurances
regarding the payment of such amounts by the Seller as the
Purchaser shall require;
(iii) The Purchaser shall have no rights or obligations under such
Exchange Contract, monetary or nonmonetary, including, without
limitation, the performance of any due diligence or the giving
of any notices, other than the payment of amounts less than or
equal to the unapplied portion of the applicable Exchange
Property Credit;
(iv) Such Exchange Contract shall permit the Purchaser to designate
the Seller as the Purchaser's designee or nominee to receive
title to the Exchange Parcel to be conveyed thereunder (the
Seller agreeing to accept such title); and
(v) The Purchaser shall be under no duty or obligation to find or
assist the Seller in finding or selecting Exchange Parcels
suitable for exchange or negotiating its purchase and the
Purchaser shall have no responsibility for the failure of the
purchase of any Exchange Parcel to be closed or settled by the
Exchange Closing Date other than by reason of the Purchaser's
willful failure to perform its obligations under this
Agreement.
(b) It is further expressly understood and agreed that anything herein
to the contrary notwithstanding, the Purchaser shall have no obligation to
participate in any exchange contemplated by this Agreement if such exchange
would or reasonably could (as determined by the Purchaser's legal counsel)
result in (i) the recognition of any gain by the Purchaser, (ii) a tax basis in
any Property lower than the tax basis therein that the Purchaser would have had
such Property been sold to the Purchaser for an amount equal to the Allocable
Purchase Price (subject to adjustment as provided in this Agreement) as
<PAGE>
-34-
contemplated by this Agreement other than the provisions in Section 12, or (iii)
----------
any other federal or state income tax consequences different from those that
would have resulted had such Property been sold to the Purchaser for an amount
equal to the Allocable Purchase Price (subject to adjustment as provided in this
Agreement) as contemplated by this Agreement other than the provisions in
Section 12.
- ----------
12.5 Conveyance of Exchange Parcels. At the time of any Exchange
------------------------------
Closing, title to the applicable Exchange Parcel shall be conveyed directly to
the Seller as the nominee and designee of the Purchaser and the Seller shall
accept such title as shall be conveyed thereunder; it being expressly understood
and agreed that the Purchaser makes no representations, warranties or covenants
with respect to such title, the satisfaction of any conditions precedent under
any Exchange Contract or any other matter in regard or pertaining thereto.
12.6 Failure of Exchange Parcels to Close. At any time upon the
------------------------------------
request of the Seller, the Purchaser shall assign any Exchange Contract to the
Seller (without representation or warranty other than that the Purchaser has not
created any liens or encumbrances thereon, such assignment to be made on the
date specified in the Seller's notice (but not less than 3 days after the giving
of such notice). The Purchaser shall have a unilateral right to assign any
Exchange Contracts to the Seller at any time after the date one hundred eighty-
one (181) days after the Closing Date.
12.7 Assignment Upon Exhaustion of Credit. At such time as the
------------------------------------
applicable Exchange Property Credit shall be reduced to zero, the Purchaser
shall assign (unless sooner assigned to the Seller as herein provided) the
Exchange Contract to the Seller (without representation or warranty other than
that the Purchaser has not created any liens or encumbrances thereon). Upon
assignment of an Exchange Contract to the Seller, the Purchaser shall have no
further obligations hereunder with respect to the applicable Exchange Parcels or
Exchange Contract.
12.8 Closing Period. Purchaser shall not be obligated to participate
--------------
in any Exchange Closing prior to the Closing Date or after the date which is one
hundred eighty (180) days after the Closing Date.
12.9 Reductions to Exchange Property Credit. The applicable Exchange
--------------------------------------
Value and the Purchase Price payable under this Agreement shall be reduced from
time to time by (a) the aggregate cash consideration paid by the Purchaser under
any Exchange Contract, (b) any costs and expenses incurred by or on behalf of
Purchaser in connection with any Exchange Parcel, (c) the amount of any claim or
indemnity owing to the Purchaser by or
<PAGE>
-35-
at the direction of the Seller pursuant to this Agreement, (d) the amount of any
consideration paid by the Purchaser to the Seller pursuant to this Agreement and
(e) the costs and expenses incurred in good faith by or on behalf of the
Purchaser in connection with the proposed acquisition of an Exchange Parcel,
whether or not an Exchange Contract is executed in connection therewith and
whether or not the proposed transaction is consummated.
12.10 Increases to Exchange Property Credit. Regardless of the actual
-------------------------------------
interest earned thereon, there shall be credited to the Exchange Property Credit
an amount equal to the interest which would be earned on the amount of such
credit outstanding from time to time if it had been deposited with the Title
Company earning interest equivalent to the Federal Reserve Bank Discount Rate.
12.11 Final Exchange Closing Date. On a Final Exchange Closing Date,
---------------------------
the Title Company shall pay to the Seller an amount equal to the then remaining
balance of the Exchange Property Credit, if any, less any payments, if any, then
due and unpaid by the Seller to the Purchaser pursuant to this Agreement. Upon
such payment, and upon payment of any other sums then due by any party to
another party pursuant to this Agreement, such Exchange Contract shall be
finally closed and no party shall have any further rights or obligations
pursuant thereto, except as otherwise provided herein. Any excess balance in
the escrow account then held by Escrow Agent shall be returned to Purchaser.
12.12 Indemnification. The Seller acknowledges that the Purchaser is
---------------
agreeing to enter into each Exchange Contract and to acquire Exchange Parcels
solely as an accommodation to the Seller and that it is not intended that the
Purchaser will incur any costs or liabilities with respect to the Exchange
Parcels or any Exchange Contract in carrying out its obligations pursuant to
this Agreement. Accordingly, the Seller hereby agrees to indemnify, defend and
hold the Purchaser and its successors and assigns harmless from, against and in
respect of, and shall on demand reimburse the Purchaser and its successors and
assigns for, any and all loss, liability, damage or expense arising out of or in
any way connected with the exchanges contemplated by this Section 12, any
----------
Exchange Contract or the Exchange Parcels. The provisions of this Section 12.12
-------------
shall survive the Closing and the Exchange Closings.
12.13 Escrow Provision. The Title Company shall establish three (3)
----------------
separate interest-bearing escrow accounts, one for each Exchange Property. The
Exchange Property Credit shall be held by the Title Company, in trust, in
accordance with the following terms and conditions:
<PAGE>
-36-
(a) The Title Company, shall not be liable to any party for holding the
Exchange Property Credit in escrow in accordance with the provisions of this
Section 12.13 in the event of any contested claims by either party relating to
- -------------
any Exchange Contract.
(b) The Title Company shall deliver the Exchange Property Credit, and
any interest earned thereon, to the Purchaser or the Seller, as the case may be,
upon the following conditions:
(i) To the Purchaser, any amount remaining in the escrow account on
the Final Exchange Closing Date in excess of the remaining
Exchange Property Credit balance.
(ii) To the Seller, upon receipt of a written notice from the Seller
stating that the Seller is entitled under this Agreement to the
Exchange Property Credit and demanding payment of the same;
provided, however, that the Title Company will not honor such
-------- -------
demand until not less than ten (10) days after the date on
which the Title Company shall have given such notice to the
Purchaser of such demand, nor thereafter if, prior to or during
such ten (10) day period, the Title Company shall have received
written notice of objection from the Purchaser.
(iii) To the Purchaser, upon receipt of a written notice from the
Purchaser stating that the Purchaser is entitled under this
Agreement to the return of the Exchange Property Credit and
demanding return of the same; provided, however, that the Title
-------- -------
Company will not honor such demand until not less than ten (10)
days after the date on which the Title Company shall have given
notice to the Seller of such demand, nor thereafter if prior to
or during such ten (10) day period, the Title Company shall
have received written notice of objection from the Seller.
(c) Any notice to the Title Company shall be sufficient only if received
by the Title Company within the applicable time periods set forth herein. All
mailings and notices to and from the Title Company shall be sent as provided in
Section 11.5.
- ------------
(d) If the Title Company shall receive a written demand for the Exchange
Property Credit or written notice of objection to the return of the Exchange
Property Credit or if there is any disagreement or dispute shall arise between
or among any of the parties hereto and/or any other persons resulting in adverse
<PAGE>
-37-
claims and demands being made for the Exchange Property Credit, whether or not
litigation has been instituted, the Title Company shall continue to hold the
Exchange Property Credit subject to such adverse claims and the Title Company
shall not be or become liable in any way or to any person for its refusal to
comply with such claims or demand and (i) in the event of any joint direction
from the Seller and the Purchaser, the Title Company shall then disburse the
Exchange Property Credit in accordance with said direction, (ii) in the event
the Title Company shall receive a written notice advising that a litigation over
entitlement to the Exchange Property Credit has been commenced, the Title
Company may deposit the Exchange Property Credit with the clerk of the court in
which said litigation is pending or (iii) the Title Company may (but shall not
be required to) take such affirmative steps as it may, at its option, elect in
order to substitute another impartial party satisfactory to the Seller and the
Purchaser to hold the Exchange Property Credit subject to such adverse claims
including the commencement of an action for interpleader in a court of competent
jurisdiction, the cost thereof to be borne by whichever of the Seller and the
Purchaser is the losing party and, thereupon, the Title Company shall be
released of and from all liability hereunder. The Seller and the Purchaser
jointly and severally agree to reimburse the Title Company for any and all
expenses incurred in the discharge of its duties under this Article, including,
without limitation, attorneys' fees. Nothing herein, however, shall affect the
liability of a defaulting party to another party for reimbursement of any amount
paid to the Title Company under this Section 12.13(d).
----------------
(e) It is expressly understood that the Title Company acts hereunder as
an accommodation to the Seller and the Purchaser and as a depository only and is
not responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any instrument deposited with it, or for
the form or execution of such instruments or for the identity, authority or
right of any person executing or depositing the same, or for the terms and
conditions of any instrument pursuant to which the Title Company or the parties
may act.
(f) The Title Company shall not have any duties or responsibilities
except those set forth in this Section and shall not incur any liability in
acting upon any signature, notice, request, waiver, consent, receipt or other
paper or document believed by the Title Company to be genuine and the Title
Company may assume that any person purporting to give it any notice on behalf of
any party in accordance with the provisions hereof has been duly authorized to
do so.
(g) The Title Company may act or refrain from acting in respect of any
matter referred to herein in full reliance upon
<PAGE>
-38-
and by and with the advice of counsel which may be selected by it and shall be
fully protected in so acting or refraining from acting upon the advice of such
counsel.
(h) The Title Company shall not be responsible for any act or failure to
act on its part except in the case of its own willful default or gross
negligence. The Title Company shall be automatically released from all
responsibility and liability under this Agreement upon the Title Company's
delivery or deposit of the Exchange Property Credit in accordance with the
provisions of this Agreement.
(i) The Seller and the Purchaser agree that if either shall deliver to
the Title Company a written demand for the Exchange Property Credit, the party
making such demand shall, promptly after delivering such demand to the Title
Company, deliver a copy of such demand to the other party, together with a
statement of the facts and circumstances underlying the demand; provided,
however, that nothing in this part shall have any effect whatsoever upon the
Title Company's rights, duties and obligations under the preceding parts of this
Section 12.
- ----------
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as a sealed instrument as of the date first above written.
SELLER:
HMH PROPERTIES, INC.
By: /s/ P.J. Murch
----------------------------------
Its: Vice President
----------------------------
PURCHASER:
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
-------------------------------
Its: Treasurer
--------------------------
<PAGE>
-39-
The undersigned hereby acknowledges and agrees to be bound by the provisions
of Section 12.13.
-------------
CHICAGO TITLE INSURANCE COMPANY
By: /s/ Douglas J. Mathis
----------------------------------
Its: Resident Vice President
----------------------------
The undersigned hereby guarantees full performance of all of the
obligations of HMH Properties, Inc. under the foregoing Agreement.
HOST MARRIOTT CORPORATION
By: /s/ P.J. Murch
-------------------------------
Its: Assistant Secretary
--------------------------
<PAGE>
Schedule A
----------
Allocable Purchase Prices of Properties and Designations
--------------------------------------------------------
[See attached copy.]
<PAGE>
Schedule B-1 through B-18
-------------------------
Legal Descriptions of Properties
--------------------------------
[See attached copies.]
<PAGE>
Schedule C
----------
Form of Surveyor's Certificate
------------------------------
[See attached copy.]
<PAGE>
Schedule D
----------
Management Agreements
---------------------
[See attached copy.]
<PAGE>
Schedule E
----------
Operating Statements
--------------------
[See attached copy.]
<PAGE>
Schedule F
----------
FF&E Reserve Amounts
--------------------
[See attached copy.]
<PAGE>
Exhibit 10.11
AGREEMENT TO LEASE
------------------
THIS AGREEMENT TO LEASE (this "Agreement") is entered into as of the 26th
---------
day of February, 1996, by and between HOSPITAlITY PROPERTIES TRUST, a Maryland
real estate investment trust ("HPT"), and HMH HPT RESIDENCE INN, INC., a
---
Delaware corporation ("Tenant").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to a Purchase, Sale and Exchange Agreement, dated as of
the date hereof (the "Purchase Agreement"), by and between HPT and HMH
------------------
Properties, Inc., HPT, either directly or through a wholly owned subsidiary, is
planning to acquire those certain properties, as more particularly described in
Exhibits A-1 through A-18, attached hereto and made a part hereof; and
- -------------------------
WHEREAS, subject to and upon the terms and conditions set forth in this
Agreement, pursuant to a lease Agreement in the form attached hereto as Exhibit
-------
B (the "Lease"), HPT has agreed to lease to Tenant, and Tenant has agreed to
- - -----
lease (or, in the case of a Ground Lease Property, as hereinafter defined,
sublease) from HPT, all of the Properties (this and other capitalized terms used
and not otherwise defined herein having the meanings ascribed to such terms in
the Purchase Agreement);
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the mutual receipt and legal
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Agreement to Lease. Subject to and upon the terms and conditions
------------------
hereinafter set forth, on the date on which HPT acquires fee simple title to
each of the Fee Properties and the ground tenant's interest with respect to the
Ground Lease Properties, HPT and Tenant shall each execute and deliver a lease
with respect to each of the Properties and such date shall be the Commencement
Date under each such lease.
2. Base Rent. The annual Base Rent payable under each lease shall be an
---------
amount equal to ten percent (10%) of the Allocable Purchase Price of the
Property demised thereunder.
3. Representations of Tenant, Etc. As an inducement to HPT to enter into
-------------------------------
this Agreement, Tenant hereby represents and warrants to HPT that, as of the
date hereof and throughout the term of the Leases:
(a) Status and Authority of Tenant, Etc. Tenant is a corporation duly
------------------------------------
organized and validly existing under the laws of its state of incorporation and
has all requisite power and
<PAGE>
-2-
authority (corporate and other) under the laws of such state and its respective
charter documents to own its property and assets, to enter into and perform its
obligations under this Agreement and the leases and to transact the business in
which it is engaged or presently proposes to engage. Tenant is duly qualified
in each jurisdiction in which the nature of the business conducted or to be
conducted by it requires such qualification.
(b) Corporate Action of Tenant, Etc. Tenant has taken all necessary action
--------------------------------
(corporate or other) under its respective charter documents to authorize the
execution, delivery and performance of this Agreement and the leases and each
such instrument constitutes, or will upon execution constitute, the valid and
binding obligation and agreement of Tenant enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency, reorganization or similar
laws of general application affecting the rights and remedies of creditors and
moratorium laws from time to time in effect, and except to the extent that the
availability of equitable relief may be subject to the discretion of the court
before which any proceeding therefor might be brought.
(c) No Violations of Other Agreements, Etc. Neither the execution and
---------------------------------------
delivery of this Agreement or the Leases by Tenant, nor compliance with the
terms and provisions hereof or thereof, will result in any breach of the terms,
conditions or provisions of, or conflict with or constitute a default under, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of Tenant pursuant to the terms of any other indenture, mortgage, deed of
trust, note, evidence of indebtedness, agreement or other instrument to which
Tenant may be a party or by which Tenant or any of its properties may be bound,
or violate any provisions of laws, or any applicable order, writ, injunction,
judgment or decree of any court, or any order or other public regulation of any
governmental commission, bureau or administrative agency.
(d) Judgments; Litigation. Except as previously disclosed to HPT in
---------------------
writing, there are no judgments presently outstanding and unsatisfied against
Tenant or any of its properties, and neither Tenant nor any of its properties
are involved in any material litigation at law or in equity, or any proceeding
before any court, or by or before any governmental or administrative agency,
which litigation or proceeding could materially adversely affect Tenant, and no
such material litigation or proceeding is, to the knowledge of Tenant,
threatened against Tenant, and no investigation looking toward such a proceeding
has begun or is contemplated.
(e) Disclosure. To the knowledge of Tenant, neither this Agreement nor any
----------
other document, certificate or statement furnished to HPT by or on behalf of
Tenant, or any Affiliated
<PAGE>
-3-
Person as to Tenant, in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading. To the knowledge of Tenant, there is no fact or condition which
materially and adversely affects the business, operations, affairs, properties
or condition of Tenant which has not been set forth in this Agreement or in the
other documents, certificates or statements furnished to HPT in connection with
the transactions contemplated hereby.
4. Representations of HPT. As an inducement to Tenant to enter into this
----------------------
Agreement, HPT hereby represents to Tenant that, as of the date hereof and
throughout the Term of the lease, HPT is a real estate investment trust duly
organized, validly existing and in good standing under the laws of the State of
Maryland, having all requisite power and authority to carry on its business as
such business is presently being conducted and, subject to approval of its Board
of Trustees, to enter into this and the leases and to consummate the
transactions contemplated hereby and thereby.
5. Additional Tenant Obligations. On or before the Commencement Date,
-----------------------------
Tenant shall cause each of the following to be delivered to HPT (the obligation
of HPT to enter into the lease being subject to such delivery):
(a) A pledge and security agreement with respect to all tangible personal
property used in connection with the operation of the Properties, including,
without limitation, all licenses and permits, such pledge and security agreement
to create a first lien and security interest in such property and to be
otherwise in form and substance reasonably acceptable to HPT;
(b) Such financing statements as HPT may reasonably require to perfect the
interests and liens granted pursuant to the pledge and security agreement
described in paragraph (a) above; and
(c) Any other Incidental Documents required by the Lease.
6. Condition Precedent. The obligations of the parties hereunder shall be
-------------------
subject to the consummation of the transactions contemplated by the Purchase
Agreement.
7. Notices. All notices required or desired to be given hereunder shall
-------
be given in the manner provided in Section 22.10 of the Lease.
8. Assignment. Tenant shall not assign or transfer, directly or
----------
indirectly, its rights under this Agreement without the prior written consent of
HPT, which consent may be given or withheld by HPT in HPT's sole discretion.
HPT shall not assign or transfer, directly or indirectly, its rights under this
<PAGE>
-4-
Agreement other than to a wholly owned subsidiary of HPT without the prior
written consent of Tenant, which consent may be given or withheld by Tenant in
Tenant's sole discretion.
9. Default.
-------
(a) Default by Tenant. If Tenant shall have made any representation or
-----------------
warranty herein which shall be untrue or misleading in any material respect, or
if Tenant shall fail to perform any of the covenants and agreements contained
herein to be performed by Tenant and such failure continues for a period of ten
(10) days after notice thereof from HPT, HPT may terminate this Agreement and/or
pursue any and all remedies available to HPT at law or in equity, including, but
not limited to, a suit for specific performance or other equitable relief.
(b) Default by HPT. If HPT shall have made any representation or warranty
--------------
herein which shall be untrue or misleading in any material respect, or if HPT
shall fail to perform any of the covenants and agreements contained herein to be
performed by it and such failure shall continue for a period of ten (10) days
after notice thereof from Tenant, Tenant may terminate this Agreement and/or
pursuant any and all remedies available to Tenant at law or in equity,
including, but not limited to, a suit for specific performance or other
equitable relief.
10. Miscellaneous.
-------------
(a) Expenses. HPT and Tenant shall each pay their own professional
--------
expenses incident to the negotiation, preparation and carrying out of this
Agreement, including, without limitation, all fees and expenses of their
respective counsel. HPT and Tenant shall share equally the cost of all recording
fees, transfer fees and other like costs and expenses.
(b) Publicity. The parties agree that no party shall, with respect to this
---------
Agreement and the transactions contemplated hereby, contact or conduct
negotiations with public officials, make any public pronouncements, issue press
releases or otherwise furnish information regarding this Agreement or the
transactions contemplated to any third party without the consent of the other
party. No party or its employees shall trade in the securities of any parent or
Affiliated Person of HPT or Tenant until a public announcement of the
transactions contemplated by this Agreement has been made.
(c) Performance on Business Days. In the event the date on which
----------------------------
performance or payment of any obligation of a party required hereunder is other
than a Business Day, the time for payment or performance shall automatically be
extended to the first Business Day following such date.
<PAGE>
-5-
11. Applicable Law, Etc. This Agreement shall be interpreted, construed,
--------------------
applied and enforced in accordance with the laws of the State of Maryland
applicable to contracts between residents of Maryland which are to be performed
entirely within Maryland, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required by this
Agreement is made or required to be made; or (iii) where any breach of any
provision of this Agreement occurs, or any cause of action otherwise accrues; or
(iv) where any action or other proceeding is instituted or pending; or (v) the
nationality, citizenship, domicile, principal place of business, or jurisdiction
of organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Maryland; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to enforce,
arising out of, or relating in any way to, any of the provisions of this
Agreement may be brought and prosecuted in such court or courts located in the
State of Maryland as is provided by law; and the parties consent to the
jurisdiction of said court or courts located in the State of Maryland and to
service of process by registered mail, return receipt requested, or by any other
manner provided by law.
12. Modification of Agreement. No modification or waiver of any provision
-------------------------
of this Agreement, nor any consent to any departure by any party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the other, and such modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice to or
demand on any party in any case shall entitle such party to any other or further
notice or demand in the same, similar or other circumstances.
13. Waiver of Rights. Neither any failure nor any delay on the part of
----------------
any party in exercising any right, power, or privilege under this Agreement
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise or the exercise of any right,
power or privilege.
14. Severability. In case any one or more of the provisions contained in
------------
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby and this
Agreement shall thereupon be reformed and construed and enforced to the maximum
extent permitted by laws.
<PAGE>
-6-
15. Entire Contract. This Agreement, including all annexes and exhibits
---------------
hereto, constitutes the entire agreement between the parties hereto with respect
to the subject matter hereof and thereof and shall supersede and take the place
of any other instruments purporting to be an agreement of the parties hereto
relating to the transactions contemplated hereby, including, without limitation,
any letter of intent or commitment letter.
16. Counterparts; Headings. This Agreement may be executed in two or more
----------------------
counterparts, each of which shall constitute an original, but which, when taken
together, shall constitute but one instrument and shall become effective as of
the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Headings in
this Agreement are for purposes of reference only and shall not limit or affect
the meaning of the provisions hereof.
17. Binding Effect. All the terms and provisions of this Agreement shall
--------------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
18. Nonliability of Trustees, Etc. THE DECLARATION OF TRUST ESTABLISHING
------------------------------
HPT, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
-----------
IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF
MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE
TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HPT
SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY
OBLIGATION OF, OR CLAIM AGAINST, HPT. ALL PERSONS DEALING WITH HPT, IN ANY WAY,
SHALL LOOK ONLY TO THE ASSETS OF HPT FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
19. Nonliability of Officers, Etc. NO TRUSTEE, OFFICER, SHAREHOLDER,
------------------------------
EMPLOYEE OR AGENT OF TENANT SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, TENANT. ALL PERSONS DEALING
WITH TENANT, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF TENANT FOR THE PAYMENT
OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
IN WITNESS WHEREOF, HPT and Tenant have executed this Agreement under seal
as of the date above first written.
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
-----------------------------------
Its: Treasurer
-----------------------------
HMH HPT RESIDENCE INN, INC.
By: /s/ P.J. Murch
-----------------------------------
Its (Vice) President
<PAGE>
EXHIBITS A-1 THROUGH A-18
-------------------------
Description of the Leased Properties
------------------------------------
[See attached copies.]
<PAGE>
EXHIBIT B
---------
Form of Lease
-------------
[See attached copy.]
<PAGE>
LEASE AGREEMENT
DATED AS OF FEBRUARY 26, 1996
BY AND BETWEEN
HOSPITALITY PROPERTIES TRUST,
AS LANDLORD,
AND
HMH HPT RESIDENCE INN, INC.
AS TENANT
[CALIFORNIA AND GROUND LEASE PROVISIONS, WHEN APPLICABLE,
TO BE IDENTICAL TO THOSE IN COURTYARD LEASES.]
<PAGE>
TABLE OF CONTENTS
ARTICLE 1: DEFINITIONS.................................................. 1
1.1 Accounting Period............................................ 1
1.2 Additional Rent.............................................. 1
1.3 Additional Charges........................................... 2
1.4 Affiliated Person............................................ 2
1.5 Agreement.................................................... 2
1.6 Applicable Laws.............................................. 2
1.7 Award........................................................ 2
1.8 Base Gross Revenues.......................................... 3
1.9 Base Year.................................................... 3
1.10 Business Day................................................. 3
1.11 Capital Addition............................................. 3
1.12 Capital Expenditure.......................................... 3
1.13 Claim........................................................ 4
1.14 Code......................................................... 4
1.15 Collective Leased Properties................................. 4
1.16 Commencement Date............................................ 4
1.17 Condemnation................................................. 4
1.18 Condemnor.................................................... 4
1.19 Consolidated Financials...................................... 4
1.20 Date of Taking............................................... 4
1.21 Default...................................................... 4
1.22 Distribution................................................. 4
1.23 Encumbrance.................................................. 5
1.24 Entity....................................................... 5
1.25 Environment.................................................. 5
1.26 Environmental Obligation..................................... 5
1.27 Environmental Notice......................................... 5
1.28 Event of Default............................................. 5
1.29 Excess Gross Revenues........................................ 5
1.30 Extended Terms............................................... 5
1.31 FF&E Reserve................................................. 5
1.32 Financial Officer's Certificate.............................. 5
1.33 Fiscal Year.................................................. 6
1.34 Fixed Term................................................... 6
1.35 Fixtures..................................................... 6
1.36 GAAP......................................................... 6
1.37 Government Agencies.......................................... 6
1.38 Gross Revenues............................................... 6
1.39 Hazardous Substances......................................... 6
1.40 Host......................................................... 7
1.41 Hotel........................................................ 7
1.42 Hotel Mortgage............................................... 7
1.43 Hotel Mortgagee.............................................. 7
1.44 Immediate Family............................................. 7
1.45 Impositions.................................................. 7
1.46 Incidental Documents......................................... 9
1.47 Indebtedness................................................. 9
1.48 Insurance Requirements....................................... 9
1.49 Interest Rate................................................ 9
1.50 Land......................................................... 9
<PAGE>
-ii-
1.51 Landlord................................................... 9
1.52 Landlord Liens............................................. 9
1.53 Lease Year................................................. 9
1.54 Leased Improvements........................................ 9
1.55 Leased Intangible Property................................. 9
1.56 Leased Personal Property................................... 10
1.57 Leased Property............................................ 10
1.58 Legal Requirements......................................... 10
1.59 Lending Institution........................................ 10
1.60 Lien....................................................... 10
1.61 Management Agreement....................................... 11
1.62 Manager.................................................... 11
1.63 Minimum Rent............................................... 11
1.64 Notice..................................................... 11
1.65 Officer's Certificate...................................... 11
1.66 Other Leases............................................... 11
1.67 Overdue Rate............................................... 11
1.68 Parent..................................................... 11
1.69 Permitted Encumbrances..................................... 11
1.70 Permitted Liens............................................ 11
1.71 Permitted Use.............................................. 11
1.72 Person..................................................... 11
1.73 Pledge and Security Agreement.............................. 12
1.74 Purchase Agreement......................................... 12
1.75 Records.................................................... 12
1.76 Rent....................................................... 12
1.77 Request Notice............................................. 12
1.78 Response Notice............................................ 12
1.79 SEC........................................................ 12
1.80 State...................................................... 12
1.81 Subordinated Creditor...................................... 12
1.82 Subordination Agreement.................................... 12
1.83 Subsidiary................................................. 12
1.84 Successor Landlord......................................... 12
1.85 Tangible Net Worth......................................... 12
1.86 Tenant..................................................... 13
1.87 Tenant's Personal Property................................. 13
1.88 Term....................................................... 13
1.89 Uniform System of Accounts................................. 13
1.90 Unsuitable for Its Permitted Use........................... 13
1.91 Work....................................................... 14
ARTICLE 2: LEASED PROPERTY AND TERM................................... 14
2.1 Leased Property............................................ 14
2.2 Condition of Leased Property............................... 15
2.3 Fixed Term................................................. 16
2.4 Extended Term.............................................. 16
<PAGE>
-iii-
ARTICLE 3: RENT....................................................... 16
3.1 Rent......................................................... 16
3.1.1 Minimum Rent.......................................... 17
3.1.2 Additional Rent....................................... 17
3.1.3 Additional Charges.................................... 20
3.2 Late Payment of Rent, Etc.................................... 21
3.3 Net Lease.................................................... 22
3.4 No Termination, Abatement, Etc............................... 22
3.5 Security for Tenant's Performance............................ 23
ARTICLE 4: USE OF THE LEASED PROPERTY................................. 24
4.1 Permitted Use................................................ 24
4.1.1 Permitted Use......................................... 24
4.1.2 Necessary Approvals................................... 24
4.1.3 Lawful Use, Etc....................................... 25
4.2 Compliance with Legal/Insurance Requirements, Etc............ 25
4.3 Environmental Matters........................................ 25
4.3.1 Restriction on Use, Etc............................... 25
4.3.3 Survival.............................................. 27
ARTICLE 5: MAINTENANCE AND REPAIRS.................................... 27
5.1 Maintenance and Repair....................................... 27
5.1.1 Tenant's Obligations.................................. 27
5.1.2 Landlord's Obligations................................ 28
5.1.3 Nonresponsibility of Landlord, Etc.................... 29
5.2 Tenant's Personal Property................................... 30
5.3 Yield Up..................................................... 30
5.4 Management Agreement......................................... 31
ARTICLE 6: IMPROVEMENTS, ETC.......................................... 31
6.1 Improvements to the Leased Property.......................... 31
6.2 Salvage...................................................... 32
ARTICLE 7: LIENS...................................................... 32
7.1 Liens........................................................ 32
7.2 Landlord's Lien.............................................. 33
ARTICLE 8: PERMITTED CONTESTS......................................... 33
ARTICLE 9: INSURANCE AND INDEMNIFICATION.............................. 34
9.1 General Insurance Requirements............................... 34
9.2 Replacement Cost............................................. 35
9.3 Waiver of Subrogation........................................ 36
9.4 Form Satisfactory, Etc....................................... 36
9.5 Blanket Policy............................................... 37
9.6 No Separate Insurance........................................ 37
9.7 Indemnification of Landlord.................................. 37
<PAGE>
-iv-
ARTICLE 10: CASUALTY.................................................. 38
10.1 Insurance Proceeds.......................................... 38
10.2 Damage or Destruction....................................... 39
10.2.1 Damage or Destruction of Leased Property............ 39
10.2.2 Partial Damage or Destruction....................... 39
10.2.3 Insufficient Insurance Proceeds..................... 39
10.2.4 Disbursement of Proceeds............................ 40
10.3 Damage Near End of Term..................................... 40
10.4 Tenant's Property........................................... 41
10.5 Restoration of Tenant's Property............................ 41
10.6 No Abatement of Rent........................................ 41
10.7 Waiver...................................................... 41
ARTICLE 11: CONDEMNATION.............................................. 41
11.1 Total Condemnation, Etc..................................... 41
11.2 Partial Condemnation........................................ 42
11.3 Abatement of Rent........................................... 43
11.4 Temporary Condemnation...................................... 43
11.5 Allocation of Award......................................... 43
ARTICLE 12: DEFAULTS AND REMEDIES..................................... 44
12.1 Events of Default........................................... 44
12.2 Remedies.................................................... 47
12.3 Tenant's Waiver............................................. 48
12.4 Application of Funds........................................ 49
12.5 Landlord's Right to Cure Tenant's Default................... 49
ARTICLE 13: HOLDING OVER.............................................. 49
ARTICLE 14: LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT........... 50
14.1 Landlord Notice Obligation.................................. 50
14.2 Landlord's Default.......................................... 50
ARTICLE 15: INTENTIONALLY DELETED..................................... 51
ARTICLE 16: SUBLETTING AND ASSIGNMENT................................. 51
16.1 Subletting and Assignment................................... 51
16.2 Required Sublease Provisions................................ 52
16.3 Permitted Sublease.......................................... 54
16.4 Sublease Limitation......................................... 54
ARTICLE 17: ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS............ 54
17.1 Estoppel Certificates....................................... 54
17.2 Financial Statements........................................ 54
17.3 General Operations.......................................... 56
ARTICLE 18: LANDLORD'S RIGHT TO INSPECT............................... 56
<PAGE>
-v-
ARTICLE 19: INTENTIONALLY DELETED..................................... 56
ARTICLE 20: HOTEL MORTGAGES........................................... 57
20.1 Landlord May Grant Liens.................................... 57
20.2 Subordination of Lease...................................... 57
20.3 Notice to Mortgagee and Ground Landlord..................... 59
20.4 Transfer of Leased Property................................. 59
ARTICLE 21: ADDITIONAL COVENANTS OF TENANT............................ 60
21.1 Prompt Payment of Indebtedness.............................. 60
21.2 Conduct of Business......................................... 60
21.3 Maintenance of Accounts and Records......................... 60
21.4 Notice of Litigation, Etc................................... 60
21.5 Indebtedness of Tenant...................................... 61
21.6 Financial Condition of Tenant............................... 62
21.7 Distributions, Payments to Affiliated Persons, Etc.......... 62
21.8 Prohibited Transactions..................................... 62
21.9 Liens and Encumbrances...................................... 62
21.10 Merger; Sale of Assets; Etc................................. 62
ARTICLE 22: MISCELLANEOUS............................................. 63
22.1 Limitation on Payment of Rent............................... 63
22.2 No Waiver................................................... 63
22.3 Remedies Cumulative......................................... 63
22.4 Severability................................................ 64
22.5 Acceptance of Surrender..................................... 64
22.6 No Merger of Title.......................................... 64
22.7 Conveyance by Landlord...................................... 64
22.8 Quiet Enjoyment............................................. 64
22.9 Memorandum of Lease......................................... 65
22.10 Notices..................................................... 65
22.11 Construction; Recourse...................................... 66
22.12 Counterparts; Headings...................................... 67
22.13 Applicable Law, Etc......................................... 67
22.14 Right to Make Agreement..................................... 68
22.15 Non-Liability of Trustees................................... 68
EXHIBITS
- --------
A - Minimum Rent
B - Other Leases
C - The Land
<PAGE>
Exhibit 10.12
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT is entered into as of this 26th day of February,
1996, by and between HOSPITALITY PROPERTIES TRUST, a Maryland real estate
investment trust, as landlord ("Landlord"), and HMH HPT RESIDENCE INN, INC., a
--------
Delaware corporation, as tenant ("Tenant").
------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Landlord owns fee simple title to the Leased Property (this and
other capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in Article 1); and
---------
WHEREAS, Landlord wishes to lease the Leased Property to Tenant and Tenant
wishes to lease the Leased Property from Landlord, all subject to and upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the mutual receipt and legal
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
ARTICLE 1
----------
DEFINITIONS
-----------
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, (i) the terms defined in this Article
shall have the meanings assigned to them in this Article and include the plural
as well as the singular, (ii) all accounting terms not otherwise defined herein
shall have the meanings assigned to them in accordance with GAAP, (iii) all
references in this Agreement to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
1.1 "Accounting Period" shall have the meaning given such term in the
-----------------
Management Agreement.
1.2 "Additional Rent" shall have the meaning given such term in Section
--------------- -------
3.1.2(a).
- --------
<PAGE>
-2-
1.3 "Additional Charges" shall have the meaning given such term in
------------------
Section 3.1.3.
- -------------
1.4 "Affiliated Person" shall mean, with respect to any Person, (a) in
-----------------
the case of any such Person which is a partnership, any partner in such
partnership, (b) in the case of any such Person which is a limited liability
company, any member of such company, (c) any other Person which is a Parent, a
Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or
more of the Persons referred to in the preceding clauses (a) and (b), (d) any
other Person who is an officer, director, trustee or employee of, or partner in,
such Person or any Person referred to in the preceding clauses (a), (b) and (c),
and (e) any other Person who is a member of the Immediate Family of such Person
or of any Person referred to in the preceding clauses (a) through (d).
1.5 "Agreement" shall mean this Lease Agreement, including Exhibits A to
--------- -------------
C hereto, as it and they may be amended from time to time as herein provided.
- -
1.6 "Applicable Laws" shall mean all applicable laws, statutes,
---------------
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to injury to, or the protection of, real or personal property or human health
(except those requirements which, by definition, are solely the responsibility
of employers) or the Environment, including, without limitation, all valid and
lawful requirements of courts and other Government Agencies pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pesti cides,
petroleum or petroleum products, pollutants, contaminants or hazardous or toxic
substances, materials or wastes whether solid, liquid or gaseous in nature, into
the Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature.
1.7 "Award" shall mean all compensation, sums or other value awarded,
-----
paid or received by virtue of a total or partial Condemnation of the Leased
Property (after deduction of all
<PAGE>
-3-
reasonable legal fees and other reasonable costs and expenses, including,
without limitation, expert witness fees, incurred by Landlord, in connection
with obtaining any such award).
1.8 "Base Gross Revenues" shall mean Gross Revenues for the Base Year;
-------------------
provided, however, that in the event that, with respect to any Lease Year, or
- -------- -------
portion thereof, for any reason (including, without limitation, a casualty or
Condemnation) there shall be a reduction in the number of rooms at the Hotel or
any other Hotel (as defined in the Other Leases) or a change in the services
provided at the Hotel or such other Hotels (including, without limitation,
closing of restaurants) from the number of rooms or the services provided during
the Base Year, in determining Additional Rent payable with respect to such Lease
Year, Base Gross Revenues shall be reduced as follows: (a) in the event of the
termination of any of the Other Leases, all Gross Revenues attributable to the
Leased Property demised thereunder during the Base Year shall be subtracted from
Base Gross Revenues; (b) in the event of a complete closing of a Hotel, all
Gross Revenues attributable to such Hotel during the Base Year shall be
subtracted from Base Gross Revenues throughout the period of such closing; (c)
in the event of a partial closing of a Hotel affecting any number of guest rooms
in such Hotel, Gross Revenues attributable to guest room occupancy or guest room
services at such Hotel during the Base Year shall be ratably allocated among all
guest rooms in service at such Hotel during the Base Year and all such Gross
Revenues attributable to rooms no longer in service shall be subtracted from
Base Gross Revenues throughout the period of such closing; (d) in the event of a
closing of a restaurant, all Gross Revenues attributable to such restaurant
during the Base Year shall be subtracted from Base Gross Revenues throughout the
period of such closing; and (e) in the event of any other change in
circumstances affecting any Hotel, Base Gross Revenues shall be equitably
adjusted in such manner as Landlord and Tenant shall reasonably agree.
1.9 "Base Year" shall mean the 1996 Fiscal Year.
---------
1.10 "Business Day" shall mean any day other than Saturday, Sunday, or
------------
any other day on which banking institutions in The Commonwealth of Massachusetts
or the State of Maryland are authorized by law or executive action to close.
1.11 "Capital Addition" shall mean any renovation, repair or improvement
----------------
to the Leased Property (or portion thereof), the cost of which constitutes a
Capital Expenditure and the making or implementation of which requires "Owner's"
consent under the Management Agreement.
1.12 "Capital Expenditure" shall mean any expenditure treated as capital
-------------------
in nature in accordance with GAAP.
<PAGE>
-4-
1.13 "Claim" shall have the meaning given such term in Article 8.
----- ---------
1.14 "Code" shall mean the Internal Revenue Code of 1986 and, to the
----
extent applicable, the Treasury Regulations promulgated thereunder, each as from
time to time amended.
1.15 "Collective Leased Properties" shall mean, collectively, the Leased
----------------------------
Property and every other Leased Property (as defined therein) under the Other
Leases.
1.16 "Commencement Date" shall mean the date of this Agreement.
-----------------
1.17 "Condemnation" shall mean (a) the exercise of any governmental power
------------
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting the
Leased Property, whether or not the same shall have actually been commenced.
1.18 "Condemnor" shall mean any public or quasi-public authority, or
---------
private corporation or individual, having the power of Condemnation.
1.19 "Consolidated Financials" shall mean, for any Fiscal Year or other
-----------------------
accounting period of Tenant, annual audited and quarterly unaudited financial
statements of Host prepared on a consolidated basis, including Host's
consolidated balance sheet and the related statements of income and cash flows,
all in reasonable detail, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding Fiscal Year,
and prepared in accordance with GAAP throughout the periods reflected.
1.20 "Date of Taking" shall mean the date the Condemnor has the right to
--------------
possession of the Leased Property, or any portion thereof, in connection with a
Condemnation.
1.21 "Default" shall mean any event or condition which with the giving of
-------
notice and/or lapse of time may ripen into an Event of Default.
1.22 "Distribution" shall mean (a) any declaration or payment of any
------------
dividend (except dividends payable in common stock
<PAGE>
-5-
of Tenant) on or in respect of any shares of any class of capital stock of
Tenant, (b) any purchase, redemption retirement or other acquisition of any
shares of any class of capital stock of a corporation, (c) any other
distribution on or in respect of any shares of any class of capital stock of a
corporation, or (d) any return of capital to shareholders.
1.23 "Encumbrance" shall have the meaning given such term in Section
----------- -------
20.1.
- ----
1.24 "Entity" shall mean any corporation, general or limited
------
partnership, limited liability company or partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, cooperative, any government or agency or political
subdivision thereof or any other entity.
1.25 "Environment" shall mean soil, surface waters, ground waters, land,
-----------
stream, sediments, surface or subsurface strata and ambient air.
1.26 "Environmental Obligation" shall have the meaning given such term in
------------------------
Section 4.3.1.
- -------------
1.27 "Environmental Notice" shall have the meaning given such term in
--------------------
Section 4.3.1.
- -------------
1.28 "Event of Default" shall have the meaning given such term in Section
---------------- -------
12.1.
- ----
1.29 "Excess Gross Revenues" shall mean, with respect to any Lease Year,
---------------------
or portion thereof, the amount of Gross Revenues for such Lease Year with
respect to the Collective Leased Properties, or portion thereof, in excess of
Base Gross Revenues with respect to the Collective Leased Properties for the
equivalent period.
1.30 "Extended Terms" shall have the meaning given such term in Section
-------------- -------
2.4.
- ---
1.31 "FF&E Reserve" shall have the meaning given such term in the
------------
Management Agreement.
1.32 "Financial Officer's Certificate" shall mean, as to any Person, a
-------------------------------
certificate of the chief financial officer or chief accounting officer (or such
officers' authorized designee) of such Person, duly authorized, accompanying the
financial statements required to be delivered by such Person pursuant to Section
-------
17.2, in which such officer shall certify (a) that such statements have been
- ----
properly prepared in accordance with GAAP and are true, correct and complete in
all material respects and
<PAGE>
-6-
fairly present the consolidated financial condition of such Person at and as of
the dates thereof and the results of its and their operations for the periods
covered thereby, and (b) certify that such officer has reviewed this Agreement
and has no knowledge of any Default or Event of Default hereunder.
1.33 "Fiscal Year" shall have the meaning given such term in the
-----------
Management Agreement.
1.34 "Fixed Term" shall have the meaning given such term in Section 2.3.
---------- -----------
1.35 "Fixtures" shall have the meaning given such term in Section 2.1(d).
-------- --------------
1.36 "GAAP" shall mean generally accepted accounting principles
----
consistently applied.
1.37 "Government Agencies" shall mean any court, agency, authority, board
-------------------
(including, without limitation, environmental protection, planning and zoning),
bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit of the United States
or the State or any county or any political subdivision of any of the foregoing,
whether now or hereafter in existence, having jurisdiction over Tenant or the
Leased Property or any portion thereof or the Hotel operated thereon.
1.38 "Gross Revenues" shall have the meaning given such term in the
--------------
Management Agreement.
1.39 "Hazardous Substances" shall mean any substance:
--------------------
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state or
local statute, regulation, rule, ordinance, order, action or policy; or
(b) which is or becomes defined as a "hazardous waste", "hazardous
material" or "hazardous substance" or "pollutant" or "contaminant" under
any present or future federal, state or local statute, regulation, rule or
ordi nance or amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C.
-- ---
section 6901 et seq.) and the regulations promulgated thereunder; or
-- ---
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated by any
<PAGE>
-7-
governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, any state of the United States, or
any political subdivision thereof; or
(d) the presence of which on the Leased Property causes or
materially threatens to cause an unlawful nuisance upon the Leased
Property or to adjacent properties or poses or materially threatens to
pose a hazard to the Leased Property or to the health or safety of persons
on or about the Leased Property; or
(e) without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated biphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive
particles, waves or material; or
(h) without limitation, constitutes materials which are now or may
hereafter be subject to regulation pursuant to the Material Waste Tracking
Act of 1988, or any Applicable Laws promulgated by any Government
Agencies.
1.40 "Host" shall mean Host Marriott Corporation, a Delaware corporation.
----
1.41 "Hotel" shall mean the Residence Inn Hotel being operated on the
-----
Leased Property.
1.42 "Hotel Mortgage" shall mean any Encumbrance placed upon the Leased
--------------
Property in accordance with Article 20.
----------
1.43 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage.
---------------
1.44 "Immediate Family" shall mean, with respect to any individual, such
----------------
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.
1.45 "Impositions" shall mean collectively, all taxes (including, without
-----------
limitation, all taxes imposed under the laws of the State, as such laws may be
amended from time to time, and all ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or similar taxes as the same relate
<PAGE>
-8-
to or are imposed upon Landlord, Tenant or the business conducted upon the
Leased Property), assessments (including, without limitation, all assessments
for public improvements or benefit, whether or not commenced or completed prior
to the date hereof), water, sewer or other rents and charges, excises, tax
levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or the business
conducted thereon by Tenant (including all interest and penalties thereon due to
any failure in payment by Tenant), which at any time prior to, during or in
respect of the Term hereof may be assessed or imposed on or in respect of or be
a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein, or (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with the Leased Property
or the leasing or use of the Leased Property or any part thereof by Tenant;
provided, however, that nothing contained herein shall be construed to require
- -------- -------
Tenant to pay (i) any tax based on net income imposed on Landlord, (ii) any net
revenue tax of Landlord, (iii) any transfer fee or other tax imposed with
respect to the sale, exchange or other disposition by Landlord of the Leased
Property or the proceeds thereof (other than in connection with the sale,
exchange or other disposition to, or in connection with a transaction involving,
Tenant), (iv) any single business, gross receipts tax (other than a tax on any
rent received by Landlord from Tenant unless such gross receipts tax on such
rent is in lieu of any other tax, assessment, levy or charge otherwise excluded
from this definition of Impositions), transaction privilege, rent or similar
taxes as the same relate to or are imposed upon Landlord, except to the extent
that any tax, assess ment, tax levy or charge which is in effect at any time
during the Term hereof is totally or partially repealed, and a tax, assessment,
tax levy or charge set forth in clause (i) or (ii) preceding is levied, assessed
or imposed expressly in lieu thereof, (v) any interest or penalties imposed on
Landlord as a result of the failure of Landlord to file any return or report
timely and in the form prescribed by law or to pay any tax or imposition, except
to the extent such failure is a result of a breach by Tenant of its obligations
pursuant to Section 3.1.3, (vi) any Impositions imposed on Landlord that are a
-------------
result of Landlord not being considered a "United States person" as defined in
Section 7701(a)(30) of the Code, (vii) any Impositions that are enacted or
adopted by their express terms as a substitute for any tax that would not have
been payable by Tenant pursuant to the terms of this Agreement or (viii) any
Impositions imposed as a result of a breach of covenant or representation by
Landlord in
<PAGE>
-9-
any agreement governing Landlord's conduct or operation or as a result of the
gross negligence or willful misconduct of Landlord.
1.46 "Incidental Documents" shall mean the Pledge and Security Agreement.
--------------------
1.47 "Indebtedness" shall mean all obligations, contingent or otherwise,
------------
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.
1.48 "Insurance Requirements" shall mean all terms of any insurance
----------------------
policy required by this Agreement and all requirements of the issuer of any such
policy and all orders, rules and regulations and any other requirements of the
National Board of Fire Underwriters (or any other body exercising similar
functions) binding upon Landlord, Tenant or the Leased Property.
1.49 "Interest Rate" shall mean ten percent (10%) per annum.
-------------
1.50 "Land" shall have the meaning given such term in Section 2.1(a).
---- --------------
1.51 "Landlord" shall have the meaning given such term in the preambles
--------
to this Agreement.
1.52 "Landlord Liens" shall mean liens on or against the Leased Property
--------------
or any payment of Rent (a) which result from any act of, or any claim against,
Landlord or any owner of a direct or indirect interest in the Leased Property,
or which result from any violation by Landlord of any terms of this Agreement or
the Purchase Agreement, or (b) which result from liens in favor of any taxing
authority by reason of any tax owed by Landlord or any fee owner of a direct or
indirect interest in the Leased Property; provided, however, that "Landlord
-------- ------- --------
Lien" shall not include any lien resulting from any tax for which Tenant is
obligated to pay or indemnify Landlord against until such time as Tenant shall
have already paid to or on behalf of Landlord the tax or the required indemnity
with respect to the same.
1.53 "Lease Year" shall mean any Fiscal Year or portion thereof,
----------
commencing with the 1995 Fiscal Year, during the Term.
1.54 "Leased Improvements" shall have the meaning given such term in
-------------------
Section 2.1(b).
- --------------
1.55 "Leased Intangible Property" shall mean all hotel licensing
--------------------------
agreements and other service contracts, equipment leases, booking agreements and
other arrangements or agreements affecting the ownership, repair, maintenance,
management, leasing or operation of the Leased Property to which Landlord is a
party;
<PAGE>
-10-
all books, records and files relating to the leasing, maintenance, management or
operation of the Leased Property belonging to Landlord; all transferable or
assignable permits, certificates of occupancy, operating permits, sign permits,
development rights and approvals, certificates, licenses, warranties and
guarantees, rights to deposits, trade names, service marks, telephone exchange
numbers identified with the Leased Property, and all other transferable
intangible property, miscellaneous rights, benefits and privileges of any kind
or character belonging to Landlord with respect to the Leased Property.
1.56 "Leased Personal Property" shall have the meaning given such term in
------------------------
Section 2.1(e).
- --------------
1.57 "Leased Property" shall have the meaning given such term in Section
--------------- -------
2.1.
- ---
1.58 "Legal Requirements" shall mean all federal, state, county,
------------------
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting the Leased Property or
the maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, and (b) all covenants,
agreements, restrictions and encumbrances contained in any instruments at any
time in force affecting the Leased Property, including those which may (i)
require material repairs, modifications or alterations in or to the Leased
Property or (ii) in any way materially and adversely affect the use and
enjoyment thereof, but excluding any requirements arising as a result of
Landlord's status as a real estate investment trust.
1.59 "Lending Institution" shall mean any United States insurance
-------------------
company, federally insured commercial or savings bank, national banking
association, United States savings and loan association, employees' welfare,
pension or retirement fund or system, corporate profit sharing or pension trust,
college or university, or real estate investment trust, including any
corporation qualified to be treated for federal tax purposes as a real estate
investment trust, such trust having a net worth of at least $100,000,000.
1.60 "Lien" shall mean any mortgage, security interest, pledge,
----
collateral assignment, or other encumbrance, lien or charge of any kind, or any
transfer of property or assets for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors.
<PAGE>
-11-
1.61 "Management Agreement" shall mean the Management Agreement between
--------------------
Tenant and the Manager with respect to the Leased Premises, dated September 25,
1993, together with all amendments, modifications and supplements thereto.
1.62 "Manager" shall mean Residence Inn by Marriott, Inc., a Delaware
-------
corporation.
1.63 "Minimum Rent" shall mean, with respect to each Accounting Period,
------------
the sum set forth on Exhibit A.
---------
1.64 "Notice" shall mean a notice given in accordance with Section 22.10.
------ -------------
1.65 "Officer's Certificate" shall mean a certificate signed by an
---------------------
officer of the certifying Entity duly authorized by the board of directors of
the certifying Entity.
1.66 "Other Leases" shall mean, collectively, the Lease Agreements
------------
between Landlord and Tenant described on Exhibit B.
---------
1.67 "Overdue Rate" shall mean, on any date, a per annum rate of interest
------------ --- -----
equal to the lesser of fifteen percent (15%) and the maximum rate then permitted
under applicable law.
1.68 "Parent" shall mean, with respect to any Person, any Person which
------
owns directly, or indirectly through one or more Subsidiaries or Affiliated
Persons, five percent (5%) or more of the voting or beneficial interest in, or
otherwise has the right or power (whether by contract, through ownership of
securities or otherwise) to control, such Person.
1.69 "Permitted Encumbrances" shall mean all rights, restrictions, and
----------------------
easements of record set forth on Schedule B to the applicable owner's or
leasehold title insurance policy issued to Landlord on the date hereof, plus any
other such encumbrances as may have been consented to in writing by Landlord
from time to time.
1.70 "Permitted Liens" shall mean any Liens granted in accordance with
---------------
Section 21.9(a).
- ---------------
1.71 "Permitted Use" shall mean any use of the Leased Property permitted
-------------
pursuant to Section 4.1.1(a) or (b).
-----------------------
1.72 "Person" shall mean any individual or Entity, and the heirs,
------
executors, administrators, legal representatives, successors and assigns of such
Person where the context so admits.
<PAGE>
-12-
1.73 "Pledge and Security Agreement" shall mean the Pledge and Security
-----------------------------
Agreement, dated as of the date hereof, made by Tenant for the benefit of
Landlord.
1.74 "Purchase Agreement" shall mean the Purchase and Sale Agreement,
------------------
dated as of February __, 1996, by and among Landlord and HMH Properties, Inc.,
as amended.
1.75 "Records" shall have the meaning given such term in Section 7.2.
------- -----------
1.76 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent
----
and Additional Charges.
1.77 "Request Notice" shall have the meaning given such term in Section
-------------- -------
16.1.
- ----
1.78 "Response Notice" shall mean the meaning given such term in Section
--------------- -------
16.1.
- ----
1.79 "SEC" shall mean the Securities and Exchange Commission.
---
1.80 "State" shall mean the state or commonwealth or district in which
-----
the Leased Property is located.
1.81 "Subordinated Creditor" shall mean any creditor of Tenant which is a
---------------------
party to a Subordination Agreement in favor of Landlord.
1.82 "Subordination Agreement" shall mean any agreement executed by a
-----------------------
Subordinated Creditor pursuant to which the payment and performance of Tenant's
obligations to such Subordinated Creditor are subordinated to the payment and
performance of Tenant's obligations to Landlord under this Agreement.
1.83 "Subsidiary" shall mean, with respect to any Person, any Entity (a)
----------
in which such Person owns directly, or indirectly through one or more
Subsidiaries, fifty-one percent (51%) or more of the voting or beneficial
interest or (b) which such Person otherwise has the right or power to control
(whether by contract, through ownership of securities or otherwise).
1.84 "Successor Landlord" shall have the meaning given such term in
------------------
Section 20.2.
- ------------
1.85 "Tangible Net Worth" shall mean the excess of total assets over
------------------
total liabilities, total assets and total liabilities each to be determined in
accordance with GAAP, excluding, however, from the determination of total
assets: (a) goodwill, organizational expenses, research and development
expenses,
<PAGE>
-13-
trademarks, trade names, copyrights, patents, patent applications, licenses and
rights in any thereof, and other similar intangibles; (b) all deferred charges
or unamortized debt discount and expense; (c) all reserves carried and not
deducted from assets; (d) treasury stock and capital stock, obligations or other
securities of, or capital contributions to, or investments in, any Subsidiary;
(e) securities which are not readily marketable; (f) any write-up in the book
value of any asset resulting from a revaluation thereof subsequent to the
Commencement Date; (g) deferred gain; and (h) any items not included in clauses
(a) through (g) above that are treated as intangibles in conformity with GAAP.
1.86 "Tenant" shall have the meaning given such term in the preambles to
------
this Agreement.
1.87 "Tenant's Personal Property" shall mean all motor vehicles and
--------------------------
consumable inventory and supplies, furniture, furnishings, movable walls and
partitions, equipment and machinery and all other personal property of Tenant,
if any, acquired by Tenant on and after the date hereof and located at the
Leased Property or used in Tenant's business at the Leased Property and all
modifications, replacements, alterations and additions to such personal property
installed at the expense of Tenant, other than any items included within the
definition of Fixtures or Leased Personal Property.
1.88 "Term" shall mean, collectively, the Fixed Term and the Extended
----
Terms, to the extent properly exercised pursuant to the provisions of Section
-------
2.4, unless sooner terminated pursuant to the provisions of this Agreement.
- ---
1.89 "Uniform System of Accounts" shall mean A Uniform System of Accounts
-------------------------- ----------------------------
for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association
- ----------
of New York City, as the same may be further revised from time to time.
1.90 "Unsuitable for Its Permitted Use" shall mean a state or condition
--------------------------------
of the Hotel such that (a) following any damage or destruction involving the
Hotel, the Hotel cannot be operated in the good faith judgment of Tenant or the
Manager on a commercially practicable basis for its Permitted Use and it cannot
reasonably be expected to be restored to substantially the same condition as
existed immediately before such damage or destruction, and as otherwise required
by Section 10.2.4, within six (6) months following such damage or destruction or
--------------
such shorter period of time as to which business interruption insurance is
available to cover Rent and other costs related to the Leased Property following
such damage or destruction, or (b) as the result of a partial taking by
Condemnation, the Hotel can not be operated, in the good faith judgment of
Tenant or the
<PAGE>
-14-
Manager on a commercially practicable basis for its Permitted Use.
1.91 "Work" shall have the meaning given such term in Section 10.2.4.
---- --------------
ARTICLE 2
----------
LEASED PROPERTY AND TERM
------------------------
2.1 Leased Property. Upon and subject to the terms and conditions
---------------
hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord
all of Landlord's right, title and interest in and to all of the following
(collectively, the "Leased Property"):
---------------
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibit C, attached hereto and made a part
---------
hereof (the "Land");
----
(b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site),
parking areas and roadways appurtenant to such buildings and structures
presently situated upon the Land (collectively, the "Leased
------
Improvements");
------------
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property,
now or hereafter permanently affixed to or incorporated into the Leased
Improvements, including, without limitation, all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which,
to the maximum extent permitted by law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Tenant's Personal
Property (collectively, the "Fixtures");
--------
(e) all machinery, equipment, furniture, furnishings, moveable walls
or partitions, computers or trade fixtures or other personal property of
any kind or description used or
<PAGE>
-15-
useful in Tenant's business on or in the Leased Improvements, and located
on or in the Leased Improvements, and all modifications, replacements,
alterations and additions to such personal property, except items, if any,
included within the category of Fixtures, but specifically excluding all
items included within the category of Tenant's Personal Property
(collectively, the "Leased Personal Property");
------------------------
(f) all of the Leased Intangible Property; and
(g) any and all leases of space (including any security deposits
held by Tenant or the Manager pursuant thereto) in the Leased Improvements
to tenants thereof.
2.2 Condition of Leased Property. Tenant acknowledges receipt and
----------------------------
delivery of possession of the Leased Property and Tenant accepts the Leased
Property in its "as is" condition, subject to the rights of parties in
possession, the existing state of title, including all covenants, conditions,
restrictions, reservations, mineral leases, easements and other matters of
record or that are visible or apparent on the Leased Property, all applicable
Legal Requirements, the lien of any financing instruments, mortgages and deeds
of trust existing prior to the Commencement Date or permitted by the terms of
this Agreement, and such other matters which would be disclosed by an inspection
of the Leased Property and the record title thereto or by an accurate survey
thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF
THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT
RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR
EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST
LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY TENANT. To the maximum extent permitted by law,
however, Landlord hereby assigns to Tenant all of Landlord's rights to proceed
against any predecessor in title for breaches of warranties or representations
or for latent defects in the Leased Property. Landlord shall fully cooperate
with Tenant in the prosecution of any such claims, in Landlord's or Tenant's
name, all at Tenant's sole cost and expense. Tenant shall indemnify, defend,
and hold harmless Landlord from and against any loss, cost, damage or liability
(including reasonable attorneys' fees) incurred by Landlord in connection with
such cooperation.
<PAGE>
-16-
2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term")
---------- ----------
shall commence on the Commencement Date and shall expire December 31, 2010.
2.4 Extended Term. Provided that no Event of Default shall have occurred
-------------
and be continuing, this Agreement shall be in full force and effect, and the
term of all of the Other Leases shall be simultaneously extended, the Term shall
be automatically extended for three (3) consecutive renewal terms, the first
such renewal term to be for a period of ten (10) years and the last two such
renewal terms to be for a period of fifteen (15) years each (collectively, the
"Extended Terms"), unless Tenant shall give Landlord Notice, not later than two
- ---------------
(2) years prior to the scheduled expiration of the then current Term of this
Agreement (Fixed or Extended, as the case may be), that Tenant elects not so to
extend the term of this Agreement (and time shall be of the essence with respect
to the giving of such Notice). It is expressly understood and agreed that such
Notice from Tenant shall be void and of no effect and the Term shall be
automatically extended unless Tenant shall simultaneously elect not to extend
the term of the Other Leases.
Each Extended Term shall commence on the day succeeding the expiration of
the Fixed Term or the preceding Extended Term, as the case may be. All of the
terms, covenants and provisions of this Agreement shall apply to each such
Extended Term, except that Tenant shall have no right to extend the Term beyond
the expiration of the Extended Terms. If Tenant shall give Notice that it
elects not to extend the Term in accordance with this Section 2.4, this
-----------
Agreement shall automatically terminate at the end of the Term then in effect
and Tenant shall have no further option to extend the Term of this Agreement.
Otherwise, the extension of this Agreement shall be automatically effected
without the execution of any additional documents; it being understood and
agreed, however, that Tenant and Landlord shall execute such documents and
agreements as either party shall reasonably require to evidence the same.
ARTICLE 3
----------
RENT
----
3.1 Rent. Tenant shall pay, in lawful money of the United States of
----
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Minimum Rent and Additional Rent to Landlord and
Additional Charges to the party to whom such Additional Charges are payable,
during the Term. All payments to Landlord shall be made by wire transfer of
immediately available federal funds or
<PAGE>
-17-
by other means acceptable to Landlord in its sole discretion. Rent for any
partial Accounting Period shall be prorated on a per diem basis.
3.1.1 Minimum Rent.
------------
(a) Minimum Rent shall be paid in advance on the first Business Day
of each Accounting Period; provided, however, that the first payment of
-------- -------
Minimum Rent shall be payable on the Commencement Date (and, if
applicable, such payment shall be prorated as provided in the last
sentence of the first paragraph of Section 3.1).
-----------
(b) Adjustments of Minimum Rent Following Disbursements Under
---------------------------------------------------------
Sections 5.1.2(b), 10.2.4 or 11.2. Effective on the date of each
---------------------------------
disbursement to pay for the cost of any repairs, maintenance, renovations
or replacements pursuant to Sections 5.1.2(b), 10.2.4 or 11.2, the Minimum
---------------------------------
Rent shall be increased by a per annum amount equal to ten percent (10%)
--- -----
of the amount so disbursed. If any such disbursement is made during any
Accounting Period on a day other than the first day of a Accounting
Period, Tenant shall pay to Landlord on the first day of the immediately
following Accounting Period (in addition to the amount of Minimum Rent
payable with respect to such Accounting Period, as adjusted pursuant to
this paragraph (b)) the amount by which Minimum Rent for the preceding
Accounting Period, as adjusted for such disbursement on a per diem basis,
exceeded the amount of Minimum Rent paid by Tenant for such preceding
Accounting Period.
3.1.2 Additional Rent.
---------------
(a) Amount. For each Lease Year or portion thereof, Tenant shall pay
------
an aggregate amount of additional rent ("Additional Rent") with respect to
---------------
such Lease Year, pursuant to this Agreement and the Other Leases, in an
amount, not less than zero, equal to seven and one-half percent (7.5%) of
Excess Gross Revenues.
(b) Quarterly Installments. Installments of Additional Rent for each
----------------------
Lease Year or portion thereof shall be calculated and paid quarterly in
arrears, together with an Officer's Certificate setting forth the
calculation of Additional Rent due and payable for such quarter. Copies of
each Accounting Period Statement (as defined in the Management Agreement)
delivered pursuant to Section 5.03 of the Management Agreement shall be
delivered to Landlord upon receipt by Tenant and each quarterly payment of
Additional Rent shall due and payable and shall be delivered to Landlord
with the payment of the Minimum Rent next due after
<PAGE>
-18-
receipt of such Accounting Period Statement, together with an Officer's
Certificate setting forth the calculation of Additional Rent due and
payable for such quarter.
(c) Reconciliation of Additional Rent. In addition, on or before
---------------------------------
April 30, of each year, commencing April 30, 1997, Tenant shall deliver to
Landlord an Officer's Certificate setting forth the Gross Revenues for the
Collective Leased Properties for such preceding Lease Year, together with
an audit of Tenant's revenues for the preceding Lease Year, conducted by
Arthur Anderson and Co., or another "Big Six", so-called, firm of
independent certified public accountants proposed by Tenant and approved
by Landlord (which approval shall not be unreasonably withheld or
delayed).
If the annual Additional Rent for such preceding Lease Year as shown
in the Officer's Certificate exceeds the amount previously paid with
respect thereto by Tenant, Tenant shall pay such excess to Landlord at
such time as the Officer's Certificate is delivered, together with
interest at the Interest Rate, which interest shall accrue from the close
of such preceding Lease Year until the date that such certificate is
required to be delivered and, thereafter, such interest shall accrue at
the Overdue Rate, until the amount of such difference shall be paid or
otherwise discharged. If the annual Additional Rent for such preceding
Lease Year as shown in the Officer's Certificate is less than the amount
previously paid with respect thereto by Tenant, provided that no Event of
Default shall have occurred and be continuing, Landlord shall grant Tenant
a credit against Additional Rent next coming due in the amount of such
difference, together with interest at the Interest Rate, which interest
shall accrue from the date of payment of Tenant until the date such credit
is applied or paid, as the case may be. If such credit cannot be made
because the Term has expired prior to application in full thereof,
provided no Event of Default has occurred and is continuing, Landlord
shall pay the unapplied balance of such credit to Tenant, together with
interest at the Interest Rate, which interest shall accrue from the date
of payment by Tenant until the date of payment by Landlord.
(d) Confirmation of Additional Rent. Tenant shall utilize, or cause
-------------------------------
to be utilized, an accounting system for the Collective Leased Properties
in accordance with its usual and customary practices and in accordance
with GAAP, which will accurately record all Gross Revenues and Tenant
shall retain, for at least three (3) years after the expiration of each
Lease Year, reasonably adequate records conforming to such accounting
system showing all Gross
<PAGE>
-19-
Revenues for such Lease Year. Landlord, at its own expense except as
provided hereinbelow, shall have the right, exercisable by Notice to
Tenant within one (1) year after receipt of the applicable Officer's
Certificate, by its accountants or representatives to audit the
information set forth in the Officer's Certificate referred to in
subparagraph (c) above and, in connection with such audits, to examine
Tenant's and the Manager's books and records with respect thereto
(including supporting data and sales and excise tax returns). If any such
audit discloses a deficiency in the payment of Additional Rent, and either
Tenant agrees with the result of such audit or the matter is otherwise
compromised with Landlord, Tenant shall forthwith pay to Landlord the
amount of the deficiency, as finally agreed or determined, together with
interest at the Interest Rate, from the date such payment should have been
made to the date of payment thereof. If such deficiency, as agreed upon or
compromised as aforesaid, is more than three percent (3%) of the Gross
Revenues reported by Tenant for such Lease Year and, as a result, Landlord
did not receive at least ninety-five percent (95%) of the Additional Rent
payable with respect to such Lease Year, Tenant shall pay the reasonable
cost of such audit and examination. If any such audit discloses that
Tenant paid more Additional Rent for any Lease Year than was due
hereunder, and either Landlord agrees with the result of such audit or the
matter is otherwise determined, provided no Event of Default has occurred
and is continuing, Landlord shall grant Tenant a credit equal to the
amount of such overpayment against Additional Rent next coming due in the
amount of such difference, as finally agreed or determined, together with
interest at the Interest Rate, which interest shall accrue from the time
of payment by Tenant until the date such credit is applied or paid, as the
case may be. If such a credit cannot be made because the Term has expired
before the credit can be applied in full, provided no Event of Default has
occurred and is continuing, Landlord shall pay the unapplied balance of
such credit to Tenant, together with interest at the Interest Rate, which
interest shall accrue from the date of payment by Tenant until the date of
payment from Landlord.
Any proprietary information obtained by Landlord with respect to
Tenant or the Manager pursuant to the provisions of this Agreement shall
be treated as confidential, except that such information may be used,
subject to appropriate confidentiality safeguards, in any litigation
between the parties and except further that Landlord may disclose such
information to its prospective lenders, provided that Landlord shall
direct and obtain the agreement of such lenders to maintain such
information as confidential. The
<PAGE>
-20-
obligations of Tenant and Landlord contained in this Section 3.1.2 shall
-------------
survive the expiration or earlier termination of this Agreement.
3.1.3 Additional Charges. In addition to the Minimum Rent and
------------------
Additional Rent payable hereunder, Tenant shall pay to the appropriate parties
and discharge as and when due and payable the following (collectively,
"Additional Charges"):
- -------------------
(a) Impositions. Subject to Article 8 relating to permitted
----------- ---------
contests, Tenant shall pay, or cause to be paid, all Impositions before
any fine, penalty, interest or cost (other than any opportunity cost as a
result of a failure to take advantage of any discount for early payment)
may be added for non-payment, such payments to be made directly to the
taxing authorities where feasible, and shall promptly, upon request,
furnish to Landlord copies of official receipts or other reasonably
satisfactory proof evidencing such payments. If any such Imposition may,
at the option of the taxpayer, lawfully be paid in installments (whether
or not interest shall accrue on the unpaid balance of such Imposition),
Tenant may exercise the option to pay the same (and any accrued interest
on the unpaid balance of such Imposition) in installments and, in such
event, shall pay such installments during the Term as the same become due
and before any fine, penalty, premium, further interest or cost may be
added thereto. Landlord, at its expense, shall, to the extent required or
permitted by Applicable Law, prepare and file all tax returns and pay all
taxes due in respect of Landlord's net income, gross receipts, sales and
use, single business, transaction privilege, rent, ad valorem, franchise
taxes and taxes on its capital stock, and Tenant, at its expense, shall,
to the extent required or permitted by Applicable Laws and regulations,
prepare and file all other tax returns and reports in respect of any
Imposition as may be required by Government Agencies. Provided no Event of
Default shall have occurred and be continuing, if any refund shall be due
from any taxing authority in respect of any Imposition paid by Tenant, the
same shall be paid over to or retained by Tenant. Landlord and Tenant
shall, upon request of the other, provide such data as is maintained by
the party to whom the request is made with respect to the Leased Property
as may be necessary to prepare any required returns and reports. In the
event Government Agencies classify any property covered by this Agreement
as personal property, Tenant shall file all personal property tax returns
in such jurisdictions where it may legally so file. Each party shall, to
the extent it possesses the same, provide the other, upon request, with
cost and depreciation records necessary for filing returns for any
property so classified as personal property. Where Landlord is legally
required to
<PAGE>
-21-
file personal property tax returns for property covered by this Agreement,
Landlord shall provide Tenant with copies of assessment notices in
sufficient time for Tenant to file a protest. All Impositions assessed
against such personal property shall be (irrespective of whether Landlord
or Tenant shall file the relevant return) paid by Tenant not later than
the last date on which the same may be made without interest or penalty.
Landlord shall give prompt Notice to Tenant and the Manager of all
Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge; provided, however, that Landlord's failure to give any such
-------- -------
notice shall in no way diminish Tenant's obligation hereunder to pay such
Impositions (except that Landlord shall be responsible for any interest or
penalties incurred as a result of Landlord's failure promptly to forward
the same).
(b) Utility Charges. Tenant shall pay or cause to be paid all
---------------
charges for electricity, power, gas, oil, water and other utilities used
in connection with the Leased Property.
(c) Insurance Premiums. Tenant shall pay or cause to be paid all
------------------
premiums for the insurance coverage required to be maintained pursuant to
Article 9.
---------
(d) Other Charges. Tenant shall pay or cause to be paid all other
-------------
amounts, liabilities and obligations, including, without limitation, and
all amounts payable under or with respect to the Management Agreement
(except as expressly provided in Section 5.1.2(b)) and any equipment
----------------
leases and all agreements to indemnify Landlord under Sections 4.3.2 and
--------------
9.7.
---
(e) Reimbursement for Additional Charges. If Tenant pays or causes
------------------------------------
to be paid property taxes or similar or other Additional Charges
attributable to periods after the end of the Term, whether upon expiration
or sooner termination of this Agreement (other than termination by reason
of an Event of Default), Tenant may, within a reasonable time after the
end of the Term, provide Notice to Landlord of its estimate of such
amounts. Landlord shall promptly reimburse Tenant for all payments of such
taxes and other similar Additional Charges that are attributable to any
period after the Term of this Agreement (unless this Agreement shall have
been terminated following an Event of Default).
3.2 Late Payment of Rent, Etc., If any installment of Minimum Rent,
--------------------------
Additional Rent or Additional Charges (but only as to those Additional Charges
which are payable directly to Landlord) shall not be paid within ten (10) days
after its due
<PAGE>
-22-
date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge
(to the extent permitted by law) computed at the Overdue Rate on the amount of
such installment, from the due date of such installment to the date of payment
thereof. To the extent that Tenant pays any Additional Charges directly to
Landlord or any Hotel Mortgagee pursuant to any requirement of this Agreement,
Tenant shall be relieved of its obligation to pay such Additional Charges to the
Entity to which they would otherwise be due. If any payments due from Landlord
to Tenant shall not be paid within ten (10) days after its due date, Landlord
shall pay to Tenant, on demand, a late charge (to the extent permitted by law)
computed at the Overdue Rate on the amount of such installment from the due date
of such installment to the date of payment thereof.
In the event of any failure by Tenant to pay any Additional Charges when
due, except as expressly provided in Section 3.1.3(a), Tenant shall promptly pay
----------------
and discharge, as Additional Charges, every fine, penalty, interest and cost
which may be added for non-payment or late payment of such items. Landlord
shall have all legal, equitable and contractual rights, powers and remedies
provided either in this Agreement or by statute or otherwise in the case of non-
payment of the Additional Charges as in the case of non-payment of the Minimum
Rent and Additional Rent.
3.3 Net Lease. The Rent shall be absolutely net to Landlord so that this
---------
Agreement shall yield to Landlord the full amount of the installments or amounts
of the Rent throughout the Term, subject to any other provisions of this
Agreement which expressly provide otherwise, including those provisions for
adjustment or abatement of such Rent.
3.4 No Termination, Abatement, Etc. Except as otherwise specifically
-------------------------------
provided in this Agreement, each of Landlord and Tenant, to the maximum extent
permitted by law, shall remain bound by this Agreement in accordance with its
terms and shall not take any action without the consent of the other to modify,
surrender or terminate this Agreement. In addition, except as otherwise
expressly provided in this Agreement, Tenant shall not seek, or be entitled to,
any abatement, deduction, deferment or reduction of the Rent, or set-off against
the Rent, nor shall the respective obligations of Landlord and Tenant be
otherwise affected by reason of (a) any damage to or destruction of the Leased
Property or any portion thereof from whatever cause or any Condemnation, (b) the
lawful or unlawful prohibition of, or restriction upon, Tenant's use of the
Leased Property, or any portion thereof, or the interference with such use by
any Person or by reason of eviction by paramount title; (c) any claim which
Tenant may have against Landlord by reason of any default (other than a monetary
default) or breach of any warranty by Landlord
<PAGE>
-23-
under this Agreement or any other agreement between Landlord and Tenant, or to
which Landlord and Tenant are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Landlord or any assignee or transferee of
Landlord; or (e) for any other cause whether similar or dissimilar to any of the
foregoing (other than a monetary default by Landlord); provided, however, that
-------- -------
the foregoing shall not apply or be construed to restrict Tenant's rights in the
event of any act or omission by Landlord constituting gross negligence or
willful misconduct. Except as otherwise specifically provided in this
Agreement, Tenant hereby waives all rights arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law, to (a)
modify, surrender or terminate this Agreement or quit or surrender the Leased
Property or any portion thereof, or (b) entitle Tenant to any abatement,
reduction, suspension or deferment of the Rent or other sums payable or other
obligations to be performed by Tenant hereunder. The obligations of each party
hereunder shall be separate and independent covenants and agreements, and the
Rent and all other sums payable by Tenant hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Agreement. In any instance where,
after the occurrence of an Event of Default, Landlord retains funds which, but
for the occurrence of such Event of Default, would be payable to Tenant,
Landlord shall refund such funds to Tenant to the extent the amount thereof
exceeds the amount necessary to compensate Landlord for any cost, loss or damage
incurred in connection with such Event of Default.
3.5 Security for Tenant's Performance. Tenant acknowledges that the
---------------------------------
Retained Funds (as defined in the Purchase Agreement) constitute security for
the faithful observance and performance by Tenant of all the terms, covenants
and conditions of this Agreement by Tenant to be observed and performed. If any
Event of Default shall occur and be continuing, Landlord may, at its option and
without prejudice to any other remedy which Landlord may have on account
thereof, appropriate and apply the entire amount of the Retained Funds or so
much thereof as may be necessary to compensate Landlord toward the payment of
the Rent or other sums or loss or damage sustained by Landlord due to such
breach by Tenant. It is understood and agreed that the amount of the Retained
Funds is not to be considered as prepaid rent, nor shall damages be limited to
the amount of the amount of the Retained Funds. Provided this Agreement shall
not be terminated as a result of an Event of Default, the Retained Funds shall
be paid as provided in the Purchase Agreement.
<PAGE>
-24-
ARTICLE 4
----------
USE OF THE LEASED PROPERTY
--------------------------
4.1 Permitted Use.
-------------
4.1.1 Permitted Use.
-------------
(a) Except as otherwise provided in the Management Agreement, Tenant
shall, at all times during the Term and at any other time that Tenant
shall be in possession of the Leased Property, continuously use and
operate, and cause the Manager to use and operate, the Leased Property as
a Marriott Residence Inn hotel and any uses incidental thereto. Subject to
Section 16.3, Tenant shall not use (and shall direct the Manager not to
------------
use) the Leased Property or any portion thereof for any other use without
the prior written consent of Landlord. No use shall be made or permitted
to be made of the Leased Property and no acts shall be done thereon which
will cause the cancellation of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy is
available), nor shall Tenant sell or otherwise provide or permit to be
kept, used or sold in or about the Leased Property any article which may
be prohibited by law or by the standard form of fire insurance policies,
or any other insurance policies required to be carried hereunder, or fire
underwriter's regulations. Tenant shall, at its sole cost (except as
expressly provided in Section 5.1.2(b)), comply (or direct the Manager to
----------------
comply) with all Insurance Requirements. Except as otherwise provided in
the Management Agreement, Tenant shall not take or omit to take (and
Tenant shall direct the Manager not to take or omit to take) any action,
the taking or omission of which materially impairs the value or the
usefulness of the Leased Property or any part thereof for its Permitted
Use.
(b) In the event that, in the reasonable determination of Tenant, it
shall no longer be economically practical to operate the Leased Property
as a Marriott Residence Inn hotel, Tenant shall give Landlord Notice
thereof, which Notice shall set forth in reasonable detail the reasons
therefor. Thereafter, Landlord and Tenant shall negotiate in good faith to
agree on an alternative use for the Leased Property, appropriate
adjustments to the Additional Rent and other related matters; provided,
--------
however, in no such event shall the Minimum Rent be reduced or abated.
-------
4.1.2 Necessary Approvals. Tenant shall proceed with all due
-------------------
diligence and exercise best efforts to obtain and maintain, and shall direct the
Manager to obtain and maintain,
<PAGE>
-25-
all approvals necessary to use and operate, for its Permitted Use, the Leased
Property and the Hotel located thereon under applicable law.
4.1.3 Lawful Use, Etc. Tenant shall not, and shall direct the
----------------
Manager not to, use or suffer or permit the use of the Leased Property or
Tenant's Personal Property, if any, for any unlawful purpose. Tenant shall not,
and shall direct the Manager not to, commit or suffer to be committed any waste
on the Leased Property, or in the Hotel, nor shall Tenant cause or permit any
unlawful nuisance thereon or therein. Tenant shall not, and shall direct the
Manager not to, suffer nor permit the Leased Property, or any portion thereof,
to be used in such a manner as (i) might reasonably impair Landlord's title
thereto or to any portion thereof, or (ii) may reasonably allow a claim or
claims for adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Except as
--------------------------------------------------
otherwise provided in the Management Agreement, subject to the provisions of
Article 8 and Section 5.1.2(b), Tenant, at its sole expense, shall (or shall
- ------------------------------
direct the Manager to) (i) comply with Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair, alteration
and restoration of the Leased Property and with the terms and conditions of any
ground lease affecting the Leased Property, and (ii) and (iii) procure, maintain
and comply with all appropriate licenses, and other authorizations and
agreements required for any use of the Leased Property and Tenant's Personal
Property, if any, then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
4.3 Environmental Matters.
---------------------
4.3.1 Restriction on Use, Etc. During the Term and any other time
-----------------------
that Tenant shall be in possession of the Leased Property, Tenant shall not (and
shall direct the Manager not to) store, spill upon, dispose of or transfer to or
from the Leased Property any Hazardous Substance, except in compliance with all
Applicable Laws. During the Term and any other time that Tenant shall be in
possession of the Leased Property, Tenant shall maintain (and shall direct the
Manager to maintain) the Leased Property at all times free of any Hazardous
Substance (except in compliance with all Applicable Laws). Tenant shall
promptly: (a) upon receipt of notice or knowledge and shall direct the Manager
upon receipt of notice or knowledge promptly to, notify Landlord in writing of
any material change in the nature or extent of Hazardous Substances at the
Leased Property, (b) transmit to Landlord a copy of any Community Right to Know
report
<PAGE>
-26-
which is required to be filed by Tenant or the Manager with respect to the
Leased Property pursuant to SARA Title III or any other Applicable Law, (c)
transmit to Landlord copies of any citations, orders, notices or other
governmental communications received by Tenant or the Manager or their
respective agents or representatives with respect thereto (collectively,
"Environmental Notice"), which Environmental Notice requires a written response
- ---------------------
or any action to be taken and/or if such Environmental Notice gives notice of
and/or presents a material risk of any material violation of any Applicable Law
and/or presents a material risk of any material cost, expense, loss or damage
(an "Environmental Obligation"), (d) observe and comply (and direct the Manager
------------------------
to observe and comply) with all Applicable Laws relating to the use, maintenance
and disposal of Hazardous Substances and all orders or directives from any of
ficial, court or agency of competent jurisdiction relating to the use or
maintenance or requiring the removal, treatment, contain ment or other
disposition thereof, and (e) pay or otherwise dispose of any fine, charge or
Imposition related thereto, unless Tenant or the Manager shall contest the same
in good faith and by appropriate proceedings and the right to use and the value
of the Leased Property is not materially and adversely affected thereby.
If, at any time prior to the termination of this Agreement, Hazardous
Substances (other than those maintained in accordance with Applicable Laws) are
discovered on the Leased Property, subject to Tenant's and the Manager's right
to contest the same in accordance with Article 8, Tenant shall take (and shall
---------
direct the Manager to take) all actions and incur any and all expenses, as may
be reasonably necessary and as may be required by any Government Agency, (i) to
clean up and remove from and about the Leased Property all Hazardous Substances
thereon, (ii) to contain and prevent any further release or threat of release of
Hazardous Substances on or about the Leased Property and (iii) to use good faith
efforts to eliminate any further release or threat of release of Hazardous
Substances on or about the Leased Property.
4.3.2 Indemnification of Landlord. Tenant shall protect,
---------------------------
indemnify and hold harmless Landlord and each Hotel Mortgagee, their trustees,
officers, agents, employees and beneficiaries, and any of their respective
successors or assigns with respect to this Agreement (collectively, the
"Indemnitees" and, individually, an "Indemnitee") for, from and against any and
----------- ----------
all debts, liens, claims, causes of action, administrative orders or notices,
costs, fines, penalties or expenses (including, without limitation, reasonable
attorney's fees and expenses) imposed upon, incurred by or asserted against any
Indemnitee resulting from, either directly or indirectly, the presence during
the Term (or any other time Tenant shall be possession of the Leased Property)
in, upon or under the soil or ground water of the Leased Property or any
properties surrounding the Leased
<PAGE>
-27-
Property of any Hazardous Substances in violation of any Applicable Law or
otherwise, provided that any of the foregoing arises by reason of any failure by
Tenant, the Manager or any Person claiming by, through or under Tenant or the
Manager to perform or comply with any of the terms of this Section 4.3, except
-----------
to the extent the same arise from the gross negligence or willful misconduct of
Landlord or any other Indemnitee. Tenant's duty herein includes, but is not
limited to, costs associated with personal injury or property damage claims as a
result of the presence prior to the expiration or sooner termination of the Term
and the surrender of the Leased Property to Landlord in accordance with the
terms of this Agreement of Hazardous Substances in, upon or under the soil or
ground water of the Leased Property in violation of any Applicable Law. Upon
Notice from Landlord and any other of the Indemnitees, Tenant shall undertake
the defense, at Tenant's sole cost and expense, of any indemnification duties
set forth herein, in which event, Tenant shall not be liable for payment of any
duplicative attorneys' fees incurred by any Indemnitee.
Tenant shall, upon demand, pay to Landlord, as an Additional Charge,
any cost, expense, loss or damage (including, without limitation, reasonable
attorneys' fees) incurred by Landlord and arising from a failure of Tenant
strictly to observe and perform the requirements of this Section 4.3, which
-----------
amounts shall bear interest from the date ten (10) days after written demand
therefor is given to Tenant until paid by Tenant to Landlord at the Overdue
Rate.
4.3.3 Survival. The provisions of this Section 4.3 shall survive the
-------- -----------
expiration or sooner termination of this Agreement.
ARTICLE 5
---------
MAINTENANCE AND REPAIRS
-----------------------
5.1 Maintenance and Repair.
----------------------
5.1.1 Tenant's Obligations.
--------------------
(a) Tenant shall, at its sole cost and expense (except as expressly
provided in Section 5.1.2(b)), or shall direct the Manager to, keep the
----------------
Leased Property and all private roadways, sidewalks and curbs appurtenant
thereto (and Tenant's Personal Property, if any) in good order and repair,
reasonable wear and tear excepted (whether or not the need for such
repairs occurs as a result of Tenant's or the Manager's use, any prior
use, the elements or the age of the Leased Property or Tenant's Personal
Property, if any,
<PAGE>
-28-
or any portion thereof), and shall promptly make (or cause the Manager to
make) all necessary and appropriate repairs and replacements thereto of
every kind and nature, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior to the commencement of the
Term (concealed or otherwise). All repairs shall be made in a good,
workmanlike manner, consistent with the Manager's and industry standards
for like hotels in like locales, in accordance with all applicable
federal, state and local statutes, ordinances, by-laws, codes, rules and
regulations relating to any such work. Tenant shall not take or omit to
take (and shall direct the Manager not to take or omit to take) any
action, the taking or omission of which would materially and adversely
impair the value or the usefulness of the Leased Property or any part
thereof for its Permitted Use. Tenant's obligations under this Section
-------
5.1.1(a) shall be limited in the event of any casualty or Condemnation as
--------
set forth in Sections 10.2 and 11.2 and Tenant's obligations with respect
----------------------
to Hazardous Substances are as set forth in Section 4.3.
-----------
(b) In addition, notwithstanding anything in this Agreement to the
contrary, Tenant shall, with respect to each Lease Year, or portion
thereof, fund, or cause the Manager to fund, into the FF&E Reserve a cash
amount equal to not less than five percent (5%) of Gross Revenues from the
Leased Property for such Lease Year, or portion thereof, which amounts
shall be applied to the cost of repairs, maintenance, renovations and
replacements to and at the Leased Property in accordance with this
Agreement and the Management Agreement. Provided that Tenant shall comply
with the provisions of this paragraph (b) and any similar provisions of
the Management Agreement, any additional funds required for repairs,
maintenance, renovations and replacements to and at the Leased Property in
excess of those on deposit in the FF&E Reserve shall be advanced by
Landlord, subject to and in accordance with Section 5.1.2(b).
----------------
5.1.2 Landlord's Obligations.
----------------------
(a) Except as otherwise expressly provided in this Agreement, Landlord
shall not, under any circumstances, be required to build or rebuild any
improvement on the Leased Property, or to make any repairs, replacements,
alterations, restorations or renewals of any nature or description to the
Leased Property, whether ordinary or extraordinary, structural or
nonstructural, foreseen or unforeseen, or, except as provided in Section
-------
5.1.2(b), to make any expenditure whatsoever with respect thereto, or to
--------
maintain
<PAGE>
-29-
the Leased Property in any way. Except as otherwise expressly provided in
this Agreement, Tenant hereby waives, to the maximum extent permitted by
law, the right to make repairs at the expense of Landlord pursuant to any
law in effect on the date hereof or hereafter enacted. Landlord shall have
the right to give, record and post, as appropriate, notices of
nonresponsibility under any mechanic's lien laws now or hereafter
existing.
(b) If, at any time, the Management Agreement requires that funds be
disbursed for repairs, maintenance, renovations or replacements at or to
the Leased Property (including, but not limited to, pursuant to Section
8.01 and 8.03 of the Management Agreement), or, pursuant to the terms of
this Agreement (including, without limitation, Section 4.3), Tenant is
-----------
required to make any expenditures in connection with any repair,
maintenance renovation with respect to the Leased Property and the amount
of such disbursements or expenditures exceeds the amount on deposit in the
FF&E Reserve, Tenant may, at its election, give Landlord Notice thereof,
which Notice shall set forth, in reasonable detail, the nature of the
required repair, renovation or replacement, the estimated cost thereof and
such other information with respect thereto as Landlord may reasonably
require. Provided that no Event of Default shall have occurred and be
continuing and Tenant shall otherwise comply with the applicable
provisions of Article 6, Landlord shall, within ten (10) Business Days
---------
after such Notice, subject to and in accordance with the applicable
provisions of Article 6, disburse such required funds to Tenant (or, if
---------
Tenant shall so elect, directly to the Manager or any other Person
performing the required work) and, upon such disbursement, the Minimum
Rent shall be adjusted as provided in Section 3.1.1(b).
----------------
5.1.3 Nonresponsibility of Landlord, Etc. All materialmen,
-----------------------------------
contractors, artisans, mechanics and laborers and other persons contracting with
Tenant with respect to the Leased Property, or any part thereof, are hereby
charged with notice that liens on the Leased Property or on Landlord's interest
therein are expressly prohibited and that they must look solely to Tenant to
secure payment for any work done or material furnished by Tenant, the Manager or
for any other purpose during the term of this Agreement.
Nothing contained in this Agreement shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or implied,
by inference or otherwise, to any contractor, subcontractor, laborer or
materialmen for the performance of any labor or the furnishing of any materials
for any alteration, addition, improvement or repair to the Leased
<PAGE>
-30-
Property or any part thereof or as giving Tenant any right, power or authority
to contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against the Leased
Property or any part thereof nor to subject Landlord's estate in the Leased
Property or any part thereof to liability under any Mechanic's Lien Law of the
State in any way, it being expressly understood Landlord's estate shall not be
subject to any such liability.
5.2 Tenant's Personal Property. Tenant shall provide and maintain
--------------------------
throughout the Term all such Tenant's Personal Property as shall be necessary in
order to operate in compliance with applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry
for the Permitted Use and all of such Personal Property shall, upon the
expiration or earlier termination of this Agreement, shall become the property
of Landlord. If, from and after the Commencement Date, Tenant acquires an
interest in any item of tangible personal property (other than motor vehicles)
on, or in connection with, the Leased Property which belongs to anyone other
than Tenant, Tenant shall require the agreements permitting such use to provide
that Landlord or its designee may assume Tenant's rights and obligations under
such agreement upon the termination of this Agreement and the assumption of
management or operation of the Hotel by Landlord or its designee.
5.3 Yield Up. Upon the expiration or sooner termination of this
--------
Agreement, Tenant shall vacate and surrender the Leased Property to Landlord in
substantially the same condition in which the Leased Property was in on the
Commencement Date, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Agreement, reasonable wear and
tear excepted (and casualty damage and Condemnation, in the event that this
Agreement is terminated following a casualty or total Condemnation in accordance
with Article 10 or Article 11).
---------- ----------
In addition, upon the expiration or earlier termination of this
Agreement, Tenant shall, at Landlord's sole cost and expense, use its good faith
efforts to transfer to and cooperate with Landlord or Landlord's nominee in
connection with the processing of all applications for licenses, operating
permits and other governmental authorizations and all contracts, including
contracts with governmental or quasi-governmental Entities which may be
necessary for the use and operation of the Hotel as then operated. Consistent
with the terms of the Management Agreement, if requested by Landlord, Tenant
will direct the Manager to continue to manage the Hotel after the expiration of
the Term and for up to one hundred twenty (120) days, on such reasonable terms
(which shall include an agreement to reimburse the Manager for its reasonable
out-of-pocket costs
<PAGE>
-31-
and expenses, and reasonable administrative costs), as Landlord shall reasonably
request.
5.4 Management Agreement. Except as expressly provided in Section
-------------------- -------
5.1.2(b), Tenant shall, at its sole cost and expense, perform all of the
- --------
obligations of "Owner" under the Management Agreement, including, without
limitation, the funding of the FF&E Reserve and, upon the expiration or sooner
termination of this Agreement, the then existing balance of the FF&E Reserve
shall be paid to or as directed by Landlord. Tenant shall, at all times, direct
the Manager to perform all of the Manager's obligations under the Management
Agreement. Tenant shall not amend or modify the Management Agreement without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, delayed or conditioned. Tenant shall not take any action, grant any
consent or, except as provided in the Management Agreement, permit any action
under the Management Agreement, which might have a material adverse effect on
Landlord, without the prior written consent of Landlord. Except as provided in
the Management Agreement, Tenant shall not agree to any change in the Manager,
to any change in the Management Agreement, terminate the Management Agreement or
permit the Manager to assign the Management Agreement without the prior written
approval of Landlord in each instance, which approval shall not be unreasonably
withheld, delayed or conditioned. If Landlord shall perform any obligations of
"Owner" under the Management Agreement (which Landlord may do subject to Section
-------
12.5), the cost of such performance shall be payable upon demand by Tenant to
- ----
Landlord with interest accruing from the demand date at the Overdue Rate and
Landlord shall have the same rights and remedies for failure to pay such costs
on demand as for Tenant's failure to pay Minimum Rent.
ARTICLE 6
----------
IMPROVEMENTS, ETC.
------------------
6.1 Improvements to the Leased Property. Tenant shall not make,
-----------------------------------
construct or install (and shall direct the Manager not to construct or install)
any Capital Additions without, in each instance, obtaining Landlord's prior
written consent, which consent shall not be unreasonably withheld, delayed or
conditioned provided that (a) construction or installation of the same would not
adversely affect or violate any Legal Requirement or Insurance Requirement
applicable to the Leased Property and (b) Landlord shall have received an
Officer's Certificate certifying as to the satisfaction of the conditions set
out in clause (a) above; provided, however, that no such consent shall be
-------- -------
required in the event immediate action is required to prevent imminent danger to
person or property. Prior to commencing
<PAGE>
-32-
construction of any Capital Addition, Tenant shall submit, or shall direct the
Manager to submit, to Landlord, in writing, a proposal setting forth, in
reasonable detail, any such proposed improvement and shall provide to Landlord
such plans and specifications, and such permits, licenses, contracts and such
other information concerning the same as Landlord may reasonably request.
Landlord shall have thirty (30) days to review all materials submitted to
Landlord in connection with any such proposal. Failure of Landlord to respond
to Tenant's or the Manager's proposal within thirty (30) days after receipt of
all information and materials requested by Landlord in connection with the
proposed improvement shall be deemed to constitute approval of the same.
Without limiting the generality of the foregoing, such proposal shall indicate
the approximate projected cost of constructing such proposed improvement and the
use or uses to which it will be put. No Capital Addition shall be made which
would tie in or connect any Leased Improvement with any other improvements on
property adjacent to the Leased Property (and not part of the Land) including,
without limitation, tie-ins of buildings or other structures or utilities.
Tenant shall not finance, and shall direct the Manager not to finance, the cost
of any construction of such improvement by the granting of a lien on or security
interest in the Leased Property or such improvement, or Tenant's interest
therein, without the prior written consent of Landlord, which consent may be
withheld by Landlord in Landlord's sole discretion. Any such improvements
shall, upon the expiration or sooner termination of this Agreement, remain or
pass to and become the property of Landlord, free and clear of all encumbrances
other than Permitted Encumbrances.
6.2 Salvage. All materials which are scrapped or removed in
-------
connection with the making of either Capital Additions or non-Capital Additions
or repairs required by Article 5 shall be or become the property of the party
---------
that paid for such work.
ARTICLE 7
----------
LIENS
-----
7.1 Liens. Subject to Article 8, Tenant shall not, directly or
----- ---------
indirectly, create or allow to remain and shall promptly discharge, at its
expense, any lien, encumbrance, attachment, title retention agreement or claim
upon the Leased Property or Tenant's leasehold interest therein or any attach
ment, levy, claim or encumbrance in respect of the Rent, other than (a)
Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are
consented to in writing by Landlord, (c) liens for those taxes of Landlord which
Tenant is not required to pay hereunder, (d) subleases permitted by Article 17,
----------
(e) liens for Impositions or for sums resulting from
<PAGE>
-33-
noncompliance with Legal Requirements so long as (i) the same are not yet due
and payable, or (ii) are being contested in accordance with Article 8, (f) liens
---------
of mechanics, laborers, materialmen, suppliers or vendors incurred in the
ordinary course of business that are not yet due and payable or are for sums
that are being contested in accordance with Article 8, (g) any Hotel Mortgages
---------
or other liens which are the responsibility of Landlord pursuant to the
provisions of Article 21 and (h) Landlord Liens.
----------
7.2 Landlord's Lien. In addition to any statutory landlord's lien
---------------
and in order to secure payment of the Rent and all other sums payable hereunder
by Tenant, and to secure payment of any loss, cost or damage which Landlord may
suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto
Landlord a security interest in and an express contractual lien upon Tenant's
Personal Property (except motor vehicles), and all ledger sheets, files,
records, documents and instruments (including, without limitation, computer
programs, tapes and related electronic data processing) relating to the
operation of the Hotels (the "Records") and all proceeds therefrom, subject to
-------
any Permitted Encumbrances; and such Tenant's Personal Property shall not be
removed from the Leased Property at any time when a Default or an Event of
Default has occurred and is continuing.
Upon Landlord's request, Tenant shall execute and deliver to Landlord
financing statements in form sufficient to perfect the security interest of
Landlord in Tenant's Personal Property and the proceeds thereof in accordance
with the provisions of the applicable laws of the State. Tenant hereby grants
Landlord an irrevocable limited power of attorney, coupled with an interest, to
execute all such financing statements in Tenant's name, place and stead. The
security interest herein granted is in addition to any statutory lien for the
Rent.
ARTICLE 8
----------
PERMITTED CONTESTS
------------------
Tenant and the Manager shall have the right to contest the amount or
validity of any Imposition, Legal Requirement, Insurance Requirement,
Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim
(collectively, "Claims") as to the Leased Property, by appropriate legal
------
proceedings, conducted in good faith and with due diligence, provided that (a)
the foregoing shall in no way be construed as relieving, modifying or extending
Tenant's obligation to pay any Claims as finally determined, (b) such contest
shall not cause Landlord or Tenant to be in default under any mortgage or deed
of trust encumbering the Leased Property (Landlord agreeing that any such
mortgage or deed of trust shall permit Tenant and the
<PAGE>
-34-
Manager to exercise the rights granted pursuant to this Article 8) or any
---------
interest therein or result in or reasonably be expected to result in a lien
attaching to the Leased Property, (c) no part of the Leased Property nor any
Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment
or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and
against any cost, claim, damage, penalty or reasonable expense, including
reasonable attorneys' fees, incurred by Landlord in connection therewith or as a
result thereof. Landlord agrees to join in any such proceedings if required
legally to prosecute such contest, provided that Landlord shall not thereby be
subjected to any liability therefor (including, without limitation, for the
payment of any costs or expenses in connection therewith) unless Tenant agrees
by agreement in form and substance reasonably satisfactory to Landlord, to
assume and indemnify Landlord with respect to the same. Tenant shall be
entitled to any refund of any Claims and such charges and penal ties or interest
thereon which have been paid by Tenant or paid by Landlord to the extent that
Landlord has been fully reimbursed by Tenant. If Tenant shall fail (x) to pay
or cause to be paid any Claims when finally determined, (y) to provide
reasonable security therefor, or (z) to prosecute or cause to be prosecuted any
such contest diligently and in good faith, Landlord may, upon reasonable notice
to Tenant (which notice may be oral and shall not be required if Landlord shall
reasonably determine that the same is not practicable), pay such charges,
together with interest and penalties due with respect thereto, and Tenant shall
reimburse Landlord therefor, upon demand, as Additional Charges.
ARTICLE 9
----------
INSURANCE AND INDEMNIFICATION
-----------------------------
9.1 General Insurance Requirements. Tenant shall, at all times
------------------------------
during the Term and at any other time Tenant shall be in possession of the
Leased Property, keep (or direct the Manager to keep) the Leased Property and
all property located therein or thereon, insured against the risks and in the
amounts as follows and shall maintain the following insurance:
(a) "All-risk" property insurance, including insurance against
loss or damage by fire, vandalism and malicious mischief, explosion of
steamboilers, pressure vessels or other similar apparatus, now or
hereafter installed in the Hotel located at the Leased Property, with
equivalent coverage as that provided by the usual extended coverage
endorsements, in an amount equal to one hundred percent (100%) of the then
full Replacement Cost thereof (as defined in Section 9.2);
-----------
<PAGE>
-35-
(b) Business interruption and blanket earnings plus extra expense
under a rental value insurance policy or endorsement covering risk of loss
during the lesser of the first twelve (12) months of reconstruction or the
actual reconstruction period necessitated by the occurrence of any of the
hazards described in subparagraph (a) above, in such amounts as may be
customary for comparable properties in the area and in an amount
sufficient to prevent Landlord or Tenant from becoming a co-insurer;
(c) Comprehensive general liability insurance, including bodily
injury and property damage (on an occurrence basis and on a 1973 or 1988
ISO CGL form or on a form otherwise maintain by similarly situated
tenants, including, without limitation, broad form contractual liability,
independent contractor's hazard and completed operations coverage) in an
amount not less than Two Million Dollars ($2,000,000) per occurrence and
umbrella coverage of all such claims in an amount not less than Twenty-
Three Million Dollars ($23,000,000);
(d) Flood (if the Leased Property is located in whole or in part
within an area identified as an area having special flood hazards and in
which flood insurance has been made available under the National Flood
Insurance Act of 1968, as amended, or the Flood Disaster Protection Act of
1973, as amended (or any successor acts thereto)) and such other hazards
and in such amounts as may be customary for comparable properties in the
area;
(e) Worker's compensation insurance coverage for all persons employed
by Tenant on the Leased Property with statutory limits and otherwise with
limits of and provisions in accordance with the requirements of applicable
local, State and federal law, and employer's liability insurance as is
customarily carried by similar employers; and
(f) Such additional insurance as may be reasonably required, from
time to time, by Landlord or any Hotel Mortgagee and which is customarily
carried by comparable lodging properties in the area.
9.2 Replacement Cost. "Replacement Cost" as used herein, shall mean
---------------- ----------------
the actual replacement cost of the property requiring replacement from time to
time, including an increased cost of construction endorsement, less exclusions
provided in the standard form of fire insurance policy. In the event either
party believes that the then full Replacement Cost has increased or decreased at
any time during the Term, such party, at its own cost, shall have the right to
have such full Replacement Cost redetermined by an independent accredited
appraiser approved by
<PAGE>
-36-
the other, which approval shall not be unreasonably withheld or delayed. The
party desiring to have the full Replacement Cost so redetermined shall
forthwith, on receipt of such determination by such appraiser, give Notice
thereof to the other. The determina tion of such appraiser shall be final and
binding on the parties hereto until any subsequent determination under this
Section 9.2, and Tenant shall forthwith conform the amount of the insurance
- -----------
carried to the amount so determined by the appraiser.
9.3 Waiver of Subrogation. Landlord and Tenant agree that (insofar
---------------------
as and to the extent that such agreement may be effective without invalidating
or making it impossible to secure insurance coverage from responsible insurance
companies doing business in the State) with respect to any property loss which
is covered by insurance then being carried by Landlord or Tenant, respectively,
the party carrying such insurance and suffering said loss releases the other of
and from any and all claims with respect to such loss; and they further agree
that their respective insurance companies shall have no right of subrogation
against the other on account thereof, even though extra premium may result
therefrom. In the event that any extra premium is payable by Tenant as a result
of this provision, Landlord shall not be liable for reimbursement to Tenant for
such extra premium.
9.4 Form Satisfactory, Etc. All insurance policies and endorsements
-----------------------
required pursuant to this Article 9 shall be fully paid for, nonassessable and,
---------
except for umbrella and flood coverage, be issued by insurance carriers
authorized to do business in the State, having a general policy holder's rating
of no less than B++ in Best's latest rating guide. All such policies described
in Sections 9.1(a) through (d) shall include no deductible in excess of Two
---------------------------
Hundred Fifty Thousand Dollars ($250,000) and, with the exception of the
insurance described in Sections 9.1(e), shall name Landlord and any Hotel
---------------
Mortgagee as additional insureds, as their interests may appear. All loss
adjustments shall be payable as provided in Article 10. Tenant shall cause all
----------
insurance premiums to be paid and shall deliver policies or certificates thereof
to Landlord prior to their effective date (and, with respect to any renewal
policy, prior to the expiration of the existing policy). All such policies
shall provide Landlord (and any Hotel Mortgagee if required by the same) thirty
(30) days prior written notice of any material change or cancellation of such
policy. In the event Tenant shall fail to effect such insurance as herein
required, to pay the premiums therefor or to deliver such policies or
certificates to Landlord or any Hotel Mortgagee at the times required, Landlord
shall have the right, but not the obligation, subject to the provisions of
Section 12.5, to acquire such insurance and pay the premiums therefor, which
- ------------
amounts shall be payable to Landlord, upon demand, as Additional Charges,
together with interest
<PAGE>
-37-
accrued thereon at the Overdue Rate from the date such payment is made until
(but excluding) the date repaid.
9.5 Blanket Policy. Notwithstanding anything to the contrary
--------------
contained in this Article 9, Tenant's obligation to maintain the insurance
---------
herein required may be brought within the coverage of a so-called blanket policy
or policies of insurance carried and maintained by Tenant or the Manager,
provided, that (a) the coverage thereby afforded will not be reduced or
diminished from that which would exist under a separate policy meeting all other
requirements of this Agreement, and (b) the requirements of this Article 9 are
---------
otherwise satisfied. Without limiting the foregoing, the amounts of insurance
that are required to be maintained pursuant to Section 9.1 shall be on a Hotel
-----------
by Hotel basis, and shall not be subject to an aggregate limit, except for
products, completed operations and flood. Notwithstanding any other provisions
of Articles 9 or 10, Tenant may permit the Manager to self insure or otherwise
----------------
retain such workers' insurance risks or portions thereof as the Manager does
with respect to other similar hotels the Manager owns, leases or manages under
the Marriott name in the United States pursuant to any established self
insurance program of Marriott International, Inc.
9.6 No Separate Insurance. Tenant shall not take out separate
---------------------
insurance, concurrent in form or contributing in the event of loss with that
required by this Article 9, or increase the amount of any existing insurance by
---------
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of such insurance, including
Landlord and all Hotel Mortgagees, are included therein as additional insureds
and the loss is payable under such insurance in the same manner as losses are
payable under this Agreement. In the event Tenant shall take out any such
separate insurance or increase any of the amounts of the then existing
insurance, Tenant shall give Landlord prompt Notice thereof.
9.7 Indemnification of Landlord. Notwithstanding the existence of
---------------------------
any insurance provided for herein and without regard to the policy limits of any
such insurance, Tenant shall protect, indemnify and hold harmless Landlord for,
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and reasonable expenses (including, without limitation,
reasonable attorneys' fees), to the maximum extent permitted by law, imposed
upon or incurred by or asserted against Landlord by reason of: (a) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Property or adjoining sidewalks or rights of
way, (b) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Tenant or anyone claiming under Tenant of
the Leased Property or Tenant's Personal Property
<PAGE>
-38-
or any litigation, proceeding or claim by governmental entities or other third
parties to which Landlord is made a party or participant relating to the Leased
Property or Tenant's Personal Property or such use, misuse, non-use, condition,
management, maintenance, or repair thereof including, failure to perform
obligations (other than Condemnation proceedings) to which Landlord is made a
party, (c) any Impositions that are the obligations of Tenant to pay pursuant to
the applicable provisions of this Agreement, and (d) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of the
terms of this Agreement. Tenant, at its expense, shall contest, resist and
defend any such claim, action or proceeding asserted or instituted against
Landlord (and shall not be responsible for any duplicative attorneys' fees
incurred by Landlord) or may compromise or otherwise dispose of the same, with
Landlord's prior written consent (which consent may not be unreasonably withheld
or delayed). In the event Landlord shall unreasonably withhold or delay its
consent, Tenant shall not be liable pursuant to this Section 9.7 for any
-----------
incremental increase in costs or expenses resulting therefrom. The obligations
of Tenant under this Section 9.7 are in addition to the obligations set forth in
-----------
Section 4.3 and shall survive the termination of this Agreement.
- -----------
ARTICLE 10
-----------
CASUALTY
--------
10.1 Insurance Proceeds. Except as provided in the last clause of
------------------
this sentence, all proceeds payable by reason of any loss or damage to the
Leased Property, or any portion thereof, and insured under any policy of
insurance required by Article 9 (other than the proceeds of any business
---------
interruption insurance) shall be paid directly to Landlord (subject to the
provisions of Section 10.2) and all loss adjustments with respect to losses
------------
payable to Landlord shall require the prior written consent of Landlord;
provided, however, that, so long as no Event of Default shall have occurred and
- -------- -------
be continuing, all such proceeds less than or equal to Two Hundred Fifty
Thousand Dollars ($250,000) shall be paid directly to Tenant or the Manager and
such losses may be adjusted without Landlord's consent. If Tenant is required
to reconstruct or repair the Leased Property as provided herein, such proceeds
shall be paid out by Landlord from time to time for the reasonable costs of
reconstruction or repair of the Leased Property necessitated by such damage or
destruction, subject to and in accordance with the provisions of Section 10.2.4.
---------------
Provided no Default or Event of Default has occurred and is continuing, any
excess proceeds of insurance remaining after the completion of the restoration
shall be paid to Tenant or the Manager. In the event that the provisions of
Section 10.2.1 are
- --------------
<PAGE>
-39-
applicable, the insurance proceeds shall be retained by the party entitled
thereto pursuant to Section 10.2.1. All salvage resulting from any risk covered
--------------
by insurance shall belong to Landlord, provided any rights to the same have been
waived by the insurer.
10.2 Damage or Destruction.
---------------------
10.2.1 Damage or Destruction of Leased Property. If, during the
----------------------------------------
Term, the Leased Property shall be totally or partially destroyed and the Hotel
located thereon is thereby rendered Unsuitable for Its Permitted Use, either
Landlord or Tenant may, by the giving of Notice thereof to the other, terminate
this Agreement, whereupon, this Agreement shall terminate and Landlord shall be
entitled to retain the insurance proceeds payable on account of such damage.
10.2.2 Partial Damage or Destruction. If, during the Term, the
-----------------------------
Leased Property shall be totally or partially destroyed but the Hotel is not
rendered Unsuitable for Its Permitted Use, Tenant shall, subject to Section
-------
10.2.3, promptly restore the Hotel as provided in Section 10.2.4.
- ------ --------------
10.2.3 Insufficient Insurance Proceeds. If the cost of the
-------------------------------
repair or restoration of the Leased Property exceeds the amount of insurance
proceeds received by Landlord and Tenant pursuant to Article 9(a), (c), (d) or,
--------------------------
if applicable, (e), Tenant shall give Landlord Notice thereof which notice shall
- ------------------
set forth in reasonable detail the nature of such deficiency and whether Tenant
shall pay and assume the amount of such deficiency (Tenant having no obligation
to do so, except that, if Tenant shall elect to make such funds available, the
same shall become an irrevocable obligation of Tenant pursuant to this
Agreement). In the event Tenant shall elect not to pay and assume the amount of
such deficiency, Landlord shall have the right (but not the obligation),
exercisable at Landlord's sole election by Notice to Tenant, given within sixty
(60) days after Tenant's notice of the deficiency, to elect to make available
for application to the cost of repair or restoration the amount of such
deficiency; provided, however, in such event, upon any disbursement by Landlord
-------- -------
thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In
----------------
the event that neither Landlord nor Tenant shall elect to make such deficiency
available for restoration, either Landlord or Tenant may terminate this
Agreement by Notice to the other, whereupon, this Agreement shall terminate as
provided in Section 10.2.1. It is expressly understood and agreed, however,
--------------
that, notwithstanding anything in this Agreement to the contrary, Tenant shall
be strictly liable and solely responsible for the amount of any deductible and
shall, upon any insurable loss, pay over the amount of such
<PAGE>
-40-
deductible to Landlord at the time and in the manner herein provided for payment
of the applicable proceeds to Landlord.
10.2.4 Disbursement of Proceeds. In the event Tenant is required to
------------------------
restore the Leased Property pursuant to Section 10.2, Tenant shall (or shall
------------
direct the Manager to) commence promptly and continue diligently to perform the
repair and restoration of the Leased Property (hereinafter called the "Work"),
----
so as to restore the Leased Property in compliance with all Legal Requirements
and so that the Leased Property shall be, to the extent practicable,
substantially equivalent in value and general utility to its general utility and
value immediately prior to such damage or destruction. Subject to the terms
hereof, Landlord shall advance the insurance proceeds and any additional amounts
payable by Landlord pursuant to Section 10.2.3 to Tenant regularly during the
--------------
repair and restoration period so as to permit payment for the cost of any such
restoration and repair. Any such advances shall be made not more than monthly
within ten (10) Business Days after Tenant submits to Landlord a written
requisition and substantiation therefor on AIA Forms G702 and G703 (or on such
other form or forms as may be reasonably acceptable to Landlord). Landlord may,
at its option, condition advancement of said insurance proceeds and other
amounts on (i) the absence of any Event of Default, (ii) its approval of plans
and specifications of an architect satisfactory to Landlord (which approval
shall not be unreasonably withheld or delayed), (iii) general contractors'
estimates, (iv) architect's certificates, (v) unconditional lien waivers of
general contrac tors, if available, (vi) evidence of approval by all
governmental authorities and other regulatory bodies whose approval is required
and (vii) such other certificates as Landlord may, from time to time, reasonably
require.
Landlord's obligation to disburse insurance proceeds under this
Article 10 shall be subject to the release of such proceeds by any Hotel
- ----------
Mortgagee to Landlord.
Tenant's obligation to restore the Leased Property pursuant to this
Article 10 shall be subject to the release of available insurance proceeds by
- ----------
the applicable Hotel Mortgagee to Landlord or directly to Tenant or the Manager
and, in the event such proceeds are insufficient, Landlord electing to make such
deficiency available therefor (and disbursement of such deficiency).
10.3 Damage Near End of Term. Notwithstanding any provisions of
-----------------------
Section 10.1 or 10.2 to the contrary, if damage to or destruction of the Leased
- --------------------
Property occurs during the last twelve (12) months of the fourth Extended Term
and if such damage or destruction cannot reasonably be expected to be fully
repaired and restored prior to the date that is six (6) months prior to
<PAGE>
-41-
the end of such Extended Term, the provisions of Section 10.2.1 shall apply as
--------------
if the Leased Property had been totally or partially destroyed and the Hotel
rendered Unsuitable for its Permitted Use.
10.4 Tenant's Property. All insurance proceeds payable by reason of
-----------------
any loss of or damage to any of Tenant's Personal Property shall be paid to
Tenant and, to the extent necessary to repair or replace Tenant's Personal
Property in accordance with Section 10.5, Tenant shall hold such proceeds in
------------
trust to pay the cost of repairing or replacing damaged Tenant's Personal
Property.
10.5 Restoration of Tenant's Property. If Tenant is required to
--------------------------------
restore the Leased Property as hereinabove provided, Tenant shall either (a)
restore all alterations and improvements made by Tenant and Tenant's Personal
Property, or (b) replace such alterations and improvements and Tenant's Personal
Property with improvements or items of the same or better quality and utility in
the operation of the Leased Property.
10.6 No Abatement of Rent. This Agreement shall remain in full force
--------------------
and effect and Tenant's obligation to make all payments of Rent and to pay all
other charges as and when required under this Agreement shall remain unabated
during the Term notwithstanding any damage involving the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10
----------
shall be considered an express agreement governing any cause of damage or
destruction to the Leased Property and, to the maximum extent permitted by law,
no local or State statute, laws, rules, regulation or ordinance in effect during
the Term which provide for such a contingency shall have any application in such
case.
10.7 Waiver. Tenant hereby waives any statutory rights of
------
termination which may arise by reason of any damage or destruction of the Leased
Property.
ARTICLE 11
-----------
CONDEMNATION
------------
11.1 Total Condemnation, Etc. If either (i) the whole of the Leased
------------------------
Property shall be taken by Condemnation or (ii) a Condemnation of less than the
whole of the Leased Property renders the Leased Property Unsuitable for Its
Permitted Use, this Agreement shall terminate and Tenant and Landlord shall seek
<PAGE>
-42-
the Award for their interests in the Leased Property as provided in Section
-------
11.5.
- -----
11.2 Partial Condemnation. In the event of a Condemnation of less
--------------------
than the whole of the Leased Property such that the Leased Property is still
suitable for its Permitted Use, Tenant shall, or shall direct the Manager to, to
the extent of the Award and any additional amounts disbursed by Landlord as
hereinafter provided, commence promptly and continue diligently to restore the
untaken portion of the Leased Improvements so that such Leased Improvements
shall constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the Leased
Improvements existing immediately prior to such Condemnation, in full compliance
with all Legal Requirements, subject to the provisions of this Section 11.2. If
------------
the cost of the repair or restoration of the Leased Property exceeds the amount
of the Award, Tenant shall give Landlord Notice thereof which notice shall set
forth in reasonable detail the nature of such deficiency and whether Tenant
shall pay and assume the amount of such deficiency (Tenant having no obligation
to do so, except that if Tenant shall elect to make such funds available, the
same shall become an irrevocable obligation of Tenant pursuant to this
Agreement). In the event Tenant shall elect not to pay and assume the amount of
such deficiency, Landlord shall have the right (but not the obligation),
exercisable at Landlord's sole election by Notice to Tenant given within sixty
(60) days after Tenant's Notice of the deficiency, to elect to make available
for application to the cost of repair or restoration the amount of such
deficiency; provided, however, in such event, upon any disbursement by Landlord
-------- -------
thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In
----------------
the event that neither Landlord nor Tenant shall elect to make such deficiency
available for restoration, either Landlord or Tenant may terminate this
Agreement and the entire Award shall be retained by Landlord.
Subject to the terms hereof, Landlord shall contribute to the cost of
restoration that part of the Award necessary to complete such repair or
restoration, together with severance and other damages awarded for the taken
Leased Improvements and any deficiency Landlord has agreed to disburse, to
Tenant regularly during the restoration period so as to permit payment for the
cost of such repair or restoration. Landlord may, at its option, condition
advancement of such Award and other amounts on (i) the absence of any Event of
Default, (ii) its approval of plans and specifications of an architect
satisfactory to Landlord (which approval shall not be unreasonably withheld or
delayed), (iii) general contractors' estimates, (iv) architect's certificates,
(v) unconditional lien waivers of general contractors, if available, (vi)
evidence of approval by all governmental
<PAGE>
-43-
authorities and other regulatory bodies whose approval is required and (vii)
such other certificates as Landlord may, from time to time, reasonably require.
Landlord's obligation under this Section 11.2 to disburse the Award and such
------------
other amounts shall be subject to (x) the collection thereof by Landlord and (y)
the satisfaction of any applicable requirements of any Hotel Mortgage, and the
release of such Award by the applicable Hotel Mortgagee. Tenant's obligation to
restore the Leased Property shall be subject to the release of the Award by the
applicable Hotel Mortgagee to Landlord.
11.3 Abatement of Rent. Other than as specifically provided in this
-----------------
Agreement, this Agreement shall remain in full force and effect and Tenant's
obligation to make all payments of Rent and to pay all other charges as and when
required under this Agreement shall remain unabated during the Term
notwithstanding any Condemnation involving the Leased Property. The provisions
of this Article 11 shall be considered an express agreement governing any
----------
Condemnation involving the Leased Property and, to the maximum extent permitted
by law, no local or State statute, law, rule, regulation or ordinance in effect
during the Term which provides for such a contingency shall have any application
in such case.
11.4 Temporary Condemnation. In the event of any temporary
----------------------
Condemnation of the Leased Property or Tenant's interest therein, this Agreement
shall continue in full force and effect and Tenant shall continue to pay, in the
manner and on the terms herein specified, the full amount of the Rent. Tenant
shall continue to perform and observe all of the other terms and conditions of
this Agreement on the part of the Tenant to be performed and observed. Provided
no Event of Default has occurred and is continuing, the entire amount of any
Award made for such temporary Condemnation allocable to the Term, whether paid
by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall,
promptly upon the termination of any such period of temporary Condemnation, at
its sole cost and expense, restore the Leased Property to the condition that
existed immediately prior to such Condemnation, in full compliance with all
Legal Requirements, unless such period of temporary Condemnation shall extend
beyond the expiration of the Term, in which event Tenant shall not be required
to make such restoration. For purposes of this Section 11.4, a Condemnation
------------
shall be deemed to be temporary if the period of such Condemnation is not
expected to, and does not, exceed twelve (12) months.
11.5 Allocation of Award. Except as provided in Section 11.4 and the
------------------- ------------
second sentence of this Section 11.5, the total Award shall be solely the
------------
property of and payable to Landlord. Any portion of the Award made for the
taking of Tenant's leasehold interest in the Leased Property, loss of business
<PAGE>
-44-
during the remainder of the Term, the taking of Tenant's Personal Property, or
Tenant's removal and relocation expenses shall be the sole property of and
payable to Tenant (subject to the provisions of Section 11.2). In any
------------
Condemnation proceedings, Landlord and Tenant shall each seek its own Award in
conformity herewith, at its own expense.
ARTICLE 12
-----------
DEFAULTS AND REMEDIES
---------------------
12.1 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "Event of Default" hereunder:
----------------
(a) should Tenant fail to make any payment of the Rent or any other
sum (including, but not limited to, funding of the FF&E Reserve, payable
hereunder when due and such failure shall continue for a period of ten (10) days
after Notice thereof; or
(b) should Tenant or the Manager fail to maintain the insurance
coverages required under Article 9 and such failure shall continue for ten (10)
---------
days after Notice thereof (except that no Notice shall be required if any such
insurance coverages shall have lapsed); or
(c) should Tenant default in the due observance or performance of any
of the terms, covenants or agreements contained herein to be performed or
observed by it (other than as specified in clauses (a) and (b) above) and such
default shall continue for a period of thirty (30) days after Notice thereof
from Landlord to Tenant (provided that no such Notice shall be required if
Landlord shall reasonably determine immediate action is necessary to protect
person or property); provided, however, that if such default is susceptible of
-------- -------
cure but such cure cannot be accomplished with due diligence within such period
of time and if, in addition, Tenant commences to cure or cause to be cured such
default within fifteen (15) days after Notice thereof from Landlord and
thereafter prosecutes the curing of such default with all due diligence, such
period of time shall be extended to such period of time (not to exceed an
additional ninety (90) days in the aggregate) as may be necessary to cure such
default with all due diligence; or
(d) should any obligation of Tenant in respect of any Indebtedness
for money borrowed or for the Retained Funds of any material property or
services, or any guaranty relating thereto, be declared to be or become due and
payable prior
<PAGE>
-45-
to the stated maturity thereof, or should there occur and be continuing with
respect to any such Indebtedness or Retained Funds any event of default under
any instrument or agreement evidencing or securing the same, the effect of which
is to permit the holder or holders of such instrument or agreement or a trustee,
agent or other representative on behalf of such holder or holders, to cause such
any such obligations to become due prior to its stated maturity; or
(e) should an event of default occur and be continuing beyond the
expiration of any applicable cure period under any of the Incidental Documents,
the Other Leases, or by Host or the Sellers (as defined therein) under the
Purchase Agreement; or
(f) should there occur a final unappealable determination by
applicable State authorities of the revocation or limitation of any material
license, permit, certification or approval required for the lawful operation of
the Hotel in accordance with its Permitted Use or the loss or material
limitation of any material license, permit, certification or approval under any
other circumstances under which Tenant or the Manager is required to cease its
operation of the Hotel in accordance with its Permitted Use at the time of such
loss or limitation; or
(g) should any material representation or warranty made by Tenant or
the Sellers (as defined in the Purchase Agreement) under or in connection with
this Agreement, any Incidental Document, the Other Leases or the Purchase
Agreement, or in any document, certificate or agreement delivered in connection
herewith or therewith prove to have been false or misleading in any material
respect on the date when made or deemed made; or
(h) should Tenant generally not be paying its debts as they become
due or should Tenant make a general assignment for the benefit of creditors; or
(i) should any petition be filed by or against Tenant under the
Federal bankruptcy laws, or should any other proceeding be instituted by or
against Tenant seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for
Tenant or for any substantial part of the property of Tenant and such proceeding
is not dismissed within ninety (90) days after institution thereof, or should
<PAGE>
-46-
Tenant take any action to authorize or effect any of the actions set forth above
in this paragraph; or
(j) should Tenant cause or institute any proceeding for its
dissolution or termination; or
(k) should an event of default occur and be continuing under any
mortgage which is secured by Tenant's leasehold interest hereunder or should the
mortgagee under any such mortgage accelerate the indebtedness secured thereby or
com mence a foreclosure action in connection with said mortgage; or
(l) should the estate or interest of Tenant in the Leased Property or
any part thereof be levied upon or attached in any proceeding and the same shall
not be vacated or discharged within the later of (x) one hundred and twenty
(120) days after commencement thereof, unless the amount in dispute is less than
$250,000, in which case Tenant shall give notice to Landlord of the dispute but
Tenant may defend in any suitable way, and (y) thirty (30) days after receipt by
Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such
lien or attachment in good faith in accordance with Article 8); or
---------
(m) should any Event of Default (as defined in the Management
Agreement) by Tenant as "Owner" under the Management Agreement occur and be
continuing beyond the expiration of any applicable cure period under the
Management Agreement; or
(n) should Tenant at any time cease to be a
direct or indirect Subsidiary of Host;
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement by giving Notice thereof to Tenant
and upon the expiration of the time, if any, fixed in such Notice, this
Agreement shall terminate and all rights of Tenant under this Agreement shall
cease. Landlord shall have and may exercise all rights and remedies available
at law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
Upon the occurrence of an Event of Default, subject to the rights of
the Manager under the Management Agreement, Landlord may, in addition to any
other remedies provided herein, enter upon the Leased Property or any portion
thereof and take possession of any and all of Tenant's Personal Property, if
any, and the Records, without liability for trespass or conversion (Tenant
hereby waiving any right to notice or hearing prior to such taking of possession
by Landlord) and sell the same at
<PAGE>
-47-
public or private sale, after giving Tenant reasonable Notice of the time and
place of any public or private sale, at which sale Landlord or its assigns may
purchase all or any portion of Tenant's Personal Property, if any, unless
otherwise prohibited by law. Unless otherwise provided by law and without
intending to exclude any other manner of giving Tenant reasonable notice, the
requirement of reasonable Notice shall be met if such Notice is given at least
five (5) days before the date of sale. The proceeds from any such disposition,
less all expenses incurred in connection with the taking of possession, holding
and selling of such property (including, reasonable attorneys' fees) shall be
applied as a credit against the indebtedness which is secured by the security
interest granted in Section 7.2. Any surplus shall be paid to Tenant or as
-----------
otherwise required by law and Tenant shall pay any deficiency to Landlord, as
Additional Charges, upon demand.
12.2 Remedies. None of (a) the termination of this Agreement
--------
pursuant to Section 12.1, (b) the repossession of the Leased Property or any
------------
portion thereof, (c) the failure of Landlord to re-let the Leased Property or
any portion thereof, nor (d) the reletting of all or any of portion of the
Leased Property, shall relieve Tenant of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or re-
letting. In the event of any such termination, Tenant shall forthwith pay to
Landlord all Rent due and payable with respect to the Leased Property through
and including the date of such termination. Thereafter, Tenant, until the end
of what would have been the Term of this Agreement in the absence of such
termination, and whether or not the Leased Property or any portion thereof shall
have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as
current damages, the Rent and other charges which would be payable hereunder for
the remainder of the Term had such termination not occurred, less the net
proceeds, if any, of any re-letting of the Leased Property, after deducting all
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would have
been payable hereunder if this Agreement had not been so terminated with respect
to such of the Leased Property.
At any time after such termination, whether or not Landlord shall have
collected any such current damages, as liquidated final damages beyond the date
of such termination, at Landlord's election, Tenant shall pay to Landlord an
amount equal to the present value (discounted at the Interest Rate) of the
excess, if any, of the Rent and other charges which would be payable
<PAGE>
-48-
hereunder from the date of such termination (assuming that, for the purposes of
this paragraph, annual payments by Tenant on account of Impositions and
Additional Rent would be the same as payments required for the immediately
preceding twelve calendar months, or if less than twelve calendar months have
expired since the Commencement Date, the payments required for such lesser
period projected to an annual amount) for what would be the then unexpired term
of this Agreement if the same remained in effect, over the fair market rental
for the same period. Nothing contained in this Agreement shall, however, limit
or prejudice the right of Landlord to prove and obtain in proceedings for
bankruptcy or insolvency an amount equal to the maximum allowed by any statute
or rule of law in effect at the time when, and governing the proceedings in
which, the damages are to be proved, whether or not the amount be greater than,
equal to, or less than the amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may, subject to the
rights of the Manager under the Management Agreement, (a) relet the Leased
Property or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option, be equal to, less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant concessions or free rent to the extent that Landlord
considers advisable and necessary to relet the same, and (b) may make such
reasonable alterations, repairs and decorations in the Leased Property or any
portion thereof as Landlord, in its sole and absolute discretion, considers
advisable and necessary for the purpose of reletting the Leased Property; and
the making of such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Subject to
the last sentence of this paragraph, Landlord shall in no event be liable in any
way whatsoever for any failure to relet all or any portion of the Leased
Property, or, in the event that the Leased Property is relet, for failure to
collect the rent under such reletting. To the maximum extent permitted by law,
Tenant hereby expressly waives any and all rights of redemption granted under
any present or future laws in the event of Tenant being evicted or dispossessed,
or in the event of Landlord obtaining possession of the Leased Property, by
reason of the occurrence and continuation of an Event of Default hereunder.
Landlord covenants and agrees, in the event of any termination of this Agreement
as a result of an Event of Default, to use reasonable efforts to mitigate its
damages.
12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED PURSUANT TO
---------------
SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT
- --------------------
TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES
SET FORTH IN THIS
<PAGE>
-49-
ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING
- ----------
PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT. IN ADDITION, TENANT UNDERSTANDS,
ACKNOWLEDGES AND AGREES THAT, IN THE EVENT THIS AGREEMENT IS TERMINATED PURSUANT
TO SECTION 12.1 OR 12.2, THE RETAINED FUNDS (AS DEFINED IN THE PURCHASE
--------------------
AGREEMENT) SHALL NOT BE PAID OR PAYABLE (TENANT WAIVING, ON BEHALF OF ITSELF AND
ITS AFFILIATED PERSONS, ALL CLAIMS AND CAUSES OF ACTION WITH RESPECT THERETO).
12.4 Application of Funds. Any payments received by Landlord under
--------------------
any of the provisions of this Agreement during the existence or continuance of
any Event of Default (and any payment made to Landlord rather than Tenant due to
the existence of any Event of Default) shall be applied to Tenant's current and
past due obligations under this Agreement in such order as Landlord may
determine or as may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default. If an Event of
-----------------------------------------
Default shall have occurred and be continuing, Landlord, after Notice to Tenant
(which Notice shall not be required if Landlord shall reasonably determine
immediate action is necessary to protect person or property), without waiving or
releasing any obligation of Tenant and without waiving or releasing any Event of
Default, may (but shall not be obligated to), at any time thereafter, make such
payment or perform such act for the account and at the expense of Tenant, and
may, to the maximum extent permitted by law, enter upon the Leased Property or
any portion thereof for such purpose and take all such action thereon as, in
Landlord's sole and absolute discretion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Tenant. All reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by Landlord in connection therewith, together with interest thereon (to
the extent permitted by law) at the Overdue Rate from the date such sums are
paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand.
ARTICLE 13
-----------
HOLDING OVER
------------
Any holding over by Tenant after the expiration or sooner termination
of this Agreement shall be treated as a daily tenancy at sufferance at a rate
equal to one and one-half (1.5) times the Rent and other charges herein provided
(prorated on a daily basis). Tenant shall also pay to Landlord all damages
(direct or indirect) sustained by reason of any such holding over. Otherwise,
such holding over shall be on the terms and conditions set forth in this
Agreement, to the extent applicable. Nothing contained herein shall constitute
the consent, express or
<PAGE>
-50-
implied, of Landlord to the holding over of Tenant after the expiration or
earlier termination of this Agreement.
ARTICLE 14
-----------
LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT
-----------------------------------------------
14.1 Landlord Notice Obligation. Landlord shall give prompt Notice
--------------------------
to Tenant and the Manager of any matters affecting the Leased Property of which
Landlord receives written notice or actual knowledge and, to the extent Tenant
otherwise has no notice or actual knowledge thereof, Landlord shall be liable
for any liabilities arising from the failure to deliver such Notice to Tenant.
Landlord shall not amend the Management Agreement or any other agreement
affecting the Leased Property without Tenant's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed.
14.2 Landlord's Default. If Landlord shall default in the
------------------
performance or observance of any of its covenants or obligations set forth in
this Agreement or any obligation of Landlord, if any, under any agreement
affecting the Leased Property, the performance of which is not Tenant's
obligation pursuant to this Agreement, and any such default shall continue for a
period of ten (10) days after Notice thereof with respect to monetary defaults
and thirty (30) days after Notice thereof with respect to non-monetary defaults
from Tenant to Landlord and any applicable Hotel Mortgagee, or such additional
period as may be reasonably required to correct the same, Tenant may declare the
occurrence of a "Landlord Default" by a second Notice to Landlord and to such
----------------
Hotel Mortgagee. Thereafter, Tenant may forthwith cure the same and, subject to
the provisions of the following paragraph, invoice Landlord for costs and
expenses (including reasonable attorneys' fees and court costs) incurred by
Tenant in curing the same, together with interest thereon from the date Landlord
receives Tenant's invoice, at the Overdue Rate. Tenant shall have no right to
terminate this Agreement for any default by Landlord hereunder and no right, for
any such default, to offset or counterclaim against any Rent or other charges
due hereunder.
If Landlord shall in good faith dispute the occurrence of any Landlord
Default and Landlord, before the expiration of the applicable cure period, shall
give Notice thereof to Tenant, setting forth, in reasonable detail, the basis
therefor, no Landlord Default shall be deemed to have occurred and Landlord
shall have no obligation with respect thereto until final adverse determination
thereof; provided, however, that in the event of any such adverse determination,
-------- -------
Landlord shall pay to Tenant interest on any disputed funds at the Interest
Rate, from the
<PAGE>
-51-
date demand for such funds was made by Tenant until the date of final adverse
determination and, thereafter, at the Overdue Rate until paid. If Tenant and
Landlord shall fail, in good faith, to resolve any such dispute within ten (10)
days after Landlord's Notice of dispute, either may submit the matter for
resolution to a court of competent jurisdiction.
ARTICLE 15
-----------
INTENTIONALLY DELETED
---------------------
ARTICLE 16
-----------
SUBLETTING AND ASSIGNMENT
-------------------------
16.1 Subletting and Assignment. Except as provided in Section 16.3
------------------------- ------------
below, Tenant shall not, without Landlord's prior written consent (which consent
may be given or withheld in Landlord's sole and absolute discretion), assign,
mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or
sublease (which term shall be deemed to include the granting of concessions,
licenses and the like), all or any part of the Leased Property or suffer or
permit this Agreement or the leasehold estate created hereby or any other rights
arising under this Agreement to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law, or permit the use or operation of the
Leased Property by anyone other than Tenant and the Manager, or the Leased
Property to be offered or advertised for assignment or subletting. For purposes
of this Section 16.1, an assignment of this Agreement shall be deemed to include
------------
any direct or indirect transfer of any interest in Tenant such that Tenant shall
cease to be a direct or indirect Subsidiary of Host or any transaction pursuant
to which Tenant is merged or consolidated with another Entity or pursuant to
which all or substantially all of Tenant's assets are transferred to any other
Entity, as if such change in control or transaction were an assignment of this
Agreement.
Notwithstanding the foregoing, Landlord agrees that Landlord shall not
unreasonably withhold, delay or condition Landlord's consent to an assignment of
this Agreement by Tenant provided that (i) Tenant shall simultaneously assign
its interest under all of the Other Leases to the same assignee on the same
terms and conditions, (ii) the Manager shall have granted its consent to such
transfer and the Management Agreement and all of the other Management Agreements
(as defined therein) under the Other Leases shall remain in full force and
effect, (iii) such assignee shall, in Landlord's reasonable determination, have
sufficient
<PAGE>
-52-
financial resources and liquidity to fulfill Tenant's obligations under this
Agreement and the Other Leases, and (iv) such assignee shall not be under common
control with or controlled by persons who have been convicted of felonies
involving moral turpitude in any state or federal court. If Tenant wishes to
assign this Agreement as provided in this paragraph, Tenant shall give Landlord
Notice thereof (the "Request Notice"), which Request Notice shall identify the
--------------
proposed assignee and the terms and conditions of the assignment and shall
include appropriate information relating to such assignee demonstrating
compliance with the provisions of this paragraph. Landlord shall, within sixty
(60) days after the giving the Request Notice, give Notice to Tenant (the
"Response Notice") as to whether Landlord consents to such transfer. Landlord
- ----------------
shall also have the right, exercisable by notice given in the Response Notice,
to require Tenant to assign this Agreement to a Person designated by Landlord on
the same terms and conditions as those described in the Request Notice for
transfer to Tenant's proposed assignee.
If this Agreement is assigned or if the Leased Property or any part
thereof are sublet (or occupied by anybody other than Tenant, the Manager and
their respective employees) Landlord may collect the rents from such assignee,
subtenant or occupant, as the case may be, and apply the net amount collected to
the Rent herein reserved, but no such collection shall be deemed a waiver of the
provisions set forth in the first paragraph of this Section 16.1, the acceptance
------------
by Landlord of such assignee, subtenant or occupant, as the case may be, as a
tenant, or a release of Tenant from the future performance by Tenant of its
covenants, agreements or obligations contained in this Agreement.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder (unless Landlord and Tenant expressly
otherwise agree that Tenant shall be released from all obligations hereunder),
and no consent to any subletting or assignment in a particular instance shall be
deemed to be a waiver of the prohibition set forth in this Section 16.1. No
------------
assignment, subletting or occupancy shall affect any Permitted Use. Any
subletting, assignment or other transfer of Tenant's interest under this
Agreement in contravention of this Section 16.1 shall be voidable at Landlord's
------------
option.
16.2 Required Sublease Provisions. Any sublease of all or any
----------------------------
portion of the Leased Property entered into on or after the date hereof shall be
consistent with any applicable terms and conditions of the Management Agreement
and shall provide (a) that it is subject and subordinate to this Agreement and
to the matters to which this Agreement is or shall be subject or subordinate;
(b) that in the event of termination of this Agreement or reentry or
dispossession of Tenant by Landlord under this Agreement, Landlord may, at its
option, terminate such
<PAGE>
-53-
sublease or take over all of the right, title and interest of Tenant, as
sublessor under such sublease, and such subtenant shall, at Landlord's option,
attorn to Landlord pursuant to the then executory provisions of such sublease,
except that neither Landlord nor any Hotel Mortgagee, as holder of a mortgage or
as Landlord under this Agreement, if such mortgagee succeeds to that position,
shall (i) be liable for any act or omission of Tenant under such sublease, (ii)
be subject to any credit, counterclaim, offset or defense which theretofore
accrued to such subtenant against Tenant, (iii) be bound by any previous
modification of such sublease not consented to in writing by Landlord or by any
previous prepayment of more than one (1) month's Rent, (iv) be bound by any
covenant of Tenant to undertake or complete any construction of the Leased
Property or any portion thereof, (v) be required to account for any security
deposit of the subtenant other than any security deposit actually delivered to
Landlord by Tenant, (vi) be bound by any obligation to make any payment to such
subtenant or grant any credits, except for services, repairs, maintenance and
restoration provided for under the sublease that are performed after the date of
such attornment, (vii) be responsible for any monies owing by Tenant to the
credit of such subtenant, or (viii) be required to remove any Person oc cupying
any portion of the Leased Property; and (c), in the event that such subtenant
receives a written Notice from Landlord or any Hotel Mortgagee stating that an
Event of Default has occurred and is continuing, such subtenant shall thereafter
be obligated to pay all rentals accruing under such sublease directly to the
party giving such Notice or as such party may direct. All rentals received from
such subtenant by Landlord or the Hotel Mortgagee, as the case may be, shall be
credited against the amounts owing by Tenant under this Agreement and such
sublease shall provide that the subtenant thereunder shall, at the request of
Landlord, execute a suitable instrument in confirmation of such agreement to
attorn. An original counterpart of each such sublease and assignment and
assumption, duly executed by Tenant and such subtenant or assignee, as the case
may be, in form and substance reasonably satisfactory to Landlord, shall be
delivered promptly to Landlord and (a) in the case of an assignment, the
assignee shall assume in writing and agree to keep and perform all of the terms
of this Agreement on the part of Tenant to be kept and performed and shall be,
and become, jointly and severally liable with Tenant for the performance thereof
and (b) in case of either an assignment or subletting, Tenant shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Tenant hereunder.
The provisions of this Section 16.2 shall not be deemed a waiver of
------------
the provisions set forth in the first paragraph of Section 16.1.
------------
<PAGE>
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16.3 Permitted Sublease. Notwithstanding the foregoing, but subject
------------------
to the provisions of Section 16.4 and any other express conditions or
------------
limitations set forth herein, Tenant may, in each instance after Notice to
Landlord (unless otherwise provided in the Management Agreement), sublease space
at the Leased Property for newsstand, gift shop, parking garage, health club,
restaurant, bar or commissary purposes or similar concessions in furtherance of
the Permitted Use, so long as such subleases do not demise, in the aggregate, in
excess of three thousand (3,000) square feet, will not violate or affect any
Legal Requirement or Insurance Requirement, and Tenant shall provide such
additional insurance coverage applicable to the activities to be conducted in
such subleased space as Landlord and any Hotel Mortgagee may reasonably require.
16.4 Sublease Limitation. For so long as Landlord or any Affiliated
-------------------
Person as to Landlord shall seek to qualify as a real estate investment trust,
anything contained in this Agreement to the contrary notwithstanding, Tenant
shall not sublet the Leased Property on any basis such that the rental to be
paid by any sublessee thereunder would be based, in whole or in part, on either
(a) the income or profits derived by the business activities of such sublessee,
or (b) any other formula such that any portion of such sublease rental would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
ARTICLE 17
-----------
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
----------------------------------------------
17.1 Estoppel Certificates. At any time and from time to time, upon
---------------------
not less than ten (10) Business Days prior Notice by either party, the party
receiving such Notice shall furnish to the other an Officer's Certificate
certifying that this Agreement is unmodified and in full force and effect (or
that this Agreement is in full force and effect as modified and setting forth
the modifications), the date to which the Rent has been paid, that no Default or
an Event of Default has occurred and is continuing or, if a Default or an Event
of Default shall exist, specifying in reasonable detail the nature thereof, and
the steps being taken to remedy the same, and such additional information as the
requesting party may reasonably request. Any such certificate furnished
pursuant to this Section 17.1 may be relied upon by the requesting party, its
------------
lenders and any prospective purchaser or mortgagee of the Leased Property or the
leasehold estate created hereby.
17.2 Financial Statements. Tenant shall
--------------------
furnish the following statements to Landlord:
<PAGE>
-55-
(a) within forty-five (45) days after each of the first three
quarters of any Fiscal Year, the most recent Consolidated Financials,
accompanied by the Financial Officer's Certificate;
(b) within ninety (90) days after the end of each Fiscal Year, the
most recent Consolidated Financials for such year, certified by an independent
certified public accountant reasonably satisfactory to Landlord and accompanied
by a Financial Officer's Certificate;
(c) within thirty (30) days after the end of each Accounting Period,
an unaudited operating statement prepared on a Hotel by Hotel basis, including
occupancy percentages and average rate, accompanied by a Financial Officer's
Certificate;
(d) promptly after the sending or filing thereof, copies of all
reports which Tenant, Host or Host Marriott Hospitality, Inc. sends to its
security holders generally, and copies of all periodic reports which Tenant,
Host or Host Marriott Hospitality, Inc. files with the SEC or any stock exchange
on which its shares are listed or traded;
(e) promptly after the delivery thereof to Tenant, a copy of any
management letter or written report prepared by the certified public accountants
with respect to the financial condition, operations, business or prospects of
Tenant;
(f) at any time and from time to time upon not less than forty-five
(45) days Notice from Landlord, any Consolidated Financials or any other
financial reporting information required to be filed by Landlord with any
securities and exchange commission, the SEC or any successor agency, or any
other governmental authority, or required pursuant to any order issued by any
court, governmental authority or arbitrator in any litigation to which Landlord
is a party, for purposes of compliance therewith, provided that Landlord shall
pay for any costs incurred by Tenant in connection with the preparation of the
same; and
(g) promptly, upon Notice from Landlord, such other information
concerning the business, financial condition and affairs of Tenant as Landlord
reasonably may request from time to time.
Landlord may at any time, and from time to time, provide any Hotel Mortgagee
with copies of any of the foregoing statements.
<PAGE>
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In addition, Landlord shall have the right, from time to time at
Landlord's sole cost and expense, upon reasonable Notice, during Tenant's
customary business hours, to cause Tenant's books and records with respect to
the Leased Property to be audited by auditors selected by Landlord at the place
where such books and records are customarily kept.
17.3 General Operations. Tenant shall furnish to Landlord:
------------------
(a) Within thirty (30) days after receipt or modification thereof,
copies of all licenses authorizing Tenant and/or the Manager to operate the
Hotel for its Permitted Use;
(b) Not less than thirty (30) days after the commencement of any
Fiscal Year, proposed annual income and ordinary expense and capital improvement
budgets setting forth projected income and costs and expenses projected to be
incurred by Tenant in managing, owning, maintaining and operating the Hotel
during the next succeeding Fiscal Year; and
(c) Promptly after receipt or sending thereof, copies of all notices
given or received by Tenant under the Management Agreement.
ARTICLE 18
----------
LANDLORD'S RIGHT TO INSPECT
---------------------------
Tenant shall permit, and shall direct the Manager to permit, Landlord
and its authorized representatives to inspect the Leased Property during usual
business hours upon not less than twenty-four (24) hours' notice and to make
such repairs as Landlord is permitted or required to make pursuant to the terms
of this Agreement, provided that any inspection or repair by Landlord or its
representatives will not unreasonably interfere with Tenant's or the Manager's
use and operation of the Leased Property and further provided that in the event
of an emergency, as determined by Landlord in its reasonable discretion, prior
Notice shall not be necessary.
ARTICLE 19
-----------
INTENTIONALLY DELETED
---------------------
<PAGE>
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ARTICLE 20
----------
HOTEL MORTGAGES
---------------
20.1 Landlord May Grant Liens. Without the consent of Tenant,
------------------------
Landlord may, subject to the terms and conditions set forth in this Section
-------
20.1, from time to time, directly or indirectly, create or otherwise cause to
exist any lien, encumbrance or title retention agreement ("Encumbrance") upon
-----------
the Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing, provided that
any such Encumbrance shall be consistent with the requirements of Article 6 of
the Management Agreement. Any such Encumbrance shall include the right to
prepay (whether or not subject to a prepayment penalty) and shall provide
(subject to Section 20.2) that it is subject to the rights of Tenant under this
------------
Agreement.
20.2 Subordination of Lease. Subject to Section 20.1 and this
---------------------- ------------
Section 20.2, this Agreement, any and all rights of Tenant hereunder, are and
- ------------
shall be subject and subordinate to any ground or master lease, and all
renewals, extensions, modifications and replacements thereof, and to all
mortgages and deeds of trust, which may now or hereafter affect the Leased
Property or any improvements thereon and/or any of such leases, whether or not
such mortgages or deeds of trust shall also cover other lands and/or buildings
and/or leases, to each and every advance made or hereafter to be made under such
mortgages and deeds of trust, and to all renewals, modifications, replacements
and extensions of such leases and such mortgages and deeds of trust and all
consolidations of such mortgages and deeds of trust. This section shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute, acknowledge
and deliver any instrument that Landlord, the lessor under any such lease or the
holder of any such mortgage or the trustee or beneficiary of any deed of trust
or any of their respective successors in interest may reasonably request to
evidence such subordination. Any lease to which this Agreement is, at the time
referred to, subject and subordinate is herein called "Superior Lease" and the
--------------
lessor of a Superior Lease or its successor in interest at the time referred to,
is herein called "Superior Landlord" and any mortgage or deed of trust to which
-----------------
this Agreement is, at the time referred to, subject and subordinate, is herein
called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior
-----------------
Mortgage is herein called "Superior Mortgagee". Tenant shall have no
------------------
obligations under any Superior Lease or Superior Mortgage other than those
expressly set forth in this Section 20.2.
------------
<PAGE>
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If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to the
rights of Landlord under this Agreement (any such person, "Successor Landlord"),
------------------
whether through possession or foreclosure action or delivery of a new lease or
deed, or otherwise, such Successor Landlord shall recognize Tenant's rights
under this Agreement as herein provided and Tenant shall attorn to and recognize
the Successor Landlord as Tenant's landlord under this Agreement and Tenant
shall promptly execute and deliver any instrument that such Successor Landlord
may reasonably request to evidence such attornment (provided that such
instrument does not alter the terms of this Agreement), whereupon, this
Agreement shall continue in full force and effect as a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and covenants as
are set forth in this Agreement, except that the Successor Landlord (unless
formerly the landlord under this Agreement or its nominee or designee) shall not
be (a) liable in any way to Tenant for any act or omission, neglect or default
on the part of any prior Landlord under this Agreement, (b) responsible for any
monies owing by or on deposit with any prior Landlord to the credit of Tenant
(except to the extent actually paid or delivered to the Successor Landlord), (c)
subject to any counterclaim or setoff which theretofore accrued to Tenant
against any prior Landlord, (d) bound by any modification of this Agreement
subsequent to such Superior Lease or Mortgage, or by any previous prepayment of
Minimum Rent or Additional Rent for more than one (1) month in advance of the
date due hereunder, which was not approved in writing by the Superior Landlord
or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor
Landlord's interest in the Leased Property and the rents, income, receipts,
revenues, issues and profits issuing from the Leased Property, (f) responsible
for the performance of any work to be done by the Landlord under this Agreement
to render the Leased Property ready for occupancy by Tenant (subject to
Landlord's obligations under Section 5.1.2(b) or with respect to any insurance
----------------
or Condemnation proceeds), or (g) required to remove any Person occupying the
Leased Property or any part thereof, except if such person claims by, through or
under the Successor Landlord. Tenant agrees at any time and from time to time
to execute a suitable instrument in confirmation of Tenant's agreement to
attorn, as aforesaid and Landlord agrees to provide Tenant with an instrument of
nondisturbance and attornment from each such Superior Mortgagee and Superior
Landlord in form and substance reasonably satisfactory to Tenant.
Notwithstanding the foregoing, any Successor Landlord shall be liable (a) to
pay, as and when required by the Purchase Agreement, to Tenant a pro rata
portion of the Deferred Initial Purchase Price or Option Purchase Price (as such
terms are defined in the Purchase Agreement) in accordance with the terms of the
Purchase Agreement and this Agreement, including Article 15, if and to the
----------
extent that the
<PAGE>
-59-
rights of the Sellers under the Purchase Agreement with respect to such Retained
Funds shall have been assigned to Tenant, (b) to pay to Tenant any amounts owed
under Section 5.1.2(b), and (c) to pay to Tenant any portions of insurance
----------------
proceeds or Awards received by Landlord or the Successor Landlord required to be
paid to Tenant pursuant to the terms of this Agreement, and, as a condition to
any mortgage, lien or lease in respect of the Leased Property, and the
subordination of this Agreement thereto, the mortgagee, lienholder or lessor, as
applicable, shall expressly agree, for the benefit of Tenant, to make such
payments, which agreement shall be embodied in an instrument in form reasonably
satisfactory to Tenant.
20.3 Notice to Mortgagee and Ground Landlord. Subsequent to the
---------------------------------------
receipt by Tenant of Notice from Landlord as to the identity of any Hotel
Mortgagee or ground lessor under a lease with Landlord, as ground lessee, which
includes the Leased Property as part of the demised premises and which complies
with Section 20.1 and 20.2 (which Notice shall be accompanied by a copy of the
---------------------
applicable mortgage or lease), no notice from Tenant to Landlord as to the
Leased Property shall be effective unless and until a copy of the same is given
to such Hotel Mortgagee or ground lessor at the address set forth in the above
described Notice, and the curing of any of Landlord's defaults by such Hotel
Mortgagee or ground lessor shall be treated as performance by Landlord.
20.4 Transfer of Leased Property. Landlord shall not, without the
---------------------------
consent of Tenant, transfer the Leased Property, or any interest therein to any
Person which: (i) does not have sufficient financial resources and liquidity to
fulfill "Owner's" obligations under the Management Agreement; (ii) is in control
of or controlled by Persons who have been convicted of felonies involving moral
turpitude in any state or federal court; or (iii) is engaged in the business of
operating or franchising (as distinguished from owning) a branded hotel chain
having fifteen hundred (1,500) or more guest rooms in competition with the
Manager. An individual or entity shall not be deemed to be in the business of
operating hotels in competition with the Manager solely by virtue of (x) the
ownership of such hotels, either directly or indirectly through subsidiaries,
affiliates and partnerships, or (y) holding a mortgage or mortgages secured
by one or more hotels. Landlord may transfer the Leased Property, or any
interest therein, to any other Person without the consent of Tenant.
<PAGE>
-60-
ARTICLE 21
----------
ADDITIONAL COVENANTS OF TENANT
------------------------------
21.1 Prompt Payment of Indebtedness. Tenant shall (a) pay or cause
------------------------------
to be paid when due all payments of principal of and premium and interest on
Tenant's Indebtedness for money borrowed and shall not permit or suffer any such
Indebtedness to become or remain in default beyond any applicable grace or cure
period, (b) pay or cause to be paid when due all lawful claims for labor and
rents, (c) pay or cause to be paid when due all trade payables and (d) pay or
cause to be paid when due all other of Tenant's Indebtedness upon which it is or
becomes obligated, except, in each case, other than that referred to in clause
(a), to the extent payment is being contested in good faith by appropriate
proceedings in accordance with Article 8 and if Tenant shall have set aside on
---------
its books adequate reserves with respect thereto in accordance with GAAP, if
appropriate, or unless and until foreclosure, distraint sale or other similar
proceedings shall have been commenced.
21.2 Conduct of Business. Tenant shall not engage in any business
-------------------
other than the leasing and operation of the Collective Leased Properties and
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect and in good standing its corporate existence and its
rights and licenses necessary to conduct such business.
21.3 Maintenance of Accounts and Records. Tenant shall keep true
-----------------------------------
records and books of account of Tenant in which full, true and correct entries
will be made of dealings and transactions in relation to the business and
affairs of Tenant in accordance with GAAP, where applicable, Tenant shall apply
accounting principles in the preparation of the financial statements of Tenant
which, in the judgment of and the opinion of its independent public accountants,
are in accordance with GAAP, where applicable, except for changes approved by
such independent public accountants. Tenant shall provide to Landlord either in
a footnote to the financial statements delivered under Section 17.2 which relate
------------
to the period in which such change occurs, or in separate schedules to such
financial statements, information sufficient to show the effect of any such
changes on such financial statements.
21.4 Notice of Litigation, Etc. Tenant shall give prompt Notice to
--------------------------
Landlord of any litigation or any administrative proceeding to which it may
hereafter become a party of which Tenant has notice or actual knowledge which
involves a potential liability equal to or greater than Two Hundred Fifty
Thousand Dollars ($250,000) or which may otherwise result in any material
adverse change in the business, operations, property, prospects,
<PAGE>
-61-
results of operation or condition, financial or other, of Tenant. Forthwith upon
Tenant obtaining knowledge of any Default, Event of Default or any default or
event of default under any agreement relating to Indebtedness for money borrowed
in an aggregate amount exceeding, at any one time, Two Hundred Fifty Thousand
Dollars ($250,000), or any event or condition that would be required to be
disclosed in a current report filed by Tenant on Form 8-K or in Part II of a
quarterly report on Form 10-Q if Tenant were required to file such reports under
the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice
thereof to Landlord specifying the nature and period of existence thereof and
what action Tenant has taken or is taking or proposes to take with respect
thereto.
21.5 Indebtedness of Tenant. Tenant shall not create, incur, assume
----------------------
or guarantee, or permit to exist, or become or remain liable directly or
indirectly upon, any Indebtedness except the following:
(a) Indebtedness of Tenant to Landlord;
(b) Indebtedness of Tenant for Impositions, to the extent that payment
thereof shall not at the time be required to be made in accordance with the
provisions of Article 8;
---------
(c) Indebtedness of Tenant in respect of judgments or awards (i) which
have been in force for less than the applicable appeal period and in respect of
which execution thereof shall have been stayed pending such appeal or review, or
(ii) which are fully covered by insurance payable to Tenant, or (iii) which are
for an amount not in excess of $250,000 in the aggregate at any one time
outstanding and (x) which have been in force for not longer than the applicable
appeal period, so long as execution is not levied thereunder or (y) in respect
of which an appeal or proceedings for review shall at the time be prosecuted in
good faith in accordance with the provisions of Article 8, and in respect of
---------
which execution thereof shall have been stayed pending such appeal or review;
(d) unsecured borrowings of Tenant from its Affiliated Persons which
are by their terms expressly subordinate pursuant to a Subordination Agreement
to the payment and performance of Tenant's obligations under this Agreement; or
(e) Indebtedness for purchase money financing in accordance with
Section 21.9(a) and other operating liabilities incurred in the ordinary course
- ---------------
of Tenant's business.
<PAGE>
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21.6 Financial Condition of Tenant. Tenant shall at all times
-----------------------------
maintain Tangible Net Worth (except as provided in the last clause of this
sentence) in an amount at least equal to the aggregate of one year's Minimum
Rent payable pursuant to this Agreement and the Other Leases; it being expressly
understood and agreed that the Retained Funds (as defined in the Purchase
Agreement) may for such purpose be counted as equity at the full amount thereof
if such amounts are contributed to Tenant.
21.7 Distributions, Payments to Affiliated Persons, Etc. Tenant shall
---------------------------------------------------
not declare, order, pay or make, directly or indirectly, any Distributions or
any payment to any Affiliated Person of Tenant (including payments in the
ordinary course of business and payments pursuant to management agreements with
any such Affiliated Person) or set apart any sum or property therefor, or agree
to do so, if, at the time of such proposed action, or immediately after giving
effect thereto, any Event of Default shall exist.
21.8 Prohibited Transactions. Tenant shall not permit to exist or
-----------------------
enter into any agreement or arrangement whereby it engages in a transaction of
any kind with any Affiliated Person as to Tenant, except on terms and conditions
which are commercially reasonable.
21.9 Liens and Encumbrances. Except as permitted by Section 7.1,
---------------------- -----------
Tenant shall not create or incur or suffer to be created or incurred or to exist
any Lien on this Agreement or any of Tenant's assets, properties, rights or
income, or any of its interest therein, now or at any time hereafter owned,
other than:
(a) Security interests securing the purchase price of equipment or
personal property whether acquired before or after the Commencement Date;
provided, however, that (i) such Lien shall at all times be confined solely to
- -------- -------
the asset in question and (ii) the aggregate principal amount of Indebtedness
secured by any such Lien shall not exceed the cost of acquisition or
construction of the property subject thereto;
(b) Permitted Encumbrances; and
(c) As permitted pursuant to Section 21.5.
------------
21.10 Merger; Sale of Assets; Etc. Tenant shall not (i) sell, lease
---------------------------
(as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or
any material portion of its assets (including capital stock) or business to any
Person, (ii) merge into or with or consolidate with any other Entity, or (iii)
sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or
abandon, any personal property or fixtures or any real
<PAGE>
-63-
property; provided, however, that, notwithstanding the provisions of clause
-------- -------
(iii) preceding, Tenant may dispose of equipment or fixtures which have become
inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided
substitute equipment or fixtures having equal or greater value and utility (but
not necessarily having the same function) have been provided.
ARTICLE 22
-----------
MISCELLANEOUS
-------------
22.1 Limitation on Payment of Rent. All agreements between Landlord
-----------------------------
and Tenant herein are hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall
the Rent or any other amounts payable to Landlord under this Agreement exceed
the maximum permissible under applicable law, the benefit of which may be
asserted by Tenant as a defense, and if, from any circumstance whatsoever,
fulfillment of any provision of this Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, or if from any circumstances Landlord should ever receive as
fulfillment of such provision such an excessive amount, then, ipso facto, the
---- -----
amount which would be excessive shall be applied to the reduction of the
installment(s) of Minimum Rent next due and not to the payment of such excessive
amount. This provision shall control every other provision of this Agreement
and any other agreements between Landlord and Tenant.
22.2 No Waiver. No failure by Landlord or Tenant to insist upon the
---------
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the maximum extent permitted by law, no
waiver of any breach shall affect or alter this Agreement, which shall continue
in full force and effect with respect to any other then existing or subsequent
breach.
22.3 Remedies Cumulative. To the maximum extent permitted by law,
-------------------
each legal, equitable or contractual right, power and remedy of Landlord or
Tenant, now or hereafter provided either in this Agreement or by statute or
otherwise, shall be cumulative and concurrent and shall be in addition to every
other right, power and remedy and the exercise or beginning of the exercise by
Landlord or Tenant (as applicable) of any one or more of such rights, powers and
remedies shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all of such other rights, powers and remedies.
<PAGE>
-64-
22.4 Severability. Any clause, sentence, paragraph, section or
------------
provision of this Agreement held by a court of competent jurisdiction to be
invalid, illegal or ineffective shall not impair, invalidate or nullify the
remainder of this Agreement, but rather the effect thereof shall be confined to
the clause, sentence, paragraph, section or provision so held to be invalid,
illegal or ineffective, and this Agreement shall be construed as if such
invalid, illegal or ineffective provisions had never been contained therein.
22.5 Acceptance of Surrender. No surrender to Landlord of this
-----------------------
Agreement or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing by
Landlord and no act by Landlord or any representative or agent of Landlord,
other than such a written acceptance by Landlord, shall constitute an acceptance
of any such surrender.
22.6 No Merger of Title. It is expressly acknowledged and agreed
------------------
that it is the intent of the parties that there shall be no merger of this
Agreement or of the leasehold estate created hereby by reason of the fact that
the same Person may acquire, own or hold, directly or indirectly this Agreement
or the leasehold estate created hereby and the fee estate or ground landlord's
interest in the Leased Property.
22.7 Conveyance by Landlord. If Landlord or any successor owner of
----------------------
all or any portion of the Leased Property shall convey all or any portion of the
Leased Property in accordance with the terms hereof other than as security for a
debt, and the grantee or transferee of such of the Leased Property shall
expressly assume all obligations of Landlord hereunder arising or accruing from
and after the date of such conveyance or transfer, Landlord or such successor
owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Landlord under this Agreement with respect to
such of the Leased Property arising or accruing from and after the date of such
conveyance or other transfer and all such future liabilities and obligations
shall thereupon be binding upon the new owner.
22.8 Quiet Enjoyment. Provided that no Event of Default shall have
---------------
occurred and be continuing, Tenant shall peaceably and quietly have, hold and
enjoy the Leased Property for the Term, free of hindrance or molestation by
Landlord or anyone claiming by, through or under Landlord, but subject to (a)
any Encumbrance permitted under Article 20 or otherwise permitted to be created
----------
by Landlord hereunder, (b) all Permitted Encumbrances, (c) liens as to
obligations of Landlord that are either not yet due or which are being contested
in good faith and by proper proceedings, provided the same do not materially
interfere with Tenant's ability to operate the Hotel and (d) liens that have
<PAGE>
-65-
been consented to in writing by Tenant. Except as otherwise provided in this
Agreement, no failure by Landlord to comply with the foregoing covenant shall
give Tenant any right to cancel or terminate this Agreement or abate, reduce or
make a deduction from or offset against the Rent or any other sum payable under
this Agreement, or to fail to perform any other obligation of Tenant hereunder.
22.9 Memorandum of Lease. Neither Landlord nor Tenant shall record
-------------------
this Agreement. However, Landlord and Tenant shall promptly, upon the request
of the other, enter into a short form memorandum of this Agreement, in form
suitable for recording under the laws of the State in which reference to this
Agreement, and all options contained herein, shall be made. The parties shall
share equally all costs and expenses of recording such memorandum.
22.10 Notices.
-------
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this Agreement
shall be deemed adequately given if in writing and the same shall be delivered
either in hand, by telecopier with written acknowledgment of receipt, or by mail
or Federal Express or similar expedited commercial carrier, addressed to the
recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a Business Day or is
required to be delivered on or before a specific day which is not a Business
Day, the day of receipt or required delivery shall automatically be extended to
the next Business Day.
(c) All such notices shall be addressed,
if to Landlord to:
Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02158
Attn: Mr. John G. Murray
[Telecopier No. (617) 332-2261]
<PAGE>
-66-
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Jennifer B. Clark, Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Ms. Pamela J. Block, Asset Manager
Asset Management Department 909
[Telecopier No. (301)380-8608]
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Pamela J. Murch, Esq.
Law Department 923
[Telecopier No. (301)380-6332 or -3588]
(d) By notice given as herein provided, the parties hereto and their
respective successor and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America.
22.11 Construction; Nonrecourse. Anything contained in this
-------------------------
Agreement to the contrary notwithstanding, all claims against, and liabilities
of, Tenant or Landlord arising prior to any date of termination or expiration of
this Agreement with respect to the Leased Property shall survive such
termination or expiration. In no event shall Landlord be liable for any
consequential damages suffered by Tenant as the result of a breach of this
Agreement by Landlord. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party to be charged. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Each term or provision of this
Agreement to be performed by Tenant shall be construed as an independent
covenant and condition. Time is of the essence with respect to the exercise of
any rights of Tenant under this Agreement. Except as otherwise set forth in
this
<PAGE>
-67-
Agreement, any obligations of Tenant (including without limitation, any
monetary, repair and indemnification obligations) and Landlord shall survive the
expiration or sooner termination of this Agreement. Whenever it is provided in
this Agreement that Tenant shall direct the Manager to take any action, Tenant
shall not be deemed to have satisfied such obligation unless Tenant shall have
exhausted all applicable rights and remedies of Tenant as "Owner" under the
Management Agreement. Except as otherwise expressly provided with respect to
the Initial Retained Funds and the Option Retained Funds (as such terms are
defined in the Purchase Agreement), nothing contained in this Agreement
(including, without limitation, Section 3.5) shall be construed to create or
-----------
impose any liabilities or obligations and no such liabilities or obligations
shall be imposed on any of the shareholders or beneficial owners, direct or
indirect, of Landlord or Tenant (including, but not limited, Host Marriott, Host
Marriott Hospitality, Inc. and HMH Properties, Inc.) for the payment or
performance of the obligations or liabilities of Landlord or Tenant hereunder.
22.12 Counterparts; Headings. This Agreement may be executed in two
----------------------
or more counterparts, each of which shall constitute an original, but which,
when taken together, shall constitute but one instrument and shall become
effective as of the date hereof when copies hereof, which, when taken together,
bear the signatures of each of the parties hereto shall have been signed.
Headings in this Agreement are for purposes of reference only and shall not
limit or affect the meaning of the provisions hereof.
22.13 Applicable Law, Etc. This Agreement shall be interpreted,
--------------------
construed, applied and enforced in accordance with the laws of the State
applicable to contracts between residents of the State which are to be performed
entirely within the State, regardless of (i) where this Agreement is executed or
delivered; or (ii) where any payment or other performance required by this
Agreement is made or required to be made; or (iii) where any breach of any
provision of this Agreement occurs, or any cause of action otherwise accrues; or
(iv) where any action or other proceeding is instituted or pending; or (v) the
nationality, citizenship, domicile, principal place of business, or jurisdiction
of organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State; or (vii) any combination of the foregoing.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located in
the State as is provided by law; and the parties consent to the jurisdiction of
said court or
<PAGE>
-68-
courts located in the State and to service of process by registered mail, return
receipt requested, or by any other manner provided by law.
22.14 Right to Make Agreement. Each party warrants, with respect to
-----------------------
itself, that neither the execution of this Agreement, nor the consummation of
any transaction contemplated hereby, shall violate any provision of any law, or
any judgment, writ, injunction, order or decree of any court or governmental
authority having jurisdiction over it; nor result in or constitute a breach or
default under any indenture, contract, other commitment or restriction to which
it is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.
22.15 Non-Liability of Trustees. The Declaration of Trust of
-------------------------
Landlord, a copy of which is duly filed with the Department of Assessments and
Taxation of the State of Maryland, provides that the name "Hospitality
Properties Trust" refers to the trustees under the Declaration of Trust
collectively as trustees, but not individually or personally, and that no
trustee, officer, shareholder, employee or agent of Landlord shall be held to
any personal liability, jointly or severally, for any obligation of, or claim
against, Landlord. All persons dealing with Landlord, in any way, shall look
only to the assets of Landlord for the payment of any sum or the performance of
any obligation.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date above first written.
LANDLORD:
HOSPITALITY PROPERTIES TRUST
By: _________________________
Its:_____________________
TENANT:
HMH HPT RESIDENCE INN, INC.
By: _________________________
Its (Vice) President
<PAGE>
EXHIBIT A
---------
Minimum Rent
------------
[See attached copy.]
<PAGE>
EXHIBIT B
---------
Other Leases
------------
[See attached copy.]
<PAGE>
EXHIBIT C
---------
The Land
--------
[See attached copy.]
<PAGE>
EXHIBIT 10.14
UP TO U.S. $200,000,000
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Dated as of December 29, 1995
Between
HOSPITALITY PROPERTIES TRUST
as Borrower
-- --------
and
DLJ MORTGAGE CAPITAL, INC.
as Lender
-- ------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS...... 1
1.1. Defined Terms................................... 1
1.2. Computation of Time Periods..................... 25
1.3. Accounting Terms................................ 25
1.4. Certain Terms................................... 25
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS........... 25
2.1. The Loans....................................... 25
2.2. Making the Loans................................ 26
2.3. [Intentionally Omitted]......................... 27
2.4. Reduction and Termination of the Commitment..... 27
2.5. Repayment....................................... 27
2.6. Prepayments..................................... 27
2.7. Continuation of Loans at the Eurodollar Rate;
Conversion of Loans on the Conversion Date..... 28
2.8. Interest........................................ 28
2.9. Interest Rate Determination and Protection...... 29
2.10. Increased Costs................................. 30
2.11. Illegality...................................... 30
2.12. Capital Adequacy................................ 31
2.13. Payments and Computations....................... 31
2.14. Taxes........................................... 32
ARTICLE III
APPROVAL OF PROPOSED HOTEL FACILITIES
SELECTED PROPERTIES AND PREPARATION
OF MORTGAGE DOCUMENTS........... 33
3.1. Approval of Proposed Hotel Facilities........... 33
3.2. Loan to Value Requirement; Selected Properties.. 34
3.3. Preparation and Execution of Mortgage Documents. 34
ARTICLE IV
CONDITIONS OF LENDING.............. 35
4.1. Conditions Precedent to the Initial Loan........ 35
4.2. Conditions Precedent to Each Loan............... 38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES........... 41
5.1. Existence; Compliance with Law.................. 41
5.2. Power; Authorization; Enforceable Obligations... 42
5.3. Taxes........................................... 43
5.4. Full Disclosure................................. 44
5.5. Financial Matters............................... 44
5.6. Litigation...................................... 45
5.7. Margin Regulations.............................. 45
5.8. Ownership of Borrower and HRPT Advisors;
Subsidiaries................................... 45
5.9. ERISA........................................... 47
5.10. Liens........................................... 48
5.11. [Intentionally Omitted]......................... 48
5.12. No Burdensome Restrictions; No Defaults;
Contractual Obligations........................ 48
5.13. No Investments.................................. 48
5.14. Government Regulation........................... 49
5.15. Insurance....................................... 49
5.16. Employees....................................... 49
5.17. Force Majeure................................... 50
5.18. Use of Proceeds................................. 50
5.19. Environmental Protection........................ 50
5.20. Contractual Obligations Concerning Assets....... 52
5.21. Status as REIT.................................. 52
5.22. Real Property................................... 52
5.23. Operator and Advisor: Compliance with Law....... 54
5.24. Operating Leases, Management Agreement and
Advisory Agreement............................. 55
5.25. FF&E Reserves................................... 56
ARTICLE VI
FINANCIAL COVENANTS................ 56
6.1. Limitation on Indebtedness...................... 56
6.2. Limitation on Secured Indebtedness.............. 56
6.3. Interest Expense Coverage....................... 57
6.4. Maintenance of Tangible Net Worth............... 57
6.5. Maintenance of Loan to Value Ratio.............. 57
ARTICLE VII
AFFIRMATIVE COVENANTS................. 57
7.1. Compliance with Laws, Etc....................... 57
7.2. Conduct of Business............................. 57
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
7.3. Payment of Taxes, Etc........................... 58
7.4. Maintenance of Insurance........................ 58
7.5. Preservation of Existence, Etc.................. 58
7.6. Access.......................................... 59
7.7. Keeping of Books................................ 59
7.8. Maintenance of Properties, Etc.................. 59
7.9. Performance and Compliance with Other Covenants. 59
7.10. Application of Proceeds......................... 60
7.11. Financial Statements............................ 60
7.12. Reporting Requirements.......................... 62
7.13. Leases and Operating Leases..................... 65
7.14. [Intentionally Omitted]......................... 66
7.15. Employee Plans.................................. 66
7.16. [Intentionally Omitted]......................... 66
7.17. Fiscal Year..................................... 66
7.18. Environmental Matters........................... 66
7.19. Appraisals and other Valuations................. 67
7.20. REIT Requirements............................... 67
7.21. Maintenance of FF&E Reserves.................... 67
7.22. Further Assurances.............................. 68
ARTICLE VIII
NEGATIVE COVENANTS................. 68
8.1. Liens, Etc...................................... 68
8.2. Indebtedness.................................... 70
8.3. Lease Obligations............................... 71
8.4. [Intentionally Omitted.]........................ 71
8.5. Mergers, Stock Issuances, Asset Sales, Etc...... 71
8.6. Investments..................................... 72
8.7. Change in Nature of Business or Organizational
Documents....................................... 73
8.8. Modification of Material Agreements............. 73
8.9. Accounting Changes.............................. 74
8.10. Transactions with Affiliates.................... 74
8.11. Environmental Matters........................... 74
ARTICLE IX
EVENTS OF DEFAULT................. 75
9.1. Events of Default............................... 75
9.2. Remedies........................................ 78
ARTICLE X
MISCELLANEOUS................... 79
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
10.1. Amendments, Etc................................. 79
10.2. Notices, Etc.................................... 79
10.3. No Waiver; Remedies............................. 80
10.4. Costs; Expenses; Indemnities.................... 80
10.5. Right of Set-off................................ 82
10.6. Binding Effect.................................. 83
10.7. Assignments and Participations.................. 83
10.8. Governing Law; Severability..................... 84
10.9. Submission to Jurisdiction; Service of Process.. 84
10.10. Section Titles.................................. 85
10.11. Execution in Counterparts....................... 85
10.12. Entire Agreement................................ 85
10.13. Confidentiality................................. 85
10.14. Waiver of Jury Trial............................ 86
10.15. NON-LIABILITY OF TRUSTEES....................... 86
10.16. Securitization Opinions......................... 86
10.17. Cooperation With Rating Agencies................ 86
10.18. Securitization Financials....................... 87
</TABLE>
iv
<PAGE>
SCHEDULES
---------
Schedule 1.1 - Initial Hotels
Schedule 3.2 - Mortgaged Property Prioritization Schedule
Schedule 5.8(a) - Stock Related Agreements
Schedule 5.8(c) - Subsidiaries
Schedule 5.19 - Environmental Matters
Schedule 5.22(a) - Owned Real Estate
Schedule 5.22(b) - Leased Real Estate
Schedule 5.22(c) - Defects in Improvements
Schedule 8.1 - Existing Liens
v
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Negative Pledge Agreement
Exhibit D - Form of Opinion of Counsel for the Loan
Parties
Exhibit E - Form of Mortgage
Exhibit F - Form of Assignment Agreement
Exhibit G - Form of Management Agreement
Exhibit H - Form of Operating Lease
Exhibit I - Form of Security Agreement
Exhibit J - Form of Subordination Agreement
Exhibit K - Form of Letter Agreement
vi
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of the 29th
day of December, 1995, between HOSPITALITY PROPERTIES TRUST, a Maryland real
estate investment trust (the "Borrower") and DLJ MORTGAGE CAPITAL, INC., a
Delaware corporation (the "Lender").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Revolving Credit Agreement dated as
of August 22, 1995 between the Borrower and the Lender (the "Original Revolving
Credit Agreement"), the Lender agreed to make to the Borrower revolving credit
advances of up to $200,000,000 in aggregate principal amount outstanding at any
one time, for the purposes and upon the terms and subject to the conditions set
forth therein;
WHEREAS, as of the date hereof no advances have been made under the
Original Revolving Credit Agreement;
WHEREAS, the Borrower and the Lender have agreed to amend certain
terms and provisions of the Original Revolving Credit Agreement and to restate
the same as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree that the
aforementioned recitals are true and correct and hereby incorporated herein and
that the Original Revolving Credit Agreement is hereby amended and restated in
its entirety so that all of the terms and conditions contained in this Agreement
shall supersede and control the terms and conditions of the Original Revolving
Credit Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the following terms
-------------
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
1
<PAGE>
"Advisor" means HRPT Advisors or such other Person as shall act as an
-------
advisor to the Borrower, whether pursuant to the Advisory Agreement, or an
agreement analogous to the Advisory Agreement, with the prior written consent of
the Lender.
"Advisory Agreement" means the Advisory Agreement, dated as of August
------------------
21, 1995, between the Borrower and the Advisor, as amended, supplemented or
modified from time to time in a manner not inconsistent with the terms hereof or
of the Subordination Agreement.
"Affiliate" means, as to any Person, any Subsidiary of such Person and
---------
any other Person which, directly or indirectly, controls, is controlled by or is
under common control with such Person and includes each officer or director or
trustee or general partner of such Person, and each Person who is the beneficial
owner of 10% or more of any class of voting Stock of such Person. For the
purposes of this definition, "control" means the possession of the power to
direct or cause the direction of management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means the Original Revolving Credit Agreement as amended
---------
and restated pursuant to this Amended and Restated Revolving Credit Agreement,
together with all Exhibits and Schedules hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"Appraisal" means an appraisal using methodologies reasonably
---------
acceptable to the Lender at the time such appraisal is or was made and performed
by a Recognized Appraiser.
"Approved Hotel Facility" means any Proposed Hotel Facility approved
-----------------------
by the Lender pursuant to Section 3.1 hereof.
"Asset Sale" means any sale, conveyance, transfer, assignment, lease
----------
or other disposition (including, without limitation, by merger or consolidation
and whether by operation of law or otherwise) by the Borrower or any of its
Subsidiaries to any Person of any Stock of any of its Subsidiaries, any Stock
Equivalents of any of its
2
<PAGE>
Subsidiaries or any Mortgaged Property but excluding Operating Leases .
Asset Sale Proceeds" means payments received by the Borrower or any of
-------------------
its Subsidiaries (including, without limitation, any payments received by way of
deferred payment of principal pursuant to a note or receivable or otherwise, but
only as and when received) from any Asset Sale (after repayment of any
Indebtedness other than the Loans secured by the Mortgaged Property subject of
such Asset Sale to the extent such Indebtedness is permitted hereunder), in each
case net of the amount of (i) brokers' and advisors' fees and commissions
payable other than to an Affiliate of the Borrower in connection with such Asset
Sale, (ii) all foreign, federal, state and local taxes payable as a direct
consequence of such Asset Sale, (iii) the reasonable fees and expenses
attributable to such Asset Sale, to the extent not included in clause (i),
except to the extent payable to any Affiliate of the Borrower, and (iv) any
amount required to be paid to any Person (other than the Borrower and any of its
Subsidiaries) owning a beneficial interest in the property or assets sold.
"Assignment Agreement" means, with respect to each Mortgaged Property,
--------------------
an agreement substantially in the form of Exhibit F, executed by the Borrower,
the Lender and the Manager, assigning to the Lender, the Management Agreement
relating thereto,
"Base Rate" means, for any period, a fluctuating interest rate per
---------
annum as shall be in effect from time to time, which rate per annum shall be
equal at all times to the higher of:
(a) the rate of interest announced publicly by Citibank, N.A. in New
York, New York, from time to time, as such bank's prime rate; and
(b) the sum (adjusted to the nearest 1/4 of one percent or, if there
is no nearest 1/4 of one percent, to the next higher 1/4 of one percent) of (i)
one and one-half percent (1 1/2%) per annum plus (ii) the Federal Funds Rate.
----
"Base Rent" means, for any period, the base or fixed rent or
---------
percentage rent during such period payable by
3
<PAGE>
an Operating Lessee pursuant to the terms of an Operating Lease.
"Business Day" means a day of the year on which banks are not required
------------
or authorized to close in New York City and a day on which dealings are also
carried on in the London interbank market.
"Capital Expenditures" means, for any Person for any period, the
--------------------
aggregate of all expenditures by such Person and its consolidated Subsidiaries,
except interest capitalized during construction, during such period for
property, plant or equipment, including, without limitation, renewals,
improvements, replacements and capitalized repairs, that would be reflected as
additions to property, plant or equipment on a consolidated balance sheet of
such Person and its Subsidiaries prepared in conformity with GAAP. For the
purpose of this definition, the purchase price of equipment which is acquired
simultaneously with the trade-in of existing equipment owned by such Person or
any of its Subsidiaries or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the gross amount of such purchase price less
the credit granted by the seller of such equipment being traded in at such time
or the amount of such proceeds, as the case may be.
"Capital Financing Indebtedness" means the principal amount of all
------------------------------
Indebtedness incurred or assumed in connection with any Capital Expenditures,
all Capitalized Lease Obligations and all other Indebtedness (including purchase
money Indebtedness) incurred solely for the purpose of financing or refinancing
the acquisition of assets or properties.
"Capitalized Lease" means, as to any Person, any lease of property by
-----------------
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in conformity with GAAP.
"Capitalized Lease Obligations" means, as to any Person, the
-----------------------------
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capitalized Leases, as determined on a consolidated basis in conformity
with GAAP.
4
<PAGE>
"Cash Flow" means, for any Person for any period, the Net Income
---------
(Loss) of such Person for such period plus all non-cash charges of such Person
----
and its consolidated Subsidiaries for such period to the extent included in the
computation of such Net Income (Loss).
"Closing Date" means the first date on which any Loan is made.
------------
"Code" means the Internal Revenue Code of 1986 (or any successor
----
legislation thereto), as amended from time to time.
"Collateral" means all property and interests in property and proceeds
----------
thereof now owned or hereafter acquired by any Loan Party in or upon which a
Lien is granted under any of the Collateral Documents.
"Collateral Documents" means, the Negative Pledge Agreements, the
--------------------
Assignment Agreements, the Mortgages, the Security Agreements and any other
document now or hereafter executed and delivered by a Loan Party granting a Lien
on any of its property to secure payment of the Obligations.
"Commitment" has the meaning specified in Section 2.1.
----------
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness or Contractual Obligation of another Person, if the purpose or
intent of such Person in incurring the Contingent Obligation is to provide
assurance to the obligee of such Indebtedness or Contractual Obligation that
such Indebtedness or Contractual Obligation will be paid or discharged, or that
any agreement relating thereto will be complied with, or that any holder of such
Indebtedness or Contractual Obligation will be protected (in whole or in part)
against loss in respect thereof. Contingent Obligations of a Person include,
without limitation, (a) the direct or indirect guarantee, endorsement (other
than for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of an obligation
of another Person, and (b) any liability of such Person for an obligation of
5
<PAGE>
another Person through any agreement (contingent or otherwise) (i) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of a loan, advance, stock purchase, capital contribution or otherwise),
(ii) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person, (iii) to make take-or-pay or similar
payments, if required, regardless of non-performance by any other party or
parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such obligation or to assure the holder of such
obligation against loss, or (v) to supply funds to or in any other manner invest
in such other Person (including, without limitation, to pay for property or
services irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported.
"Contract" means any contract, agreement, undertaking, indenture,
--------
note, bond, loan, instrument, lease, conditional sales contract, mortgage, deed
of trust, license, franchise, insurance policy, commitment or other arrangement
or agreement.
"Contractual Obligation" of any Person means any obligation,
----------------------
agreement, undertaking or similar provision of any security issued by such
Person or of any Contract (excluding a Loan Document) to which such Person is a
party or by which it or any of its property is bound or to which any of its
properties is subject.
"Conversion Date" means January 1, 1999.
---------------
"Default" means any event which with the passing of time or the
-------
giving of notice or both would become an Event of Default.
"DOL" means the United States Department of Labor, or any successor
---
thereto.
6
<PAGE>
"Dollars" and the sign "$" each mean the lawful money of the United
-------
States of America.
"Environmental Claim" means any accusation, allegation, notice of
-------------------
violation, action, claim, Environmental Lien, demand, abatement or other Order
or direction (conditional or otherwise) by any Governmental Authority or any
other Person for personal injury (including sickness, disease or death),
tangible or intangible property damage, damage to the environment, nuisance,
pollution, contamination or other adverse effects on the environment, or for
fines, penalties or restriction, resulting from or based upon (i) the existence,
or the continuation of the existence, of a Release (including, without
limitation, sudden or non-sudden accidental or non-accidental Releases) of, or
exposure to, any Hazardous Material or odor, audible noise or other nuisance, or
other Release in, into or onto the environment (including, without limitation,
the air, soil, surface water or groundwater) at, in, by, from or related to any
property owned, operated or leased by the Borrower or any of its Subsidiaries or
any activities or operations thereof; (ii) the environmental aspects of the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with any property owned, operated or leased by the Borrower or any of
its Subsidiaries or their operations or facilities; or (iii) the violation, or
alleged violation, of any Environmental Laws, Orders or Environmental Permits of
or from any Governmental Authority relating to environmental matters connected
with any property owned, leased or operated by the Borrower or any of its
Subsidiaries.
"Environmental Laws" means any federal, state, local or foreign law
------------------
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating in any way to the environment, natural resources, or public
or employee health and safety and includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. (S) 9601 et seq., the Hazardous Materials Transportation
-- ---
Act, 49 U.S.C. (S) 1801 et seq., the Federal Insecticide, Fungicide, and
-- ---
Rodenticide Act, 7 U.S.C. (S) 136 et seq., the Resource Conservation and
-- ---
Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., the Toxic Substances Control
-- ---
Act, 15 U.S.C. (S) 2601 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq.,
-- --- -- ---
the Clean Water Act, 33 U.S.C. (S) 1251 et seq., the Occupational Safety and
-- ---
Health
7
<PAGE>
Act, 29 U.S.C. (S) 651 et seq., and the Oil Pollution Act of 1990, 33
-- ---
U.S.C. (S) 2701 et seq., as such laws have been amended or supplemented, and the
-- ---
regulations promulgated pursuant thereto, and all analogous state and local
statutes.
"Environmental Liabilities and Costs" means, as to any Person, all
-----------------------------------
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim.
"Environmental Lien" means any Lien in favor of any Governmental
------------------
Authority arising under any Environmental Law.
"Environmental Permit" means any Permit required under any applicable
--------------------
Environmental Laws or Order and all supporting documents associated therewith.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or
-----
any successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) under common control or treated as a single employer with any Loan
Party within the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"ERISA Event" means (i) an event described in Sections 4043(b)(1),
-----------
(2), (3), (5), (6), (8) or (9) of ERISA with respect to a Pension Plan; (ii) the
withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject
to Section 4063 of ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or
partial withdrawal of any Loan Party or any ERISA Affiliate from any
Multiemployer Plan or the insolvency of any Multiemployer Plan; (iv) the filing
of a notice of intent to terminate a Pension Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA; (v) the institution
8
<PAGE>
of proceedings by the PBGC to terminate or appoint a trustee to administer a
Pension Plan or Multiemployer Plan; (vi) the failure to make any required
contribution to a Pension Plan; (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
or Multiemployer Plan; (viii) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA; (ix) a prohibited transaction (as described in Code Section 4975 or ERISA
Section 406) shall occur with respect to any Plan; or (x) any Loan Party or
ERISA Affiliate shall request a minimum funding waiver from the IRS with respect
to any Pension Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Interest Period, an interest rate per
---------------
annum equal to the sum of (a) the rate per annum obtained by dividing (i) the
rate of interest determined by the Lender to be the average (rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such average is not such
a multiple) of the rates for Dollar deposits which appear on the display
designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such
other page as may replace such page or that service for the purpose of
displaying London interbank offered rates for major banks) (the "Reuters Page"),
as of 11:00 A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to the Loan during such
Interest Period and for a period equal to such Interest Period by (ii) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such
-----
Interest Period, plus (b) 1.50%. If the Lender is unable to ascertain the
----
interest rate referred to in (i) above from the Reuters Page, such rate shall be
determined from such financial reporting service or other information as shall
be reasonably determined by the Lender.
"Eurodollar Rate Reserve Percentage" for any Interest Period means the
----------------------------------
reserve percentage applicable two Business Days before the first day of such
Interest Period
9
<PAGE>
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of liabilities
which includes deposits by reference to which the Eurodollar Rate is determined)
having a term equal to such Interest Period.
"Event of Default" has the meaning specified in Section 9.1.
----------------
"Fair Market Value" means with respect to any Hotel Facility at any
-----------------
date, the value thereof reasonably determined by the Lender by dividing the Base
Rents from such Hotel Property during the previous twelve (12) month period by
ten percent (10%).
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"FF&E Reserve" has the meaning given to such term in the Management
------------
Agreement attached as Exhibit G hereto
"Final Borrowing Date" means December 31, 1998.
--------------------
"Final Maturity Date" means December 31, 2008.
-------------------
"Financial Officer's Certificate" has the meaning specified in
-------------------------------
Section 7.11(c).
10
<PAGE>
"Fiscal Quarter" means each of the three month periods ending on
--------------
March 31, June 30, September 30 and December 31.
"Fiscal Year" means the twelve month period ending on December 31.
-----------
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination except that, for purposes of Article VI, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements referred to in
Section 5.5.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Material" means any substance, material or waste which is
------------------
regulated by any Governmental Authority of the United States or other national
government, including, without limitation, any material, substance or waste
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law, which includes, but is not limited to, petroleum, petroleum
products, asbestos, urea formaldehyde and polychlorinated biphenyls.
"HMC" means Host Marriott Corporation, a Delaware corporation.
---
"Hotel Facility" means each of (a) the Initial Hotels, and (b) the
--------------
Approved Hotel Facilities acquired by
11
<PAGE>
the Borrower using the proceeds of a Loan or Loans made by the Lender hereunder.
"HRP" means Health and Retirement Properties Trust, a Maryland real
---
estate investment trust.
"HRP Loan" means the demand loan made by HRP to the Borrower in
--------
connection with the acquisition by the Borrower of certain of the Initial
Hotels.
"HRPT Advisors" means HRPT Advisors, Inc., a Delaware corporation.
-------------
"Improvements" has the meaning specified in Section 5.22(c).
------------
"Indebtedness" of any Person means (i) all indebtedness of such Person
------------
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured) or for the deferred purchase price of
property or services, (ii) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments, (iii) all indebtedness of such Person
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all Capitalized
Lease Obligations of such Person, (v) all Contingent Obligations of such Person,
(vi) all obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any Stock or Stock Equivalents of such Person,
valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (vii) all obligations of such Person under Interest Rate Contracts,
and (viii) all Indebtedness referred to in clause (i), (ii), (iii), (iv), (v),
(vi) or (vii) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including, without limitation, accounts and general intangibles)
owned by such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness, (ix) in
12
<PAGE>
the case of the Borrower, the Obligations, and (x) all liabilities of such
Person that would be shown on a balance sheet of such Person prepared in
conformity with GAAP.
"Indemnitees" has the meaning specified in Section 10.4.
-----------
"Initial Hotels" means the Real Estate consisting of 37 Courtyard by
--------------
Marriott(R) hotels listed in Schedule 1.1 hereto.
"Initial Selected Properties" means such of the Initial Hotels as the
---------------------------
Lender shall select (consistent with the Mortgaged Property Prioritization
Schedule attached as Schedule 3.2 hereto and made a part hereof) such that,
after giving effect to the Initial Loan to be made hereunder and the Mortgage
Documents relating to such Initial Hotels, the Loan to Value Requirement would
be satisfied.
"Interest Period" means, in the case of any Loan, (i) initially, the
---------------
period commencing on the date such Loan is made and ending one (1) month
thereafter, and (ii) thereafter, a period commencing on the last day of the
immediately preceding Interest Period therefor and ending one (1) month
thereafter; provided, however, that:
-------- -------
(a) if any Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day, unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(c) if the Borrower, by written notice to the Lender given no later
than two (2) Business Days prior to the expiration of an Interest Period for any
Loan, requests a one day interest period for such Loan, the Interest Period for
such Loan shall mean a period of one day (the "1 Day
13
<PAGE>
Interest Period"); provided that in no event shall any Loan have a 1 Day
-------------
Interest Period for a period in excess of thirty (30) consecutive days (the
"Limited Period"), and upon the expiration of the Limited Period in respect of
any Loan, such Loan shall automatically be continued at the one (1) month
Interest Period specified above.
(d) in no event shall any Interest Period end after the Conversion
Date.
"Interest Rate Contracts" means interest rate swap agreements,
-----------------------
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates.
"Investments" has the meaning specified in Section 8.6.
-----------
"IRS" means the Internal Revenue Service, or any successor thereto.
---
"Leases" means, with respect to the Borrower or any of its
------
Subsidiaries, all of those leasehold estates in real property owned by the
Borrower or such Subsidiary, as lessee, as such may be amended, supplemented or
otherwise modified from time to time to the extent permitted by this Agreement.
"Legal Proceedings" means any judicial, administrative or arbitral
-----------------
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Lending Office" means, with respect to the Lender, the office located
--------------
at 140 Broadway, New York, New York 10005-1285 or such other office of the
Lender as the Lender may from time to time specify to the Borrower.
14
<PAGE>
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to secure
payment of any Indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a Capitalized Lease Obligation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing,
under the Uniform Commercial Code or comparable law of any jurisdiction, of any
financing statement naming the owner of the asset to which such Lien relates as
debtor (excluding precautionary filings).
"Loan" or "Loans" means the revolving credit loan or loans made or to
---- -----
be made by the Lender to the Borrower pursuant to Article II.
"Loan Documents" means, collectively, this Agreement, the Note, the
--------------
Collateral Documents and each certificate, agreement or document executed by a
Loan Party and delivered to the Lender in connection with or pursuant to any of
the foregoing, as such agreements, documents or instruments may be amended,
modified or supplemented from time to time.
"Loan Party" means the Borrower and each Subsidiary and Affiliate of
----------
the Borrower which executes and delivers a Loan Document.
"Loan to Value Requirement" means the requirement that, at any time,
-------------------------
the aggregate principal amount of the Loans outstanding at such time shall not
exceed the lesser of (i) sixty percent (60%) of the aggregate of the Fair Market
------
Values for all of the Mortgaged Properties, and (ii) the aggregate of the
Qualified Loan Amounts for all of the Mortgaged Properties.
"Management Agreement" means an agreement relating to the operation
--------------------
and/or management of a Hotel Facility between the Borrower and the Manager,
substantially in the form of the management agreement and amendments thereto
annexed as Exhibit G hereto or such other form as shall be
15
<PAGE>
approved by the Lender, which approval shall not be unreasonably withheld,
delayed or conditioned.
"Manager" means Courtyard Management Corporation, a wholly owned
--------
subsidiary of Marriott International Inc., or such other manager as shall be
approved by the Lender (which approval shall not be unreasonably withheld,
delayed or conditioned), as manager under the Management Agreement.
"Material Adverse Change" means a material adverse change in any of
-----------------------
(i) the condition (financial or otherwise), business, performance, prospects,
operations or properties of (A) any Loan Party and its Subsidiaries taken as one
enterprise, (B) any Operating Lessee, (C) any Manager, or (D) the Advisor (ii)
the legality, validity or enforceability of any Loan Document or any Operating
Lease, Management Agreement or Advisory Agreement (iii) the perfection or
priority of the Liens granted pursuant to the Collateral Documents, (iv) the
ability of the Borrower to repay the Obligations or of any Loan Party to perform
its material obligations under any Loan Document, (v) the ability of any
Operating Lessee to perform obligations under any Operating Lease, (vi) the
ability of any Manager to perform its obligations under any Management
Agreement; (vii) the ability of the Advisor to perform its obligations under the
Advisory Agreement or (viii) the rights and remedies of the Lender under the
Loan Documents.
"Material Adverse Effect" means an effect that results in or causes,
-----------------------
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.
"Mortgages" means the mortgages or deeds of trust made or required
---------
herein to be made by the Borrower or any of its Subsidiaries in substantially
the form of Exhibit E, as such Mortgages may be amended, supplemented or
otherwise modified from time to time.
"Mortgage Documents" means with respect to any Hotel Facility, a
------------------
Mortgage and the other documents and payments including, without limitation, the
Mortgage Payments, specified in Sections 4.2(c)(ii) through (iv) and 4.2(d),
where applicable, in the forms attached hereto, subject to appropriate revisions
for state or property specific requirements.
16
<PAGE>
"Mortgage Payments" means the payments specified in Section
-----------------
4.2(d)(vi).
"Mortgaged Property" means any property subject to a Mortgage in
------------------
favor of the Lender.
"Multiemployer Plan" means, as of any applicable date, a multiemployer
------------------
plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party,
any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make,
or within the six-year period ending at such date, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
"Negative Pledge Agreement" means, in respect of each Hotel Facility,
-------------------------
an agreement, in substantially the form of Exhibit C, executed by the Borrower
or the Subsidiary owning such Hotel Facility, as such agreement may be amended,
supplemented or modified from time to time.
"Net Income (Loss)" means, for any Person for any period, the
-----------------
aggregate of net income (or loss) of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
conformity with GAAP.
"Net Interest Expense" means, for any Person for any period, gross
--------------------
interest expense in respect of all Indebtedness of such Person and its
Subsidiaries for such period determined on a consolidated basis in conformity
with GAAP, less the following for such Person and its Subsidiaries determined on
----
a consolidated basis in conformity with GAAP: (a) the sum of (i) interest
capitalized during construction for such period, (ii) interest income for such
period, and (iii) gains for such period on Interest Rate Contracts (to the
extent not included in interest income above and to the extent not deducted in
the calculation of such gross interest expense), plus the following for such
----
Person and its Subsidiaries determined on a consolidated basis in conformity
with GAAP: (b) the sum of (i) losses for such period on Interest Rate Contracts
(to the extent not included in such gross interest expense), and (ii) the
amortization of upfront costs or fees for such period associated with Interest
Rate Contracts (to the extent not included in gross interest expense).
17
<PAGE>
"Net Worth" of any Person means at any date the excess of (a) the
---------
total assets of such Person and its Subsidiaries at such date determined on a
consolidated basis in conformity with GAAP over (b) all obligations which in
conformity with GAAP would be included in determining total liabilities as shown
on the liabilities side of a consolidated balance sheet of such Person and its
Subsidiaries at such date.
"Note" means a promissory note of the Borrower payable to the order of
----
the Lender in a principal amount equal to the amount of the Commitment as
originally in effect, in substantially the form of Exhibit A, evidencing the
aggregate Indebtedness of the Borrower to the Lender resulting from the Loans
made by the Lender.
"Notice of Borrowing" has the meaning specified in Section 2.2(a).
-------------------
"Obligations" means the Loans and all other advances, debts,
-----------
liabilities, obligations, covenants and duties owing by the Borrower to the
Lender, any Affiliate of the Lender or any Indemnitee, of every type and
description, present or future, whether or not evidenced by any note, guaranty
or other instrument, arising under this Agreement or under any other Loan
Document, whether or not for the payment of money, loan, guaranty,
indemnification, foreign exchange transaction or Interest Rate Contract or in
any other manner, whether direct or indirect (including, without limitation,
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term "Obligations"
includes, without limitation, all interest, charges, expenses, fees, attorneys'
fees and disbursements and any other sum chargeable to the Borrower under this
Agreement or any other Loan Document.
"Operating Lease" means a lease or sublease relating to any Real
---------------
Estate or Lease, between the Borrower or any of its Subsidiaries, as lessor, and
the Operating Lessee, as lessee, substantially in the form of the lease annexed
as Exhibit H hereto or such other form as shall be approved by the Lender,
which approval shall not be unreasonably withheld, delayed or conditioned.
18
<PAGE>
"Operating Lessee" means HMH HPT Courtyard, Inc., a wholly owned
----------------
subsidiary of HMC or such other lessee as shall be approved by the Lender (which
approval shall not be unreasonably withheld, delayed or conditioned), as lessee
under the Operating Lease.
"Operator" means the Operating Lessee and/or the Manager (as the case
--------
may be) responsible for the operation and management of any Real Estate.
"Order" means any order, injunction, judgment, decree, ruling,
-----
assessment or arbitration award.
"Other Taxes" has the meaning specified in Section 2.14(b).
-----------
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Pension Plan" means a plan, other than a Multiemployer Plan, which is
------------
covered by Title IV of ERISA or Code Section 412 and which any Loan Party, any
of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Permit" means any permit, approval, authorization, license, variance,
------
registration, permission or consent required from a Governmental Authority under
an applicable Requirement of Law.
"Permitted Lien" means any Lien permitted under Section 8.1 hereof.
--------------
"Person" means an individual, partnership, corporation (including,
------
without limitation, a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a Governmental
Authority.
"Plan" means an employee benefit plan, as defined in Section 3(3) of
----
ERISA, which any Loan Party or any of its Subsidiaries maintains, contributes to
or has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
19
<PAGE>
"Proposed Hotel Facility" means any Real Estate or Lease comprising an
-----------------------
operating facility offering hotel or other lodging services which the Borrower
desires to acquire using the proceeds of a Loan made by the Lender hereunder.
"Proposed Hotel Facility Statement" means a certificate of a
---------------------------------
Responsible Officer providing each of the following:
(i) details of the location of the Proposed Hotel Facility and the
real estate interest to be acquired;
(ii) specification of the proposed acquisition costs of the Borrower
in respect of such Proposed Hotel Facility;
(iii) certification (based on information available to the Borrower
after diligent enquiry) as to the ratio of (A) the lesser of (1) the Cash
Flow of the current owner or operator of the Proposed Hotel Facility (as
applicable) over the four most recent financial quarters attributable to
the Proposed Hotel Facility, and (2) the proposed annual Base Rent under
the proposed Operating Lease of the Proposed Hotel Facility; to (B)
projected fixed charges (including the Net Interest Expense) for such
Proposed Hotel Facility for the next one year period and, further,
certification that, to the knowledge of the Borrower after diligent
enquiry, with respect to the Proposed Hotel Facility the details of Cash
Flows of the operator thereof used by the Borrower in its calculations are
current;
(iv) audited balance sheets if available, or pro forma balance
sheets, of the owner or operator of the Proposed Hotel Facility, and the
related consolidated statements of income, retained earnings and cash flows
of such owner or operator for its previous three (3) fiscal years;
(v) audited balance sheets if available, or pro forma balance
sheets, in respect of the Proposed Hotel Facility and the related
consolidated statements of operations, changes in owner's equity (deficit)
and
20
<PAGE>
cash flows in respect of such Proposed Hotel Facility, for the previous
three (3) fiscal years;
(vi) a written report of an investigation by an environmental
consultant, reasonably acceptable to the Lender, addressing any significant
environmental, health and safety violations, hazards or liabilities to
which the owner or operator of the Proposed Hotel Facility may be subject,
which report shall demonstrate, to the reasonable satisfaction of the
Lender, that the Proposed Hotel Facility and the operations thereof are in
compliance in all material respects with all applicable Environmental Laws
and are not subject to any material Environmental Liabilities and Costs.
(vii) a copy of the proposed form of Operating Lease and, if
applicable, Management Agreement;
(viii) the names of the proposed Operating Lessee and, if applicable,
Manager;
(ix) a copy of a recent market study in respect of the Proposed
Hotel Facility;
(x) a current title report and survey in respect of the Proposed
Hotel Facility, issued by a title company/surveyor reasonably acceptable to
the Lender; and
(xi) a written report of an investigation by an engineering
consultant reasonably acceptable to the Lender.
"Qualified Loan Amount" means, with respect to each Mortgaged
---------------------
Property, the maximum principal amount permitted for any Qualified Loan as such
term is defined in the Management Agreement attached as Exhibit G hereto.
21
<PAGE>
"Rating Agency" shall mean any nationally recognized statistical
-------------
agency selected by the Lender including, without limitation, Duff & Phelps
Rating Co., Fitch Investors Services, Inc., Moody's Investors Services, Inc.,
and/or Standard and Poors corporation, collectively, and any successor to any of
them; provided, however, that at any time during which the Loans are an asset of
a securitization, "Rating Agency" shall mean the rating agency or rating
agencies that from time to time rate the securities issued in connection with
such securitization.
"Recognized Appraiser" means a qualified and recognized professional
--------------------
appraiser as may be selected or approved by the Lender, having at least five (5)
years' prior experience in performing real estate appraisals in the geographic
area where the property being appraised is located, having a recognized
expertise in appraising properties operated as hotel or other lodging
facilities.
"Real Estate" means all of those plots, pieces or parcels of land now
-----------
owned or hereafter acquired by the Borrower or any of its Subsidiaries (the
"Land"), including, without limitation, those listed on Schedule 5.22(a) and
described in the Mortgages, together with the right, title and interest of the
Borrower or such Subsidiary, if any, in and to the streets, the land lying in
the bed of any streets, roads or avenues, opened or proposed, in front of,
adjoining or abutting the Land to the center line thereof, the air space and
development rights pertaining to the Land and the right to use such air space
and development rights, all rights of way, privileges, liberties, tenements,
hereditaments and appurtenances belonging or in any way appertaining thereto,
all fixtures, all easements now or hereafter benefiting the Land and all
royalties and rights appertaining to the use and enjoyment of the Land,
including, without limitation, all alley, vault, drainage, mineral, water, oil
and gas rights, together with all of the buildings and other improvements now or
hereafter erected on the Land, and any fixtures appurtenant thereto.
"Registration Statement" means the Form S-11 Registration Statement
----------------------
under the Securities Act of 1933 as filed by the Borrower with the Securities
and Exchange Commission on May 15, 1995 (as Registration Number 33-92330) and
any filed amendments thereto.
22
<PAGE>
"Release" means any release, spill, emission, leaking, pumping,
-------
pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching or migration on or into the indoor or outdoor environment or into or
out of any property.
"Remedial Action" means all actions including, without limitation, any
---------------
Capital Expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment, (ii) prevent the Release or
threat of Release, or minimize the further Release, of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment, (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care, or
(iv) bring facilities on any property owned, leased or operated by the Borrower
or any of its Subsidiaries into compliance with all Environmental Laws and
Environmental Permits.
"Requirement of Law" means, as to any Person, the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all food, health and safety laws, and all applicable trade laws and
requirements, including, without limitation, all disclosure requirements of
Environmental Laws, ERISA and all orders, judgments, decrees or other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
"Responsible Officer" means, with respect to any Person, any of the
-------------------
principal executive officers or general partners of such Person.
"Secured Indebtedness" of any Person means any Indebtedness of such
--------------------
Person for which the obligations thereunder are secured by a Lien on any assets
of such Person.
23
<PAGE>
"Security Agreement" means, with respect to each Hotel Property, an
------------------
agreement in substantially the form of Exhibit I, subject to such changes as the
Manager shall reasonably request and the Lender shall reasonably agree to,
executed by the Borrower and the other parties thereto, granting to the Lender a
security interest in the Borrower's interest in the FF&E Reserve.
"Selected Properties" has the meaning specified in Section 3.2.
-------------------
"Solvent" means, with respect to any Person, that the value of the
-------
assets of such Person (both at fair value and present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including, without limitation, contingent and unliquidated liabilities) of such
Person as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and does not have
unreasonably small capital. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Stock" means shares of capital stock, beneficial or partnership
-----
interests, participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or non-voting, and
includes, without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities convertible into or
-----------------
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any stock, whether or not presently convertible, exchangeable or
exercisable.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or
24
<PAGE>
controlled by such Person and/or one or more Subsidiaries of such Person
(irrespective of whether, at the time, Stock of any other class or classes of
such entity shall have or might have voting power by reason of the happening of
any contingency).
"Subordination Agreement" means an agreement among the Lender, the
-----------------------
Advisor and the Borrower, substantially in the form annexed as Exhibit J, as
amended, supplemented or modified from time to time in a manner not inconsistent
with the terms thereof and hereof.
"Tangible Net Worth" of any Person means, at any date, the Net Worth
------------------
of such Person at such date, excluding, however, from the determination of the
--------- -------
total assets of such Person at such date, (i) all goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (ii) all prepaid expenses, deferred charges or
unamortized debt discount and expense, (iii) all reserves carried and not
deducted from assets, (iv) treasury stock and capital stock, obligations or
other securities of, or capital contributions to, or investments in, any
Subsidiary of such Person, (v) securities which are not readily marketable, (vi)
cash held in a sinking or other analogous fund established for the purpose of
redemption, retirement, defeasance or prepayment of any Stock or Indebtedness,
(vii) any write-up in the book value of any asset resulting from a revaluation
thereof, and (viii) any items not included in clauses (i) through (vii) above
which are treated as intangibles in conformity with GAAP.
"Tax Affiliate" means, as to any Person, (i) any Subsidiary of such
-------------
Person, and (ii) any Affiliate of such Person with which such Person files or is
eligible to file consolidated, combined or unitary tax returns.
"Tax Return" has the meaning specified in Section 5.3.
----------
"Taxes" has the meaning specified in Section 2.14(a).
-----
25
<PAGE>
"Title Insurance Policies" has the meaning specified in Section
------------------------
4.2(d)(i).
"Total Assets" of any Person means, at any date, the aggregate value
------------
of all assets of such Person, determined on the basis of cost of each such asset
to such Person without reduction for depreciation or adjustments due to asset
reappraisals or otherwise.
"Total Base Rents" means, for any period, the aggregate sum of Base
----------------
Rents for such period payable under any Operating Leases in effect during such
period, determined on a consolidated basis.
"Treasury Rate" means a fixed rate of interest per annum equal to the
-------------
sum of (a) the ten (10) year United States Treasury Bill Rate offered by The
Treasury Department of the United States of America, plus (b) the spread quoted
by the Lender for loans with the same maturity, secured by hotel assets in the
Lender's conduit program, in each case, on the Conversion Date.
"Treasury Constant Maturity Yield Index" means the average yield for
--------------------------------------
"This Week" as reported by the Federal Reserve Board in Federal Reserve
Statistical Release H.15(519).
"Underwriters" means the underwriters under the Underwriting
------------
Agreement.
"Underwriting Agreement" means that certain Underwriting Agreement
----------------------
dated August 16, 1995 between the Borrower, Donaldson, Lufkin & Jenrette
Securities Corporation and the other Underwriters.
"Unsecured Indebtedness" of any Person means any Indebtedness of such
----------------------
Person for which the obligations thereunder are not secured by a pledge of or
other encumbrance on any assets of such Person.
"Yield Maintenance Amount" has the meaning specified in Section
------------------------
2.6(b).
"Yield Maintenance Premium" means the premium that shall be the
-------------------------
product of (1) a fraction, the numerator of
26
<PAGE>
which is the positive excess, if any, of (i) the present value of all future
payments of principal and interest on the Loans, including the principal amount
due at maturity, to be made on the Note before the prepayment in question,
discounted at an interest rate per annum equal to the sum of (a) the Treasury
Constant Maturity Yield Index published during the second full week preceding
the date on which such premium is payable for instruments having a maturity
coterminous with the remaining term of the Note, and (b) fifty (50) basis
points, over (ii) the Loans outstanding immediately before such prepayment, and
the denominator of which is the Loans outstanding immediately prior to the
prepayment, and (2) the Loans being prepaid; provided, however, that if there is
-----------------
no Treasury Constant Maturity Yield Index for instruments having
a maturity coterminous with the remaining term of the Note, then the index
referred to in (1) above shall be equal to the weighted average yield to
maturity of the Treasury Constant Maturity Yield Indices with maturities next
longer and shorter than such remaining average life to maturity, calculated by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1%
per annum, if the average is not such a multiple) the yields of the relevant
Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest
1/100 of 1% with any figure of 1/200 of 1% or above rounded upward).
1.2. Computation of Time Periods. In this Agreement, in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding" and the word "through" means "to and including".
1.3. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4. Certain Terms. (a) The words "herein," "hereof" and
-------------
"hereunder" and other words of similar import refer to this Agreement as a
whole, and not to any particular Article, Section, subsection or clause in this
Agreement. References herein to an Exhibit, Schedule, Article, Section,
subsection or clause refer to the
27
<PAGE>
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Agreement.
(b) The term "Lender" includes its successors and each assignee of
the Lender who becomes a party hereto pursuant to Section 10.7.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
2.1. The Loans. On the terms and subject to the conditions contained
---------
in this Agreement, the Lender agrees to make revolving credit loans (each a
"Loan" and collectively, the "Loans") to the Borrower from time to time on any
Business Day during the period from the date hereof to and including the Final
Borrowing Date, and to maintain the Loans outstanding to the Borrower on the
Final Borrowing Date from such date until the Final Maturity Date in an
aggregate outstanding amount not to exceed TWO HUNDRED MILLION DOLLARS
($200,000,000) (the "Commitment") at any time, to be used for the purposes
identified in Section 5.18. Within the limits of the Commitment and subject to
the other terms and conditions hereof, amounts prepaid pursuant to Section
2.6(b) may be reborrowed under this Section 2.1 up to and including the Final
Borrowing Date. No portion of the Commitment may be borrowed or reborrowed after
the Final Borrowing Date. The Loans shall be evidenced by the Note. The Lender
is authorized to endorse, at any time, the date and amount of each Loan and the
date and amount of each payment of principal with respect to the Loans on the
schedule annexed to and constituting a part of the Note, which endorsement shall
constitute prima facie evidence of the accuracy of the information endorsed.
2.2. Making the Loans. (a) Each Loan shall be made on notice, given
----------------
by the Borrower to the Lender not later than 12:00 noon (New York City time) on
the fifth (5th) Business Day prior to the date of the proposed Loan. Each such
notice (a "Notice of Borrowing") shall be in substantially the form of Exhibit
B, specifying therein (i) the date of such proposed Loan, (ii) the amount of
such proposed Loan, (iii) the account or accounts to which the Loan should be
made, and (iv) that the proceeds of the
28
<PAGE>
proposed Loan shall be used to repay the HRP Loan or details of the Approved
Hotel Facility or Facilities or other permitted use for which the proceeds of
the proposed Loan shall be used. Notwithstanding the foregoing, the Borrower
agrees promptly to notify the Lender in writing that it intends to request a
Loan in order to allow adequate time for the preparation of the Mortgage
Documents for the Initial Selected Properties and the Selected Properties
pursuant to Section 3.3 hereof.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall on the date of the proposed Loan, make available to
the Borrower at the account or accounts specified in the Notice of Borrowing, in
immediately available federal funds, the Loan.
(c) The Borrower may not request more than one (1) Loan per calendar
month.
(d) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. The Borrower shall indemnify the Lender against any loss, cost or
expense incurred by the Lender as a result of any failure to fulfill on or
before the date specified in any Notice of Borrowing for a proposed Loan the
applicable conditions set forth in Article IV, including, without limitation,
any loss (including, without limitation, loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by the Lender to fund any Loan to be made by the Lender
when such Loan, as a result of such failure, is not made on such date.
2.3. [Intentionally Omitted]
2.4. Reduction and Termination of the Commitment. The Borrower may,
-------------------------------------------
upon at least three Business Days' prior notice to the Lender, terminate in
whole or reduce in part the unused portions of the Commitment without premium or
penalty; provided, however, that each partial reduction shall be in the
-------- -------
aggregate amount of not less than $10,000,000.
2.5. Repayment. (a) The Borrower shall repay the entire unpaid
---------
principal amount of all and any Loans on the Final Maturity Date.
29
<PAGE>
(b) Commencing on the Conversion Date and on the first day of each
and every month thereafter through and including the day before the Final
Maturity Date, the Borrower shall pay with the monthly payments of interest,
payments of principal in amounts equal from time to time to the principal
reduction portion shown on an amortization schedule determined on the Conversion
Date for a self-amortizing loan with the same unpaid principal balance, at the
Treasury Rate with a maturity of twenty-five (25) years.
2.6. Prepayments. (a) The Borrower shall have no right to prepay
-----------
the principal amount of any Loan during the period from January 1, 1999 through
December 31, 2003 or other than as provided in this Section 2.6.
(b) The Borrower may, upon at least ten (10) Business Days' prior
notice to the Lender, stating the proposed date and aggregate principal amount
of the prepayment, prepay the outstanding principal amount of the Loans in whole
or in part, together with accrued interest to the date of such prepayment on the
principal amount prepaid (i) during the period (y) from the Closing Date through
December 31, 1998 and (z) from January 1, 2006 through the Final Maturity Date,
without premium or penalty and (ii) during the period from January 1, 2004
through December 31, 2005, upon payment of a sum (the "Yield Maintenance
Amount") equal to the greater of one percent (1%) of the principal amount
prepaid and the Yield Maintenance Premium with respect to such prepayment;
provided, however, that any prepayment of the Loans bearing interest at the
- -------- -------
Eurodollar Rate made other than on the last day of an Interest Period for the
Loans shall be subject to payment by the Borrower to
the Lender of any costs, fees or expenses incurred by the Lender in connection
with such prepayment including, without limitation, any costs to unwind any
Eurodollar Rate contracts or Interest Rate Contracts. The Lender shall deliver
notice to the Borrower of the amount of any Yield Maintenance Amount due with
respect to any prepayment by the Borrower at least three (3) Business Days prior
to the date of such prepayment, which notice shall be conclusive and binding
upon the Borrower absent manifest error. Any partial prepayment shall be
applied to the installments of principal in the inverse order of maturity. Upon
the giving of such notice of prepayment by the Borrower, the principal
30
<PAGE>
amount of the Loans specified to be prepaid shall become due and payable on the
date specified for such prepayment.
(c) If at any time the aggregate principal amount of Loans
outstanding at such time exceeds the Commitment, the Borrower shall forthwith
prepay the Loans then outstanding in an amount equal to such excess, together
with accrued interest.
(d) The Borrower shall forthwith prepay the Loans upon receipt by the
Borrower or its Subsidiaries of Asset Sale Proceeds in connection with an Asset
Sale of a Mortgaged Property in an amount equal to such Asset Sale Proceeds,
together with accrued interest to the date of such prepayment on the principal
amount prepaid and any Yield Maintenance Amount due pursuant to Section 2.6(b)
above.
2.7. Continuation of Loans at the Eurodollar Rate; Conversion of
-----------------------------------------------------------
Loans on the Conversion Date. (a) Prior to the Conversion Date, at the end of
- ----------------------------
any Interest Period with respect to the Loans, unless the Borrower has given
notice pursuant to Section 2.6, the Loans will automatically be continued for an
additional Interest Period at the Eurodollar Rate for such Interest Period.
(b) On the Conversion Date, the Loans will automatically convert so
as to comprise a single Loan in the aggregate principal amount of all of the
Loans then outstanding bearing interest at the Treasury Rate.
2.8. Interest. The Borrower shall pay interest on the unpaid
--------
principal amount of each Loan from the date thereof until the principal amount
thereof shall be paid in full:
(a) Prior to the Conversion Date, at a rate per annum equal at all
times during the applicable Interest
Period for each Loan to the Eurodollar Rate for such Interest Period, payable on
the last day of such Interest Period and on the Conversion Date; provided,
--------
however, that during the continuance of an Event of Default, all Loans shall
- -------
bear interest, payable on demand, at a rate per annum equal at all times to 2%
above the Eurodollar Rate in effect until the maturity of the Loans or the end
of such Interest Period, whichever occurs first, and thereafter at the
31
<PAGE>
greater of (x) 2% per annum above the Base Rate in effect from time to time and
(y) 2% per annum above the rate per annum required to be paid on the Loans
immediately prior to the date on which such Event of Default occurred.
(b) On and after the Conversion Date, at a rate per annum equal at
all times to the Treasury Rate, payable in arrears monthly on the first day of
each month and on the Final Maturity Date; provided, however, that during the
-------- -------
continuance of an Event of Default, all Loans shall bear interest, payable on
demand, at a rate per annum equal at all times to two percent (2%) per annum
above the Treasury Rate in effect from time to time.
2.9. Interest Rate Determination and Protection. (a) The Eurodollar
------------------------------------------
Rate for each Interest Period for Loans shall be determined by the Lender two
Business Days before the first day of such Interest Period. The Treasury Rate
shall be determined by the Lender on the Conversion Date.
(b) The Lender shall give prompt notice to the Borrower of the
applicable interest rate determined by the Lender for purposes of Section 2.9.
(c) If, (i) the Lender determines, which determination shall be
conclusive in the absence of manifest error, that quotations of interest rates
for the relevant deposits referred to in the definition of "Eurodollar Rate" are
not being provided in the relevant amounts or for the relevant maturities for
purposes of determining the rates of interest for the Loans as provided herein,
or (ii) the Lender determines, which determination shall be conclusive in the
absence of manifest error, that the Eurodollar Rate for any Interest Period
therefor will not adequately reflect the cost to the Lender of making the Loans
or funding or maintaining the Loans for such Interest Period, the Lender shall
forthwith so notify the Borrower, whereupon
(i) each Loan will automatically, on the last day of the then
existing Interest Period therefor, convert so as to accrue interest at an
interest rate per annum equal to the Base Rate in effect from time to time;
and
32
<PAGE>
(ii) the obligations of the Lender to make Loans at the
Eurodollar Rate shall be suspended until the Lender shall notify the
Borrower that the Lender has determined that the circumstances causing such
suspension no longer exist; provided that, during the period of such
-------- ----
suspension, the obligations of the Lender to make Loans at the Eurodollar
Rate shall convert to obligations to make Loans at the Base Rate in effect
from time to time.
2.10. Increased Costs. If, due to either (i) the introduction of or
---------------
any change in or in the interpretation of any law or regulation (other than any
change by way of imposition or increase of reserve requirements included in
determining the Eurodollar Rate Reserve Percentage) or (ii) compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to the Lender of agreeing to make or making, funding or maintaining any
Loans at the Eurodollar Rate, then the Borrower shall from time to time, upon
demand by the Lender, pay to the Lender additional amounts sufficient to
compensate the Lender for such increased cost. A certificate as to the amount
of such increased cost, submitted to the Borrower by the Lender, shall be
conclusive and binding for all purposes, absent manifest error. If the Borrower
so notifies the Lender within five Business Days after the Lender notifies the
Borrower of any increased cost pursuant to the foregoing provisions of this
Section 2.10, the Borrower may either (A) prepay in full all Loans bearing
interest at the Eurodollar Rate then outstanding in accordance with Section
2.6(b) and, additionally, reimburse the Lender for such increased cost in
accordance with this Section 2.10, or (B) require the Lender to, and the Lender
shall, convert all Loans bearing interest at the Eurodollar Rate into Loans
bearing interest at the Base Rate in effect from time to time, and additionally,
reimburse the Lender for such increased cost in accordance with this Section
2.10, provided that in the event that the election in (B) is made by the
-------- ----
Borrower, the Lender's obligations to make Loans hereunder shall thereafter be
deemed to be obligations to make Loans at the Base Rate in effect from time to
time.
2.11. Illegality. Notwithstanding any other provision of this
----------
Agreement, if the introduction of or any
33
<PAGE>
change in or in the interpretation of any law or regulation shall make it
unlawful, or any central bank or other Governmental Authority shall assert that
it is unlawful, for the Lender or its Lending Office to make Loans at the
Eurodollar Rate or to continue to fund or maintain Loans at the Eurodollar Rate,
then, on notice thereof and demand therefor by the Lender to the Borrower (i)
the obligation of the Lender to make or to continue the Loans bearing interest
at the Eurodollar Rate shall terminate, (ii) the Borrower shall forthwith prepay
in full all Loans then outstanding, together with interest accrued thereon (and
until paid in full, all such Loans bearing interest at the Eurodollar Rate then
outstanding shall accrue interest at an interest rate per annum equal to the
Base Rate in effect from time to time) provided that, the Borrower shall not be
-------------
required to prepay such Loans if the Borrower, within five Business Days of such
notice and demand, requires the Lender to convert such Loans to Loans bearing
interest at the Base Rate in effect from time to time.
2.12. Capital Adequacy. If (i) the introduction of or any change in
----------------
or in the interpretation of any law or regulation, (ii) compliance with any law
or regulation, or (iii) compliance with any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by the Lender or any corporation controlling the Lender and the
Lender reasonably determines that such amount is based upon the existence of the
Lender's Commitment and Loans and its other commitment and loans of this type,
then, upon demand by the Lender, the Borrower shall pay to the Lender, from time
to time as specified by the Lender, additional amounts sufficient to compensate
the Lender in the light of such circumstances, to the extent that the Lender
reasonably determines such increase in capital to be allocable to the existence
of the Lender's Commitment and Loans. A certificate as to such amounts
submitted to the Borrower by the Lender shall be conclusive and binding for all
purposes absent manifest error.
34
<PAGE>
2.13. Payments and Computations. (a) The Borrower shall make each
-------------------------
payment hereunder and under the Note not later than 12:00 noon (New York City
time) on the day when due, in Dollars, to the Lender at its address referred to
in Section 10.2 in immediately available funds without set-off or counterclaim,
to be applied in accordance with the terms of this Agreement. Payment received
by the Lender after 12:00 noon (New York City time) shall be deemed to be
received on the next Business Day.
(b) All computations of interest shall be made by the Lender on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable. Each determination by the Lender of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Note shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, that if such extension would cause payment of interest on or
- -------- -------
principal of any Loan to be made in the next calendar month, such payment shall
be made on the next preceding Business Day.
2.14. Taxes. (a) Any and all payments by the Borrower under each
-----
Loan Document shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding taxes measured
by the Lender's net income, and franchise taxes imposed on the Lender, by the
jurisdiction under the laws of which the Lender is organized or any political
subdivision thereof and taxes measured by the Lender's net income, and franchise
taxes imposed on the Lender, by the jurisdiction of the Lender's Lending Office
or any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the
35
<PAGE>
Lender (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including, without limitation, deductions
applicable to additional sums payable under this Section 2.14) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxing authority or
other authority in accordance with applicable law, and (iv) the Borrower shall
deliver to the Lender evidence of such payment to the relevant taxation or other
authority.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction which arise from any payment made under any Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, any Loan Document (collectively, "Other Taxes").
(c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.14) paid by
the Lender and any liability (including, without limitation, for penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor.
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Lender, at its address referred to in
Section 10.2, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of the Obligations.
36
<PAGE>
ARTICLE III
APPROVAL OF PROPOSED HOTEL FACILITIES;
SELECTED PROPERTIES AND PREPARATION
OF MORTGAGE DOCUMENTS
3.1. Approval of Proposed Hotel Facilities. In the event that the
-------------------------------------
Borrower desires to acquire either itself or through a Subsidiary a Proposed
Hotel Facility using the proceeds of a Loan to be made by the Lender hereunder,
the Borrower shall prior to submitting its Notice of Borrowing in respect of
such Loan request in writing the Lender's consent to the acquisition thereof,
which request shall be accompanied by a Proposed Hotel Facility Statement
(together with all documents referred to therein) in respect of the Proposed
Hotel Facility and such other information as the Lender may reasonably require.
The Lender's consent to such acquisition shall not be unreasonably withheld.
The Lender shall not withhold its consent to such acquisition on
grounds of insufficient Cash Flow from the Proposed Hotel Facility if and only
if the Cash Flow of the current owner or operator of the Proposed Hotel Facility
(as applicable) attributable to the Proposed Hotel Facility, over the four most
recent financial quarters after deduction of an FF&E Reserve equal to five
-----
percent (5%) of total sales for such period but before payment of any income
------
taxes or management fees for such period is not less than 1.0 times the proposed
----
annual Base Rent under the proposed Operating Lease of the Proposed Hotel
Facility. The Lender shall not approve the acquisition of any Proposed Hotel
Facility that will not on the date the Loan is made be subject to and have the
benefit of an Operating Lease.
3.2. Loan to Value Requirement; Selected Properties. If, at any
----------------------------------------------
time, the Lender determines in its reasonable discretion that the Loan to Value
Requirement has not been or, after giving effect to any Loans that the Borrower
intends to request, would not be satisfied, the Lender may require the Borrower
to deliver and the Borrower promptly shall deliver to the Lender, Mortgage
Documents with respect to such of the Hotel Properties as the Lender shall
select (the "Selected Properties"), such that, after giving effect to such
Mortgage Documents the Loan to Value Requirement would be satisfied. The Lender
agrees that it shall select such Hotel Properties consistent with the
37
<PAGE>
priorities set forth in the Mortgaged Property Prioritization Schedule attached
as Schedule 3.2 hereto and made a part hereof provided that, within each of the
-------------
First through Ninth Priority States, Lender may select Hotel Properties in any
order Lender may determine, provided further that, if the Lender shall select a
---------------------
Hotel Property in a particular state, the Lender shall then prioritize such
state for its selection of future Selected Properties.
3.3. Preparation and Execution of Mortgage Documents. (a)
-----------------------------------------------
Immediately after (i) the Lender approves a Proposed Hotel Facility, and (ii)
Lender determines that the Loan to Value Requirement has not been (or will not
after giving effect to Loans requested by the Borrower be) satisfied, the Lender
shall commence the preparation of the Mortgage Documents for the Selected
Properties including, without limitation, the Initial Selected Properties and
the parties shall cooperate and diligently proceed to prepare such Mortgage
Documents (including, without limitation, ordering commitments for the title
insurance policies, ALTA surveys and UCC-searches, obtaining estoppel
certificates and retaining counsel, including local counsel for purposes of
reviewing the Mortgage Documents and rendering opinions with respect to such
documents in form and substance acceptable to the Lender as set forth in Section
4.2(d)(ii)).
(b) The Borrower, on behalf of itself and each of its Subsidiaries,
hereby appoints the Lender its attorney-in-fact to execute, acknowledge and
deliver for and in the name of the Borrower or any of its Subsidiaries, as
applicable, any and all of the Mortgage Documents for the Initial Selected
Properties and/or the Selected Properties which the Borrower or any of its
Subsidiaries fails to execute, acknowledge and/or deliver in accordance with the
terms hereof, and this power, being coupled with an interest, shall be
irrevocable as long as any part of the Obligations remains unpaid.
ARTICLE IV
CONDITIONS OF LENDING
38
<PAGE>
4.1. Conditions Precedent to the Initial Loan. The obligation of the
----------------------------------------
Lender to make the initial Loan is subject to satisfaction of the conditions
precedent that the Lender shall have received, on the Closing Date, the
following, each dated the Closing Date unless otherwise indicated, in form and
substance reasonably satisfactory to the Lender:
(a) The Note to the order of the Lender.
(b) A certificate of the Secretary or an Assistant Secretary of each
Loan Party certifying (i) the resolutions of its Board of Trustees or Directors,
as appropriate, approving each Loan Document to which it is a party, (ii) all
documents evidencing other necessary trust or corporate action, as appropriate,
and required governmental and third party approvals, licenses and consents with
respect to each Loan Document to which it is a party and the transactions
contemplated thereby, (iii) a copy of its and each of its Subsidiaries'
declaration of trust, certificates of incorporation and By-Laws, as appropriate,
as of the Closing Date, and (iv) the names and true signatures of each of its
officers who has been authorized to execute and deliver any Loan Document or
other document required hereunder to be executed and delivered by or on behalf
of such Person.
(c) A copy of the declaration of trust or articles or certificate of
incorporation, as appropriate, of each Loan Party and of each of its
Subsidiaries (if any) which is not a Loan Party certified as of a recent date by
the Secretary of State of the state of formation of such Loan Party or
Subsidiary, together with certificates of such official attesting to the good
standing of each such Loan Party and Subsidiary.
(d) A favorable opinion of Sullivan & Worcester, counsel to the Loan
Parties, in substantially the form of Exhibit D, and as to such other matters as
the Lender may reasonably request.
(e) A Negative Pledge Agreement in respect of each of the Initial
Hotels, duly executed and acknowledged by the Borrower.
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(f) Mortgage Documents, duly executed and acknowledged where
appropriate, in respect of each of the Initial Selected Properties including,
without limitation, payment of the Mortgage Payments in respect of such Initial
Selected Properties.
(g) Assignment Agreements in respect of the Management Agreements for
each Initial Selected Property duly executed by the Borrower or its Subsidiary,
as applicable, and the Manager.
(h) Security Agreements in respect of the FF&E Reserves for each of
the Initial Hotels duly executed by the Borrower or its Subsidiary, as
applicable, the Operating Lessee and the Manager, provided that, to the extent
-------- ----
the FF&E Reserve in respect of each Initial Selected Property is not
consolidated with other FF&E Reserves, the Lender shall accept in lieu of the
foregoing, Security Agreements in respect of the FF&E Reserves for each Initial
Selected Property, duly executed by the Borrower or its subsidiary, as
applicable, the Operating Lessee and the Manager.
(i) Financing Statements (Form UCC-1) under the Uniform Commercial
Code of all jurisdictions as may be necessary or, in the reasonable opinion of
the Lender, desirable to perfect the Lien created by the Security Agreements for
each Initial Selected Property; copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, listing all effective financing statements
which name the Borrower or any Subsidiary of the Borrower (under its present
name or any previous name) as debtor and which are filed in the jurisdictions
referred to above, together with copies of such other financing statements (none
of which shall cover the Collateral purported to be covered by the Security
Agreement).
(j) A copy of the Operating Lease and Management Agreement in respect
of each Hotel Facility, each certified by a Responsible Officer.
(k) Evidence that the insurance required by the terms of the
Collateral Documents and by Section 7.4 is in full force and effect.
40
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(l) A written report of an investigation by an environmental
consultant, reasonably acceptable to the Lender, addressing any significant
environmental, health and safety violations, hazards or liabilities to which the
Borrower or any of its Subsidiaries may be subject, which report shall
demonstrate, to the reasonable satisfaction of the Lender, that the Borrower and
its Subsidiaries and their operations are in compliance in all material respects
with all applicable Environmental Laws and are not subject to any material
Environmental Liabilities and Costs.
(m) Such additional documents, information and materials as the
Lender may reasonably request.
(n) The Lender shall have received evidence satisfactory to it that
all costs and accrued and unpaid fees and expenses (including, without
limitation, legal fees and expenses) required to be paid to the Lender on or
before the Closing Date, including, without limitation, those referred to in
Section 10.4 and any Mortgage Payment, to the extent then due and payable, have
been paid.
(o) A certificate, signed by a Responsible Officer of the Borrower,
stating that the statements set forth in Section 4.2 (a) and (b) are true and
correct on the Closing Date, after giving effect to the Loans being made on the
Closing Date.
(p) A copy of the Advisory Agreement certified by a Responsible
Officer.
(q) The Subordination Agreement duly executed and acknowledged by the
Borrower and the Advisor.
(r) A letter agreement in the form attached as Exhibit K hereto and
---------
made a part hereof, duly executed and accepted and agreed, as appropriate, by
the Operating Lessee and the Borrower.
4.2. Conditions Precedent to Each Loan. The obligation of the Lender
---------------------------------
to make any Loan (including the Loan being made by the Lender on the Closing
Date) shall be subject to the further conditions precedent that:
41
<PAGE>
(a) The following statements shall be true on the date of such Loan,
before and after giving effect thereto and to the application of the proceeds
therefrom (and the acceptance by the Borrower of the proceeds of such Loan shall
constitute a representation and warranty by the Borrower that on the date of
such Loan such statements are true):
(i) The representations and warranties of the Borrower contained
in Article V. and of each Loan Party in the other Loan Documents are
correct on and as of such date as though made on and as of such date; and
(ii) No Default or Event of Default will result from the Loans
being made on such date.
(b) The making of the Loans on such date does not violate any
Requirement of Law and is not enjoined, temporarily, preliminarily or
permanently.
(c) The Lender shall have received, on or before such date, in
respect of any Hotel Facility for which the same have not been delivered
pursuant to Section 4.1(e), (j), (k) and (l) respectively:
(i) a Negative Pledge Agreement duly executed and acknowledged
by the Borrower or its Subsidiary, as applicable;
(ii) A copy of the Operating Lease and Management Agreement in
respect of such Hotel Facility, each certified by a Responsible Officer;
(iii) Evidence that the insurance required by the terms of the
Collateral Documents and by Section 7.4 is in full force and effect; and
(iv) A written report of an investigation by an environmental
consultant, reasonably acceptable to the Lender, addressing any significant
environmental, health and safety violations, hazards or liabilities to
which the Borrower or any of its Subsidiaries may be subject, which report
shall demonstrate, to the reasonable satisfaction of the Lender, that the
Borrower and its Subsidiaries and their operations are
42
<PAGE>
in compliance in all material respects with all applicable Environmental
Laws and are not subject to any material Environmental Liabilities and
Costs.
(d) The Lender shall have received, on or before such date, duly
executed and acknowledged Mortgages for each of the Selected Properties, in such
amounts as shall be reasonably acceptable to the Lender, securing all of the
Indebtedness and the Obligations as such terms are defined and more particularly
described therein, together with:
(i) commitments for title insurance policies (the "Title
Insurance Policies") issued by a title company acceptable to the Lender, in
such form and amounts as are reasonably acceptable to the Lender, insuring
that each such Mortgage is a valid first priority Lien on such Selected
Properties subject only to such exceptions to title as shall be acceptable
to the Lender in its reasonable discretion and containing such endorsements
and affirmative insurance as the Lender may reasonably require and as are
obtainable in the applicable jurisdiction, and true copies of each
document, instrument or certificate required by the terms of each such
policy or Mortgage to be, or have been, filed, recorded, executed or
delivered in connection therewith;
(ii) opinions reasonably satisfactory to the Lender of counsel
and/or local counsel retained by the Borrower with respect to the due
execution and delivery, validity and enforceability of the Mortgage
Documents and such other matters as may be reasonably required by the
Lender; and
(iii) duly executed UCC-1 Financing Statements under the
applicable Uniform Commercial Code to be filed in connection with such
Mortgages in form and substance reasonably satisfactory to the Lender, to
perfect the Lien created by the applicable Mortgages;
(iv) (A) duly executed and acknowledged landlord consents from
all lessors under all the Leases comprising Selected Properties, in form
and substance reasonably satisfactory to the Lender, (B) duly executed and
acknowledged non-disturbance and
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<PAGE>
attornment agreements with the mortgagees, ground lessors and sublessors of
property subject to Leases comprising Selected Properties, in form and
substance reasonably satisfactory to the Lender, (C) duly executed and
acknowledged consents from all mortgagees, ground lessors and sublessors of
property subject to Leases comprising Selected Properties, in form and
substance reasonably satisfactory to the Lender, (D) duly executed and
acknowledged estoppel certificates, dated not earlier than 30 days prior to
the date of the Loan, from each landlord, ground lessor, sublessor and
lessee of a Selected Property, in form and substance reasonably
satisfactory to the Lender, (E) duly executed and acknowledged
subordination, non-disturbance and attornment agreements (in recordable
form) from each lessee (other than the Borrower or its Subsidiary) of a
Selected Property, unless such lessee's lease, by its terms, is subject and
subordinate to the Lien of the applicable Mortgage and (F) evidence
satisfactory to the Lender that all such consents and agreements, and a
memorandum of each Lease comprising a Selected Property, have been filed or
recorded in all appropriate public records or delivered to the title
company providing title insurance thereon, as the case may be;
(v) current ALTA surveys and surveyor's certification as to all
such Selected Properties, each in form and substance reasonably
satisfactory to the Lender; and
(vi) payment to the Lender, or as the Lender may direct, of all
title insurance premiums, documentary, stamp or intangible taxes, recording
fees and mortgage taxes payable in connection with the recording of any of
the Loan Documents or the issuance of the Title Insurance Policies;
(vii) an Assignment Agreement in respect of the Management
Agreement for such Selected Property duly executed by the Borrower or its
Subsidiary, as applicable, and the Manager;
(viii) a Security Agreement in respect of the FF&E Reserves for
such Selected Property duly executed
44
<PAGE>
by the Borrower or its Subsidiary, as applicable, the Operating Lessee and
the Manager;
(ix) Financing Statements (Form UCC-1) under the Uniform
Commercial Code of all jurisdictions as may be necessary or, in the
reasonable opinion of the Lender, desirable to perfect the Lien created by
the Security Agreement for such Selected Property; copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing all
effective financing statements which name the Borrower or any Subsidiary of
the Borrower (under its present name or any previous name) as debtor and
which are filed in the jurisdictions referred to above, together with
copies of such other financing statements (none of which shall cover the
Collateral purported to be covered by the Security Agreement).
(e) The Borrower shall have paid the reasonable fees and out of
pocket expenses of counsel to the Lender and local counsel, in connection with
the preparation, execution, review and delivery of the Mortgage Documents.
(f) All costs and accrued and unpaid fees and expenses (including,
without limitation, legal fees and expenses) required to be paid to the Lender
on or before the Closing Date, including, without limitation, those referred to
in Section 10.4 and any Mortgage Payment, to the extent then due and payable,
have been paid.
(g) The Lender shall have received such additional documents,
information and materials as the Lender may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender that:
5.1. Existence; Compliance with Law. Each Loan Party and each of its
------------------------------
Subsidiaries (i) is a real estate
45
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investment trust or a corporation, as specified herein, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation; (ii) is duly qualified or licensed and in good standing under the
laws of each jurisdiction where such qualification is necessary, except for
failures which in the aggregate have no Material Adverse Effect; (iii) has all
requisite power and authority and the legal right to own, pledge and mortgage
its properties, to lease (as lessee) the properties that it leases as lessee, to
lease or sublease (as lessor) the properties it owns and/or leases (as lessee)
and to conduct its business as now or currently proposed to be conducted; (iv)
is in compliance with its declaration of trust or certificate of incorporation
and by-laws, as appropriate; (v) is in compliance with all other applicable
Requirements of Law except for such non-compliances as in the aggregate have no
Material Adverse Effect; and (vi) has all necessary licenses, permits, consents
or approvals from or by, has made all necessary filings with, and has given all
necessary notices to, each Governmental Authority having jurisdiction, to the
extent required for such ownership, leasing and conduct, except for licenses,
permits, consents or approvals which can be obtained by the taking of
ministerial action to secure the grant or transfer thereof or failures which in
the aggregate have no Material Adverse Effect.
5.2. Power; Authorization; Enforceable Obligations. (a) The
---------------------------------------------
execution, delivery and performance by each Loan Party of the Loan Documents to
which it is a party and the consummation of the transactions contemplated
hereby:
(i) are within such Loan Party's corporate or trust powers, as
appropriate;
(ii) have been or, at the time of delivery thereof pursuant to
Article IV, will have been duly authorized by all necessary corporate or
trust action, as appropriate, including, without limitation, the consent of
any trustees or stockholders where required;
(iii) do not and will not (A) contravene any Loan Party's or any
of its Subsidiaries' respective declaration of trust, certificate of
incorporation or by-laws or other comparable governing documents,
46
<PAGE>
(B) violate any other applicable Requirement of Law (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System), or any order or decree of any Governmental
Authority or arbitrator, (C) conflict with or result in the breach of, or
constitute a default under, or result in or permit the termination or
acceleration of, any material Contractual Obligation of any Loan Party or
any of its Subsidiaries, or (D) result in the creation or imposition of any
Lien upon any of the property of any Loan Party or any of its Subsidiaries,
other than those in favor of the Lender pursuant to the Collateral
Documents; and
(iv) do not require the consent of, authorization by, approval
of, notice to, or filing or registration with, any Governmental Authority
or any other Person, other than those which have been or will be, prior to
the Closing Date, obtained or made and copies of which have been or will be
delivered to the Lender pursuant to Section 4.1, and each of which on the
Closing Date will be in full force and effect, and any consents,
authorizations, approvals of, notices to or filings or registrations
required to be delivered under Article IV hereof.
(b) This Agreement has been, and each of the other Loan Documents
will have been upon delivery thereof pursuant to Article IV hereof, duly
executed and delivered by each Loan Party thereto. This Agreement is, and the
other Loan Documents will be, when delivered hereunder, the legal, valid and
binding obligation of each Loan Party thereto, enforceable against it in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
5.3. Taxes. All federal, state, local and foreign tax returns,
-----
reports and statements (collectively, the "Tax Returns") which, to the best
knowledge and belief of the Borrower, are required to be filed by the Borrower
or any of its Tax Affiliates have been filed with the appropriate governmental
agencies in all jurisdictions in which such Tax Returns, are required to be
filed, all such
47
<PAGE>
Tax Returns are true and correct in all material respects, and all taxes,
charges and other impositions due and payable have been timely paid prior to the
date on which any fine, penalty, interest, late charge or loss may be added
thereto for non-payment thereof, except where contested in good faith and by
appropriate proceedings if adequate reserves therefor have been established on
the books of the Borrower or such Tax Affiliate in conformity with GAAP. If
applicable, proper and accurate amounts have been withheld by the Borrower and
each of its respective Tax Affiliates from their respective employees (if any)
for all periods in full and complete compliance with the tax, social security
and unemployment withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. None of the Borrower or any of its Tax Affiliates has
(i) executed or filed with the IRS or any other Governmental Authority any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of any charges other than those that in the
aggregate would have no Material Adverse Effect; (ii) agreed or been requested
to make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise other than those that in the aggregate would have
no Material Adverse Effect; or (iii) any obligation under any written tax
sharing agreement.
5.4. Full Disclosure. (a) No written statement prepared or
---------------
furnished by or on behalf of any Loan Party or any of its Affiliates in
connection with any of the Loan Documents or the consummation of the
transactions contemplated thereby, and no financial statement delivered pursuant
hereto or thereto, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading. All facts known to the Borrower which are material to
an understanding of the financial condition, business, properties or prospects
of the Borrower and its Subsidiaries taken as one enterprise have been disclosed
to the Lender.
5.5. Financial Matters. (a) The balance sheet of the Borrower as of
-----------------
March 31, 1995, and the related statement of income, retained earnings and cash
flow of the Borrower for the period from February 7, 1995 (inception) to
48
<PAGE>
March 31, 1995, certified by Arthur Andersen, LLP, and the combined statements
of assets, liabilities and net investment and advances of the Initial Hotels as
of December 30, 1994, and the related combined statements of revenues and
expenses excluding income taxes, and cash flows for the fiscal year ended
December 30, 1994, certified by Arthur Andersen, LLP, copies of which have been
furnished to the Lender, fairly present the financial condition of the Borrower
and the combined assets, liabilities and net investment and advances of the
Initial Hotels as of such dates and the consolidated results of the operations
of the Borrower and the revenues and expenses excluding income taxes, and cash
flows of the Initial Hotels for the period ended on such dates, all in
conformity with GAAP.
(b) Since March 31, 1995, there has been no Material Adverse Change
and there have been no events or developments that in the aggregate have had a
Material Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries had at March 31,
1995 any material obligation, contingent liability or liability for taxes, long-
term leases or unusual forward or long-term commitment which is not reflected in
the balance sheet at such date referred to in subsection (a) above or in the
notes thereto.
(d) The unaudited pro forma balance sheets of the Borrower and in
respect of the Initial Hotels (the "Pro Forma Balance Sheets"), copies of which
have been delivered to the Lender, have been prepared with respect to the
Borrower as of March 31, 1995, and with respect to the Initial Hotels, as of
March 24, 1995, and reflect as of such dates, the pro forma financial condition
of the Borrower and of the Initial Hotels.
(e) The Borrower is, and on a consolidated basis the Borrower and its
Subsidiaries are, Solvent.
5.6. Litigation. There are no pending or, to the knowledge of the
----------
Borrower, threatened actions, investigations or proceedings affecting the
Borrower or, to the knowledge of the Borrower, any Operator or any of their
respective properties or revenues before any court, Governmental Authority or
arbitrator, other than those that
49
<PAGE>
in the aggregate, if adversely determined, would have no Material Adverse
Effect. The performance of any action by (a) any Loan Party required or
contemplated by any of the Loan Documents or (b) any Operator required or
contemplated by any Operating Lease or Management Agreement is not (in the case
of (b) only, to the knowledge of the Borrower) restrained or enjoined (either
temporarily, preliminarily or permanently), and no material adverse condition
has been imposed by any Governmental Authority or arbitrator upon any of the
foregoing transactions contemplated by the aforementioned documents.
5.7. Margin Regulations. The Borrower is not engaged in the business
------------------
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Loan will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
5.8. Ownership of Borrower and HRPT Advisors; Subsidiaries. (a) The
-----------------------------------------------------
authorized capital stock of the Borrower consists of 100,000,000 common shares
of beneficial interest, $0.01 par value per share, of which 11,750,000 shares
will be issued and outstanding upon consummation of the Initial Public Offering,
assuming that the Underwriters' over-allotment option is not exercised, and
100,000,000 preferred shares of beneficial interest, $0.01 par value per share,
none of which shares will be issued and outstanding upon the consummation of the
Initial Public Offering. Upon consummation of the Initial Public Offering all of
the outstanding capital stock of the Borrower will be validly issued, fully paid
and non-assessable and at least 250,000 shares of such stock will be owned
beneficially and of record by HRPT Advisors free and clear of all Liens as of
the date of this Agreement. No authorized but unissued shares, no treasury
shares and, to the best knowledge of the Borrower, no other outstanding shares
of capital stock of the Borrower are subject to any option, warrant, right of
conversion or purchase or any similar right. Except as set forth on Schedule
5.8(a) hereto, there are no agreements or understandings with respect to the
voting, sale or transfer of any shares of capital stock of the Borrower, or to
the
50
<PAGE>
best knowledge of the Borrower, any agreement restricting the transfer or
hypothecation of any such shares.
(b) The authorized capital stock of HRPT Advisors consists of 100,000
shares of common stock, $0.01 par value per share, of which 1,000 shares are
issued and outstanding as of the date hereof. All of the outstanding capital
stock of HRPT Advisors has been validly issued, is fully paid and non-assessable
and at least 51% of such stock is owned, in the aggregate, beneficially and of
record by Barry M. Portnoy and/or Gerard M. Martin, free and clear of all Liens
as of the date of this Agreement. No authorized but unissued shares, no
treasury shares and, to the best knowledge of the Borrower, no other outstanding
shares of capital stock of HRPT Advisors are subject to any option, warrant,
right of conversion or purchase or any similar right. There are no agreements
or understandings with respect to the voting, sale or transfer of any shares of
capital stock of HRPT Advisors, or to the best knowledge of the Borrower, any
agreement restricting the transfer or hypothecation of any such shares.
(c) Set forth on Schedule 5.8(c) hereto is a complete and accurate
list showing, as of the date hereof, all Subsidiaries of the Borrower and, as to
each such Subsidiary, the jurisdiction of its incorporation, the number of
shares of each class of Stock authorized, the number outstanding on the date
hereof and the percentage of the outstanding shares of each such class owned
(directly or indirectly) by the Borrower. No Stock of any Subsidiary of the
Borrower is subject to any outstanding option, warrant, right of conversion or
purchase or any similar right. All of the outstanding capital Stock of each such
Subsidiary has been validly issued, is fully paid and non-assessable and is
owned by the Borrower, free and clear of all Liens. Neither the Borrower nor any
such Subsidiary is a party to, or has knowledge of, any agreement restricting
the transfer or hypothecation of any shares of Stock of any such Subsidiary,
other than the Loan Documents. The Borrower does not own or hold, directly or
indirectly, any capital stock or equity security of, or any equity interest in,
any Person other than such Subsidiaries.
5.9. ERISA. (a) There are no Multiemployer Plans.
-----
51
<PAGE>
(b) Each Plan and any related trust intended to qualify under Code
Section 401 or 501 has been determined by the IRS to be so qualified and to the
best knowledge of the Borrower nothing has occurred which would cause the loss
of such qualification.
(c) None of the Borrower, any of its Subsidiaries or any ERISA
Affiliate, with respect to any Pension Plan, has failed to make any contribution
or pay any amount due as required by Section 412 of the Code or Section 302 of
ERISA or the terms of any such plan, and all required contributions and benefits
have been paid in accordance with the provisions of each such plan.
(d) There are no pending or, to the knowledge of the Borrower,
threatened claims, actions or proceedings (other than claims for benefits in the
normal course), relating to any Plan other than those that in the aggregate, if
adversely determined, would have no Material Adverse Effect.
(e) No Pension Plan has any unfunded accrued benefit liabilities, as
determined by using reasonable actuarial assumptions utilized by such plan's
actuary for funding purposes. Within the last five years none of the Borrower,
any of its Subsidiaries or any ERISA Affiliate has caused a Pension Plan with
any such liabilities to be transferred outside of its "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA).
(f) No Plan provides for continuing health, disability, accident or
death benefits or coverage for any participant or his or her beneficiary after
such participant's termination of employment (except as may be required by
Section 4980B of the Code and at the sole expense of the participant or the
beneficiary) which would result in the aggregate under all Plans in a liability
in an amount which would have a Material Adverse Effect.
5.10. Liens. There are no Liens of any nature whatsoever on any
-----
Hotel Facilities of the Borrower or any of its Subsidiaries other than those
permitted by Section 8.1. The forms of the Collateral Documents attached hereto
are sufficient to grant to the Lender fully perfected first
52
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priority Liens in and to the Collateral subject only to Permitted Liens.
5.11. [Intentionally Omitted]
5.12. No Burdensome Restrictions; No Defaults; Contractual
----------------------------------------------------
Obligations. (a) Neither the Borrower nor any of its Subsidiaries is in
- -----------
default beyond the expiration of any applicable notice or grace period under or
with respect to any Contractual Obligation owed by it and, to the knowledge of
the Borrower, no other party is in default beyond the expiration of any
applicable notice or grace period under or with respect to any Contractual
Obligation owed to the Borrower or to any of its Subsidiaries, other than those
defaults which in the aggregate have no Material Adverse Effect.
(b) No Event of Default or Default has occurred and is continuing.
(c) There is no Requirement of Law that has not been complied with by
the Borrower, the compliance with which by the Borrower or any of its
Subsidiaries would have a Material Adverse Effect.
(d) No Subsidiary of the Borrower is subject to any Contractual
Obligation restricting or limiting its ability to transfer its assets to the
Borrower or to declare or make any dividend payment or other distribution on
account of any shares of any class of its Stock or its ability to purchase,
redeem, or otherwise acquire for value or make any payment in respect of any
such shares or any shareholder rights.
5.13. No Investments. Except as permitted by Section 8.6, none of
--------------
the Borrower or any of its Subsidiaries is engaged in any joint venture or
partnership with any other Person or maintains any Investment.
5.14. Government Regulation. Neither the Borrower nor any of its
---------------------
Subsidiaries is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended, or subject
to regulation under the Public Utility
53
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Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
or any other federal or state statute or regulation such that its ability to
incur Indebtedness is limited, or its ability to consummate the transactions
contemplated hereby or by any other Loan Document, or the exercise by the Lender
of rights and remedies hereunder or thereunder, is impaired. The making of the
Loans by the Lender, the application of the proceeds and repayment thereof by
the Borrower and the consummation of the transactions contemplated by the Loan
Documents will not violate any provision of any of the foregoing or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder.
5.15. Insurance. All policies of insurance of any kind or nature
---------
owned by or issued to the Borrower or any of its Subsidiaries, or issued in
respect of any real property owned or leased by the Borrower or any of its
Subsidiaries including, without limitation, policies of life, fire, theft,
product liability, public liability, property damage, other casualty, employee
fidelity, workers' compensation and employee health and welfare insurance, are
in full force and effect and are of a nature and provide such coverage as
(except earthquake coverage) is sufficient and as is customarily carried by
- -------
companies of the size and character of such Person. None of the Borrower or any
of its Subsidiaries has been refused insurance for which it applied or had any
policy of insurance terminated (other than at its request). Lender confirms and
agrees that the policies of insurance owned by or issued to the Operating Lessee
in respect of any Hotel Facility shall be sufficient for the purposes of this
representation provided that the same comply with the terms of the Operating
Lease relating thereto.
5.16. Employees. Neither the Borrower nor any of its Subsidiaries
---------
has any employees and none of them has ever engaged employees.
5.17. Force Majeure. Neither the business nor the properties of the
-------------
Borrower or any of its Subsidiaries are currently suffering from the effects of
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered
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by insurance), other than those which in the aggregate have no Material Adverse
Effect.
5.18. Use of Proceeds. The proceeds of the Loans are being used by
---------------
the Borrower solely as follows: (a) to repay the HRP Loan, (b) to pay the
purchase price of Approved Hotel Facilities and for the payment of related
transaction costs, fees and expenses, or (c) as to an aggregate amount not to
exceed twenty million dollars ($20,000,000), for general business purposes in
the ordinary course.
5.19. Environmental Protection. Except as disclosed on Schedule
------------------------
5.19:
(a) all real property leased, owned or operated by the Borrower or
any of its Subsidiaries is free from contamination by any Hazardous Material
which could reasonably be expected to subject the Borrower or any of its
Subsidiaries to Environmental Liabilities and Costs that could in the aggregate
have a Material Adverse Effect;
(b) the operations of the Borrower and each of its Subsidiaries, and
the operations at any real property leased, owned or operated by the Borrower or
any of its Subsidiaries are in material compliance in all respects with all
applicable Environmental Laws;
(c) neither the Borrower nor any of its Subsidiaries have liabilities
with respect to Hazardous Materials, and no facts or circumstances exist which
could give rise to liabilities with respect to Hazardous Materials which could
reasonably be expected to subject the Borrower or any of its Subsidiaries to
Environmental Liabilities and Costs that could in the aggregate have a Material
Adverse Effect;
(d) (i) the Borrower and its Subsidiaries and, to the best knowledge
of the Borrower and its Subsidiaries, the Operators have obtained, currently
maintained and have all Environmental Permits necessary for their operations and
are in material compliance with such Environmental Permits, except to the extent
that the failure to obtain or maintain such Permits or to be in compliance
therewith would not, in the aggregate, have a Material Adverse Effect, (ii)
there
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are no Legal Proceedings pending nor, to the best knowledge of the Borrower and
its Subsidiaries, threatened to revoke, or alleging the violation of, such
Environmental Permits, other than Legal Proceedings which, if adversely
determined, would not, in the aggregate, have a Material Adverse Effect and
(iii) neither the Borrower nor any of its Subsidiaries or, to the best knowledge
of the Borrower and its Subsidiaries, the Operators have received any notice
from any Governmental Authority to the effect that there is lacking any
Environmental Permit required in connection with the current use or operation of
any property leased, owned or operated by the Borrower or any of its
Subsidiaries;
(e) neither the Borrower's nor any of its Subsidiaries' current
facilities and operations, nor, to the best knowledge of the Borrower and its
Subsidiaries, any Operator or predecessor of the Borrower or any of its
Subsidiaries, nor any of their past facilities and operations, nor any owner of
premises leased or operated by the Borrower and its Subsidiaries, are subject to
any outstanding written Order or Contract, including Environmental Liens, with
any Governmental Authority or other Person, or to any federal, state, local,
foreign or territorial investigation respecting (i) Environmental Laws, (ii)
Remedial Action, (iii) any Environmental Claim, or (iv) the Release or
threatened Release of any Hazardous Material, the compliance with which, in any
case, is reasonably likely to have a Material Adverse Effect;
(f) neither the Borrower, nor any of its Subsidiaries or, to the best
knowledge of the Borrower and its Subsidiaries, any of the Operators are subject
to any pending Legal Proceeding alleging the violation of any Environmental Law
which, if adversely determined is reasonably likely to have a Material Adverse
Effect, nor, to the best knowledge of the Borrower and its Subsidiaries, are any
such proceedings threatened;
(g) neither the Borrower nor any of its Subsidiaries nor, to the best
knowledge of the Borrower and its Subsidiaries, any Operators or predecessor of
the Borrower or any of its Subsidiaries, nor any owner of premises leased by the
Borrower or any of its Subsidiaries, have filed any notice under federal, state
or local, territorial or foreign law indicating past or present treatment,
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storage, or disposal of or reporting a Release of Hazardous Material into the
environment, in the case of any Operator, with respect to Hotel Facilities only;
(h) none of the operations of the Borrower or any of its Subsidiaries
or, to the best knowledge of the Borrower and its Subsidiaries, of any Operators
or predecessor of the Borrower or any of its Subsidiaries, or of any owner of
premises leased by the Borrower or any of its Subsidiaries, involve or
previously involved the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 (in effect
as of the date of this Agreement) or any state, local, territorial or foreign
equivalent, in the case of any Operator, with respect to Hotel Facilities only;
and
(i) there is not now, nor has there been in the past, on, in or under
any real property leased or owned by the Borrower or any of its Subsidiaries (i)
any underground storage tanks or surface tanks, dikes or impoundments, (ii) any
asbestos-containing materials, (iii) any polychlorinated biphenyls, or (iv) any
radioactive substances, the existence of which, in any case, is reasonably
likely to have a Material Adverse Effect.
5.20. Contractual Obligations Concerning Assets. Except with respect
-----------------------------------------
to the Initial Hotels listed in Part II of Schedule 1.1 hereto, as of the date
of this Agreement, neither the Borrower nor any of its Subsidiaries owns or
holds, or is obligated under or a party to, any option, right of first refusal,
or other contractual right to purchase or acquire, or any Contractual Obligation
to effect an Asset Sale of, any asset or property owned or leased by the
Borrower or any of its Subsidiaries.
5.21. Status as REIT. The Borrower is organized in conformity with
--------------
the requirements for qualification as a real estate investment trust under the
Code. Borrower has met all of the requirements for qualification as a real
estate investment trust under the Code for its fiscal year ended December 31,
1995. The Borrower is in a position to qualify for its current fiscal year as a
real estate investment trust under the Code and its proposed methods of
operation will enable it to so qualify.
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5.22. Real Property. (a) The Borrower and its Subsidiaries own
-------------
good, clean and marketable fee simple absolute title to all of the Real Estate
purported to be owned by them in fee simple, which Real Estate is at the date
hereof described in Schedule 5.22(a), and good, clean and marketable title to,
or valid leasehold interests in, all other properties and assets purported to be
owned by the Borrower or any of its Subsidiaries, including, without limitation,
valid leasehold interests pursuant to the Leases and all property reflected in
the latest balance sheet referred to in Section 5.5(a), except for such property
as has been disposed of since that date without violation of any of the
provisions hereof, and none of such properties and assets, including, without
limitation, the Real Estate and the Leases, is subject to any Lien, except Liens
granted to the Lender pursuant to the Loan Documents or permitted hereunder or
thereunder. The Borrower and its Subsidiaries have received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and have duly effected all
recordings, filings and other actions reasonably necessary to establish, protect
and perfect the Borrower's and its Subsidiaries' right, title and interest in
and to all such property.
(b) All real property leased at the date hereof by the Borrower or
any of its Subsidiaries, as lessee, is listed on Schedule 5.22(b), setting forth
information regarding the commencement date, termination date, renewal options
(if any) and annual base rents for each year until the Final Maturity Date, in
each case as in effect on the Closing Date. To the best knowledge of the
Borrower, each of such leases is valid and enforceable in accordance with its
terms and is in full force and effect. The Borrower has delivered to the Lender
true and complete copies of each of such leases and all documents affecting the
rights or obligations of the Borrower or any of its Subsidiaries which is a
party thereto, including, without limitation, any non-disturbance and
recognition agreements, subordination agreements, attornment agreements and
agreements regarding the term or rental of any of the leases.
(c) Except as disclosed on Schedule 5.22(c) and those which in the
aggregate have no Material Adverse Effect, (i) all components of all
improvements included
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within the real property owned or leased by the Borrower or any of its
Subsidiaries (collectively, "Improvements"), including, without limitation, the
roofs and structural elements thereof and the heating, ventilation, air
conditioning, plumbing, electrical, mechanical, sewer, waste water, storm water,
paving and parking equipment, systems and facilities included therein, are in
good working order and repair; (ii) all water, gas, electrical, steam,
compressed air, telecommunication, sanitary and storm sewage lines and systems
and other similar systems serving the real property owned or leased by the
Borrower or any of its Subsidiaries are installed and operating and are
sufficient to enable the real property owned or leased by the Borrower and its
Subsidiaries to continue to be used and operated in the manner currently being
used and operated, and none of the Borrower or any of its Subsidiaries has any
knowledge of any factor or condition that could result in the termination or
material impairment of the furnishing thereof. No Improvement or portion thereof
is dependent for its access, operation or utility on any land, building or other
Improvement not included in the real property owned or leased by the Borrower or
any of its Subsidiaries.
(d) All Permits required to have been issued or appropriate to enable
all real property owned or leased by the Borrower or any of its Subsidiaries to
be lawfully occupied and used for all of the purposes for which they are
currently occupied and used have been lawfully issued and are in full force and
effect, other than those which in the aggregate have no Material Adverse Effect.
(e) Neither the Borrower nor, to its knowledge, any Operator has
received any notice, or has any knowledge, of (i) any pending, threatened or
contemplated condemnation proceeding affecting any real property owned or leased
by the Borrower or any of its Subsidiaries or any part thereof, or (ii) any
proposed termination or impairment of any parking at any such owned or leased
real property or (iii) any sale or other disposition of any real property owned
or leased by the Borrower or any of its Subsidiaries or any part thereof in lieu
of condemnation, in each case, other than those which in the aggregate have no
Material Adverse Effect.
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(f) No material portion of any real property owned or leased by the
Borrower or any of its Subsidiaries has suffered any material damage by fire or
other casualty loss which has not heretofore been completely repaired and
restored to its original condition or which will not be completely repaired or
restored to its original condition within twelve (12) months from the date
hereof. No portion of any real property, that is not covered by adequate flood
insurance, owned or leased by the Borrower or any of its Subsidiaries is located
in a special flood hazard area as designated by any Federal Governmental
Authorities.
5.23. Operator and Advisor: Compliance with Law.
-----------------------------------------
(a) To the best knowledge of the Borrower and its Subsidiaries, each
Operator (i) has full power and authority and the legal right to own, lease (or
sublease), manage and operate (as applicable) the Hotel Facilities it operates
and to conduct the business in which it is currently engaged with respect to any
real property owned or leased by the Borrower or any of its Subsidiaries, (ii)
is duly qualified or licensed and is in good standing under the laws of each
jurisdiction where its ownership, lease (or sublease), management or operation
of any real property owned or leased by the Borrower or any of its Subsidiaries
requires such qualification, and (iii) is in compliance with all Requirements of
Law applicable to the real property owned or leased by the Borrower or any of
its Subsidiaries operated or managed by it, or applicable to the operation or
management thereof, except to the extent that the failure to comply therewith is
not reasonably likely to have, in the aggregate, a Material Adverse Effect.
(b) To the best knowledge of Borrower and its Subsidiaries, the
Advisor (i) has full power and authority and legal right to conduct the business
in which it is presently engaged and to perform its obligations under the
Advisory Agreement, (ii) is duly qualified or licensed and is in good standing
under the laws of each jurisdiction where the conduct of its business requires
such qualification, and (iii) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith is not reasonably
likely to have, in the aggregate, a Material Adverse Effect.
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5.24. Operating Leases, Management Agreement and Advisory Agreement.
-------------------------------------------------------------
Each of the Operating Leases and Management Agreements in respect of the Hotel
Facilities and the Advisory Agreement is in full force and effect and is a
legally valid and binding obligation of the Borrower or its Subsidiaries and the
other parties thereto, subject to such exceptions which are not reasonably
likely to have, in the aggregate, a Material Adverse Effect. Neither the
Borrower nor any of its Subsidiaries has mortgaged, pledged or otherwise
encumbered any of the Operating Leases, Management Agreements or Advisory
Agreements or its rights thereunder including, without limitation, its right to
obtain rental, interest or other payments under the Operating Leases, other than
by way of such mortgages, pledges or encumbrances in favor of the Lender.
Neither the Borrower nor any of its Subsidiaries has collected any rents
becoming due under any Operating Lease more than 30 days in advance. All rent
and other sums and charges payable by any Operating Lessee under each Operating
Lease to which it is a party are current, no notice of default or termination
under any such Operating Lease is outstanding, to the knowledge of the Borrower
no termination event or condition or uncured default on the part of the
Operating Lessee exists under any Operating Lease, and to the knowledge of the
Borrower no event of default has occurred which, with the giving of notice or
the lapse of time or both, would constitute such a default or termination event
or condition or uncured default on the part of the Borrower or its Subsidiaries
or the Operators (as the case may be), subject to such exceptions which are not
reasonably likely to have, in the aggregate, a Material Adverse Effect. As to
all of the Leases, Borrower and each of its Subsidiaries has performed all of
its repair and maintenance obligations (if any) and, to the best knowledge and
belief of Borrower, each Operating Lessee under each Operating Lease to which it
is a party has performed all of its repair and maintenance obligations, subject
to such exceptions which are not reasonably likely to have, in the aggregate, a
Material Adverse Effect.
5.25. FF&E Reserves. An FF&E Reserve has been established in respect
-------------
of each Hotel Facility and is currently funded as required by the terms of the
Operating Lease and/or the Management Agreement relating thereto.
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ARTICLE VI
FINANCIAL COVENANTS
As long as any of the Obligations or Commitment remain outstanding,
unless the Lender otherwise consents in writing the Borrower agrees with the
Lender that:
6.1. Limitation on Indebtedness. The Borrower shall maintain during
--------------------------
each Fiscal Quarter on a consolidated basis, a ratio of (a) the total
Indebtedness for borrowed money (including, without limitation, the Obligations
and all Capitalized Lease Obligations) of the Borrower and its Subsidiaries to
(b) Total Assets of the Borrower and its Subsidiaries not in excess of 1:2
6.2. Limitation on Secured Indebtedness. The Borrower shall maintain
----------------------------------
during each Fiscal Quarter on a consolidated basis a ratio of (a) total Secured
Indebtedness (including, without limitation, Obligations and all Capitalized
Lease Obligations) of the Borrower and its Subsidiaries to (b) Total Assets of
the Borrower and its Subsidiaries not in excess of 1:2.
6.3. Interest Expense Coverage. The Borrower shall maintain at the
-------------------------
end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on
September 30, 1995, a ratio of (a) Total Base Rents for such Fiscal Quarter to
(b) Net Interest Expense for such Fiscal Quarter, of not less than 2:1.
6.4. Maintenance of Tangible Net Worth. The Borrower shall maintain
---------------------------------
during each Fiscal Quarter a Tangible Net Worth of not less than $200,000,000.
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6.5. Maintenance of Loan to Value Ratio. The Borrower shall maintain
----------------------------------
during each Fiscal Quarter the Loan to Value Requirement.
ARTICLE VII
AFFIRMATIVE COVENANTS
As long as any of the Obligations or the Commitment remain
outstanding, unless the Lender otherwise consents in writing, the Borrower
agrees with the Lender that:
7.1. Compliance with Laws, Etc. The Borrower shall comply, and shall
-------------------------
cause each of its Subsidiaries and, with respect to Hotel Facilities only, each
Operator to comply, in all material respects with all Requirements of Law,
Contractual Obligations, commitments, instruments, licenses, permits and
franchises, including, without limitation, all Permits; provided, however, that
-------- -------
the Borrower shall not be deemed in default of this Section 7.1 if all such non-
compliances in the aggregate have no Material Adverse Effect.
7.2. Conduct of Business. The Borrower shall (a) conduct, and shall
-------------------
cause each of its Subsidiaries to conduct, its business in the ordinary course
and consistent with the description set forth in the Registration Statement; and
(b) perform and observe, and cause each of its Subsidiaries to perform and
observe, all the terms, covenants and conditions required to be performed and
observed by it under its Contractual Obligations (including, without limitation,
to pay all rent and other charges payable under any lease and all debts and
other obligations as the same become due), and do, and cause its Subsidiaries to
do, all things necessary to preserve and to keep unimpaired its rights under
such Contractual Obligations; provided, however, that, in the case of each of
-------- -------
clauses (a) and (b), the Borrower shall not be deemed in default of this Section
7.2 if all such failures in the aggregate have no Material Adverse Effect.
7.3. Payment of Taxes, Etc. The Borrower shall pay and discharge,
---------------------
and shall cause each of its Subsidiaries
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to pay and discharge, before the same shall become delinquent, all lawful
governmental claims, taxes, assessments, charges and levies, except where
contested in good faith, by proper proceedings, if adequate reserves therefor
have been established on the books of the Borrower or the appropriate Subsidiary
in conformity with GAAP; provided, however, that the Borrower shall not be
-------- -------
deemed in default of this Section 7.3 if all such uncontested non-payments in
the aggregate have no Material Adverse Effect and, with respect to any Mortgaged
Property, the Borrower and each such Subsidiary otherwise complies with the
provisions of the Mortgage in respect thereof.
7.4. Maintenance of Insurance. The Borrower shall maintain, or shall
------------------------
cause the Operators to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower or such Subsidiary
operates and as otherwise satisfactory to the Lender, in its sole judgment
exercised reasonably, and, in any event, all insurance required by any
Collateral Document. All such insurance shall name the Lender as additional
insured or loss payee, as the Lender shall determine. The Borrower will furnish
to the Lender from time to time such information as may be reasonably requested
as to such insurance. The Lender acknowledges that (i) no earthquake insurance
has been obtained with respect to any Hotel Facilities in California and (ii)
insurance maintained by the Operating Lessee in respect of any Hotel Facility
shall be sufficient for the purposes of this covenant provided that such
insurance complies with the terms of the Operating Lease relating thereto.
7.5. Preservation of Existence, Etc. The Borrower shall preserve and
------------------------------
maintain, and shall cause each of its Subsidiaries to preserve and maintain, its
existence (except as permitted under Section 8.5) and its rights (charter and
statutory) and franchises, except to the extent that the failure to preserve and
maintain such rights and/or franchises would not have a Material Adverse Effect.
7.6. Access. The Borrower shall upon reasonable advance notice, at
------
any reasonable time and from time to
64
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time, permit the Lender, or any agents or representatives of the Lender, to (a)
examine and make copies of and abstracts from the records and books of account
of the Borrower and each of its Subsidiaries, (b) visit the properties of the
Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and
accounts of the Borrower and each of its Subsidiaries with any of their
respective officers or directors, and (d) communicate directly with the
Borrower's independent certified public accountants. The Borrower shall
authorize its independent certified public accountants to disclose to the Lender
any and all financial statements and other information of any kind, including,
without limitation, copies of any management letter, or the substance of any
oral information that such accountants may have with respect to the business,
financial condition, results of operations or other affairs of the Borrower or
any of its Subsidiaries.
7.7. Keeping of Books. The Borrower shall keep, and shall cause each
----------------
of its Subsidiaries to keep, proper books of record and account, in accordance
with GAAP, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Borrower and each such
Subsidiary.
7.8. Maintenance of Properties, Etc. The Borrower shall maintain and
------------------------------
preserve, and shall cause each of its Subsidiaries and each Operator to maintain
and preserve, (i) all of its Hotel Facilities in good working order and
condition, and (ii) all rights, permits, licenses, approvals and privileges
(including, without limitation, all Permits) which are used or useful or
necessary in the conduct of its business, in the case of an Operator, with
respect to Hotel Facilities only; provided, however, that the Borrower shall not
-------- -------
be deemed in default of this Section 7.8 if all such failures in the aggregate
have no Material Adverse Effect.
7.9. Performance and Compliance with Other Covenants. The Borrower
-----------------------------------------------
shall perform and comply with, and shall cause each of its Subsidiaries to
perform and comply with, each of the covenants and agreements set forth in any
Contractual Obligation to which it or any of its Subsidiaries is a party;
provided, however, that the Borrower shall not be deemed in default of this
- -------- -------
Section 7.9
65
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if all such failures in the aggregate have no Material Adverse Effect.
7.10. Application of Proceeds. The Borrower shall use the entire
-----------------------
amount of the proceeds of the Loans as provided in Section 5.18.
7.11. Financial Statements. The Borrower shall furnish to the
--------------------
Lender:
(a) as soon as available and in any event within 45 days after the
end of each Fiscal Quarter of each Fiscal Year (other than the last Fiscal
Quarter of such Fiscal Year), consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such quarter and consolidated statements of
income, retained earnings and cash flow of the Borrower and its Subsidiaries for
the period commencing at the end of the previous Fiscal Year and ending with the
end of such Fiscal Quarter, all prepared in conformity with GAAP and certified
by the chief financial officer of the Borrower as fairly presenting the
financial condition and results of operations of the Borrower and its
Subsidiaries at such date and for such period, subject to normal year-end audit
adjustments, together with (i) a certificate of said officer stating that no
Default or Event of Default has occurred and is continuing or, if a Default or
an Event of Default has occurred and is continuing, a statement as to the nature
thereof and the action which the Borrower proposes to take with respect thereto,
(ii) a schedule in form reasonably satisfactory to the Lender of the
computations used by the Borrower in determining compliance with all financial
covenants contained herein, and (iii) a written discussion and analysis by the
management of the Borrower of the financial statements furnished in respect of
such Fiscal Quarter;
(b) as soon as available and in any event within 90 days after the
end of each Fiscal Year, consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such year and consolidated statements of income,
retained earnings and cash flow of the Borrower and its Subsidiaries for such
Fiscal Year, all prepared in conformity with GAAP and certified, in the case of
such consolidated financial statements, without qualification as to the scope of
the audit or as to the Borrower being a
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going concern by Arthur Andersen LLP or other independent public accountants of
recognized national standing, together with (i) a certificate of such accounting
firm stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted by such accounting firm
in accordance with generally accepted auditing standards, such accounting firm
has obtained no knowledge that a Default or Event of Default has occurred and is
continuing, or, if in the opinion of such accounting firm, a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof,
(ii) a schedule in form reasonably satisfactory to the Lender of the
computations used by such accountants in determining, as of the end of such
Fiscal Year, the Borrower's compliance with all financial covenants contained
herein, and (iii) a written discussion and analysis by the management of the
Borrower of the financial statements furnished in respect of such Fiscal Year;
(c) as soon as available and in any event within 60 days after the
end of each fiscal quarter of each fiscal year, in each case of any Operating
Lessee (other than the last fiscal quarter of such fiscal year) consolidated
balance sheets and statements of income and cash flow in respect of such
Operating Lessee for such fiscal quarter, all prepared in conformity with GAAP
and certified by the chief financial officer or chief accounting officer (or
such officer's authorized designee) of the Operating Lessee, duly authorized, as
fairly presenting the consolidated financial conditions and results of
operations of such Operating Lessee at such date and for such period, subject to
normal year-end adjustments, together with a certificate of said officer stating
that no Default or Event of Default has occurred and is continuing under the
relevant Operating Lease(s) (said certification, the "Financial Officer's
Certificate");
(d) as soon as available, and in any event within 105 days after the
end of each fiscal year of any Operating Lessee, consolidated balance sheets and
statements of income, retained earnings and cash flow in respect of such
Operating Lessee for such fiscal year, all prepared in conformity with GAAP and
certified without qualification as to the scope of the audit by independent
public accountants
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of recognized national standing, together with a Financial Officer's
Certificate;
(e) within thirty (30) days after the end of each Accounting Period
(as defined in the Management Agreement) or if there is no Management Agreement,
within thirty (30) days after the end of each calendar month, an unaudited
operating statement in respect of each Hotel Facility, including occupancy
percentages and average rate, accompanied by a Financial Officer's Certificate;
(f) promptly after the same are received by the Borrower, a copy of
each management letter provided to the Borrower by its independent certified
public accountants which refers in whole or in part to any inadequacy, defect,
problem, qualification or other lack of fully satisfactory accounting controls
utilized by the Borrower or any of its Subsidiaries or any Operating Lessee.
7.12. Reporting Requirements. The Borrower shall furnish to the
----------------------
Lender:
(a) prior to any Asset Sale, a notice (i) describing the assets being
sold and (ii) stating the estimated Asset Sales Proceeds in respect of such
Asset Sale;
(b) as soon as available and in any event within 30 days prior to the
end of each Fiscal Year, an annual budget of the Borrower and its Subsidiaries
for the succeeding Fiscal Year, displaying on a quarterly basis anticipated
balance sheets, forecasted Capital Expenditures, working capital requirements,
rent revenues, contributions by Operating Lessees to any FF&E Reserves, interest
income, net income, cash flow and sales, all on a consolidated basis;
(c) promptly and in any event within 30 days after the Borrower, any
of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any
ERISA Event has occurred, a written statement of the chief financial officer or
other appropriate officer of the Borrower describing such ERISA Event or waiver
request and the action, if any, which the Borrower, its Subsidiaries and ERISA
Affiliates propose to take with respect thereto and a
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copy of any notice filed by or with the PBGC or the IRS pertaining thereto;
(d) promptly and in any event within 10 days after receipt thereof, a
copy of any adverse notice, determination letter, ruling or opinion the
Borrower, any of its Subsidiaries or any ERISA Affiliate receives from the PBGC,
DOL or IRS with respect to any Plan, other than those which, in the aggregate,
do not have any reasonable likelihood of resulting in a Material Adverse Change;
(e) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any domestic or foreign Governmental Authority or
arbitrator, affecting the Borrower, any of its Subsidiaries or any Operator
(subject to the Borrower having received notice or knowledge thereof), except
those which in the aggregate, if adversely determined, would have no Material
Adverse Effect;
(f) promptly and in any event within five (5) Business Days after the
Borrower becomes aware of the existence of (i) any Default or Event of Default,
(ii) any breach or non-performance of, or any default under any Operating Lease,
Management Agreement, Advisory Agreement or any Contractual Obligation which is
material to the business, prospects, operations or financial condition of the
Borrower and its Subsidiaries taken as one enterprise, or (iii) any Material
Adverse Change or any event, development or other circumstance which has
reasonable likelihood of causing or resulting in a Material Adverse Change,
telephonic or telecopied notice in reasonable detail specifying the nature of
such Default, Event of Default, breach, non-performance, default, event,
development or circumstance, including, without limitation, the anticipated
effect thereof, which notice (if by telephone) shall be promptly confirmed in
writing within five days;
(g) promptly after the sending or filing thereof, copies of all
reports which the Borrower sends to its security holders generally, and copies
of all reports and registration statements which the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any national
securities exchange or the National Association of Securities Dealers, Inc.;
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(h) upon the request of the Lender copies of all federal, state and
local tax returns and reports filed by the Borrower or any of its Subsidiaries
in respect of taxes measured by income (excluding sales, use and like taxes);
(i) promptly and in any event within five days of the Borrower or any
Subsidiary learning of any of the following, written notice to the Lender of any
of the following:
(i) the Release or threatened Release of any Hazardous Material
on or from any property owned, operated or leased by the Borrower of any of
its Subsidiaries and any written order, notice, permit, application or
other written communication or report received by the Borrower, any of its
Subsidiaries or any Operator in connection with or relating to any such
Release or threatened Release, unless such Release or threatened Release is
not reasonably likely to have a Material Adverse Effect;
(ii) any notice or claim to the effect that the Borrower, any of
its Subsidiaries or any Operator is or may be liable to any Person as a
result of the Release or threatened Release of any Hazardous Material into
the environment that could reasonably be expected to have a Material
Adverse Effect;
(iii) receipt by the Borrower, any of its Subsidiaries or any
Operator of notification that any real or personal property of the Borrower
or any of its Subsidiaries is subject to an Environmental Lien that could
reasonably be expected to have a Material Adverse Effect;
(iv) any Remedial Action taken by the Borrower, any of its
Subsidiaries or (if known to the Borrower) any Operator or any other Person
in response to any Hazardous Material on, under or about any real property
owned, operated or leased by the Borrower or any of its Subsidiaries,
unless such Remedial Action is not reasonably likely to have a Material
Adverse Effect;
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(v) receipt by the Borrower, any of its Subsidiaries or any
Operator of any notice of violation of, or knowledge by the Borrower, any
of its Subsidiaries or any Operator that there exists a condition which may
result in a violation by the Borrower, any of its Subsidiaries or any
Operator of, any Environmental Law, unless such violation is not reasonably
likely to have a Material Adverse Effect;
(vii) the commencement of any judicial or administrative
proceeding or investigation alleging a violation of any Environmental Law;
or
(viii) any proposed acquisition of stock, assets or real
property, or any proposed leasing of property by the Borrower or any of its
Subsidiaries, unless such action is not reasonably likely to have a
Material Adverse Effect;
(j) upon written request by the Lender, a report providing an update
of the status of any Environmental Claim, Remedial Action or any other issue
identified in any notice or report required pursuant to this Section 7.12;
(k) promptly, such additional financial and other information
respecting the financial or other condition of any Operators, the Advisor or the
Borrower or any of its Subsidiaries or the status or condition of any real
property owned or leased by the Borrower or its Subsidiaries, or the operation
thereof which the Borrower is entitled to or can otherwise reasonably obtain, as
the Lender from time to time reasonably request; and
(l) such other information respecting the business, properties,
condition, financial or otherwise, or operations of the Borrower, any of its
Subsidiaries or any Operators as the Lender may from time to time reasonably
request.
7.13. Leases and Operating Leases. The Borrower shall provide the
---------------------------
Lender with a copy of each lease of real property to which the Borrower or any
Subsidiary of the Borrower is then a party, whether as lessor or lessee. The
Borrower shall, and shall cause each of its Subsidiaries to, (i) comply in all
material respects with all of their
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respective obligations under all of their respective Leases and Operating Leases
now or hereafter held respectively by them with respect to real property,
including, without limitation, the Leases set forth in Schedule 5.22(b); (ii)
not modify, amend, cancel, extend or :otherwise change in any materially adverse
manner any of the terms, covenants or conditions of any such Leases or Operating
Leases; (iii) provide the Lender with a copy of each notice of default under any
Lease or Operating Leases received by the Borrower or any Subsidiary of the
Borrower immediately upon receipt thereof and deliver to the Lender a copy of
each notice of default sent by the Borrower or any Subsidiary of the Borrower
under any Operating Lease or Lease simultaneously with its delivery of such
notice under such Operating Lease or Lease; (iv) notify the Lender, not later
than 30 days prior to the date of the expiration of the term of any Lease, of
the Borrower's or any Subsidiary of the Borrower's intention either to renew or
to not renew any such Lease, and, if the Borrower or any Subsidiary of the
Borrower intends to renew such Lease, the terms and conditions of such renewal;
and (v) maintain each Operating Lease in full force and effect in all material
respects and Lender with a copy of each lease of real property to which the
Borrower or any Subsidiary of the Borrower is then a party, whether as lessor or
lessee. The Borrower shall, and shall cause each of its Subsidiaries to, (i)
comply in all material respects with all of their enforce the material
obligations of the Operating Lessee thereunder, in a timely manner.
7.14. [Intentionally Omitted]
7.15. Employee Plans. For each Plan and any related trust hereafter
--------------
adopted or maintained by a Loan Party or any of its ERISA Affiliates intended to
qualify under Code Section 125, 401 or 501, the Borrower shall (i) seek, and
cause such of its ERISA Affiliates to seek, and receive determination letters
from the IRS to the effect that such plan is so qualified; and (ii) cause such
plan to be so qualified.
7.16. [Intentionally Omitted]
7.17. Fiscal Year. The Borrower shall maintain as its Fiscal Year
-----------
the twelve month period ending on December 31 of each year.
7.18. Environmental Matters. (a) The Borrower shall comply and
---------------------
shall cause each of its Subsidiaries and, with respect to Hotel Facilities only,
each Operator to
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comply in all material respects with all applicable Environmental Laws currently
or hereafter in effect.
(b) If the Lender at any time has a reasonable basis to believe that
there may be a material violation of any Environmental Law by Borrower any of
its Subsidiaries or any Operator related to any Hotel Facility, or real property
adjacent thereto, then Borrower agrees, upon request from the Lender, to provide
the Lender, at Borrower's expense, with such reports, certificates, engineering
studies or other written material or data as the Lender may reasonably require
so as to reasonably satisfy the Lender that Borrower or such Subsidiary or
Operator is in material compliance with all applicable Environmental Laws.
Furthermore, the Lender shall have the right upon prior notice (except in the
case of an emergency) to inspect during normal business hours any real property
owned, operated or leased by Borrower or any of its Subsidiaries if at any time
the Lender has a reasonable basis to believe that there may be such a material
violation of Environmental Law.
(c) The Borrower shall, and shall cause each of its Subsidiaries and,
with respect to Hotel Facilities only, each Operator to, take such Remedial
Action or other action as required by Environmental Laws, as any Governmental
Authority requires, except to the extent contested in good faith and by proper
proceedings, or as is appropriate and consistent with good business practice.
7.19. Appraisals and other Valuations. (a) From time to time during
-------------------------------
the term of this Agreement, the Lender may, in its sole discretion, order an
Appraisal of one or more of the Hotel Facilities. Any such Appraisal shall be
at the Borrower's cost if the Lender shall have obtained a letter from an expert
appraiser or evaluator of real property or hotel or other lodging facilities to
the effect that, or the Lender shall otherwise in good faith have determined
that, facts or circumstances exist, or changes in market conditions have
occurred, as a result of which there exists a reasonable possibility that
Appraisals of the Hotel Facilities, might result in an aggregate valuation
thereof reflecting a material loss of value as compared to the value thereof
indicated in the certificate of a Responsible Officer delivered to the Lender
pursuant to Section 7.12(k), or (ii) an Event of Default has occurred.
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(b) In addition to the Appraisals referred to in subsection (a)
above, from time to time during the term of this Agreement, if so requested by
the Lender, in its sole discretion, the Borrower shall furnish to the Lender a
certificate of a Responsible Officer certifying as to the value of one or more
of the Hotel Facilities in such officer's reasonable opinion.
7.20. REIT Requirements. The Borrower shall operate its business at
-----------------
all times so as to satisfy all requirements necessary to qualify as a real
estate investment trust under Section 856 through 860 of the Code. The Borrower
will maintain adequate records so as to comply with all record-keeping
requirements relating to the qualification of the Borrower as a real estate
investment trust as required by the Code and applicable regulations of the
Department of the Treasury promulgated thereunder and will properly prepare and
timely file with the IRS all returns and reports required thereby. The Borrower
will request from its shareholders all shareholder information required by the
Code and applicable regulations of the Department of Treasury promulgated
thereunder.
7.21. Maintenance of FF&E Reserves. The Borrower shall cause the
----------------------------
Operator to maintain FF&E Reserves in respect of each Hotel Facility, pursuant
to the terms of the Operating Lease and/or Management Agreement relating thereto
and shall direct the Operator to deliver to the Lender simultaneously with
delivery to the Borrower or its Subsidiaries, copies of any reports, statements
or other information required to be supplied to the Borrower or its Subsidiary
under any Operating Lease or Management Agreement for any Hotel Facility. The
Borrower shall not commingle, or permit the commingling of, other funds with the
funds in the FF&E Reserves except to the extent permitted by the Management
Agreement.
7.22. Further Assurances. At any time upon the request of the
------------------
Lender, the Borrower will, promptly and at its expense, execute, acknowledge and
deliver such further documents and do such other acts and things as the Lender
may reasonably request to provide for payment of the Loans made hereunder and
interest thereon in accordance with the terms of this Agreement.
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ARTICLE VIII
NEGATIVE COVENANTS
As long as any of the Obligations or Commitment remain outstanding,
without the written consent of the Lender, the Borrower agrees with the Lender
that:
8.1. Liens, Etc. The Borrower shall not create or suffer to exist,
----------
and shall not permit any of its Subsidiaries to create or suffer to exist, any
Lien upon or with respect to any of its or such Subsidiary's properties, whether
now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to
assign, any right to receive income therefrom, except for the following and the
Lender hereby consents to the following liens notwithstanding the provisions of
any Negative Pledge Agreement:
(a) Liens created pursuant to the Loan Documents;
(b) Liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar Persons
incurred by the Borrower or any of its Subsidiaries in the ordinary course
of business which secure its obligations to such Person; provided, however,
-------- -------
that (i) the Borrower or such Subsidiary is not in default with respect to
such payment obligation to such Person, (ii) the Borrower or such
Subsidiary is in good faith and by appropriate proceedings diligently
contesting such obligation and adequate provision is made for the payment
thereof, or (iii) all such failures in the aggregate have no Material
Adverse Effect;
(c) Liens (excluding Environmental Liens) securing taxes, assessments
or governmental charges or levies; provided, however, that (i) neither the
-------- -------
Borrower nor any of its Subsidiaries is in default in respect of any
payment obligation with respect thereto unless the Borrower or such
Subsidiary is in good faith and by appropriate proceedings diligently
contesting such obligation and adequate provision is made for the payment
thereof, and (ii) all such failures in the aggregate have no Material
Adverse Effect;
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(d) Zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto which do not in the aggregate materially detract from the value or
use of the property or assets of the Borrower or any of its Subsidiaries or
impair, in any material manner, the use of such property for the purposes
for which such property is held by the Borrower or any such Subsidiary;
(e) Liens in favor of landlords securing operating leases permitted
by Section 8.3;
(f) Liens existing on the date of this Agreement and disclosed on
Schedule 8.1;
(g) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(h) Any attachment or judgment Lien not constituting an Event of
Default under Section 9.1(f);
(i) Any (i) interest or title of a lessor or sublessor under any
Capitalized Lease or any operating lease not prohibited by this Agreement,
(ii) restriction or encumbrance that the interest or title of such lessor
or sublessor may be subject to, or (iii) subordination of the interest of
the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (ii);
(j) Liens arising from filing UCC financing statements relating
solely to leases permitted by this Agreement;
(k) Deposits in the ordinary course of business to secure liabilities
to insurance carriers, lessors, utilities and other service providers;
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(l) Purchase money security interests (including mortgages,
conditional sales, Capitalized Leases and any other title retention or
deferred purchase devices) in personal property of the Borrower or any of
its Subsidiaries in an amount not exceeding $200,000 in respect of each
Hotel Facility, existing or created at the time of acquisition thereof or
within 60 days thereafter.
(m) Any Lien securing the renewal, extension or refunding of any
Indebtedness or other Obligation secured by any Lien permitted by this
Section 8.1 provided that such renewal, extension or refunding is otherwise
permitted by this Agreement and the amount of such Indebtedness or other
Obligation secured by such Lien and the assets subject to such Lien are not
increased.
(n) Any Lien securing Indebtedness permitted pursuant to Section
8.2(v).
8.2. Indebtedness. (a) The Borrower shall not create, incur or
------------
suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to
exist, any Indebtedness, or incur, assume, endorse, be or become liable for, or
guarantee, directly or indirectly, or permit or suffer to exist, any Contingent
Obligation, except:
(i) Indebtedness and Contingent Obligations in respect of the
Obligations or evidenced by a Loan Document;
(ii) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or
services purchased, in the ordinary course of business consistent with the
past practice of the Borrower and its Subsidiaries;
(iii) Indebtedness of the Borrower consisting of fees and expenses
referred to in Section 4.1(n) and 4.2(f);
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(iv) Indebtedness of the Borrower or any of its Subsidiaries
under Capital Financing Indebtedness in respect of each Hotel Facility in
an aggregate amount for such Hotel Facility not exceeding $200,000.00 at
any one time outstanding; and
(v) Indebtedness of the Borrower or any of its Subsidiaries
comprising pre-existing Indebtedness secured by Real Estate and any
personal property located thereon, which the Borrower or any of its
Subsidiaries assumes in connection with the acquisition of such Real
Estate, in an aggregate amount not exceeding $25,000,000.
(b) The Borrower shall not cancel, or permit any of its Subsidiaries
to cancel, any claim or Indebtedness owed to it except for adequate
consideration and in the ordinary course of business.
8.3. Lease Obligations. The Borrower shall not, and shall not permit
-----------------
any of its Subsidiaries to, become or remain liable as lessee or guarantor or
other surety with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed), whether
now owned or hereafter acquired, which (i) the Borrower or any of its
Subsidiaries has sold or transferred or is to sell or transfer to any other
Person, or (ii) the Borrower or any of its Subsidiaries intends to use for
substantially the same purposes as any other property which has been or is to be
sold or transferred by that entity to any other Person in connection with such
lease.
8.4. [Intentionally Omitted.]
8.5. Mergers, Stock Issuances, Asset Sales, Etc. (a) The Borrower
------------------------------------------
shall not sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets or properties, and shall not, and shall not
permit any of its Subsidiaries to, (i) merge with any Person, or (ii)
consolidate with any Person other than (A) the merger of a Subsidiary of the
Borrower into a wholly-owned Subsidiary of the Borrower that is a Loan Party, or
(B) the merger of a wholly-owned Subsidiary of the Borrower into the Borrower.
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(b) The Borrower shall not transfer, or permit any of its
Subsidiaries to issue or transfer, any Stock or Stock Equivalents of any
Subsidiary other than any such issuance or transfer (i) by a Subsidiary of the
Borrower to a wholly-owned Subsidiary of the Borrower that is a Loan Party or
(ii) by a wholly-owned Subsidiary of the Borrower to the Borrower.
(c) The Borrower shall not and shall not permit any of its
Subsidiaries to effect, enter into, consummate or suffer to exist any Asset Sale
(other than an Asset Sale with respect to Mortgaged Properties as to which
subsection (d) below shall apply) without the prior written consent of the
Lender, such consent not to be unreasonably withheld or delayed.
(d) The Borrower shall not and shall not permit any of its
Subsidiaries to effect, enter into, consummate or suffer to exist any Asset Sale
with respect to any Mortgaged Property:
(i) during the period from January 1, 1999 through December
31, 2003;
(ii) prior to the Conversion Date, and during the period from January
1, 2004 through the Final Maturity Date, without (y) the prior written consent
of the Lender, such consent not to be unreasonably withheld or delayed, and (z)
prepayment of the Loans pursuant to Section 2.6(d).
In the event that an Asset Sale of a Mortgaged Property is entered
into in violation of any of the provisions of this Section 8.5(d), in addition
to the other rights and remedies of the Lender hereunder, the Borrower shall
forthwith prepay the Loans upon receipt by the Borrower of its Subsidiaries of
the Asset Sale Proceeds relating thereto, in an amount equal to such Asset Sale
Proceeds, together with accrued interest to the date of such prepayment on the
principal amount prepaid and, after the Conversion Date, a sum equal to the
Yield Maintenance Amount.
8.6. Investments. The Borrower shall not, directly or indirectly,
-----------
make or maintain, or permit any of
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its Subsidiaries to make or maintain, any loan or advance to any Person or own,
purchase or otherwise acquire, or permit any of its Subsidiaries to own,
purchase or otherwise acquire, any Stock, Stock Equivalents, other equity
interest, obligations or other securities of, or all or substantially all of the
assets of, any Person or all or substantially all of the assets constituting the
business of a division, branch or other unit operation of any Person, or enter
into any joint venture or partnership with, or make or maintain, or permit any
of its Subsidiaries to make or maintain, any capital contribution to, or
otherwise invest in, any Person or incorporate or organize any Subsidiary which
was not in existence on the Closing Date (any such transaction being an
"Investment"), except Investments consisting of the Stock of Subsidiaries listed
on Schedule 5.8,
8.7. Change in Nature of Business or Organizational Documents(a) The
--------------------------------------------------------
Borrower shall not make, and shall not permit any of its Subsidiaries to make,
any material change in the nature or conduct of its business as carried on at
the date hereof.
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, amend its declaration of trust, certificate of incorporation or
by-laws other than for amendments which in the aggregate have no Material
Adverse Effect.
8.8. Modification of Material Agreements. The Borrower shall not,
-----------------------------------
and shall not permit any of its Subsidiaries to, (i) alter, rescind, terminate,
amend, supplement, waive or otherwise modify any provision of or permit any
breach or default to exist under the Advisory Agreement without the prior
written consent of the Lender; or (ii) alter, amend, modify, rescind, terminate,
supplement or waive any of their respective rights under, or fail to comply in
all material respects with, any of its material obligations arising under any
Operating Lease or Management Agreement; provided, however, that, with respect
-------- -------
to any such failure to comply with any such obligations, the Borrower shall not
be deemed in default of this Section 8.8 if all such failures in the aggregate
would have no Material Adverse Effect; and provided, further, that in the event
-------- -------
of any material breach or event of default by a Person other
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than the Borrower or any of its Subsidiaries, the Borrower shall promptly notify
the Lender of any such breach or event of default and take all such action as
may be reasonably necessary in order to endeavor to avoid having such breach or
event of default have a Material Adverse Effect.
8.9. Accounting Changes. The Borrower shall not make, nor permit any
------------------
of its Subsidiaries to make, any change in accounting treatment and reporting
practices or tax reporting treatment, except as required by GAAP or law and
disclosed to the Lender.
8.10. Transactions with Affiliates. The Borrower shall not, and
----------------------------
shall not permit any of its Subsidiaries, to enter into any transaction directly
or indirectly with or for the benefit of any Affiliate of the Borrower
(including, without limitation, employment contracts or contracts involving the
payment of management or consulting fees, guaranties and assumptions of
obligations of any such Affiliate) except for (A) transactions in the ordinary
course of business on a basis no less favorable to the Borrower or such
Subsidiary as would be obtained in a comparable arm's length transaction with a
Person not an Affiliate, and (B) salaries and other employee compensation and
benefits to officers or directors of the Borrower or any of its Subsidiaries
commensurate with current compensation and benefit levels.
8.11. Environmental Matters. (a) The Borrower shall not, and shall
---------------------
not permit any of its Subsidiaries or any Operator, or, to the extent
practicable, any other Person to dispose of any Hazardous Material by placing it
in or on the ground or waters of any property owned, operated or leased by the
Borrower or any of its Subsidiaries, except as in compliance with all applicable
Environmental Laws currently and hereinafter in effect; provided, however, that
-------- -------
the Borrower shall not be deemed in default of this provision if all such
disposals in the aggregate would have no Material Adverse Effect.
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries or any Operator, or, to the extent practicable, any other Person
to, dispose or to arrange for the disposal of any Hazardous Material on any
property owned, operated or leased by any other Person, except as in
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compliance with all applicable Environmental Laws currently and hereinafter in
effect; provided, however, that the Borrower shall not be deemed in default of
-------- -------
this provision if all such disposals in the aggregate would have no Material
Adverse Effect.
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default. Each of the following events shall be an
-----------------
Event of Default:
(a) The Borrower shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal) of, or interest on, any
Loan, any fee, any other amount due hereunder or under the other Loan
Documents or other of the Obligations when the same becomes due and
payable; or
(b) Any representation or warranty made or deemed made by any Loan
Party in any Loan Document or by any Loan Party (or any of its officers) in
writing in connection with any Loan Document shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) Any Loan Party shall fail to perform or observe (i) any term,
covenant or agreement contained in Articles VI or VIII or in any Collateral
Document, or (ii) any other term, covenant or agreement contained in this
Agreement or in any other Loan Document if such failure under this clause
(ii) shall remain unremedied for fifteen (15) days after the date on which
written notice thereof shall have been given to the Borrower by the Lender;
or
(d) Any Loan Party or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Indebtedness of such Loan Party
or Subsidiary (excluding Indebtedness evidenced by the Note) beyond the
period of grace (not to exceed 30 days), if any, with respect thereto
(whether the same becomes due and payable by scheduled maturity, required
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prepayment, acceleration, demand or otherwise); or any other event shall
occur or condition shall exist under any agreement or instrument relating
to any such Indebtedness, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall become or be declared to be
due and payable, or any Loan Party or any of its Subsidiaries shall be
required to repurchase or offer to repurchase such Indebtedness, prior to
the stated maturity thereof; or
(e) Any Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against
any Loan Party or any of its Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a custodian, receiver, trustee or other similar official for
it or for any substantial part of its property and, in the case of any such
proceedings instituted against any Loan Party or any of its Subsidiaries
(but not instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of sixty (60) days or any of the
actions sought in such proceedings shall occur; or any Loan Party or any of
its Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount in excess of $100,000 to the extent not fully covered by
insurance shall be rendered against any Loan Party or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order, or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
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(g) An ERISA Event shall occur which, in the reasonable determination
of the Lender, is reasonably likely to have a Material Adverse Effect; or
(h) The Borrower or any of its Subsidiaries shall have entered into
any consent or settlement decree or agreement or similar arrangement with
an Governmental Authority or any judgment, order, decree or similar action
shall have been entered against the Borrower or any of its Subsidiaries or
any Operator, in any case based on or arising from the violation of or
pursuant to any Environmental Law, or the generation, storage,
transportation, treatment, disposal or Release of any Hazardous Material
and such judgment, order, decree or similar action is reasonably likely to
have a Material Adverse Effect; or
(i) Any material provision of any Collateral Document after delivery
thereof under Article IV shall for any reason cease to be valid and binding
on any Loan Party thereto, or any Loan Party shall so state in writing; or
(j) Any Collateral Document after delivery thereof pursuant to
Article IV shall, for any reason, cease to create a valid Lien on any of
the Collateral purported to be covered thereby or such Lien shall cease to
be a perfected and first priority Lien, or any Loan Party shall so state in
writing; or
(k) There shall occur a Material Adverse Change or an event which is
reasonable likely to have a Material Adverse Effect; or
(l) The Lender shall have determined in good faith, and shall have so
given notice to the Borrower, that the Borrower has at any time ceased to
be in a position to qualify, or has not qualified, as a real estate
investment trust for any of the purposes of the provisions of the Code
applicable to real estate investment trusts; provided that no Event of
Default under this subsection shall be deemed to have occurred and be
continuing if, within 10 days after notice of any such determination is
given to the Borrower, the Borrower shall have furnished the Lender with an
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opinion of the Borrower's tax counsel (who shall be reasonably satisfactory
to the Lender) to the effect that the Borrower is then in a position to so
qualify, or has so qualified, as the case may be, which opinion shall not
contain any material qualification unsatisfactory to the Lender; or
(m) HRPT Advisors shall cease at any time to (A) hold beneficially
and of record at least 250,000 of the issued and outstanding common shares
and each other class of equity securities of the Borrower (adjusted for any
division, reclassification or stock dividend in respect of Common Shares),
or (B) hold the power to direct or cause the direction of the management
and policies of the Borrower; or
(n) Barry M. Portnoy and Gerard M. Martin shall cease at any time to
(A) hold beneficially and of record, in the aggregate, at least 51% of the
issued and outstanding common shares and each other class of equity
securities of HRPT Advisors (adjusted for any division, reclassification or
stock dividend in respect of Common Shares), or (B) hold the power to
direct or cause the direction of the management and policies of HRPT
Advisors; or
(o) HRPT Advisors shall cease to be the sole Advisor to Borrower
pursuant to and in accordance with the Advisory Agreement, without the
Lender's prior written consent or the Advisory Agreement shall be
materially amended, supplemented or modified without the Lender's prior
written consent; or
(p) Advisor shall default in the observance or performance of any
material provision of the Subordination Agreement; or
(q) Any Manager shall default in the observance or performance of any
material provision of a Management Agreement and such defaults, in the
aggregate, are reasonably likely to have a Material Adverse Effect; or
(r) Any Operating Lessee shall default in the observance or
performance of any material provision of an Operating Lease and such
defaults, in the aggregate,
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<PAGE>
are reasonably likely to have a Material Adverse Effect.
9.2. Remedies. If there shall occur and be continuing any Event of
--------
Default, the Lender (i) may by notice to the Borrower, declare the obligation of
the Lender to make Loans to be terminated, whereupon the same shall forthwith
terminate, and (ii) may by notice to the Borrower, declare the Loans, all
interest thereon and all other amounts and Obligations payable under this
Agreement to be forthwith due and payable, whereupon the Note, all such interest
and all such amounts and Obligations together with (if such declaration occurs
on or after the Conversion Date) the Yield Maintenance Amount with respect to
the Note (to the extent permitted by applicable law), shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that upon the occurrence of the Event of Default specified in
- -------- -------
subparagraph (e) above, (A) the obligation of the Lender to make Loans shall
automatically be terminated and (B) the Loans, all such interest and all such
amounts and Obligations shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Borrower. In addition to the remedies set forth
above, the Lender may exercise any remedies provided for by the Collateral
Documents in accordance with the terms thereof or any other remedies provided by
applicable law.
ARTICLE X
MISCELLANEOUS
10.1. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement nor consent to any departure by the Borrower therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10.2. Notices, Etc. All notices and other communications provided
------------
for hereunder shall be in writing
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(including, without limitation, telegraphic, telex, telecopy or cable
communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered
by hand:
If to the Borrower, at its address at:
400 Centre Street,
Newton, Massachusetts 02158
Attention: Mr. John G. Murray
(telecopy number: 617-332-2261)
(telephone number: 617-964-8389);
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attention: Lena G. Goldberg, Esq.
(telecopy number: 617-338-2800)
(telephone number: 617-338-2880).
If to the Lender, at its address at
140 Broadway,
New York, New York 10005-1285
Attention: James W. Roiter, Managing Director
(telecopy number: 212-504-4096)
(telephone number: 212-504-4900)
with a copy to:
Weil Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: J. Philip Rosen, Esq.
(telecopy number: 212-310-8007)
(telephone number: 212-310-8000)
or, as to the Borrower or the Lender, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telegraphed, telexed, telecopied,
cabled or delivered, be effective three (3) Business Days after being deposited
in the mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation
87
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of receipt, delivered to the cable company or delivered by hand to the
addressee, respectively, except that notices and communications to the Lender
pursuant to Article II shall not be effective until received by the Lender.
10.3. No Waiver; Remedies. No failure on the part of the Lender to
-------------------
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
10.4. Costs; Expenses; Indemnities. (a) The Borrower agrees to pay
----------------------------
to the Lender or as the Lender may direct (i) on or before the date hereof (and
not including any amounts previously paid) the sum of ONE HUNDRED THOUSAND
DOLLARS ($100,000) toward the reasonable costs and expenses of the Lender in
connection with the preparation, execution and delivery of this Agreement, each
of the other Loan Documents and each of the other documents to be delivered
hereunder and thereunder, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel, accountants, appraisers, consultants or
industry experts retained by the Lender with respect thereto, provided that the
-------- ----
Borrower acknowledges and agrees that the foregoing shall not include the fees
and expenses to be paid by the Borrower pursuant to Section 4.2(e) hereof, and
(ii) on demand, all costs and expenses of the Lender (including, without
limitation, the fees and out-of-pocket expenses of counsel, retained by the
Lender) in connection with the modification, amendment or enforcement (whether
through negotiation, legal proceedings or otherwise) of this Agreement and the
other Loan Documents.
(b) The Borrower agrees to indemnify and hold harmless the Lender and
its Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the conditions set forth in Article IV) (each of the
foregoing being an "Indemnitee") from and against any and all claims, damages,
liabilities, obligations, losses, penalties,
88
<PAGE>
actions, judgments, suits, costs, disbursements and expenses of any kind or
nature (including, without limitation, fees and disbursements of counsel to any
such Indemnitee and experts, engineers and consultants and the costs of
investigation and feasibility studies) which may be imposed on, incurred by or
asserted against any such Indemnitee in connection with or arising out of any
investigation, litigation or proceeding, whether or not any such Indemnitee is a
party thereto, whether direct, indirect, or consequential and whether based on
any federal, state or local law or other statutory regulation, securities or
commercial law or regulation, or under common law or in equity, or on contract,
tort or otherwise, in any manner relating to or arising out of or based upon or
attributable to this Agreement, any other Loan Document, any document delivered
hereunder or thereunder, any Obligation, or any act, event or transaction
related or attendant to any thereof, including, without limitation, (i) arising
from any misrepresentation or breach of warranty under Section 5.19 or any
Environmental Claim or any Environmental Lien or any Remedial Action arising out
of or based upon anything relating to real property owned, leased or operated by
the Borrower or any of its Subsidiaries and the facilities or operations
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
-------- -------
shall not have any under this Section 10.4(b) to an Indemnitee with respect to
any Indemnified Matter caused by or resulting from the gross negligence or
willful misconduct of that Indemnitee, as determined by a court of competent
jurisdiction in a final non-appealable judgment or order.
(c) If the Lender receives any payment of principal of any Loan other
than on the last day of an Interest Period relating to such Loan, as a result of
any payment made by the Borrower or acceleration of the maturity of the Note
pursuant to Section 9.2 or for any other reason, the Borrower shall, upon demand
by the Lender, pay to the Lender all amounts required to compensate the Lender
for any additional losses, costs or expenses which it may reasonably incur as a
result of such payment, including, without limitation, any loss (including,
without limitation, loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund or maintain such Loan.
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<PAGE>
(d) The Borrower shall indemnify the Lender for, and hold the Lender
harmless from and against, any and all claims for brokerage commissions, fees
and other compensation made against the Lender for any broker, finder or
consultant with respect to any agreement, arrangement or understanding made by
or on behalf of any Loan Party or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement.
(e) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section 10.4) or any other Loan Document shall (i)
survive payment of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.
(f) The provisions of this Section 10.4 shall survive any termination
of this Agreement.
10.5. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
to or for the credit or the account of the Borrower against any and all of the
Obligations now or hereafter existing whether or not the Lender shall have made
any demand under this Agreement or any Note or any other Loan Document and
although such Obligations may be unmatured. The Lender agrees promptly to
notify the Borrower after any such set-off and application made by the Lender;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such set-off and application. The rights of the Lender under this
Section are in addition to the other rights and remedies (including, without
limitation, other rights of set-off) which the Lender may have.
10.6. Binding Effect. This Agreement shall become effective when it
--------------
shall have been executed by the Borrower and the Lender and thereafter shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the
90
<PAGE>
Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lender.
10.7. Assignments and Participations. (a) The Lender may sell,
------------------------------
transfer, negotiate or assign to one or more other financial institutions all or
a portion of its Commitment, the Loans owing to it and an interest in the Note
held by it and a commensurate portion of its rights and obligations hereunder
and under the other Loan Documents subject to the proviso to subparagraph (c)
below.
(b) The Lender may sell participations to one or more banks or other
Persons in or to all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of the Commitment,
the Loans owing to it and the Note held by it). In the event of the sale of any
participation by the Lender, (i) the Lender's obligations under the Loan
Documents (including, without limitation, the Commitment) shall remain
unchanged, (ii) the Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the Lender shall remain
the holder of such Note and Obligations for all purposes of this Agreement, and
(iv) the Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this Agreement.
(c) Each participant shall be entitled to the benefits of Sections
2.10, 2.12 and 2.14 as if it were a Lender; provided, however, that anything
-------- -------
herein to the contrary notwithstanding, the Borrower shall not, at any time, be
obligated to pay to any participant of any interest of the Lender, under Section
2.10, 2.12 or 2.14, any sum in excess of the sum which the Borrower would have
been obligated to pay Lender in respect of such interest had such assignment not
been effected or had such participation not been sold.
(d) The Borrower shall cooperate with Lender, at no cost or expense
to the Borrower, and any other party to whom the Lender may assign or sell
participations (or negotiate for such assignment or sale) in all or a portion of
the Commitment, the Loans owing to it and an interest in the Note. Such
cooperation of the part of the Borrower
91
<PAGE>
shall include but shall not be limited to the execution and delivery of (i)
amendments, modifications and/or supplements to one or more Loan Documents, in
form and substance as may be required by Lender, and (ii) the execution and
delivery of one or more additional promissory notes, at no cost or expense to
the Borrower; provided however, that such promissory notes, amendments,
-------- -------
modifications and/or do not materially increase the obligations of the Borrower
or materially diminish the rights of the Borrower under the Loan Documents.
10.8. Governing Law; Severability. This Agreement and the Note and
---------------------------
the rights and obligations of the parties hereto and thereto shall be governed
by, and construed and interpreted in accordance with, the law of the State of
New York. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
10.9. Submission to Jurisdiction; Service of Process. (a) Any legal
----------------------------------------------
action or proceeding with respect to this Agreement or the Note or any document
related thereto may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The parties hereto hereby irrevocably waive any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens, which any of them may now or
--------------------
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(b) The Borrower irrevocably consents to the service of process of
any of the aforesaid courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the borrower
at its address provided herein.
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<PAGE>
(c) Nothing contained in this Section 10.9 shall affect the right of
the Lender or any holder of the Note to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against the
Borrower in any other jurisdiction.
10.10. Section Titles. The Section titles contained in this
--------------
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
10.11. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
10.12. Entire Agreement. This Agreement, together with all of the
----------------
other Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
10.13. Confidentiality. The Lender agrees to keep information
---------------
obtained by it pursuant hereto and the other Loan Documents confidential in
accordance with the Lender's customary practices and agrees that it will only
use such information in connection with the transactions contemplated by this
Agreement and not disclose any of such information other than (i) to the
Lender's employees, representatives and agents who are or are expected to be
involved in the evaluation of such information in connection with the
transactions contemplated by this Agreement and who are advised of the
confidential nature of such information, (ii) to the extent such information
presently is or hereafter becomes available to the Lender, as the case may be,
on a non-confidential basis from a source other than the Borrower, (iii) to the
extent disclosure is required by law, regulation or judicial order or requested
or required by bank regulators or auditors, or (iv) to assignees or
participants or potential assignees or participants who agree to be bound by the
provisions of this sentence.
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<PAGE>
10.14. Waiver of Jury Trial. Each of the parties hereto waives any
--------------------
right it may have to trial by jury in respect of any litigation based on, or
arising out of, under or in connection with this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or action of any party hereto.
10.15. NON-LIABILITY OF TRUSTEES. THE DECLARATION OF TRUST OF THE
-------------------------
BORROWER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS
THERETO ("THE DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME
"HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION
COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO
TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE BORROWER SHALL BE HELD
TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, THE BORROWER. ALL PERSONS DEALING WITH THE BORROWER, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF THE BORROWER FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
10.16. Securitization Opinions. In the event the Loans become the
-----------------------
subject of a securitization underwritten by the Lender or any of its Affiliates,
the Borrower shall, provided it receives at least fifteen (15) Business Days
written notice of the Lender's request therefor, deliver on or at any time after
the Conversion Date, a 10(b)(5) opinion and a nonconsolidation opinion, each at
the Borrower's sole cost and expense, in form and substance and delivered by
counsel acceptable to the Lender and the Rating Agency, as may be required by
the Lender and/or the Rating Agency in connection with such securitization. The
Borrower shall undertake all actions (including structural reorganization
including, without limitation, transferring assets to a special/single purpose
and bankruptcy remote entity, if appropriate) necessary to enable its counsel to
issue the opinion. The Borrower's failure to deliver the opinions required
hereby or otherwise comply with the provisions of this Section 10.16 and the
following Sections 10.17 through 10.18, shall constitute an "Event of Default"
hereunder.
10.17. Cooperation With Rating Agencies. The Borrower covenants and
--------------------------------
agrees that in the event the Lender decides to include the Loans as an asset of
a securitization
94
<PAGE>
effective on or at any time after the Conversion Date, the Borrower shall upon
the Lender's written request (a) proceed to establish, so as to be effective
only on or at any time after the Conversion Date as the Lender may require, a
cash management system and escrow accounts as required by the Rating Agencies or
the Lender, whereby all revenues shall be deposited directly into an account in
the name of the Lender to pay real estate taxes, insurance premiums, monthly
debt service and capital improvement reserves, with the excess being available
to the Borrower for its use, (b) gather any environmental or engineering
information required by the Rating Agency in connection with such a
securitization, (c) at the Lender's request, meet with representatives of the
Rating Agency to discuss the business and operations of the Mortgaged
Properties, and (d) cooperate with the requests of the Lender or the Rating
Agency in connection with all of the foregoing.
10.18. Securitization Financials. The Borrower covenants and agrees
-------------------------
that, upon the Lender's written request therefor in connection with a
securitization effective on or at any time after the Conversion Date, in which
the Loans are to be included as an asset, the Borrower shall promptly deliver
audited financial statements and related documentation prepared by an
independent certified public accountant that satisfy securities laws and
requirements for use in a public registration statement (which may include up to
three (3) years of historical audited financial statements).
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
HOSPITALITY PROPERTIES TRUST
By:
---------------------------------
Name:
Title:
DLJ MORTGAGE CAPITAL, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
96
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Schedule 1.1
------------
Initial Hotels
97
<PAGE>
Schedule 3.2
------------
Mortgaged Property Prioritization Schedule
98
<PAGE>
Schedule 5.8 (a)
----------------
Stock Related Agreements
99
<PAGE>
Schedule 5.8 (c)
----------------
Subsidiaries
100
<PAGE>
Schedule 5.19
-------------
Environmental Matters
101
<PAGE>
Schedule 5.22(a)
----------------
Owned Real Estate
102
<PAGE>
Schedule 5.22(b)
----------------
Leased Real Estate
103
<PAGE>
Schedule 5.22(c)
----------------
Defects in Improvements
104
<PAGE>
Schedule 8.1
------------
Existing Liens
105
<PAGE>
Exhibit A
---------
Note
106
<PAGE>
Exhibit B
---------
Notice of Borrowing
107
<PAGE>
Exhibit C
----------
Form of Negative Pledge Agreement
108
<PAGE>
Exhibit D
---------
Form of Opinion of Counsel for the Loan Parties
109
<PAGE>
Exhibit E
---------
Form of Mortgage
110
<PAGE>
Exhibit F
---------
Form of Assignment Agreement
111
<PAGE>
Exhibit G
---------
Form of Management Agreement
112
<PAGE>
Exhibit H
---------
Form of Operating Lease
113
<PAGE>
Exhibit I
---------
Form of Security Agreement
114
<PAGE>
Exhibit J
---------
Form of Subordination Agreement
115
<PAGE>
Exhibit 10.15
AMENDMENT NO. 1 TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
---------------------------------------
AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
("Amendment"), dated as of the 29th day of February, 1996, between HOSPITALITY
PROPERTIES TRUST, a Maryland real estate investment trust (the "Borrower") and
DLJ MORTGAGE CAPITAL, INC., a Delaware corporation (the "Lender").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to that certain Revolving Credit Agreement dated as
of August 22, 1995, as amended and restated pursuant to that certain Amended and
Restated Revolving Credit Agreement dated as of December 29, 1995, each between
the Borrower and the Lender (the "Original Agreement"), the Lender agreed to
make to the Borrower revolving credit advances of up to $200,000,000 in
aggregate principal amount outstanding at any one time, for the purposes and
upon the terms and subject to the conditions set forth therein;
WHEREAS, immediately prior to the date hereof no advances have been
made under the Original Agreement;
WHEREAS, the Borrower and the Lender have agreed to amend the maturity
date and certain other terms and provisions of the Original Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree that the aforementioned recitals are true and correct and hereby
incorporated herein and hereby further agree, for themselves, their successors
and assigns, as follows:
1. Capitalized terms used but not otherwise defined in this Amendment
shall have the meanings ascribed to such terms in the Original Agreement.
2. The Borrower acknowledges, covenants, warrants, represents and agrees
that:
2.1 no Material Adverse Change or Material Adverse Effect has
occurred since December 29, 1995;
<PAGE>
2.2 there are no judgments against the Borrower or any of its
Subsidiaries in any courts of the United States and there is no litigation,
active, pending or threatened, against the Borrower or any of its Subsidiaries
which might adversely affect the Borrower's or any of its Subsidiaries' ability
to pay when due any amounts which may become payable in respect of the Loans;
2.3 no default, nor event which with notice and/or passage of time
would constitute a default, has occurred and is continuing under the Loan
Documents;
2.4 there are no offsets, defenses or counterclaims to the Borrower's
obligations under the Loans and the Loan Documents; and
2.5 the Borrower has not entered into any agreements with creditors
or third parties that expressly or otherwise prohibit the Borrower from entering
into any extension or modification of the Loans or any Loan Document in
connection therewith, except as may be provided in any Assignment Agreements.
3. The Borrower and the Lender hereby agree that the Original Agreement
shall and is hereby deemed to be amended as follows:
3.1 The following defined terms set forth in Section 1.1 of the
Original Agreement shall be deemed deleted therefrom and all references to such
terms as they appear in the Original Agreement shall be deemed deleted:
Conversion Date
Final Borrowing Date
Treasury Rate
Treasury Constant Maturity Yield Index
Yield Maintenance Amount
Yield Maintenance Premium
3.2 The definition of Final Maturity Date set forth in Section 1.1 of
the Original Agreement shall be deemed deleted and the following shall be deemed
substituted therefor:
""Final Maturity Date" means December 31, 1998".
-------------------
2
<PAGE>
3.3 In the definition of Hotel Facility set forth in Section 1.1 of
the Original Agreement, the words ", subject to the provisions of Section 3.2
hereof," shall be deemed inserted between the words "mean" and "each" in the
first line thereof.
3.4 Paragraph (d) of the definition of Interest Period set forth in
Section 1.1 of the Original Agreement shall be deemed deleted in its entirety.
3.5 Paragraph (i) in the definition of Loan to Value Requirement set
forth in Section 1.1 of the Original Agreement shall be deemed deleted in its
entirety and the following shall be deemed substituted therefor: "(i) fifty
percent (50%) of the aggregate of the Fair Market Values for all of the
Mortgaged Properties, and".
3.6 The following shall be deemed inserted in Section 1.1 of the
Original Agreement between the definitions of Responsible Officer and Secured
Indebtedness set forth therein:
""Second Facility" means the proposed revolving credit facility in a
---------------
maximum principal amount of up to approximately $250,000,000, to be
entered into by and between the Borrower and the Lender."
3.7 In Section 2.1 of the Original Agreement, the words "the Final
Borrowing Date, and to maintain the Loans outstanding to the Borrower on the
Final Borrowing Date from such date until" in the sixth through eighth lines
thereof, shall be deemed deleted.
3.8 The words "Final Borrowing Date" in the fifteenth and seventeenth
lines of Section 2.1 of the Original Agreement shall be deemed deleted and the
words "Final Maturity Date" shall be deemed substituted in each place therefor.
3.9 Paragraph (b) of Section 2.5 of the Original Agreement and
Paragraph (a) of Section 2.6 of the Original Agreement shall each be deemed
deleted in its entirety.
3.10 In Paragraph (b) of Section 2.6 of the Original Agreement:
(a) the words commencing with "(i) during the period (y) from the
Closing Date...." in the seventh line thereof through and including "....respect
to such prepayment" in the fourteenth line thereof shall be deemed deleted in
their entirety and the words "without premium or penalty" shall be deemed
substituted therefor; and
(b) the second complete sentence thereof beginning "The Lender
shall deliver notice..." shall be deemed deleted in its entirety.
3
<PAGE>
3.11 In Paragraph (d) of Section 2.6 of the Original Agreement, the
words "and any Yield Maintenance Amount due pursuant to Section 2.5(b) above"
shall be deemed deleted in their entirety.
3.12 In Section 2.7 of the Original Agreement:
(a) the words ": Conversion of Loans on the Conversion Date"
--------------------------------------------
shall be deemed deleted from the heading thereof;
(b) the words "(a) Prior to the Conversion Date," shall be
deemed deleted from Paragraph (a) thereof; and
(c) Paragraph (b) thereof shall be deemed deleted in its
entirety.
3.13 In Section 2.8 of the Original Agreement:
(a) the words "Prior to the Conversion Date" shall be deemed
deleted in Paragraph (a) thereof;
(b) the words "Conversion Date" in the fifth line of Paragraph
(a) thereof shall be deemed deleted and the words "Final Maturity Date" shall be
deemed substituted therefor; and
(c) Paragraph (b) thereof shall be deemed deleted in its
entirety.
3.14 The second complete sentence of Paragraph (a) of Section 2.9 of
the Original Agreement shall be deemed deleted in its entirety.
3.15 The following shall be deemed inserted after the first complete
sentence of Section 3.2 of the Original Agreement:
"The parties acknowledge and agree that certain of the Hotel
Properties which are not Mortgaged Properties pursuant to this
Agreement may be granted as collateral security for the Second
Facility and that to the extent mortgage documents are executed
and delivered (and whether or not the same are recorded) in
respect of any Hotel Facility as security for the Second
Facility, such Hotel Facility shall be deemed to no longer be a
Hotel Facility for the purposes of this Agreement, to the intent
that no Hotel Facility shall be granted as collateral for both
the purposes of loans obtained pursuant to this Agreement and the
Second Facility."
4
<PAGE>
3.16 Paragraph (r) of Section 4.1 of the Original Agreement shall be
deemed deleted in its entirety.
3.17 The following shall be deemed added before the word "and" at the
end of subparagraph (E) of Section 4.2(d)(iv) of the Original Agreement:
"provided that, notwithstanding the foregoing, a subordination, non-disturbance
and attornment agreement in the form attached as Exhibit K hereto and made a
---------
part hereof, duly executed and acknowledged by the Borrower and the Operating
Lessee shall be required in respect of each such Selected Property."
3.18 The following new section shall be seemed added after Section
7.22 of the Original Agreement:
"7.23 Amendment to Management Agreement. The Borrower shall use all
---------------------------------
reasonable efforts to procure the following within three months of the date
hereof: (i) an amendment to the definition of "Qualified Loan" in the
Management Agreement and to any other applicable provisions of the
Management Agreement including, without limitation, Section 6.09 thereof,
to the effect that all and any Loans made pursuant to this Agreement,
whether before or after the date of such amendment, shall comply with the
requirements of such definition and that in the context of cross
collateralization of the Hotel Facilities, the test for Qualified Loans
shall be applied on a consolidated basis for all such Hotel Facilities to
be mortgaged as collateral for the Loans hereunder, and (ii) a written and
binding agreement from the Management Company that, notwithstanding any
provision to the contrary set forth in any Assignment Agreement, if this
Agreement shall be amended, modified or supplemented without the prior
written consent of the Management Company, provided that all Loans made by
the Lender hereunder comply with the requirements for Qualified Loans, as
the same are set forth in the Management Agreement and may be amended
pursuant to subparagraph (i) above, such amendment, modification or
supplement shall not disqualify the Loans from being Qualified Loans and
Lender shall remain entitled to the benefits of the provisions of any
existing Assignment Agreements and to the provisions of the Management
Agreement intended for the benefit of a Qualified Lender as such term is
defined in the Management Agreement."
3.19 The words "and Section 8.2(vi)" shall be deemed added at the end
of Paragraph (n) of Section 8.1 of the Original Agreement.
5
<PAGE>
3.20 The following subparagraph shall be deemed added at the end of
Paragraph (a) of Section 8.2 of the Original Agreement:
"(vi) Indebtedness of the Borrower or any of its Subsidiaries
arising pursuant to the Second Facility."
3.21 In Paragraph (d) of Section 8.5 of the Original Agreement:
(a) the words commencing with ": (i) during the period..." in the
fourth and fifth lines thereof through and including "...Maturity Date" in the
ninth line thereof shall be deemed deleted in their entirety; and
(b) the words "and, after the Conversion Date, a sum equal to the
Yield Maintenance Amount" at the end thereof shall be deemed deleted in their
entirety.
3.22 The words commencing with "together with..." through and
including "...the Note" in the ninth through eleventh lines of Section 9.2 of
the Original Agreement shall be deemed deleted in their entirety.
3.23 Sections 10.16, 10.17 and 10.18 of the Original Agreement shall
be deemed deleted in their entirety.
3.24 Exhibit K to the Original Agreement shall be deemed deleted in
its entirety and there shall be deemed substituted therefor an Exhibit in the
form of Exhibit K attached hereto and made a part hereof.
4. The Borrower and the Lender hereby acknowledge that immediately
following the execution and delivery hereof, the Lender shall fund the initial
Loan under the Original Agreement as amended hereby (as amended, the "Credit
------
Agreement"). The Initial Selected Properties selected by the Lender pursuant to
- ---------
Section 3.2 of the Credit Agreement include the Hotel Properties known as (i)
Courtyard by Marriott, 8900 Bartram Avenue, Philadelphia, Pennsylvania 19153,
and (ii) Courtyard by Marriott, 140 Route 17 South, Mahwah, New Jersey 07430
(said Hotel Properties, the "PA and NJ Properties"). The Borrower is unable to
--------------------
deliver on the Closing Date, Mortgage Documents in respect of the PA and NJ
Properties and the Lender has agreed to fund the initial Loan notwithstanding
such non-delivery but only upon the condition that such Mortgage Documents are
duly executed and delivered to the Lender as soon as possible after the date
hereof but in any event no later than March 8, 1995. Failure by the Borrower to
deliver the Mortgage Documents in respect of the PA and NJ Properties on or
before March 8, 1995 shall constitute an Event of Default under the Credit
Agreement entitling the Lender to exercise all or any of its remedies under the
Credit Agreement.
5. Except as specifically amended herein, all of the terms, covenants,
conditions and
6
<PAGE>
stipulations contained in the Original Agreement and all of the other Loan
Documents are hereby ratified and confirmed in all respects and shall continue
to apply with full force and effect;
6. Neither this Amendment nor any other Loan Document nor any provision
hereof or thereof may be modified, amended, changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought.
7. This Amendment may be executed in one or more counterparts each of
which shall be an original but all of which when taken together shall constitute
one and the same instrument. The failure of any party listed below to execute,
acknowledge or join in this Amendment, or any counterpart hereof, shall not
relieve the other signatories from the obligations hereunder.
8. This Amendment is and shall be deemed to be a contract entered into
pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York.
9. The Borrower agrees to submit to personal jurisdiction in the State of
New York in any action or proceeding arising out of this Amendment. In
furtherance of such agreement, the Borrower hereby agrees and consents that
without limiting other methods of obtaining jurisdiction, personal jurisdiction
over the Borrower in any such action or proceeding may be obtained within or
without the jurisdiction of any court located in New York and that any process
or notice of motion or other application to any such court in connection with
any such action or proceeding may be served upon the Borrower by registered or
certified mail to, or by personal service at, the last known address of the
Borrower, whether such address be within or without the jurisdiction of any such
court. The Borrower hereby agrees that the venue of any litigation arising in
connection with the indebtedness, or in respect of any of the obligations of the
Borrower under this Amendment, shall, to the extent permitted by law, be in New
York County.
10. This Amendment is binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and assigns.
11. Nothing in this Amendment or any other Loan Document is intended to or
shall be deemed to create any rights or obligations of partnership, joint
venture, or similar association among the parties hereto.
12. If any term, covenant, provision or condition of this Amendment or any
of the other Loan Documents shall be held to be invalid, illegal or
unenforceable in any respect, this Amendment shall be construed without such
term, covenant, provision or condition.
7
<PAGE>
13. The parties hereto hereby irrevocably and unconditionally waive any
and all rights to trial by jury in any action, suit or counterclaim arising in
connection with, out of or otherwise related to this Amendment and every other
Loan Document heretofore, now or hereafter executed and/or delivered in
connection therewith, the Loans and all other obligations of the Borrower
related thereto or in any way related to this transaction or otherwise with
respect to the Mortgaged Properties.
14. THE DECLARATION OF TRUST OF THE BORROWER, DATED MAY 12, 1995, A COPY
OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO ("THE DECLARATION"), IS DULY
FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE
OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE
TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR
PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE
BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY
OBLIGATION OF, OR CLAIM AGAINST, THE BORROWER. ALL PERSONS DEALING WITH THE
BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE BORROWER FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
[remainder of this page intentionally left blank]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
-----------------------
Name: John G. Murray
Title: Treasurer
DLJ MORTGAGE CAPITAL, INC.
By: /s/ Charles L. Garrett
-----------------------
Name: Charles L. Garrett
Title: Vice President
9
<PAGE>
Exhibit K
---------
Form of Subordination,
Non-Disturbance and Attornment Agreement
(See Attached)
10
<PAGE>
Exhibit 10.16
UP TO U.S. $250,000,000
REVOLVING CREDIT AGREEMENT
Dated as of February 29, 1996
Between
HOSPITALITY PROPERTIES TRUST
as Borrower
-- --------
and
DLJ MORTGAGE CAPITAL, INC.
as Lender
-- ------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........................... 1
1.1. Defined Terms.............................................. 1
1.2. Computation of Time Periods................................ 22
1.3. Accounting Terms........................................... 22
1.4. Certain Terms.............................................. 22
ARTICLE II AMOUNTS AND TERMS OF THE LOANS............................. 22
2.1. The Loans.................................................. 22
2.2. Making the Loans........................................... 23
2.3. [Intentionally Omitted].................................... 24
2.4. Reduction and Termination of the Commitment................ 24
2.5. Repayment.................................................. 24
2.6. Prepayments................................................ 24
2.7. Continuation of Loans at the Eurodollar Rate............... 25
2.8. Interest................................................... 25
2.9. Interest Rate Determination and Protection................. 25
2.10. Increased Costs............................................ 26
2.11. Illegality................................................. 27
2.12. Capital Adequacy........................................... 27
2.13. Payments and Computations.................................. 27
2.14. Taxes...................................................... 28
ARTICLE III LOAN TO VALUE REQUIREMENT; SELECTED
PROPERTIES AND PREPARATION OF MORTGAGE DOCUMENTS........... 29
3.1. [Intentionally Omitted..................................... 29
3.2. Loan to Value Requirement; Selected Properties............. 29
3.3. Preparation and Execution of Mortgage Documents............ 30
ARTICLE IV CONDITIONS OF LENDING...................................... 31
4.1. Conditions Precedent to the Initial Loan................... 31
4.2. Conditions Precedent to Each Loan.......................... 33
4.3. Additional Conditions Precedent to Each Loan
After the Collateralization Date........................... 34
ARTICLE V REPRESENTATIONS AND WARRANTIES............................. 37
5.1. Existence; Compliance with Law............................. 37
i
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SECTION PAGE
5.2. Power; Authorization; Enforceable Obligations.............. 38
5.3. Taxes...................................................... 39
5.4. Full Disclosure............................................ 40
5.5. Financial Matters.......................................... 40
5.6. Litigation................................................. 41
5.7. Margin Regulations......................................... 41
5.8. Ownership of Borrower and HRPT Advisors;
Subsidiaries............................................... 42
5.9. ERISA...................................................... 43
5.10. Liens...................................................... 44
5.11. [Intentionally Omitted].................................... 44
5.12. No Burdensome Restrictions; No Defaults;
Contractual Obligations.................................... 44
5.13. No Investments............................................. 45
5.14. Government Regulation...................................... 45
5.15. Insurance.................................................. 45
5.16. Employees.................................................. 46
5.17. Force Majeure.............................................. 46
5.18. Use of Proceeds............................................ 46
5.19. Environmental Protection................................... 46
5.20. Contractual Obligations Concerning Assets.................. 48
5.21. Status as REIT............................................. 48
5.22. Real Property.............................................. 48
5.23. Operator and Advisor: Compliance with Law................. 51
5.24. Operating Leases, Management Agreement and
Advisory Agreement......................................... 51
5.25. FF&E Reserves.............................................. 52
ARTICLE VI FINANCIAL COVENANTS........................................ 52
6.1. Limitation on Indebtedness................................. 52
6.2. Limitation on Secured Indebtedness......................... 52
6.3. Interest Expense Coverage.................................. 53
6.4. Maintenance of Tangible Net Worth.......................... 53
6.5. Maintenance of Loan to Value Ratio......................... 53
ARTICLE VII AFFIRMATIVE COVENANTS...................................... 53
7.1. Compliance with Laws, Etc.................................. 53
7.2. Conduct of Business........................................ 53
7.3. Payment of Taxes, Etc...................................... 54
7.4. Maintenance of Insurance................................... 54
7.5. Preservation of Existence, Etc............................. 55
7.6. Access..................................................... 55
7.7. Keeping of Books........................................... 55
7.8. Maintenance of Properties, Etc............................. 55
ii
<PAGE>
SECTION PAGE
7.9. Performance and Compliance with Other Covenants............ 56
7.10. Application of Proceeds.................................... 56
7.11. Financial Statements....................................... 56
7.12. Reporting Requirements..................................... 58
7.13. Leases and Operating Leases................................ 61
7.14. [Intentionally Omitted].................................... 62
7.15. Employee Plans............................................. 62
7.16. [Intentionally Omitted].................................... 62
7.17. Fiscal Year................................................ 62
7.18. Environmental Matters...................................... 62
7.19. [Intentionally Omitted].................................... 63
7.20. REIT Requirements.......................................... 63
7.21. Maintenance of FF&E Reserves............................... 63
7.22. Further Assurances......................................... 63
7.23. Amendment to Management Agreement.......................... 63
ARTICLE VIII NEGATIVE COVENANTS......................................... 64
8.1. Liens, Etc................................................. 64
8.2. Indebtedness............................................... 66
8.3. Lease Obligations.......................................... 67
8.4. [Intentionally Omitted].................................... 68
8.5. Mergers, Stock Issuances, Asset Sales, Etc................. 68
8.6. Investments................................................ 69
8.7. Change in Nature of Business or Organizational
Documents.................................................. 69
8.8. Modification of Material Agreements........................ 69
8.9. Accounting Changes......................................... 70
8.10. Transactions with Affiliates............................... 70
8.11. Environmental Matters...................................... 70
ARTICLE IX EVENTS OF DEFAULT.......................................... 71
9.1. Events of Default.......................................... 71
9.2. Remedies................................................... 74
ARTICLE X MISCELLANEOUS.............................................. 75
10.1. Amendments, Etc............................................ 75
10.2. Notices, Etc............................................... 75
10.3. No Waiver; Remedies........................................ 76
10.4. Costs; Expenses; Indemnities............................... 76
10.5. Right of Set-off........................................... 78
10.6. Binding Effect............................................. 78
10.7. Assignments and Participations............................. 79
10.8. Governing Law; Severability................................ 80
iii
<PAGE>
SECTION PAGE
10.9. Submission to Jurisdiction; Service of Process............. 80
10.10. Section Titles............................................. 80
10.11. Execution in Counterparts.................................. 81
10.12. Entire Agreement........................................... 81
10.13. Confidentiality............................................ 81
10.14. Waiver of Jury Trial....................................... 81
10.15. NON-LIABILITY OF TRUSTEES.................................. 81
10.16. Securitization Opinions.................................... 82
10.17. Cooperation With Rating Agencies........................... 82
10.18. Securitization Financials.................................. 83
iv
<PAGE>
SCHEDULES
---------
Schedule 1.1 - Initial Hotels
Schedule 1.1(a) - Letters of Intent
Schedule 3.2 - Mortgaged Property Prioritization Schedule
Schedule 5.8(c) - Subsidiaries
Schedule 5.19 - Environmental Matters
Schedule 5.22(a) - Owned Real Estate
Schedule 5.22(b) - Leased Real Estate
Schedule 5.22(c) - Defects in Improvements
Schedule 8.1 - Existing Liens
v
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Negative Pledge Agreement
Exhibit D - Form of Opinion of Counsel for the Loan
Parties
Exhibit E - Form of Mortgage
Exhibit F - Form of Assignment Agreement
Exhibit G - Form of Management Agreement
Exhibit H - Form of Operating Lease
Exhibit I - Form of Security Agreement
Exhibit J - Form of Subordination Agreement
Exhibit K - Form of Subordination, Non-Disturbance and
Attornment Agreement
vi
<PAGE>
REVOLVING CREDIT AGREEMENT, dated as of the 29th day of February 1996,
between HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust
(the "Borrower") and DLJ MORTGAGE CAPITAL, INC. a Delaware corporation (the
"Lender").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower has requested that the Lender make revolving
credit advances of up to $250,000,000 in aggregate principal amount outstanding
at any one time, for the purposes hereinafter specified; and
WHEREAS, the Lender is willing to make funds available for such
purposes upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the following terms
-------------
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Advisor" means HRPT Advisors or such other Person as shall act as an
-------
advisor to the Borrower, whether pursuant to the Advisory Agreement, or an
agreement analogous to the Advisory Agreement, with the prior written consent of
the Lender.
"Advisory Agreement" means the Advisory Agreement, dated as of August
------------------
21, 1995, between the Borrower and the Advisor, as amended, supplemented or
modified from time to time in a manner not inconsistent with the terms hereof or
of the Subordination Agreement.
"Affiliate" means, as to any Person, any Subsidiary of such Person and
---------
any other Person which,
1
<PAGE>
directly or indirectly, controls, is controlled by or is under common control
with such Person and includes each officer or director or trustee or general
partner of such Person, and each Person who is the beneficial owner of 10% or
more of any class of voting Stock of such Person. For the purposes of this
definition, "control" means the possession of the power to direct or cause the
direction of management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Revolving Credit Agreement, together with all
---------
Exhibits and Schedules hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Appraisal" means an appraisal using methodologies reasonably
---------
acceptable to the Lender at the time such appraisal is or was made and performed
by a Recognized Appraiser.
"Approved Hotel Facility" means any Real Estate or Lease comprising
-----------------------
any of the hotel properties which the Borrower may acquire pursuant to the
Letters of Intent.
"Asset Sale" means any sale, conveyance, transfer, assignment, lease
----------
or other disposition (including, without limitation, by merger or consolidation
and whether by operation of law or otherwise) by the Borrower or any of its
Subsidiaries to any Person of any Stock of any of its Subsidiaries, any Stock
Equivalents of any of its Subsidiaries or any Mortgaged Property but excluding
Operating Leases.
Asset Sale Proceeds" means payments received by the Borrower or any of
-------------------
its Subsidiaries (including, without limitation, any payments received by way of
deferred payment of principal pursuant to a note or receivable or otherwise, but
only as and when received) from any Asset Sale (after repayment of any
Indebtedness other than the Loans secured by the Mortgaged Property subject of
such Asset Sale to the extent such Indebtedness is permitted hereunder), in each
case net of the amount of (i) brokers' and advisors' fees and commissions
payable other than to an Affiliate of the Borrower in connection with such Asset
Sale, (ii) all foreign, federal, state and local taxes payable as a direct
2
<PAGE>
consequence of such Asset Sale, (iii) the reasonable fees and expenses
attributable to such Asset Sale, to the extent not included in clause (i),
except to the extent payable to any Affiliate of the Borrower, and (iv) any
amount required to be paid to any Person (other than the Borrower and any of its
Subsidiaries) owning a beneficial interest in the property or assets sold.
"Assignment Agreement" means, with respect to each Mortgaged Property,
--------------------
an agreement substantially in the form of Exhibit F, or such other form as the
Lender shall approve, such approval not to be unreasonably withheld, delayed or
conditioned, executed by the Borrower, the Lender and the Manager, assigning to
the Lender, the Management Agreement relating thereto,
"Base Rate" means, for any period, a fluctuating interest rate per
---------
annum as shall be in effect from time to time, which rate per annum shall be
equal at all times to the higher of:
(a) the rate of interest announced publicly by Citibank, N.A. in New
York, New York, from time to time, as such bank's prime rate; and
(b) the sum (adjusted to the nearest 1/4 of one percent or, if there
is no nearest 1/4 of one percent, to the next higher 1/4 of one percent) of (i)
one and one-half percent (1 1/2%) per annum plus (ii) the Federal Funds Rate.
----
"Base Rent" means, for any period, the base or fixed rent or
---------
percentage rent during such period payable by an Operating Lessee pursuant to
the terms of an Operating Lease.
"Business Day" means a day of the year on which banks are not required
------------
or authorized to close in New York City and a day on which dealings are also
carried on in the London interbank market.
"Capital Expenditures" means, for any Person for any period, the
--------------------
aggregate of all expenditures by such Person and its consolidated Subsidiaries,
except interest capitalized during construction, during such period for
3
<PAGE>
property, plant or equipment, including, without limitation, renewals,
improvements, replacements and capitalized repairs, that would be reflected as
additions to property, plant or equipment on a consolidated balance sheet of
such Person and its Subsidiaries prepared in conformity with GAAP. For the
purpose of this definition, the purchase price of equipment which is acquired
simultaneously with the trade-in of existing equipment owned by such Person or
any of its Subsidiaries or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the gross amount of such purchase price less
the credit granted by the seller of such equipment being traded in at such time
or the amount of such proceeds, as the case may be.
"Capital Financing Indebtedness" means the principal amount of all
------------------------------
Indebtedness incurred or assumed in connection with any Capital Expenditures,
all Capitalized Lease Obligations and all other Indebtedness (including purchase
money Indebtedness) incurred solely for the purpose of financing or refinancing
the acquisition of assets or properties.
"Capitalized Lease" means, as to any Person, any lease of property by
-----------------
such Person as lessee which would be capitalized on a balance sheet of such
Person prepared in conformity with GAAP.
"Capitalized Lease Obligations" means, as to any Person, the
-----------------------------
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capitalized Leases, as determined on a consolidated basis in conformity
with GAAP.
"Closing Date" means the first date on which any Loan is made.
------------
"Code" means the Internal Revenue Code of 1986 (or any successor
----
legislation thereto), as amended from time to time.
"Collateral" means all property and interests in property and proceeds
----------
thereof now owned or hereafter acquired by any Loan Party in or upon which a
Lien is granted under any of the Collateral Documents.
4
<PAGE>
"Collateral Documents" means, the Negative Pledge Agreements, the
--------------------
Assignment Agreements, the Mortgages, the Security Agreements and any other
document now or hereafter executed and delivered by a Loan Party granting a Lien
on any of its property to secure payment of the Obligations.
"Collateralization Date" has the meaning specified in Section 3.2.
----------------------
"Commitment" has the meaning specified in Section 2.1.
----------
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness or Contractual Obligation of another Person, if the purpose or
intent of such Person in incurring the Contingent Obligation is to provide
assurance to the obligee of such Indebtedness or Contractual Obligation that
such Indebtedness or Contractual Obligation will be paid or discharged, or that
any agreement relating thereto will be complied with, or that any holder of such
Indebtedness or Contractual Obligation will be protected (in whole or in part)
against loss in respect thereof. Contingent Obligations of a Person include,
without limitation, (a) the direct or indirect guarantee, endorsement (other
than for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of an obligation
of another Person, and (b) any liability of such Person for an obligation of
another Person through any agreement (contingent or otherwise) (i) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of a loan, advance, stock purchase, capital contribution or otherwise),
(ii) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person, (iii) to make take-or-pay or similar
payments, if required, regardless of non-performance by any other party or
parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such obligation or to assure the holder of such
obligation against loss, or (v) to supply funds to or in any other manner invest
in such other Person
5
<PAGE>
(including, without limitation, to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii), (iv) or (v) of this sentence the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported.
"Contract" means any contract, agreement, undertaking, indenture,
--------
note, bond, loan, instrument, lease, conditional sales contract, mortgage, deed
of trust, license, franchise, insurance policy, commitment or other arrangement
or agreement.
"Contractual Obligation" of any Person means any obligation,
----------------------
agreement, undertaking or similar provision of any security issued by such
Person or of any Contract (excluding a Loan Document) to which such Person is a
party or by which it or any of its property is bound or to which any of its
properties is subject.
"Default" means any event which with the passing of time or the
-------
giving of notice or both would become an Event of Default.
"DOL" means the United States Department of Labor, or any successor
---
thereto.
"Dollars" and the sign "$" each mean the lawful money of the United
-------
States of America.
"Environmental Claim" means any accusation, allegation, notice of
-------------------
violation, action, claim, Environmental Lien, demand, abatement or other Order
or direction (conditional or otherwise) by any Governmental Authority or any
other Person for personal injury (including sickness, disease or death),
tangible or intangible property damage, damage to the environment, nuisance,
pollution, contamination or other adverse effects on the environment, or for
fines, penalties or restriction, resulting from or based upon (i) the existence,
or the continuation of the existence, of a Release (including, without
limitation, sudden or non-sudden accidental or non-accidental Releases) of, or
exposure to, any Hazardous Material or odor, audible noise
6
<PAGE>
or other nuisance, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to any property owned, operated or leased by the Borrower or any
of its Subsidiaries or any activities or operations thereof; (ii) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with any property owned, operated or leased by
the Borrower or any of its Subsidiaries or their operations or facilities; or
(iii) the violation, or alleged violation, of any Environmental Laws, Orders or
Environmental Permits of or from any Governmental Authority relating to
environmental matters connected with any property owned, leased or operated
by the Borrower or any of its Subsidiaries.
"Environmental Laws" means any federal, state, local or foreign law
------------------
(including common law), statute, code, ordinance, rule, regulation or other
requirement relating in any way to the environment, natural resources, or public
or employee health and safety and includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C. (S) 9601 et seq., the Hazardous Materials Transportation
-- ---
Act, 49 U.S.C. (S) 1801 et seq., the Federal Insecticide, Fungicide, and
-- ---
Rodenticide Act, 7 U.S.C. (S) 136 et seq., the Resource Conservation and
-- ---
Recovery Act ("RCRA"), 42 U.S.C. (S) 6901 et seq., the Toxic Substances Control
-- ---
Act, 15 U.S.C. (S) 2601 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et seq.,
-- --- -- ---
the Clean Water Act, 33 U.S.C. (S) 1251 et seq., the Occupational Safety and
-- ---
Health Act, 29 U.S.C. (S) 651 et seq., and the Oil Pollution Act of 1990, 33
-- ---
U.S.C. (S) 2701 et seq., as such laws have been amended or supplemented, and the
-- ---
regulations promulgated pursuant thereto, and all analogous state and local
statutes.
"Environmental Liabilities and Costs" means, as to any Person, all
-----------------------------------
liabilities, obligations, responsibilities, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim.
7
<PAGE>
"Environmental Lien" means any Lien in favor of any Governmental
------------------
Authority arising under any Environmental Law.
"Environmental Permit" means any Permit required under any applicable
--------------------
Environmental Laws or Order and all supporting documents associated therewith.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or
-----
any successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) under common control or treated as a single employer with any Loan
Party within the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"ERISA Event" means (i) an event described in Sections 4043(b)(1),
-----------
(2), (3), (5), (6), (8) or (9) of ERISA with respect to a Pension Plan; (ii) the
withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan subject
to Section 4063 of ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (iii) the complete or
partial withdrawal of any Loan Party or any ERISA Affiliate from any
Multiemployer Plan or the insolvency of any Multiemployer Plan; (iv) the filing
of a notice of intent to terminate a Pension Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA; (v) the institution of
proceedings by the PBGC to terminate or appoint a trustee to administer a
Pension Plan or Multiemployer Plan; (vi) the failure to make any required
contribution to a Pension Plan; (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
or Multiemployer Plan; (viii) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA; (ix) a prohibited transaction (as described in Code Section 4975 or ERISA
Section 406) shall occur with respect to any Plan; or (x) any Loan Party or
ERISA Affiliate shall request a minimum funding waiver from the IRS with respect
to any Pension Plan.
8
<PAGE>
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Interest Period, an interest rate per
---------------
annum equal to the sum of (a) the rate per annum obtained by dividing (i) the
rate of interest determined by the Lender to be the average (rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such average is not such
a multiple) of the rates for Dollar deposits which appear on the display
designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such
other page as may replace such page or that service for the purpose of
displaying London interbank offered rates for major banks) (the "Reuters Page"),
as of 11:00 A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to the Loan during such
Interest Period and for a period equal to such Interest Period by (ii) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such
-----
Interest Period, plus (b) 1.50%. If the Lender is unable to ascertain the
----
interest rate referred to in (i) above from the Reuters Page, such rate shall be
determined from such financial reporting service or other information as shall
be reasonably determined by the Lender.
"Eurodollar Rate Reserve Percentage" for any Interest Period means the
----------------------------------
reserve percentage applicable two Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of liabilities
which includes deposits by reference to which the Eurodollar Rate is determined)
having a term equal to such Interest Period.
"Event of Default" has the meaning specified in Section 9.1.
----------------
9
<PAGE>
"Existing Facility" means the revolving credit facility in the maximum
-----------------
principal amount of up to $200,000,000 evidenced by that certain Revolving
Credit Agreement dated as of August 22, 1995, as amended and restated pursuant
to that certain Amended and Restated Revolving Credit Agreement dated as of
December 29, 1995, as further amended pursuant to that certain Amendment No. 1
to Amended and Restated Revolving Credit Agreement dated as of February 26,
1996, each by and between the Borrower and the Lender, as the same may hereafter
be amended, modified or supplemented.
"Fair Market Value" means with respect to any Hotel Facility at any
-----------------
date, the value thereof reasonably determined by the Lender by dividing the Base
Rents from such Hotel Property during the previous twelve (12) month period by
ten percent (10%).
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"FF&E Reserve" has the meaning given to such term in the Management
------------
Agreement attached as Exhibit G hereto or the meaning referenced in the Letters
of Intent.
"Final Maturity Date" means the first anniversary of the Closing Date.
-------------------
"Financial Officer's Certificate" has the meaning specified in
-------------------------------
Section 7.11(c).
"Fiscal Quarter" means each of the three month periods ending on
--------------
March 31, June 30, September 30 and December 31.
10
<PAGE>
"Fiscal Year" means the twelve month period ending on December 31.
-----------
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination except that, for purposes of Article VI, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements referred to in
Section 5.5.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Material" means any substance, material or waste which is
------------------
regulated by any Governmental Authority of the United States or other national
government, including, without limitation, any material, substance or waste
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law, which includes, but is not limited to, petroleum, petroleum
products, asbestos, urea formaldehyde and polychlorinated biphenyls.
"HMC" means Host Marriott Corporation, a Delaware corporation.
---
"Hotel Facility" means, subject to the provisions of Section 3.2, each
--------------
of (a) the Initial Hotels, and (b) the Approved Hotel Facilities acquired by the
Borrower using the proceeds of (i) a Loan or Loans made by the Lender hereunder
or (ii) a loan or loans made by the Lender under the Existing Facility.
11
<PAGE>
"HRPT Advisors" means HRPT Advisors, Inc., a Delaware corporation.
-------------
"Improvements" has the meaning specified in Section 5.22(c).
------------
"Indebtedness" of any Person means (i) all indebtedness of such Person
------------
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured) or for the deferred purchase price of
property or services, (ii) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments, (iii) all indebtedness of such Person
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all Capitalized
Lease Obligations of such Person, (v) all Contingent Obligations of such Person,
(vi) all obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any Stock or Stock Equivalents of such Person,
valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (vii) all obligations of such Person under Interest Rate Contracts,
and (viii) all Indebtedness referred to in clause (i), (ii), (iii), (iv), (v),
(vi) or (vii) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including, without limitation, accounts and general intangibles)
owned by such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness, (ix) in the case of the Borrower, the
Obligations, and (x) all liabilities of such Person that would be shown on a
balance sheet of such Person prepared in conformity with GAAP.
"Indemnitees" has the meaning specified in Section 10.4.
-----------
"Initial Hotels" means the Real Estate consisting of 37 Courtyard by
--------------
Marriott(R) hotels listed in Schedule 1.1 hereto.
12
<PAGE>
"Initial Selected Properties" means such of the Hotel Facilities as
---------------------------
the Lender shall select (consistent with the Mortgaged Property Prioritization
Schedule attached as Schedule 3.2 hereto and made a part hereof) such that on
and after the Collateralization Date, after giving effect to the Mortgage
Documents relating to such Hotel Facilities, the Loan to Value Requirement would
be satisfied.
"Interest Period" means, in the case of any Loan, (i) initially, the
---------------
period commencing on the date such Loan is made and ending one (1) month
thereafter, and (ii) thereafter, a period commencing on the last day of the
immediately preceding Interest Period therefor and ending one (1) month
thereafter; provided, however, that:
-------- -------
(a) if any Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day, unless the result of such extension would be to extend such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(c) if the Borrower, by written notice to the Lender given no later
than two (2) Business Days prior to the expiration of an Interest Period for any
Loan, requests a one day interest period for such Loan, the Interest Period for
such Loan shall mean a period of one day (the "1 Day Interest Period");
provided that in no event shall any Loan have a 1 Day Interest Period for a
- -------- ----
period in excess of thirty (30) consecutive days (the "Limited Period"), and
upon the expiration of the Limited Period in respect of any Loan, such Loan
shall automatically be continued at the one (1) month Interest Period specified
above.
"Interest Rate Contracts" means interest rate swap agreements,
-----------------------
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other
13
<PAGE>
agreements or arrangements designed to provide protection against fluctuations
in interest rates.
"Investments" has the meaning specified in Section 8.6.
-----------
"IRS" means the Internal Revenue Service, or any successor thereto.
---
"Leases" means, with respect to the Borrower or any of its
------
Subsidiaries, all of those leasehold estates in real property owned by the
Borrower or such Subsidiary, as lessee, as such may be amended, supplemented or
otherwise modified from time to time to the extent permitted by this Agreement.
"Legal Proceedings" means any judicial, administrative or arbitral
-----------------
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Letters of Intent" means the two (2) letters of intent each dated
-----------------
February 1, 1996, between the Borrower and HMC and Wyndham Hotel Company LTD,
respectively, copies of which are attached as Schedule 1.1(a) hereto.
---------------
"Lending Office" means, with respect to the Lender, the office located
--------------
at 140 Broadway, New York, New York 10005-1285 or such other office of the
Lender as the Lender may from time to time specify to the Borrower.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to secure
payment of any Indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a Capitalized Lease Obligation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing,
under the Uniform Commercial Code or comparable law of any jurisdiction, of any
financing statement naming the owner of the asset to which such Lien relates as
debtor (excluding precautionary filings).
14
<PAGE>
"Loan" or "Loans" means the revolving credit loan or loans made or to
---- -----
be made by the Lender to the Borrower pursuant to Article II.
"Loan Documents" means, collectively, this Agreement, the Note, the
--------------
Collateral Documents and each certificate, agreement or document executed by a
Loan Party and delivered to the Lender in connection with or pursuant to any of
the foregoing, as such agreements, documents or instruments may be amended,
modified or supplemented from time to time.
"Loan Party" means the Borrower and each Subsidiary and Affiliate of
----------
the Borrower which executes and delivers a Loan Document.
"Loan to Value Requirement" means the requirement that, at any time on
-------------------------
and after the Collateralization Date, the aggregate principal amount of the
Loans outstanding at such time shall not exceed the lesser of (i) sixty-one
------
percent (61%) of the aggregate of the Fair Market Values for all of the
Mortgaged Properties, and (ii) the aggregate of the Qualified Loan Amounts for
all of the Mortgaged Properties.
"Management Agreement" means an agreement relating to the operation
--------------------
and/or management of a Hotel Facility between the Borrower and the Manager,
substantially in the form of the management agreement and amendments thereto
annexed as Exhibit G hereto or such other form as shall be approved by the
Lender, which approval shall not be unreasonably withheld, delayed or
conditioned.
"Manager" means Courtyard Management Corporation, a wholly owned
-------
subsidiary of Marriott International Inc., or such other manager as shall be
approved by the Lender (which approval shall not be unreasonably withheld,
delayed or conditioned), as manager under the Management Agreement.
"Material Adverse Change" means a material adverse change in any of
-----------------------
(i) the condition (financial or otherwise), business, performance, prospects,
operations or properties of (A) any Loan Party and its Subsidiaries taken as one
enterprise, (B) any Operating Lessee, (C) any Manager, or (D) the Advisor (ii)
the legality, validity or
15
<PAGE>
enforceability of any Loan Document or any Operating Lease, Management Agreement
or Advisory Agreement (iii) the perfection or priority of the Liens granted
pursuant to the Collateral Documents, (iv) the ability of the Borrower to repay
the Obligations or of any Loan Party to perform its material obligations under
any Loan Document, (v) the ability of any Operating Lessee to perform
obligations under any Operating Lease, (vi) the ability of any Manager to
perform its obligations under any Management Agreement; (vii) the ability of the
Advisor to perform its obligations under the Advisory Agreement or (viii) the
rights and remedies of the Lender under the Loan Documents.
"Material Adverse Effect" means an effect that results in or causes,
-----------------------
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.
"Mortgages" means the mortgages or deeds of trust securing, inter
--------- -----
alia, the Obligations, made or required herein to be made by the Borrower or any
- ----
of its Subsidiaries in substantially the form of Exhibit E, as such Mortgages
may be amended, supplemented or otherwise modified from time to time.
"Mortgage Documents" means with respect to any Hotel Facility, a
------------------
Mortgage and the other documents and payments including, without limitation, the
Mortgage Payments, specified in Sections 4.2(c)(ii) through (iv) and 4.3(a),
where applicable, in the forms attached hereto, subject to appropriate revisions
for state or property specific requirements.
"Mortgage Payments" means the payments specified in Section
-----------------
4.3(a)(vi).
"Mortgaged Property" means any property subject to a Mortgage in
------------------
favor of the Lender.
"Multiemployer Plan" means, as of any applicable date, a multiemployer
------------------
plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party,
any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make,
or within the six-year period ending at such date, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
16
<PAGE>
"Negative Pledge Agreement" means, in respect of each Hotel Facility,
-------------------------
an agreement, in substantially the form of Exhibit C, executed by the Borrower
or the Subsidiary owning such Hotel Facility, as such agreement may be amended,
supplemented or modified from time to time.
"Net Income (Loss)" means, for any Person for any period, the
-----------------
aggregate of net income (or loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP.
"Net Interest Expense" means, for any Person for any period, gross
--------------------
interest expense in respect of all Indebtedness of such Person and its
Subsidiaries for such period determined on a consolidated basis in conformity
with GAAP, less the following for such Person and its Subsidiaries determined on
----
a consolidated basis in conformity with GAAP: (a) the sum of (i) interest
capitalized during construction for such period, (ii) interest income for such
period, and (iii) gains for such period on Interest Rate Contracts (to the
extent not included in interest income above and to the extent not deducted in
the calculation of such gross interest expense), plus the following for such
----
Person and its Subsidiaries determined on a consolidated basis in conformity
with GAAP: (b) the sum of (i) losses for such period on Interest Rate Contracts
(to the extent not included in such gross interest expense), and (ii) the
amortization of upfront costs or fees for such period associated with Interest
Rate Contracts (to the extent not included in gross interest expense).
"Net Worth" of any Person means at any date the excess of (a) the
---------
total assets of such Person and its Subsidiaries at such date determined on a
consolidated basis in conformity with GAAP over (b) all obligations which in
conformity with GAAP would be included in determining total liabilities as shown
on the liabilities side of a consolidated balance sheet of such Person and its
Subsidiaries at such date.
"Note" means a promissory note of the Borrower payable to the order of
----
the Lender in a principal amount equal to the amount of the Commitment as
originally in effect, in substantially the form of Exhibit A, evidencing
17
<PAGE>
the aggregate Indebtedness of the Borrower to the Lender resulting from the
Loans made by the Lender.
"Notice of Borrowing" has the meaning specified in Section 2.2(a).
-------------------
"Obligations" means the Loans and all other advances, debts,
-----------
liabilities, obligations, covenants and duties owing by the Borrower to the
Lender, any Affiliate of the Lender or any Indemnitee, of every type and
description, present or future, whether or not evidenced by any note, guaranty
or other instrument, arising under this Agreement or under any other Loan
Document, whether or not for the payment of money, loan, guaranty,
indemnification, foreign exchange transaction or Interest Rate Contract or in
any other manner, whether direct or indirect (including, without limitation,
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term "Obligations"
includes, without limitation, all interest, charges, expenses, fees, attorneys'
fees and disbursements and any other sum chargeable to the Borrower under this
Agreement or any other Loan Document.
"Operating Lease" means a lease or sublease relating to any Real
---------------
Estate or Lease, between the Borrower or any of its Subsidiaries, as lessor, and
the Operating Lessee, as lessee, substantially in the form of the lease annexed
as Exhibit H hereto or such other form as shall be approved by the Lender,
which approval shall not be unreasonably withheld, delayed or conditioned.
"Operating Lessee" means any of HMH HPT Courtyard, Inc., a wholly
----------------
owned subsidiary of HMC, Wyndham Hotel Company, LTD. or a wholly owned
subsidiary thereof, or such other lessee as shall be approved by the Lender
(which approval shall not be unreasonably withheld, delayed or conditioned), as
lessee under the Operating Lease.
"Operator" means the Operating Lessee and/or the Manager (as the case
--------
may be) responsible for the operation and management of any Real Estate.
"Order" means any order, injunction, judgment, decree, ruling,
-----
assessment or arbitration award.
18
<PAGE>
"Other Taxes" has the meaning specified in Section 2.14(b).
-----------
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Pension Plan" means a plan, other than a Multiemployer Plan, which is
------------
covered by Title IV of ERISA or Code Section 412 and which any Loan Party, any
of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Permit" means any permit, approval, authorization, license, variance,
------
registration, permission or consent required from a Governmental Authority under
an applicable Requirement of Law.
"Permitted Lien" means any Lien permitted under Section 8.1 hereof.
--------------
"Person" means an individual, partnership, corporation (including,
------
without limitation, a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a Governmental
Authority.
"Plan" means an employee benefit plan, as defined in Section 3(3) of
----
ERISA, which any Loan Party or any of its Subsidiaries maintains, contributes to
or has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Qualified Loan Amount" means, with respect to each Mortgaged
---------------------
Property, the maximum principal amount permitted (i) in respect of the Courtyard
by Marriott Hotels, for a Qualified Loan as such term is defined in the
Management Agreement attached as Exhibit G hereto, and (ii) in respect of any
other Hotel Facilities, pursuant to the applicable terms, if any, of any
Management Agreement or Operating Lease relating thereto.
"Rating Agency" shall mean any nationally recognized statistical
-------------
agency selected by the Lender including, without limitation, Duff & Phelps
Rating Co., Fitch Investors Services, Inc., Moody's Investors Services,
19
<PAGE>
Inc., and/or Standard and Poors corporation, collectively, and any successor to
any of them; provided, however, that at any time during which the Loans are an
asset of a securitization, "Rating Agency" shall mean the rating agency or
rating agencies that from time to time rate the securities issued in connection
with such securitization.
"Recognized Appraiser" means a qualified and recognized professional
--------------------
appraiser as may be selected or approved by the Lender, having at least five (5)
years' prior experience in performing real estate appraisals in the geographic
area where the property being appraised is located, having a recognized
expertise in appraising properties operated as hotel or other lodging
facilities.
"Real Estate" means all of those plots, pieces or parcels of land now
-----------
owned or hereafter acquired by the Borrower or any of its Subsidiaries (the
"Land"), including, without limitation, those listed on Schedule 5.22(a) and
described in the Mortgages, together with the right, title and interest of the
Borrower or such Subsidiary, if any, in and to the streets, the land lying in
the bed of any streets, roads or avenues, opened or proposed, in front of,
adjoining or abutting the Land to the center line thereof, the air space and
development rights pertaining to the Land and the right to use such air space
and development rights, all rights of way, privileges, liberties, tenements,
hereditaments and appurtenances belonging or in any way appertaining thereto,
all fixtures, all easements now or hereafter benefiting the Land and all
royalties and rights appertaining to the use and enjoyment of the Land,
including, without limitation, all alley, vault, drainage, mineral, water, oil
and gas rights, together with all of the buildings and other improvements now or
hereafter erected on the Land, and any fixtures appurtenant thereto.
"Release" means any release, spill, emission, leaking, pumping,
-------
pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching or migration on or into the indoor or outdoor environment or into or
out of any property.
"Remedial Action" means all actions including, without limitation, any
---------------
Capital Expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat or in
20
<PAGE>
any other way address any Hazardous Material or other substance in the indoor
or outdoor environment, (ii) prevent the Release or threat of Release, or
minimize the further Release, of any Hazardous Material or other substance so it
does not migrate or endanger or threaten to endanger public health or welfare or
the indoor or outdoor environment, (iii) perform pre-remedial studies and
investigations or post-remedial monitoring and care, or (iv) bring facilities on
any property owned, leased or operated by the Borrower or any of its
Subsidiaries into compliance with all Environmental Laws and Environmental
Permits.
"Requirement of Law" means, as to any Person, the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all food, health and safety laws, and all applicable trade laws and
requirements, including, without limitation, all disclosure requirements of
Environmental Laws, ERISA and all orders, judgments, decrees or other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
"Responsible Officer" means, with respect to any Person, any of the
-------------------
principal executive officers or general partners of such Person.
"Secured Indebtedness" of any Person means any Indebtedness of such
--------------------
Person for which the obligations thereunder are secured by a Lien on any
assets of such Person.
"Security Agreement" means, with respect to each Hotel Property, an
------------------
agreement in substantially the form of Exhibit I or such other form as shall be
approved by the Lender (which approval shall not be unreasonably withheld,
delayed or conditioned), executed by the Borrower and the other parties thereto,
granting to the Lender a security interest in the Borrower's interest in the
FF&E Reserve.
"Selected Properties" has the meaning specified in Section 3.2.
-------------------
21
<PAGE>
"Solvent" means, with respect to any Person, that the value of the
-------
assets of such Person (both at fair value and present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including, without limitation, contingent and unliquidated liabilities) of such
Person as of such date and that, as of such date, such Person is able to pay all
liabilities of such Person as such liabilities mature and does not have
unreasonably small capital. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Stock" means shares of capital stock, beneficial or partnership
-----
interests, participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or non-voting, and
includes, without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities convertible into or
-----------------
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any stock, whether or not presently convertible, exchangeable or
exercisable.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or controlled by such Person and/or one or more
Subsidiaries of such Person (irrespective of whether, at the time, Stock of any
other class or classes of such entity shall have or might have voting power by
reason of the happening of any contingency).
"Subordination Agreement" means an agreement among the Lender, the
-----------------------
Advisor and the Borrower, substantially in the form annexed as Exhibit J, as
amended, supplemented or modified from time to time in a manner not inconsistent
with the terms thereof and hereof.
22
<PAGE>
"Tangible Net Worth" of any Person means, at any date, the Net Worth
------------------
of such Person at such date, excluding, however, from the determination of the
--------- -------
total assets of such Person at such date, (i) all goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (ii) all prepaid expenses, deferred charges or
unamortized debt discount and expense, (iii) all reserves carried and not
deducted from assets, (iv) treasury stock and capital stock, obligations or
other securities of, or capital contributions to, or investments in, any
Subsidiary of such Person, (v) securities which are not readily marketable, (vi)
cash held in a sinking or other analogous fund established for the purpose of
redemption, retirement, defeasance or prepayment of any Stock or Indebtedness,
(vii) any write-up in the book value of any asset resulting from a revaluation
thereof, and (viii) any items not included in clauses (i) through (vii) above
which are treated as intangibles in conformity with GAAP.
"Tax Affiliate" means, as to any Person, (i) any Subsidiary of such
-------------
Person, and (ii) any Affiliate of such Person with which such Person files or is
eligible to file consolidated, combined or unitary tax returns.
"Tax Return" has the meaning specified in Section 5.3.
----------
"Taxes" has the meaning specified in Section 2.14(a).
-----
"Title Insurance Policies" has the meaning specified in Section
------------------------
4.3(a)(i).
"Total Assets" of any Person means, at any date, the aggregate value
------------
of all assets of such Person, determined on the basis of cost of each such asset
to such Person without reduction for depreciation or adjustments due to asset
reappraisals or otherwise.
"Total Base Rents" means, for any period, the aggregate sum of Base
----------------
Rents for such period payable under any Operating Leases in effect during such
period, determined on a consolidated basis.
23
<PAGE>
"Unsecured Indebtedness" of any Person means any Indebtedness of such
----------------------
Person for which the obligations thereunder are not secured by a pledge of or
other encumbrance on any assets of such Person.
1.2. Computation of Time Periods. In this Agreement, in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding" and the word "through" means "to and including".
1.3. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4. Certain Terms. (a) The words "herein," "hereof" and
-------------
"hereunder" and other words of similar import refer to this Agreement as a
whole, and not to any particular Article, Section, subsection or clause in this
Agreement. References herein to an Exhibit, Schedule, Article, Section,
subsection or clause refer to the appropriate Exhibit or Schedule to, or
Article, Section, subsection or clause in this Agreement.
(b) The term "Lender" includes its successors and each assignee of
the Lender who becomes a party hereto pursuant to Section 10.7.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
2.1. The Loans. On the terms and subject to the conditions contained
---------
in this Agreement, the Lender agrees to make revolving credit loans (each a
"Loan" and collectively, the "Loans") to the Borrower from time to time on any
Business Day during the period from the date hereof to and including the Final
Maturity Date in an aggregate outstanding amount not to exceed TWO HUNDRED AND
FIFTY MILLION DOLLARS ($250,000,000) (the "Commitment") at any time, to be used
for the purposes identified in Section
24
<PAGE>
5.18. Within the limits of the Commitment and subject to the other terms and
conditions hereof, amounts prepaid pursuant to Section 2.6 may be reborrowed
under this Section 2.1 up to and including the Final Maturity Date. No portion
of the Commitment may be borrowed or reborrowed after the Final Maturity Date.
The Loans shall be evidenced by the Note. The Lender is authorized to endorse,
at any time, the date and amount of each Loan and the date and amount of each
payment of principal with respect to the Loans on the schedule annexed to and
constituting a part of the Note, which endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed.
2.2. Making the Loans. (a) Each Loan shall be made on notice, given
----------------
by the Borrower to the Lender not later than 12:00 noon (New York City time) on
the fifth (5th) Business Day prior to the date of the proposed Loan. Each such
notice (a "Notice of Borrowing") shall be in substantially the form of Exhibit
B, specifying therein (i) the date of such proposed Loan, (ii) the amount of
such proposed Loan, (iii) the account or accounts to which the Loan should be
made, and (iv) details of the Approved Hotel Facility for which the proceeds of
the proposed Loan shall be used. Notwithstanding the foregoing, from and after
the Collateralization Date, the Borrower agrees promptly to notify the Lender in
writing that it intends to request a Loan in order to allow adequate time for
the preparation of the Mortgage Documents for the Selected Properties pursuant
to Section 3.3 hereof.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall on the date of the proposed Loan, make available to
the Borrower at the account or accounts specified in the Notice of Borrowing, in
immediately available federal funds, the Loan.
(c) The Borrower may not request more than one (1) Loan per calendar
month.
(d) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. The Borrower shall indemnify the Lender against any loss, cost or
expense incurred by the Lender as a result of any failure to fulfill on or
before the date specified in any Notice of Borrowing for a proposed Loan the
applicable conditions set forth in Article IV,
25
<PAGE>
including, without limitation, any loss (including, without limitation, loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund any Loan
to be made by the Lender when such Loan, as a result of such failure, is not
made on such date.
2.3. [Intentionally Omitted].
2.4. Reduction and Termination of the Commitment. The Borrower may,
-------------------------------------------
upon at least three Business Days' prior notice to the Lender, terminate in
whole or reduce in part the unused portions of the Commitment without premium or
penalty; provided, however, that each partial reduction shall be in the
-------- -------
aggregate amount of not less than $10,000,000.
2.5. Repayment. The Borrower shall repay the entire unpaid principal
---------
amount of all and any Loans on the Final Maturity Date.
2.6. Prepayments. (a) The Borrower may, upon at least ten (10)
-----------
Business Days' prior notice to the Lender, stating the proposed date and
aggregate principal amount of the prepayment, prepay the outstanding principal
amount of the Loans in whole or in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid, without premium or
penalty; provided, however, that any prepayment of the Loans bearing interest at
-------- -------
the Eurodollar Rate made other than on the last day of an Interest Period for
the Loans shall be subject to payment by the Borrower to the Lender of any
costs, fees or expenses incurred by the Lender in connection with such
prepayment including, without limitation, any costs to unwind any Eurodollar
Rate contracts or Interest Rate Contracts. Upon the giving of such notice of
prepayment by the Borrower, the principal amount of the Loans specified to be
prepaid shall become due and payable on the date specified for such prepayment.
(b) If at any time the aggregate principal amount of Loans
outstanding at such time exceeds the Commitment, the Borrower shall forthwith
prepay the Loans then outstanding in an amount equal to such excess, together
with accrued interest.
26
<PAGE>
(c) The Borrower shall forthwith prepay the Loans upon receipt by the
Borrower or its Subsidiaries of Asset Sale Proceeds in connection with an Asset
Sale of a Mortgaged Property in an amount equal to such Asset Sale Proceeds,
together with accrued interest to the date of such prepayment on the principal
amount prepaid
2.7. Continuation of Loans at the Eurodollar Rate At the end of any
---------------------------------------------
Interest Period with respect to the Loans, unless the Borrower has given notice
pursuant to Section 2.6(a), the Loans will automatically be continued for an
additional Interest Period at the Eurodollar Rate for such Interest Period.
2.8. Interest. The Borrower shall pay interest on the unpaid
--------
principal amount of each Loan from the date thereof until the principal amount
thereof shall be paid in full at a rate per annum equal at all times during the
applicable Interest Period for each Loan to the Eurodollar Rate for such
Interest Period, payable on the last day of such Interest Period and on the
Final Maturity Date; provided, however, that during the continuance of an Event
-----------------
of Default, all Loans shall bear interest, payable on demand, at a rate per
annum equal at all times to 2% above the Eurodollar Rate in effect until the
maturity of the Loans or the end of such Interest Period, whichever occurs
first, and thereafter at the greater of (x) 2% per annum above the Base Rate in
effect from time to time and (y) 2% per annum above the rate per annum required
to be paid on the Loans immediately prior to the date on which such Event of
Default occurred.
2.9. Interest Rate Determination and Protection. (a) The Eurodollar
------------------------------------------
Rate for each Interest Period for Loans shall be determined by the Lender two
Business Days before the first day of such Interest Period.
(b) The Lender shall give prompt notice to the Borrower of the
applicable interest rate determined by the Lender for purposes of Section 2.9.
(c) If, (i) the Lender determines, which determination shall be
conclusive in the absence of manifest error, that quotations of interest rates
for the relevant deposits referred to in the definition of "Eurodollar Rate"
27
<PAGE>
are not being provided in the relevant amounts or for the relevant maturities
for purposes of determining the rates of interest for the Loans as provided
herein, or (ii) the Lender determines, which determination shall be conclusive
in the absence of manifest error, that the Eurodollar Rate for any Interest
Period therefor will not adequately reflect the cost to the Lender of making the
Loans or funding or maintaining the Loans for such Interest Period, the Lender
shall forthwith so notify the Borrower, whereupon
(i) each Loan will automatically, on the last day of the then
existing Interest Period therefor, convert so as to accrue interest at an
interest rate per annum equal to the Base Rate in effect from time to time; and
(ii) the obligations of the Lender to make Loans at the Eurodollar
Rate shall be suspended until the Lender shall notify the Borrower that the
Lender has determined that the circumstances causing such suspension no longer
exist; provided that, during the period of such suspension, the obligations of
-------- ----
the Lender to make Loans at the Eurodollar Rate shall convert to obligations to
make Loans at the Base Rate in effect from time to time.
2.10. Increased Costs. If, due to either (i) the introduction of or
---------------
any change in or in the interpretation of any law or regulation (other than any
change by way of imposition or increase of reserve requirements included in
determining the Eurodollar Rate Reserve Percentage) or (ii) compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to the Lender of agreeing to make or making, funding or maintaining any
Loans at the Eurodollar Rate, then the Borrower shall from time to time, upon
demand by the Lender, pay to the Lender additional amounts sufficient to
compensate the Lender for such increased cost. A certificate as to the amount
of such increased cost, submitted to the Borrower by the Lender, shall be
conclusive and binding for all purposes, absent manifest error. If the Borrower
so notifies the Lender within five Business Days after the Lender notifies the
Borrower of any increased cost pursuant to the foregoing provisions of this
Section 2.10,
28
<PAGE>
the Borrower may either (A) prepay in full all Loans bearing
interest at the Eurodollar Rate then outstanding in accordance with Section
2.6(b) and, additionally, reimburse the Lender for such increased cost in
accordance with this Section 2.10, or (B) require the Lender to, and the Lender
shall, convert all Loans bearing interest at the Eurodollar Rate into Loans
bearing interest at the Base Rate in effect from time to time, and additionally,
reimburse the Lender for such increased cost in accordance with this Section
2.10, provided that in the event that the election in (B) is made by the
-------- ----
Borrower, the Lender's obligations to make Loans hereunder shall thereafter be
deemed to be obligations to make Loans at the Base Rate in effect from time to
time.
2.11. Illegality. Notwithstanding any other provision of this
----------
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for the Lender or its
Lending Office to make Loans at the Eurodollar Rate or to continue to fund or
maintain Loans at the Eurodollar Rate, then, on notice thereof and demand
therefor by the Lender to the Borrower (i) the obligation of the Lender to make
or to continue the Loans bearing interest at the Eurodollar Rate shall
terminate, (ii) the Borrower shall forthwith prepay in full all Loans then
outstanding, together with interest accrued thereon (and until paid in full, all
such Loans bearing interest at the Eurodollar Rate then outstanding shall accrue
interest at an interest rate per annum equal to the Base Rate in effect from
time to time) provided that, the Borrower shall not be required to prepay such
-------- ----
Loans if the Borrower, within five Business Days of such notice and demand,
requires the Lender to convert such Loans to Loans bearing interest at the Base
Rate in effect from time to time.
2.12. Capital Adequacy. If (i) the introduction of or any change in
----------------
or in the interpretation of any law or regulation, (ii) compliance with any law
or regulation, or (iii) compliance with any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by the Lender or any corporation controlling the Lender and the
Lender reasonably determines that such amount is based upon
29
<PAGE>
the existence of the Lender's Commitment and Loans and its other commitment and
loans of this type, then, upon demand by the Lender, the Borrower shall pay to
the Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender in the light of such circumstances, to the
extent that the Lender reasonably determines such increase in capital to be
allocable to the existence of the Lender's Commitment and Loans. A certificate
as to such amounts submitted to the Borrower by the Lender shall be conclusive
and binding for all purposes absent manifest error.
2.13. Payments and Computations. (a) The Borrower shall make each
-------------------------
payment hereunder and under the Note not later than 12:00 noon (New York City
time) on the day when due, in Dollars, to the Lender at its address referred to
in Section 10.2 in immediately available funds without set-off or counterclaim,
to be applied in accordance with the terms of this Agreement. Payment received
by the Lender after 12:00 noon (New York City time) shall be deemed to be
received on the next Business Day.
(b) All computations of interest shall be made by the Lender on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable. Each determination by the Lender of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Note shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, that if such extension would cause payment of interest on or
- -------- -------
principal of any Loan to be made in the next calendar month, such payment shall
be made on the next preceding Business Day.
2.14. Taxes. (a) Any and all payments by the Borrower under each
-----
Loan Document shall be made free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
30
<PAGE>
withholdings, and all liabilities with respect thereto, excluding taxes measured
by the Lender's net income, and franchise taxes imposed on the Lender, by the
jurisdiction under the laws of which the Lender is organized or any political
subdivision thereof and taxes measured by the Lender's net income, and franchise
taxes imposed on the Lender, by the jurisdiction of the Lender's Lending Office
or any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Lender (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including, without limitation, deductions applicable to additional
sums payable under this Section 2.14) the Lender receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
applicable law, and (iv) the Borrower shall deliver to the Lender evidence of
such payment to the relevant taxation or other authority.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction which arise from any payment made under any Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, any Loan Document (collectively, "Other Taxes").
(c) The Borrower will indemnify the Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.14) paid by
the Lender and any liability (including, without limitation, for penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor.
31
<PAGE>
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes, the Borrower will furnish to the Lender, at its address referred to in
Section 10.2, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of the Obligations.
ARTICLE III
LOAN TO VALUE REQUIREMENT;
SELECTED PROPERTIES AND PREPARATION
OF MORTGAGE DOCUMENTS
3.1. [Intentionally Omitted].
3.2. Loan to Value Requirement; Selected Properties. Any Loans
----------------------------------------------
outstanding on December 31, 1996, or advanced on or after January 1, 1997 (the
"Collateralization Date"), shall be secured as hereinafter provided. Borrower
shall (a) on or before the Collateralization Date, and (b) at any time after the
Collateralization Date, if the Lender determines in its reasonable discretion
that the Loan to Value Requirement has not been or, after giving effect to any
Loans that the Borrower intends to request, would not be satisfied, promptly
upon the Lender's request, deliver to the Lender, Mortgage Documents with
respect to such of the Hotel Properties as the Lender shall select (the
"Selected Properties"), such that, after giving effect to such Mortgage
Documents the Loan to Value Requirement would be satisfied. The parties
acknowledge and agree that certain of the Hotel Properties may have been or
hereafter be granted as collateral security for the Existing Facility pursuant
to the terms thereof and that to the extent mortgage documents are executed and
delivered in respect of any Hotel Facility as security for the Existing
Facility, such Hotel Facility shall be deemed to no longer be a Hotel Facility
for the purposes of this Agreement, to the intent that no Hotel Facility shall
be granted as collateral for both the purposes of loans obtained pursuant to
this Agreement and the Existing Facility. The Lender agrees that
32
<PAGE>
it shall select such Hotel Properties consistent with the priorities set forth
in the Mortgaged Property Prioritization Schedule attached as Schedule 3.2
hereto and made a part hereof provided that, within each of the First through
-------- ----
Ninth Priority States, Lender may select Hotel Properties in any order Lender
may determine, provided further that, if the Lender shall select a Hotel
---------------------
Property in a particular state, the Lender shall then prioritize such state for
its selection of future Selected Properties.
3.3. Preparation and Execution of Mortgage Documents. (a) On
-----------------------------------------------
December 1, 1996 if any portion of the Loans is outstanding as of such date and
thereafter immediately after Lender determines that the Loan to Value
Requirement has not been (or will not after giving effect to Loans requested by
the Borrower be) satisfied, the Lender shall commence the preparation of the
Mortgage Documents for the Selected Properties including, without limitation,
the Initial Selected Properties, and the parties shall cooperate and diligently
proceed to prepare such Mortgage Documents (including, without limitation,
ordering commitments for the title insurance policies, ALTA surveys and UCC-
searches, obtaining estoppel certificates and retaining counsel, including local
counsel for purposes of reviewing the Mortgage Documents and rendering opinions
with respect to such documents in form and substance acceptable to the Lender as
set forth in Section 4.3(a)(ii)).
(b) The Borrower, on behalf of itself and each of its Subsidiaries,
hereby appoints the Lender its attorney-in-fact to execute, acknowledge and
deliver for and in the name of the Borrower or any of its Subsidiaries, as
applicable, any and all of the Mortgage Documents for the Initial Selected
Properties and/or the Selected Properties which the Borrower or any of its
Subsidiaries fails to execute, acknowledge and/or deliver in accordance with the
terms hereof, and this power, being coupled with an interest, shall be
irrevocable as long as any part of the Obligations remains unpaid.
33
<PAGE>
ARTICLE IV
CONDITIONS OF LENDING
4.1. Conditions Precedent to the Initial Loan. The obligation of the
----------------------------------------
Lender to make the initial Loan is subject to satisfaction of the conditions
precedent that the entire maximum principal amount of the Existing Facility
shall have been advanced to the Borrower and that the Lender shall have
received, on the Closing Date, the following, each dated the Closing Date unless
otherwise indicated, in form and substance reasonably satisfactory to the
Lender:
(a) The Note to the order of the Lender.
(b) A certificate of the Secretary or an Assistant Secretary of each
Loan Party certifying (i) the resolutions of its Board of Trustees or Directors,
as appropriate, approving each Loan Document to which it is a party, (ii) all
documents evidencing other necessary trust or corporate action, as appropriate,
and required governmental and third party approvals, licenses and consents with
respect to each Loan Document to which it is a party and the transactions
contemplated thereby, (iii) a copy of its and each of its Subsidiaries'
declaration of trust, certificates of incorporation and By-Laws, as appropriate,
as of the Closing Date, and (iv) the names and true signatures of each of its
officers who has been authorized to execute and deliver any Loan Document or
other document required hereunder to be executed and delivered by or on behalf
of such Person.
(c) A copy of the declaration of trust or articles or certificate of
incorporation, as appropriate, of each Loan Party and of each of its
Subsidiaries (if any) which is not a Loan Party certified as of a recent date by
the Secretary of State of the state of formation of such Loan Party or
Subsidiary, together with certificates of such official attesting to the good
standing of each such Loan Party and Subsidiary.
(d) Favorable opinions of Sullivan & Worcester and Piper & Marbury,
counsel to the Loan Parties, in substantially the forms attached as Exhibit D,
---------
and as to such other matters as the Lender may reasonably request.
34
<PAGE>
(e) A Negative Pledge Agreement in respect of each of the Hotel
Facilities including, without limitation, any Approved Hotel Facilities to be
acquired with the proceeds of the initial Loan, duly executed and acknowledged
by the Borrower or its Subsidiary, as applicable.
(f) A copy of the Operating Lease and Management Agreement in respect
of each Hotel Facility, each certified by a Responsible Officer.
(g) Evidence that the insurance required by the terms of the
Collateral Documents and by Section 7.4 is in full force and effect.
(h) A written report of an investigation by an environmental
consultant, reasonably acceptable to the Lender, addressing any significant
environmental, health and safety violations, hazards or liabilities to which the
Borrower or any of its Subsidiaries may be subject, which report shall
demonstrate, to the reasonable satisfaction of the Lender, that the Borrower and
its Subsidiaries and their operations are in compliance in all material respects
with all applicable Environmental Laws and are not subject to any material
Environmental Liabilities and Costs.
(i) Such additional documents, information and materials as the
Lender may reasonably request.
(j) The Lender shall have received evidence satisfactory to it that
all costs and accrued and unpaid fees and expenses (including, without
limitation, legal fees and expenses) required to be paid to the Lender under
Section 10.4, to the extent then due and payable, have been paid.
(k) A certificate, signed by a Responsible Officer of the Borrower,
stating that the statements set forth in Section 4.2 (a) and (b) are true and
correct on the Closing Date, after giving effect to the Loans being made on the
Closing Date.
(l) A copy of the Advisory Agreement certified by a Responsible
Officer.
35
<PAGE>
(m) The Subordination Agreement duly executed and acknowledged by the
Borrower and the Advisor.
Notwithstanding the foregoing paragraphs (f), (g) and (h), the Lender
agrees that, until the Collateralization Date, the Lender shall, with respect to
the Approved Hotel Facilities, rely solely on the due diligence to be performed
by the underwriters and their counsel in connection with the proposed offering
of up to 13,800,000 common shares of beneficial interest of the Borrower.
4.2. Conditions Precedent to Each Loan. The obligation of the Lender
---------------------------------
to make any Loan (including the Loan being made by the Lender on the Closing
Date) shall be subject to the further conditions precedent that:
(a) The following statements shall be true on the date of such Loan,
before and after giving effect thereto and to the application of the proceeds
therefrom (and the acceptance by the Borrower of the proceeds of such Loan shall
constitute a representation and warranty by the Borrower that on the date of
such Loan such statements are true):
(i) The representations and warranties of the Borrower contained in
Article V. and of each Loan Party in the other Loan Documents are correct on and
as of such date as though made on and as of such date; and
(ii) No Default or Event of Default will result from the Loans
being made on such date.
(b) The making of the Loans on such date does not violate any
Requirement of Law and is not enjoined, temporarily, preliminarily or
permanently.
(c) The Lender shall have received, on or before such date, in
respect of any Hotel Facility including, without limitation, any Approved Hotel
Facilities to be acquired with the proceeds of the Loan, for which the same have
not been delivered pursuant to Section 4.1(e), (f), (g) and (h) respectively:
36
<PAGE>
(i) a Negative Pledge Agreement duly executed and acknowledged by
the Borrower or its Subsidiary, as applicable;
(ii) A copy of the Operating Lease and Management Agreement in
respect of such Hotel Facility, each certified by a Responsible Officer;
(iii) Evidence that the insurance required by the terms of the
Collateral Documents and by Section 7.4 is in full force and effect; and
(iv) A written report of an investigation by an environmental
consultant, reasonably acceptable to the Lender, addressing any significant
environmental, health and safety violations, hazards or liabilities to which the
Borrower or any of its Subsidiaries may be subject, which report shall
demonstrate, to the reasonable satisfaction of the Lender, that the Borrower and
its Subsidiaries and their operations are in compliance in all material respects
with all applicable Environmental Laws and are not subject to any material
Environmental Liabilities and Costs.
Notwithstanding the foregoing subparagraphs (ii), (iii) and (iv), the
Lender agrees that, until the Collateralization Date, the Lender shall, with
respect to the Approved Hotel Facilities, rely solely on the due diligence to be
performed by the underwriters and their counsel in connection with the proposed
offering of up to 13,800,000 common shares of beneficial interest of the
Borrower.
(d) The Borrower shall have paid the reasonable fees and out of
pocket expenses of counsel to the Lender and local counsel, in connection with
the preparation, execution, review and delivery of the Loan Documents delivered
pursuant to this Section 4.2.
(e) The Lender shall have received such additional documents,
information and materials as the Lender may reasonably request.
4.3. Additional Conditions Precedent to Each Loan After the
------------------------------------------------------
Collateralization Date. The obligation of the Lender to make any Loan on or
- -----------------------
after the Collateralization Date shall be subject to the further conditions
precedent that:
(a) The Lender shall have received, on or before such date, duly
executed and acknowledged Mortgages for each
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of the Selected Properties including, without limitation, the Initial Selected
Properties, in such amounts as shall be reasonably acceptable to the Lender,
securing all of the Indebtedness and the Obligations as such terms are defined
and more particularly described therein, together with:
(i) commitments for title insurance policies (the "Title Insurance
Policies") issued by a title company acceptable to the Lender, in such form and
amounts as are reasonably acceptable to the Lender, insuring that each such
Mortgage is a valid first priority Lien on such Selected Properties subject only
to such exceptions to title as shall be acceptable to the Lender in its
reasonable discretion and containing such endorsements and affirmative insurance
as the Lender may reasonably require and as are obtainable in the applicable
jurisdiction, and true copies of each document, instrument or certificate
required by the terms of each such policy or Mortgage to be, or have been,
filed, recorded, executed or delivered in connection therewith;
(ii) opinions reasonably satisfactory to the Lender of counsel and/or
local counsel retained by the Borrower with respect to the due execution and
delivery, validity and enforceability of the Mortgage Documents and such other
matters as may be reasonably required by the Lender;
(iii) duly executed UCC-1 Financing Statements under the applicable
Uniform Commercial Code to be filed in connection with such Mortgages in form
and substance reasonably satisfactory to the Lender, to perfect the Lien created
by the applicable Mortgages;
(iv) (A) duly executed and acknowledged landlord consents from all
lessors under all the Leases comprising Selected Properties, in form and
substance reasonably satisfactory to the Lender, (B) duly executed and
acknowledged non-disturbance and attornment agreements with the mortgagees,
ground lessors and sublessors of property subject to Leases comprising Selected
Properties, in form and substance reasonably satisfactory to the Lender, (C)
duly executed and acknowledged consents from all mortgagees,
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ground lessors and sublessors of property subject to Leases comprising Selected
Properties, in form and substance reasonably satisfactory to the Lender, (D)
duly executed and acknowledged estoppel certificates, dated not earlier than 30
days prior to the date of the Loan, from each landlord, ground lessor, sublessor
and lessee of a Selected Property, in form and substance reasonably satisfactory
to the Lender, (E) duly executed and acknowledged subordination, non-disturbance
and attornment agreements (in recordable form) from each lessee (other than the
Borrower or its Subsidiary) of a Selected Property, unless such lessee's lease,
by its terms, is subject and subordinate to the Lien of the applicable Mortgage
provided that, notwithstanding the foregoing, a subordination, non-disturbance
and attornment agreement in the form attached as Exhibit K hereto and made a
---------
part hereof or such other form as shall be approved by the Lender (which
approval shall not be unreasonably withheld, delayed or conditioned), duly
executed and acknowledged by the Borrower or its Subsidiary and the Operating
Lessee shall be required in respect of each such Selected Property, and (F)
evidence satisfactory to the Lender that all such consents and agreements, and a
memorandum of each Lease comprising a Selected Property, have been filed or
recorded in all appropriate public records or delivered to the title company
providing title insurance thereon, as the case may be;
(v) current ALTA surveys and surveyor's certification as to all such
Selected Properties, each in form and substance reasonably satisfactory to the
Lender; and
(vi) payment to the Lender, or as the Lender may direct, of all title
insurance premiums, documentary, stamp or intangible taxes, recording fees and
mortgage taxes payable in connection with the recording of any of the Loan
Documents or the issuance of the Title Insurance Policies;
(vii) an Assignment Agreement in respect of any Management Agreement
for such Selected Property duly executed by the Borrower or its Subsidiary, as
applicable, and the Manager;
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(viii) a Security Agreement in respect of the FF&E Reserves for such
Selected Property duly executed by the Borrower or its Subsidiary, as
applicable, the Operating Lessee and, if applicable, the Manager;
(ix) Financing Statements (Form UCC-1) under the Uniform Commercial
Code of all jurisdictions as may be necessary or, in the reasonable opinion of
the Lender, desirable to perfect the Lien created by the Security Agreement for
such Selected Property; copies of Requests for Information or Copies (Form UCC-
11), or equivalent reports, listing all effective financing statements which
name the Borrower or any Subsidiary of the Borrower (under its present name or
any previous name) as debtor and which are filed in the jurisdictions referred
to above, together with copies of such other financing statements (none of which
shall cover the Collateral purported to be covered by the Security Agreement);
and
(x) collateral assignments of such other security obtained by the
Borrower from any Operating Lessee as security for the performance of such
Operating Lessee's obligations under its Operating Lease (including, without
limitation, the security described in paragraphs 12(e) and (i) of the Letter of
Intent between the Borrower and Wyndham Hotel Company, LTD.), each in form and
substance reasonably satisfactory to the Lender.
(b) The Borrower shall have paid the reasonable fees and out of
pocket expenses of counsel to the Lender and local counsel, in connection with
the preparation, execution, review and delivery of the Mortgage Documents.
(c) All costs and accrued and unpaid fees and expenses (including,
without limitation, legal fees and expenses) required to be paid to the Lender
under Section 10.4 and any Mortgage Payment, to the extent then due and payable,
have been paid.
(d) The Lender shall have received such additional documents,
information and materials as the Lender may reasonably request.
40
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender that:
5.1. Existence; Compliance with Law. Each Loan Party and each of its
------------------------------
Subsidiaries (i) is a real estate investment trust or a corporation, as
specified herein, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation; (ii) is duly qualified or
licensed and in good standing under the laws of each jurisdiction where such
qualification is necessary, except for failures which in the aggregate have no
Material Adverse Effect; (iii) has all requisite power and authority and the
legal right to own, pledge and mortgage its properties, to lease (as lessee) the
properties that it leases as lessee, to lease or sublease (as lessor) the
properties it owns and/or leases (as lessee) and to conduct its business as now
or currently proposed to be conducted; (iv) is in compliance with its
declaration of trust or certificate of incorporation and by-laws, as
appropriate; (v) is in compliance with all other applicable Requirements of Law
except for such non-compliances as in the aggregate have no Material Adverse
Effect; and (vi) has all necessary licenses, permits, consents or approvals from
or by, has made all necessary filings with, and has given all necessary notices
to, each Governmental Authority having jurisdiction, to the extent required for
such ownership, leasing and conduct, except for licenses, permits, consents or
approvals which can be obtained by the taking of ministerial action to secure
the grant or transfer thereof or failures which in the aggregate have no
Material Adverse Effect.
5.2. Power; Authorization; Enforceable Obligations. (a) The
---------------------------------------------
execution, delivery and performance by each Loan Party of the Loan Documents to
which it is a party and the consummation of the transactions contemplated
hereby:
(i) are within such Loan Party's corporate or trust powers, as
appropriate;
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(ii) have been or, at the time of delivery thereof pursuant to
Article III or IV, will have been duly authorized by all necessary
corporate or trust action, as appropriate, including, without limitation,
the consent of any trustees or stockholders where required;
(iii) do not and will not (A) contravene any Loan Party's or any of
its Subsidiaries' respective declaration of trust, certificate of
incorporation or by-laws or other comparable governing documents, (B)
violate any other applicable Requirement of Law (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System), or any order or decree of any Governmental
Authority or arbitrator, (C) conflict with or result in the breach of, or
constitute a default under, or result in or permit the termination or
acceleration of, any material Contractual Obligation of any Loan Party or
any of its Subsidiaries, or (D) result in the creation or imposition of
any Lien upon any of the property of any Loan Party or any of its
Subsidiaries, other than those in favor of the Lender pursuant to the
Collateral Documents; and
(iv) do not require the consent of, authorization by, approval of,
notice to, or filing or registration with, any Governmental Authority or
any other Person, other than those which have been or will be, prior to
the Closing Date, obtained or made and copies of which have been or will
be delivered to the Lender pursuant to Section 4.1 and/or Article III
hereof, and each of which on the Closing Date will be in full force and
effect, and any consents, authorizations, approvals of, notices to or
filings or registrations required to be delivered under Article III or IV
hereof.
(b) This Agreement has been, and each of the other Loan Documents
will have been upon delivery thereof pursuant to Article III or IV hereof, duly
executed and delivered by each Loan Party thereto. This Agreement is, and the
other Loan Documents will be, when delivered hereunder, the legal, valid and
binding obligation of each Loan Party thereto, enforceable against it in
accordance
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with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
5.3. Taxes. All federal, state, local and foreign tax returns,
-----
reports and statements (collectively, the "Tax Returns") which, to the best
knowledge and belief of the Borrower, are required to be filed by the Borrower
or any of its Tax Affiliates have been filed with the appropriate governmental
agencies in all jurisdictions in which such Tax Returns, are required to be
filed, all such Tax Returns are true and correct in all material respects, and
all taxes, charges and other impositions due and payable have been timely paid
prior to the date on which any fine, penalty, interest, late charge or loss may
be added thereto for non-payment thereof, except where contested in good faith
and by appropriate proceedings if adequate reserves therefor have been
established on the books of the Borrower or such Tax Affiliate in conformity
with GAAP. If applicable, proper and accurate amounts have been withheld by the
Borrower and each of its respective Tax Affiliates from their respective
employees (if any) for all periods in full and complete compliance with the tax,
social security and unemployment withholding provisions of applicable federal,
state, local and foreign law and such withholdings have been timely paid to the
respective Governmental Authorities. None of the Borrower or any of its Tax
Affiliates has (i) executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any charges other than
those that in the aggregate would have no Material Adverse Effect; (ii) agreed
or been requested to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise other than those that in
the aggregate would have no Material Adverse Effect; or (iii) any obligation
under any written tax sharing agreement.
5.4. Full Disclosure. (a) No written statement prepared or
---------------
furnished by or on behalf of any Loan Party or any of its Affiliates in
connection with any of the Loan Documents or the consummation of the
transactions contemplated thereby, and no financial statement delivered pursuant
hereto or thereto, contains any untrue statement of
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<PAGE>
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. All facts known to the
Borrower which are material to an understanding of the financial condition,
business, properties or prospects of the Borrower and its Subsidiaries taken as
one enterprise have been disclosed to the Lender.
5.5. Financial Matters. (a) The balance sheet of the Borrower as of
-----------------
December 31, 1995, and the related statement of income, retained earnings and
cash flow of the Borrower for the period from February 7, 1995 (inception) to
December 31, 1995, certified by Arthur Andersen, LLP, and the combined
statements of assets, liabilities and net investment and advances of the Initial
Hotels and the Approved Hotel Facilities that are Courtyard by Marriott hotels
as of December 30, 1994 and as of December 29, 1995, and the related combined
statements of revenues and expenses excluding income taxes for the fiscal year
ended December 29, 1995, certified by Arthur Andersen, LLP, copies of which have
been furnished to the Lender, fairly present the financial condition of the
Borrower and the combined assets, liabilities and net investment and advances of
the Initial Hotels and such Approved Hotel Facilities as of such dates and the
consolidated results of the operations of the Borrower and the revenues and
expenses excluding income taxes, and cash flows of the Initial Hotels and such
Approved Hotel Facilities for the period ended on such dates, all in conformity
with GAAP.
(b) Since December 31, 1995, there has been no Material Adverse
Change and there have been no events or developments that in the aggregate have
had a Material Adverse Effect.
(c) Neither the Borrower nor any of its Subsidiaries had at December
31, 1995 any material obligation, contingent liability or liability for taxes,
long-term leases or unusual forward or long-term commitment which is not
reflected in the balance sheet at such date referred to in subsection (a) above
or in the notes thereto.
(d) The unaudited pro forma balance sheets of the Borrower and in
respect of the Initial Hotels (the "Pro Forma Balance Sheets"), copies of which
have been delivered to the Lender, have been prepared with respect to the
Borrower as of December 31, 1995, and with respect to the
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<PAGE>
Initial Hotels, as of December 29, 1995, and reflect as of such dates, the pro
forma financial condition of the Borrower and of the Initial Hotels.
(e) The Borrower is, and on a consolidated basis the Borrower and
its Subsidiaries are, Solvent.
5.6. Litigation. There are no pending or, to the knowledge of the
----------
Borrower, threatened actions, investiga tions or proceedings affecting the
Borrower or, to the knowledge of the Borrower, any Operator or any of their
respective properties or revenues before any court, Governmental Authority or
arbitrator, other than those that in the aggregate, if adversely determined,
would have no Material Adverse Effect. The performance of any action by (a) any
Loan Party required or contemplated by any of the Loan Documents or (b) any
Operator required or contemplated by any Operating Lease or Management Agreement
is not (in the case of (b) only, to the knowledge of the Borrower) restrained or
enjoined (either temporarily, preliminarily or permanently), and no material
adverse condition has been imposed by any Governmental Authority or arbitrator
upon any of the foregoing transactions contemplated by the aforementioned
documents.
5.7. Margin Regulations. The Borrower is not engaged in the business
------------------
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Loan will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
5.8. Ownership of Borrower and HRPT Advisors; Subsidiaries. (a) The
-----------------------------------------------------
authorized capital stock of the Borrower consists of 100,000,000 common shares
of beneficial interest, $0.01 par value per share, of which 12,600,000 shares
are issued and outstanding on the date hereof, and 100,000,000 preferred shares
of beneficial interest, without par value, none of which shares are issued and
outstanding on the date hereof. On the date hereof all of the outstand ing
capital stock of the Borrower is validly issued, fully paid and non-assessable
and at least 250,000 shares of such stock is owned beneficially and of record by
HRPT Advisors
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free and clear of all Liens as of the date of this Agreement. Other than as
described in the Registration Statement relating to the proposed offering of up
to 13,800,000 common shares of beneficial interest in the Borrower, no
authorized but unissued shares, no treasury shares and, to the best knowledge of
the Borrower, no other outstanding shares of capital stock of the Borrower are
subject to any option, warrant, right of conversion or purchase or any similar
right. Other than as described in the Registration Statement relating to the
proposed offering of up to 13,800,000 common shares of beneficial interest in
the Borrower, there are no agreements or understandings with respect to the
voting, sale or transfer of any shares of capital stock of the Borrower, or to
the best knowledge of the Borrower, any agreement restricting the transfer or
hypothecation of any such shares.
(b) The authorized capital stock of HRPT Advisors consists of 100,000
shares of common stock, $0.01 par value per share, of which 1,000 shares are
issued and outstanding as of the date hereof. All of the outstanding capital
stock of HRPT Advisors has been validly issued, is fully paid and non-assessable
and at least 51% of such stock is owned, in the aggregate, beneficially and of
record by Barry M. Portnoy and/or Gerard M. Martin, free and clear of all Liens
as of the date of this Agreement. No authorized but unissued shares, no
treasury shares and, to the best knowledge of the Borrower, no other outstanding
shares of capital stock of HRPT Advisors are subject to any option, warrant,
right of conversion or purchase or any similar right. There are no agreements
or understandings with respect to the voting, sale or transfer of any shares of
capital stock of HRPT Advisors, or to the best knowledge of the Borrower, any
agreement restricting the transfer or hypothecation of any such shares.
(c) Set forth on Schedule 5.8(c) hereto is a complete and accurate
list showing, as of the date hereof, all Subsidiaries of the Borrower and, as to
each such Subsidiary, the jurisdiction of its incorporation, the number of
shares of each class of Stock authorized, the number outstanding on the date
hereof and the percentage of the outstanding shares of each such class owned
(directly or indirectly) by the Borrower. No Stock of any Subsidiary of the
Borrower is subject to any outstanding option, warrant,
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<PAGE>
right of conversion or purchase or any similar right. All of the outstanding
capital Stock of each such Subsidiary has been validly issued, is fully paid and
non-assessable and is owned by the Borrower, free and clear of all Liens.
Neither the Borrower nor any such Subsidiary is a party to, or has knowledge of,
any agreement restricting the transfer or hypothecation of any shares of Stock
of any such Subsidiary, other than the Loan Documents. As of the date hereof,
the Borrower does not own or hold, directly or indirectly, any capital stock or
equity security of, or any equity interest in, any Person other than such
Subsidiaries.
5.9. ERISA. (a) There are no Multiemployer Plans.
-----
(b) Each Plan and any related trust intended to qualify under Code
Section 401 or 501 has been determined by the IRS to be so qualified and to the
best knowledge of the Borrower nothing has occurred which would cause the loss
of such qualification.
(c) None of the Borrower, any of its Subsidiaries or any ERISA
Affiliate, with respect to any Pension Plan, has failed to make any contribution
or pay any amount due as required by Section 412 of the Code or Section 302 of
ERISA or the terms of any such plan, and all required contributions and benefits
have been paid in accordance with the provisions of each such plan.
(d) There are no pending or, to the knowledge of the Borrower,
threatened claims, actions or proceedings (other than claims for benefits in the
normal course), relating to any Plan other than those that in the aggregate, if
adversely determined, would have no Material Adverse Effect.
(e) No Pension Plan has any unfunded accrued benefit liabilities, as
determined by using reasonable actuarial assumptions utilized by such plan's
actuary for funding purposes. Within the last five years none of the Borrower,
any of its Subsidiaries or any ERISA Affiliate has caused a Pension Plan with
any such liabilities to be transferred outside of its "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA).
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(f) No Plan provides for continuing health, disability, accident or
death benefits or coverage for any participant or his or her beneficiary after
such partici pant's termination of employment (except as may be required by
Section 4980B of the Code and at the sole expense of the participant or the
beneficiary) which would result in the aggregate under all Plans in a liability
in an amount which would have a Material Adverse Effect.
5.10. Liens. There are no Liens of any nature whatsoever on any
-----
Hotel Facilities of the Borrower or any of its Subsidiaries other than those
permitted by Section 8.1. The forms of the Collateral Documents attached hereto
are sufficient to grant to the Lender fully perfected first priority Liens in
and to the Collateral subject only to Permitted Liens.
5.11. [Intentionally Omitted]
5.12. No Burdensome Restrictions; No Defaults; Contractual
----------------------------------------------------
Obligations. (a) Neither the Borrower nor any of its Subsidiaries is in
- -----------
default beyond the expiration of any applicable notice or grace period under or
with respect to any Contractual Obligation owed by it and, to the knowledge of
the Borrower, no other party is in default beyond the expiration of any
applicable notice or grace period under or with respect to any Contractual
Obligation owed to the Borrower or to any of its Subsidiaries, other than those
defaults which in the aggregate have no Material Adverse Effect.
(b) No Event of Default or Default has occurred and is continuing.
(c) There is no Requirement of Law that has not been complied with by
the Borrower, the compliance with which by the Borrower or any of its
Subsidiaries would have a Material Adverse Effect.
(d) No Subsidiary of the Borrower is subject to any Contractual
Obligation restricting or limiting its ability to transfer its assets to the
Borrower or to declare or make any dividend payment or other distribution on
account of any shares of any class of its Stock or its ability to purchase,
redeem, or otherwise acquire for value
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or make any payment in respect of any such shares or any shareholder rights.
5.13. No Investments. Except as permitted by Section 8.6, none of
--------------
the Borrower or any of its Subsidiaries is engaged in any joint venture or
partnership with any other Person or maintains any Investment.
5.14. Government Regulation. Neither the Borrower nor any of its
---------------------
Subsidiaries is an "investment com pany" or an "affiliated person" of, or
"promoter" or "prin cipal underwriter" for, an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended, or subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, or any other federal or state statute or
regulation such that its ability to incur Indebtedness is limited, or its
ability to consummate the transactions contemplated hereby or by any other Loan
Document, or the exercise by the Lender of rights and remedies hereunder or
thereunder, is impaired. The making of the Loans by the Lender, the application
of the proceeds and repayment thereof by the Borrower and the consummation of
the transactions contemplated by the Loan Documents will not violate any
provision of any of the foregoing or any rule, regulation or order issued by the
Securities and Exchange Commission thereunder.
5.15. Insurance. All policies of insurance of any kind or nature
---------
owned by or issued to the Borrower or any of its Subsidiaries, or issued in
respect of any real property owned or leased by the Borrower or any of its
Subsidiaries including, without limitation, policies of life, fire, theft,
product liability, public liability, property damage, other casualty, employee
fidelity, workers' compensation and employee health and welfare insurance, are
in full force and effect and are of a nature and provide such coverage as
(except earthquake coverage) is sufficient and as is customarily carried by
------
companies of the size and character of such Person. None of the Borrower or any
of its Subsidiaries has been refused insurance for which it applied or had any
policy of insurance terminated (other than at its request). Lender confirms and
agrees that the policies of insurance owned by or issued to the Operating Lessee
in respect of any Hotel Facility shall be sufficient
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<PAGE>
for the purposes of this representation provided that the same comply with the
terms of the Operating Lease relating thereto.
5.16. Employees. Neither the Borrower nor any of its Subsidiaries
---------
has any employees and none of them has ever engaged employees.
5.17. Force Majeure. Neither the business nor the properties of the
-------------
Borrower or any of its Subsidiaries are currently suffering from the effects of
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance), other than those which in the
aggregate have no Material Adverse Effect.
5.18. Use of Proceeds. The proceeds of the Loans are being used by
---------------
the Borrower or its Subsidiaries solely to pay the purchase price of Approved
Hotel Facilities and for the payment of related transaction costs, fees and
expenses.
5.19. Environmental Protection. Except as disclosed on Schedule
------------------------
5.19:
(a) all real property leased, owned or operated by the Borrower or any
of its Subsidiaries is free from contamination by any Hazardous Material which
could reasonably be expected to subject the Borrower or any of its Subsidiaries
to Environmental Liabilities and Costs that could in the aggregate have a
Material Adverse Effect;
(b) the operations of the Borrower and each of its Subsidiaries, and
the operations at any real property leased, owned or operated by the Borrower or
any of its Subsidiaries are in material compliance in all respects with all
applicable Environmental Laws;
(c) neither the Borrower nor any of its Subsidiaries have liabilities
with respect to Hazardous Materials, and no facts or circumstances exist which
could give rise to liabilities with respect to Hazardous Materials which could
reasonably be expected to subject the Borrower or any of its Subsidiaries to
Environmental Liabilities and
50
<PAGE>
Costs that could in the aggregate have a Material Adverse Effect;
(d) (i) the Borrower and its Subsidiaries and, to the best knowledge
of the Borrower and its Subsidiaries, the Operators have obtained, currently
maintained and have all Environmental Permits necessary for their operations and
are in material compliance with such Environmental Permits, except to the extent
that the failure to obtain or maintain such Permits or to be in compliance
therewith would not, in the aggregate, have a Material Adverse Effect, (ii)
there are no Legal Proceedings pending nor, to the best knowledge of the
Borrower and its Subsidiaries, threatened to revoke, or alleging the violation
of, such Environmental Permits, other than Legal Proceedings which, if adversely
determined, would not, in the aggregate, have a Material Adverse Effect and
(iii) neither the Borrower nor any of its Subsidiaries or, to the best knowledge
of the Borrower and its Subsidiaries, the Operators have received any notice
from any Governmental Authority to the effect that there is lacking any
Environmental Permit required in connection with the current use or operation of
any property leased, owned or operated by the Borrower or any of its
Subsidiaries;
(e) neither the Borrower's nor any of its Subsidiaries' current
facilities and operations, nor, to the best knowledge of the Borrower and its
Subsidiaries, any Operator or predecessor of the Borrower or any of its
Subsidiaries, nor any of their past facilities and operations, nor any owner of
premises leased or operated by the Borrower and its Subsidiaries, are subject to
any outstanding written Order or Contract, including Environmental Liens, with
any Governmental Authority or other Person, or to any federal, state, local,
foreign or territorial investigation respecting (i) Environmental Laws, (ii)
Remedial Action, (iii) any Environmental Claim, or (iv) the Release or
threatened Release of any Hazardous Material, the compliance with which, in any
case, is reasonably likely to have a Material Adverse Effect;
(f) neither the Borrower, nor any of its Subsidiaries or, to the best
knowledge of the Borrower and its Subsidiaries, any of the Operators are subject
to any pending Legal Proceeding alleging the violation of any Environmental Law
which, if adversely determined is
51
<PAGE>
reasonably likely to have a Material Adverse Effect, nor, to the best knowledge
of the Borrower and its Subsidiaries, are any such proceedings threatened;
(g) neither the Borrower nor any of its Subsidiaries nor, to the best
knowledge of the Borrower and its Subsidiaries, any Operators or predecessor of
the Borrower or any of its Subsidiaries, nor any owner of prem ises leased by
the Borrower or any of its Subsidiaries, have filed any notice under federal,
state or local, territorial or foreign law indicating past or present treatment,
storage, or disposal of or reporting a Release of Hazardous Material into the
environment, in the case of any Operator, with respect to Hotel Facilities only;
(h) none of the operations of the Borrower or any of its Subsidiaries
or, to the best knowledge of the Borrower and its Subsidiaries, of any Operators
or predecessor of the Borrower or any of its Subsidiaries, or of any owner of
premises leased by the Borrower or any of its Subsidiaries, involve or
previously involved the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 (in effect
as of the date of this Agreement) or any state, local, territorial or foreign
equivalent, in the case of any Operator, with respect to Hotel Facilities only;
and
(i) there is not now, nor has there been in the past, on, in or under
any real property leased or owned by the Borrower or any of its Subsidiaries (i)
any underground storage tanks or surface tanks, dikes or impoundments, (ii) any
asbestos-containing materials, (iii) any polychlorinated biphenyls, or (iv) any
radioactive substances, the existence of which, in any case, is reasonably
likely to have a Material Adverse Effect.
5.20. Contractual Obligations Concerning Assets. Except with respect
-----------------------------------------
to the Approved Hotel Facilities and as described in the Letter of Intent
between the Borrower and HMC, as of the date of this Agreement, neither the
Borrower nor any of its Subsidiaries owns or holds, or is obligated under or a
party to, any option, right of first refusal, or other contractual right to
purchase or acquire, or any Contractual Obligation to effect an Asset Sale of,
any asset
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or property owned or leased by the Borrower or any of its Subsidiaries.
5.21. Status as REIT. The Borrower is organized in conformity with
--------------
the requirements for qualification as a real estate investment trust under the
Code. Borrower has met all of the requirements for qualification as a real
estate investment trust under the Code for its fiscal year ended December 31,
1995. The Borrower is in a position to qualify for its current fiscal year as a
real estate investment trust under the Code and its proposed methods of
operation will enable it to so qualify.
5.22. Real Property. (a) The Borrower and its Subsidiaries own
-------------
good, clean and marketable fee simple absolute title to all of the Real Estate
purported to be owned by them in fee simple, which Real Estate is at the date
hereof described in Schedule 5.22(a), and good, clean and marketable title to,
or valid leasehold interests in, all other properties and assets purported to be
owned by the Borrower or any of its Subsidiaries, including, without limitation,
valid leasehold interests pursuant to the Leases and all property reflected in
the latest balance sheet referred to in Section 5.5(a), except for such property
as has been disposed of since that date without violation of any of the
provisions hereof, and none of such properties and assets, including, without
limitation, the Real Estate and the Leases, is subject to any Lien, except Liens
granted to the Lender pursuant to the Loan Documents or permitted hereunder or
thereunder. The Borrower and its Subsidiaries have received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and have duly effected all
recordings, filings and other actions reasonably necessary to establish, protect
and perfect the Borrower's and its Subsidiaries' right, title and interest in
and to all such property.
(b) All real property leased at the date hereof by the Borrower or
any of its Subsidiaries, as lessee, is listed on Schedule 5.22(b), setting forth
information regarding the commencement date, termination date, renewal options
(if any) and annual base rents for each year until the Final Maturity Date, in
each case as in effect on the date hereof. To the best knowledge of the
Borrower, each of
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such leases is valid and enforceable in accordance with its terms and is in full
force and effect. The Borrower has delivered to the Lender true and complete
copies of each of such leases and all documents affecting the rights or
obligations of the Borrower or any of its Subsidiaries which is a party thereto,
including, without limitation, any non-disturbance and recognition agreements,
subordination agree ments, attornment agreements and agreements regarding the
term or rental of any of the leases.
(c) Except as disclosed on Schedule 5.22(c) and those which in the
aggregate have no Material Adverse Effect, (i) all components of all
improvements included within the real property owned or leased by the Borrower
or any of its Subsidiaries (collectively, "Improvements"), including, without
limitation, the roofs and structural elements thereof and the heating,
ventilation, air conditioning, plumbing, electrical, mechanical, sewer, waste
water, storm water, paving and parking equipment, systems and facilities
included therein, are in good working order and repair; (ii) all water, gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the real property owned or
leased by the Borrower or any of its Subsidiaries are installed and operating
and are sufficient to enable the real property owned or leased by the Borrower
and its Subsidiaries to continue to be used and operated in the manner currently
being used and operated, and none of the Borrower or any of its Subsidiaries has
any knowledge of any factor or condition that could result in the termination or
material impairment of the furnishing thereof. No Improvement or portion
thereof is dependent for its access, operation or utility on any land, building
or other Improvement not included in the real property owned or leased by the
Borrower or any of its Subsidiaries.
(d) All Permits required to have been issued or appropriate to enable
all real property owned or leased by the Borrower or any of its Subsidiaries to
be lawfully occupied and used for all of the purposes for which they are
currently occupied and used have been lawfully issued and are in full force and
effect, other than those which in the aggregate have no Material Adverse Effect.
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(e) Neither the Borrower nor, to its knowledge, any Operator has
received any notice, or has any knowledge, of (i) any pending, threatened or
contemplated condemnation proceeding affecting any real property owned or leased
by the Borrower or any of its Subsidiaries or any part thereof, or (ii) any
proposed termination or impairment of any parking at any such owned or leased
real property or (iii) any sale or other disposition of any real property owned
or leased by the Borrower or any of its Subsidiaries or any part thereof in lieu
of condemnation, in each case, other than those which in the aggregate have no
Material Adverse Effect.
(f) No material portion of any real property owned or leased by the
Borrower or any of its Subsidiaries has suffered any material damage by fire or
other casualty loss which has not heretofore been completely repaired and
restored to its original condition or which will not be completely repaired or
restored to its original condition within twelve (12) months from the date
hereof. No portion of any real property, that is not covered by adequate flood
insurance, owned or leased by the Borrower or any of its Subsidiaries is located
in a special flood hazard area as designated by any Federal Governmental
Authorities.
5.23. Operator and Advisor: Compliance with Law.
------------------------------------------
(a) To the best knowledge of the Borrower and its Subsidiaries, each
Operator (i) has full power and authority and the legal right to own, lease (or
sublease), manage and operate (as applicable) the Hotel Facilities it operates
and to conduct the business in which it is currently engaged with respect to any
real property owned or leased by the Borrower or any of its Subsidiaries, (ii)
is duly qualified or licensed and is in good standing under the laws of each
jurisdiction where its ownership, lease (or sublease), management or operation
of any real property owned or leased by the Borrower or any of its Subsidiaries
requires such qualification, and (iii) is in compliance with all Requirements of
Law applicable to the real property owned or leased by the Borrower or any of
its Subsidiaries operated or managed by it, or applicable to the operation or
management thereof, except to the extent that the failure to comply therewith is
not reasonably likely to have, in the aggregate, a Material Adverse Effect.
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(b) To the best knowledge of Borrower and its Subsidiaries, the
Advisor (i) has full power and authority and legal right to conduct the business
in which it is presently engaged and to perform its obligations under the
Advisory Agreement, (ii) is duly qualified or licensed and is in good standing
under the laws of each jurisdiction where the conduct of its business requires
such qualification, and (iii) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith is not reasonably
likely to have, in the aggregate, a Material Adverse Effect.
5.24. Operating Leases, Management Agreement and Advisory Agreement.
-------------------------------------------------------------
Each of the Operating Leases and Management Agreements in respect of the Hotel
Facilities and the Advisory Agreement is in full force and effect and is a
legally valid and binding obligation of the Borrower or its Subsidiaries and the
other parties thereto, subject to such exceptions which are not reasonably
likely to have, in the aggregate, a Material Adverse Effect. Neither the
Borrower nor any of its Subsidiaries has mortgaged, pledged or otherwise
encumbered any of the Operating Leases, Management Agreements or Advisory
Agreements or its rights thereunder including, without limitation, its right to
obtain rental, interest or other payments under the Operating Leases, other than
by way of such mortgages, pledges or encumbrances in favor of the Lender.
Neither the Borrower nor any of its Subsidiaries has collected any rents
becoming due under any Operating Lease more than 30 days in advance. All rent
and other sums and charges payable by any Operating Lessee under each Operating
Lease to which it is a party are current, no notice of default or termination
under any such Operating Lease is outstanding, to the knowledge of the Borrower
no termination event or condition or uncured default on the part of the
Operating Lessee exists under any Operating Lease, and to the knowledge of the
Borrower no event of default has occurred which, with the giving of notice or
the lapse of time or both, would constitute such a default or termination event
or condition or uncured default on the part of the Borrower or its Subsidiaries
or the Operators (as the case may be), subject to such exceptions which are not
reasonably likely to have, in the aggregate, a Material Adverse Effect. As to
all of the Leases, Borrower and each of its Subsidiaries has performed all of
its repair and maintenance obligations (if any) and, to the best knowledge
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and belief of Borrower, each Operating Lessee under each Operating Lease to
which it is a party has performed all of its repair and maintenance obligations,
subject to such exceptions which are not reasonably likely to have, in the
aggregate, a Material Adverse Effect.
5.25. FF&E Reserves. An FF&E Reserve has been established in respect
-------------
of each Initial Hotel and is currently funded as required by the terms of the
Operating Lease and/or the Management Agreement relating thereto. An FF&E
Reserve shall be established in respect of each Approved Hotel Facility from and
after the date of the acquisition thereof, which FF&E Reserve shall be currently
funded as required by the terms of the Operating Lease and/or the Management
Agreement relating thereto
ARTICLE VI
FINANCIAL COVENANTS
As long as any of the Obligations or Commitment remain outstanding,
unless the Lender otherwise consents in writing the Borrower agrees with the
Lender that:
6.1. Limitation on Indebtedness. The Borrower shall maintain during
--------------------------
each Fiscal Quarter on a consolidated basis, a ratio, expressed as a percentage,
of (a) the total Indebtedness for borrowed money (including, without limita
tion, the Obligations and all Capitalized Lease Obligations) of the Borrower and
its Subsidiaries to (b) Total Assets of the Borrower and its Subsidiaries not in
excess of fifty-six percent (56%).
6.2. Limitation on Secured Indebtedness. The Borrower shall maintain
----------------------------------
during each Fiscal Quarter on a consolidated basis a ratio, expressed as a
percentage, of (a) total Secured Indebtedness (including, without limita tion,
Obligations and all Capitalized Lease Obligations) of the Borrower and its
Subsidiaries to (b) Total Assets of the Borrower and its Subsidiaries not in
excess of fifty-six percent (56%).
6.3. Interest Expense Coverage. The Borrower shall maintain at the
-------------------------
end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on
September 30, 1995, a ratio of (a) Total Base Rents for such Fiscal Quarter to
(b) Net Interest Expense for such Fiscal Quarter, of not less than 2:1.
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6.4. Maintenance of Tangible Net Worth. The Borrower shall maintain
---------------------------------
during each Fiscal Quarter a Tangible Net Worth of not less than $200,000,000.
6.5. Maintenance of Loan to Value Ratio. On and after the
----------------------------------
Collateralization Date, the Borrower shall maintain during each Fiscal Quarter
the Loan to Value Requirement.
ARTICLE VII
AFFIRMATIVE COVENANTS
As long as any of the Obligations or the Commitment remain
outstanding, unless the Lender otherwise consents in writing, the Borrower
agrees with the Lender that:
7.1. Compliance with Laws, Etc. The Borrower shall comply, and shall
-------------------------
cause each of its Subsidiaries and, with respect to Hotel Facilities only, each
Operator to comply, in all material respects with all Requirements of Law,
Contractual Obligations, commitments, instruments, licenses, permits and
franchises, including, without limitation, all Permits; provided, however, that
-------- -------
the Borrower shall not be deemed in default of this Section 7.1 if all such non-
compliances in the aggregate have no Material Adverse Effect.
7.2. Conduct of Business. The Borrower shall (a) conduct, and shall
-------------------
cause each of its Subsidiaries to conduct, its business in the ordinary course,
such business being to acquire, own and lease hotels to unaffiliated tenants;
and (b) perform and observe, and cause each of its Subsidiaries to perform and
observe, all the terms, cove nants and conditions required to be performed and
observed by it under its Contractual Obligations (including, without limitation,
to pay all rent and other charges payable under any lease and all debts and
other obligations as the same become due), and do, and cause its Subsidiaries to
do, all things necessary to preserve and to keep unimpaired its rights under
such Contractual Obligations; provided, however, that, in the case of each of
-------- -------
clauses (a) and (b), the Borrower shall not be deemed in default of this Section
7.2
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if all such failures in the aggregate have no Material Adverse Effect.
7.3. Payment of Taxes, Etc. The Borrower shall pay and discharge,
---------------------
and shall cause each of its Subsidiaries to pay and discharge, before the same
shall become delinquent, all lawful governmental claims, taxes, assessments,
charges and levies, except where contested in good faith, by proper proceedings,
if adequate reserves therefor have been established on the books of the Borrower
or the appropriate Subsidiary in conformity with GAAP; provided, however, that
-------- -------
the Borrower shall not be deemed in default of this Section 7.3 if all such
uncontested non-payments in the aggregate have no Material Adverse Effect and,
with respect to any Mortgaged Property, the Borrower and each such Subsidiary
otherwise complies with the provisions of the Mortgage in respect thereof.
7.4. Maintenance of Insurance. The Borrower shall maintain, or shall
------------------------
cause the Operators to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower or such Subsidiary
operates and as otherwise satisfactory to the Lender, in its sole judgment
exercised reasonably, and, in any event, all insurance required by any
Collateral Document. All such insurance shall name the Lender as additional
insured or loss payee, as the Lender shall determine. The Borrower will furnish
to the Lender from time to time such information as may be reasonably requested
as to such insurance. The Lender acknowledges that (i) no earthquake insurance
has been obtained with respect to any Hotel Facilities in California and (ii)
insurance maintained by the Operating Lessee in respect of any Hotel Facility
shall be sufficient for the purposes of this covenant provided that such
insurance complies with the terms of the Operating Lease relating thereto.
7.5. Preservation of Existence, Etc. The Borrower shall preserve and
------------------------------
maintain, and shall cause each of its Subsidiaries to preserve and maintain, its
existence (except as permitted under Section 8.5) and its rights (charter and
statutory) and franchises, except to the extent
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that the failure to preserve and maintain such rights and/or franchises would
not have a Material Adverse Effect.
7.6. Access. The Borrower shall upon reasonable advance notice, at
------
any reasonable time and from time to time, permit the Lender, or any agents or
representatives of the Lender, to (a) examine and make copies of and abstracts
from the records and books of account of the Borrower and each of its
Subsidiaries, (b) visit the properties of the Borrower and each of its
Subsidiaries, (c) discuss the affairs, finances and accounts of the Borrower and
each of its Subsidiaries with any of their respective officers or directors, and
(d) communicate directly with the Borrower's independent certified public
accountants. The Borrower shall authorize its independent certified public
accountants to disclose to the Lender any and all financial statements and other
information of any kind, including, without limitation, copies of any management
letter, or the substance of any oral information that such accountants may have
with respect to the business, financial condition, results of operations or
other affairs of the Borrower or any of its Subsidiaries.
7.7. Keeping of Books. The Borrower shall keep, and shall cause each
----------------
of its Subsidiaries to keep, proper books of record and account, in accordance
with GAAP, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Borrower and each such
Subsidiary.
7.8. Maintenance of Properties, Etc. The Borrower shall maintain and
------------------------------
preserve, and shall cause each of its Subsidiaries and each Operator to maintain
and preserve, (i) all of its Hotel Facilities in good working order and
condition, and (ii) all rights, permits, licenses, approvals and privileges
(including, without limitation, all Permits) which are used or useful or
necessary in the conduct of its business, in the case of an Operator, with
respect to Hotel Facilities only; provided, however, that the Borrower shall not
-----------------
be deemed in default of this Section 7.8 if all such failures in the aggregate
have no Material Adverse Effect.
7.9. Performance and Compliance with Other Covenants. The Borrower
-----------------------------------------------
shall perform and comply with, and
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shall cause each of its Subsidiaries to perform and comply with, each of the
covenants and agreements set forth in any Contractual Obligation to which it or
any of its Subsidiaries is a party; provided, however, that the Borrower shall
-----------------
not be deemed in default of this Section 7.9 if all such failures in the
aggregate have no Material Adverse Effect.
7.10. Application of Proceeds. The Borrower shall use the entire
-----------------------
amount of the proceeds of the Loans as provided in Section 5.18.
7.11. Financial Statements. The Borrower shall furnish to the
--------------------
Lender:
(a) as soon as available and in any event within 45 days after the
end of each Fiscal Quarter of each Fiscal Year (other than the last Fiscal
Quarter of such Fiscal Year), consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such quarter and consolidated statements of
income, retained earnings and cash flow of the Borrower and its Subsidiaries for
the period commencing at the end of the previous Fiscal Year and ending with the
end of such Fiscal Quarter, all prepared in conformity with GAAP and certified
by the chief financial officer of the Borrower as fairly presenting the
financial condition and results of operations of the Borrower and its
Subsidiaries at such date and for such period, subject to normal year-end audit
adjustments, together with (i) a certificate of said officer stating that no
Default or Event of Default has occurred and is continuing or, if a Default or
an Event of Default has occurred and is continuing, a statement as to the nature
thereof and the action which the Borrower proposes to take with respect thereto,
(ii) a schedule in form reasonably satisfactory to the Lender of the
computations used by the Borrower in determining compliance with all financial
covenants contained herein, and (iii) a written discussion and analysis by the
management of the Borrower of the financial statements furnished in respect of
such Fiscal Quarter;
(b) as soon as available and in any event within 90 days after the
end of each Fiscal Year, consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such year and consolidated statements of income,
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retained earnings and cash flow of the Borrower and its Subsidiaries for such
Fiscal Year, all prepared in conformity with GAAP and certified, in the case of
such consolidated financial statements, without qualification as to the scope of
the audit or as to the Borrower being a going concern by Arthur Andersen LLP or
other independent public accountants of recognized national standing, together
with (i) a certificate of such accounting firm stating that in the course of the
regular audit of the business of the Borrower and its Subsidiaries, which audit
was conducted by such accounting firm in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge that a
Default or Event of Default has occurred and is continuing, or, if in the
opinion of such accounting firm, a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof, (ii) a schedule in form
reasonably satisfactory to the Lender of the computations used by such
accountants in determining, as of the end of such Fiscal Year, the Borrower's
compliance with all financial covenants contained herein, and (iii) a written
discussion and analysis by the management of the Borrower of the financial
statements furnished in respect of such Fiscal Year;
(c) as soon as available and in any event within 60 days after the
end of each fiscal quarter of each fiscal year, in each case of any Operating
Lessee (other than the last fiscal quarter of such fiscal year) consolidated
balance sheets and statements of income and cash flow in respect of such
Operating Lessee for such fiscal quarter, all prepared in conformity with GAAP
and certified by the chief financial officer or chief accounting officer (or
such officer's authorized designee) of the Operating Lessee, duly authorized, as
fairly presenting the consolidated financial conditions and results of
operations of such Operating Lessee at such date and for such period, subject to
normal year-end adjustments, together with a certificate of said officer stating
that no Default or Event of Default has occurred and is continuing under the
relevant Operating Lease(s) (said certification, the "Financial Officer's
Certificate");
(d) as soon as available, and in any event within 105 days after the
end of each fiscal year of any Operating Lessee, consolidated balance sheets and
statements of
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income, retained earnings and cash flow in respect of such Operating Lessee for
such fiscal year, all prepared in conformity with GAAP and certified without
qualification as to the scope of the audit by independent public accountants of
recognized national standing, together with a Financial Officer's Certificate;
(e) within thirty (30) days after the end of each Accounting Period
(as defined in the Management Agreement) or if there is no Management Agreement,
within thirty (30) days after the end of each calendar month, an unaudited
operating statement in respect of each Hotel Facility, including occupancy
percentages and average rate, accompanied by a Financial Officer's Certificate;
(f) promptly after the same are received by the Borrower, a copy of
each management letter provided to the Borrower by its independent certified
public accountants which refers in whole or in part to any inadequacy, defect,
problem, qualification or other lack of fully satisfactory accounting controls
utilized by the Borrower or any of its Subsidiaries or any Operating Lessee.
7.12. Reporting Requirements. The Borrower shall furnish to the
----------------------
Lender:
(a) prior to any Asset Sale, a notice (i) describing the assets being
sold and (ii) stating the estimated Asset Sales Proceeds in respect of such
Asset Sale;
(b) as soon as available and in any event within 30 days prior to the
end of each Fiscal Year, an annual budget of the Borrower and its Subsidiaries
for the succeeding Fiscal Year, displaying on a quarterly basis anticipated
balance sheets, forecasted Capital Expenditures, working capital requirements,
rent revenues, contributions by Operating Lessees to any FF&E Reserves, interest
income, net income, cash flow and sales, all on a consolidated basis;
(c) promptly and in any event within 30 days after the Borrower, any
of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any
ERISA Event has occurred, a written statement of the chief financial
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officer or other appropriate officer of the Borrower describing such ERISA Event
or waiver request and the action, if any, which the Borrower, its Subsidiaries
and ERISA Affiliates propose to take with respect thereto and a copy of any
notice filed by or with the PBGC or the IRS pertaining thereto;
(d) promptly and in any event within 10 days after receipt thereof, a
copy of any adverse notice, determination letter, ruling or opinion the
Borrower, any of its Subsidiaries or any ERISA Affiliate receives from the PBGC,
DOL or IRS with respect to any Plan, other than those which, in the aggregate,
do not have any reasonable likelihood of resulting in a Material Adverse Change;
(e) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any domestic or foreign Governmental Authority or
arbitrator, affecting the Borrower, any of its Subsidiaries or any Operator
(subject to the Borrower having received notice or knowledge thereof), except
those which in the aggregate, if adversely determined, would have no Material
Adverse Effect;
(f) promptly and in any event within five (5) Business Days after the
Borrower becomes aware of the existence of (i) any Default or Event of Default,
(ii) any breach or non-performance of, or any default under any Operating Lease,
Management Agreement, Advisory Agreement or any Contractual Obligation which is
material to the business, prospects, operations or financial condition of the
Borrower and its Subsidiaries taken as one enterprise, or (iii) any Material
Adverse Change or any event, development or other circumstance which has
reasonable likelihood of causing or resulting in a Material Adverse Change,
telephonic or telecopied notice in reasonable detail specifying the nature of
such Default, Event of Default, breach, non-performance, default, event,
development or circumstance, including, without limitation, the anticipated
effect thereof, which notice (if by telephone) shall be promptly confirmed in
writing within five days;
(g) promptly after the sending or filing thereof, copies of all
reports which the Borrower sends to its security holders generally, and copies
of all reports and registration statements which the Borrower or any of its
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Subsidiaries files with the Securities and Exchange Commission or any national
securities exchange or the National Association of Securities Dealers, Inc.;
(h) upon the request of the Lender copies of all federal, state and
local tax returns and reports filed by the Borrower or any of its Subsidiaries
in respect of taxes measured by income (excluding sales, use and like taxes);
(i) promptly and in any event within five days of the Borrower or any
Subsidiary learning of any of the fol lowing, written notice to the Lender of
any of the following:
(i) the Release or threatened Release of any Hazardous Material on or
from any property owned, operated or leased by the Borrower of any of its
Subsidiaries and any written order, notice, permit, application or other
written communication or report received by the Borrower, any of its
Subsidiaries or any Operator in connection with or relating to any such
Release or threatened Release, unless such Release or threatened Release is
not reasonably likely to have a Material Adverse Effect;
(ii) any notice or claim to the effect that the Borrower, any of its
Subsidiaries or any Operator is or may be liable to any Person as a result
of the Release or threatened Release of any Hazardous Material into the
environment that could reasonably be expected to have a Material Adverse
Effect;
(iii) receipt by the Borrower, any of its Subsidiaries or any
Operator of notification that any real or personal property of the Borrower
or any of its Subsidiaries is subject to an Environmental Lien that could
reasonably be expected to have a Material Adverse Effect;
(iv) any Remedial Action taken by the Borrower, any of its
Subsidiaries or (if known to the Borrower) any Operator or any other Person
in response to any Hazardous Material on, under or about any real property
owned, operated or leased by the Borrower or any of its Subsidiaries,
unless such Remedial Action is
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not reasonably likely to have a Material
Adverse Effect;
(v) receipt by the Borrower, any of its Subsidiaries or any Operator
of any notice of violation of, or knowledge by the Borrower, any of its
Subsidiaries or any Operator that there exists a condition which may result
in a violation by the Borrower, any of its Subsidiaries or any Operator of,
any Environmental Law, unless such violation is not reasonably likely to
have a Material Adverse Effect;
(vii) the commencement of any judicial or administrative proceeding
or investigation alleging a violation of any Environmental Law; or
(viii) any proposed acquisition of stock, assets or real property, or
any proposed leasing of property by the Borrower or any of its
Subsidiaries, unless such action is not reasonably likely to have a
Material Adverse Effect;
(j) upon written request by the Lender, a report providing an update
of the status of any Environmental Claim, Remedial Action or any other issue
identified in any notice or report required pursuant to this Section 7.12;
(k) promptly, such additional financial and other information
respecting the financial or other condition of any Operators, the Advisor or the
Borrower or any of its Subsidiaries or the status or condition of any real
property owned or leased by the Borrower or its Subsidiaries, or the operation
thereof which the Borrower is entitled to or can otherwise reasonably obtain, as
the Lender from time to time reasonably request; and
(l) such other information respecting the business, properties,
condition, financial or otherwise, or operations of the Borrower, any of its
Subsidiaries or any Operators as the Lender may from time to time reasonably
request.
7.13. Leases and Operating Leases. The Borrower shall provide the
---------------------------
Lender with a copy of each lease of real property to which the Borrower or any
Subsidiary of the
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Borrower is then a party, whether as lessor or lessee. The Borrower shall, and
shall cause each of its Subsidiaries to, (i) comply in all material respects
with all of their respective obligations under all of their respective Leases
and Operating Leases now or hereafter held respectively by them with respect to
real property, including, without limitation, the Leases set forth in Schedule
5.22(b); (ii) not modify, amend, cancel, extend or otherwise change in any
materially adverse manner any of the terms, covenants or conditions of any such
Leases or Operating Leases; (iii) provide the Lender with a copy of each notice
of default under any Lease or Operating Leases received by the Borrower or any
Subsidiary of the Borrower immediately upon receipt thereof and deliver to the
Lender a copy of each notice of default sent by the Borrower or any Subsidiary
of the Borrower under any Operating Lease or Lease simultaneously with its
delivery of such notice under such Operating Lease or Lease; (iv) notify the
Lender, not later than 30 days prior to the date of the expiration of the term
of any Lease, of the Borrower's or any Subsidiary of the Borrower's intention
either to renew or to not renew any such Lease, and, if the Borrower or any
Subsidiary of the Borrower intends to renew such Lease, the terms and conditions
of such renewal; and (v) maintain each Operating Lease in full force and effect
in all material respects and enforce the material obligations of the Operating
Lessee thereunder, in a timely manner.
7.14. [Intentionally Omitted].
7.15. Employee Plans. For each Plan and any related trust hereafter
--------------
adopted or maintained by a Loan Party or any of its ERISA Affiliates intended to
qualify under Code Section 125, 401 or 501, the Borrower shall (i) seek, and
cause such of its ERISA Affiliates to seek, and receive determination letters
from the IRS to the effect that such plan is so qualified; and (ii) cause such
plan to be so qualified.
7.16. [Intentionally Omitted].
7.17. Fiscal Year. The Borrower shall maintain as its Fiscal Year
-----------
the twelve month period ending on December 31 of each year.
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7.18. Environmental Matters. (a) The Borrower shall comply and
---------------------
shall cause each of its Subsidiaries and, with respect to Hotel Facilities only,
each Operator to comply in all material respects with all applicable
Environmental Laws currently or hereafter in effect.
(b) If the Lender at any time has a reasonable basis to believe that
there may be a material violation of any Environmental Law by Borrower any of
its Subsidiaries or any Operator related to any Hotel Facility, or real property
adjacent thereto, then Borrower agrees, upon request from the Lender, to provide
the Lender, at Borrower's expense, with such reports, certificates, engineering
studies or other written material or data as the Lender may reasonably require
so as to reasonably satisfy the Lender that Borrower or such Subsidiary or
Operator is in material compliance with all applicable Environmental Laws.
Furthermore, the Lender shall have the right upon prior notice (except in the
case of an emergency) to inspect during normal business hours any real property
owned, operated or leased by Borrower or any of its Subsidiaries if at any time
the Lender has a reasonable basis to believe that there may be such a material
violation of Environmental Law.
(c) The Borrower shall, and shall cause each of its Subsidiaries and,
with respect to Hotel Facilities only, each Operator to, take such Remedial
Action or other action as required by Environmental Laws, as any Governmental
Authority requires, except to the extent contested in good faith and by proper
proceedings, or as is appropriate and consistent with good business practice.
7.19. [Intentionally Omitted].
7.20. REIT Requirements. The Borrower shall operate its business at
-----------------
all times so as to satisfy all requirements necessary to qualify as a real
estate investment trust under Section 856 through 860 of the Code. The Borrower
will maintain adequate records so as to comply with all record-keeping
requirements relating to the qualification of the Borrower as a real estate
investment trust as required by the Code and applicable regulations of the
Department of the Treasury promulgated thereunder and will properly prepare and
timely file with the IRS all returns and reports required thereby. The Borrower
will
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request from its shareholders all shareholder information required by the
Code and applicable regulations of the Department of Treasury promulgated
thereunder.
7.21. Maintenance of FF&E Reserves. The Borrower shall cause the
----------------------------
Operator to maintain FF&E Reserves in respect of each Hotel Facility, pursuant
to the terms of the Operating Lease and/or Management Agreement relating thereto
and shall direct the Operator to deliver to the Lender simultaneously with
delivery to the Borrower or its Subsidiaries, copies of any reports, statements
or other information required to be supplied to the Borrower or its Subsidiary
under any Operating Lease or Management Agreement for any Hotel Facility. The
Borrower shall not commingle, or permit the commingling of, other funds with the
funds in the FF&E Reserves except to the extent permitted by the Management
Agreement or Operating Lease, as applicable.
7.22. Further Assurances. At any time upon the request of the
------------------
Lender, the Borrower will, promptly and at its expense, execute, acknowledge and
deliver such further documents and do such other acts and things as the Lender
may reasonably request to provide for payment of the Loans made hereunder and
interest thereon in accordance with the terms of this Agreement.
7.23 Amendment to Management Agreement. The Borrower shall use all
---------------------------------
reasonable efforts to procure the following within three months of the date
hereof: (i) an amendment to the definition of "Qualified Loan" in any existing
Management Agreement and to any other applicable provisions of any existing
Management Agreement including, without limitation, Section 6.09 thereof, to the
effect that all and any Loans made pursuant to or outstanding under this
Agreement on and after the Collateralization Date, shall comply with the
requirements of such definition and that in the context of cross
collateralization of the Hotel Facilities that are Courtyard by Marriott Hotels,
the test for Qualified Loans shall be applied on a consolidated basis for all
such Hotel Facilities to be mortgaged as collateral for the Loans hereunder, and
(ii) a written and binding agreement from the Management Company that,
notwithstanding any provision to the contrary set forth in any Assignment
Agreement, if this Agreement shall be amended, modified or
supplemented without the prior written consent of the
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Management Company, provided that all Loans made by the Lender hereunder comply
with the requirements for Qualified Loans, as the same are set forth in the
Management Agreement and may be amended pursuant to subparagraph (i) above, such
amendment, modification or supplement shall not disqualify the Loans from being
Qualified Loans and Lender shall remain entitled to the benefits of the
provisions of any existing Assignment Agreements and to the provisions of the
Management Agreement intended for the benefit of a Qualified Lender as such term
is defined in the Management Agreement.
ARTICLE VIII
NEGATIVE COVENANTS
As long as any of the Obligations or Commitment remain outstanding,
without the written consent of the Lender, the Borrower agrees with the Lender
that:
8.1. Liens, Etc. The Borrower shall not create or suffer to exist,
----------
and shall not permit any of its Subsidiaries to create or suffer to exist, any
Lien upon or with respect to any of its or such Subsidiary's properties, whether
now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to
assign, any right to receive income therefrom, except for the following and the
Lender hereby consents to the following liens notwithstanding the provisions of
any Negative Pledge Agreement:
(a) Liens created pursuant to the Loan Documents;
(b) Liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar Persons
incurred by the Borrower or any of its Subsidiaries in the ordinary course
of business which secure its obligations to such Person; provided, however,
-----------------
that (i) the Borrower or such Subsidiary is not in default with respect to
such payment obligation to such Person, (ii) the Borrower or such
Subsidiary is in good faith and by appropriate proceedings diligently
contesting such obligation and adequate provision is made for the payment
thereof, or
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(iii) all such failures in the aggregate have no Material Adverse Effect;
(c) Liens (excluding Environmental Liens) securing taxes, assessments
or governmental charges or levies; provided, however, that (i) neither the
-----------------
Borrower nor any of its Subsidiaries is in default in respect of any
payment obligation with respect thereto unless the Borrower or such
Subsidiary is in good faith and by appropriate proceedings diligently
contesting such obligation and adequate provision is made for the payment
thereof, and (ii) all such failures in the aggregate have no Material
Adverse Effect;
(d) Zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities incident
thereto which do not in the aggregate materially detract from the value or
use of the property or assets of the Borrower or any of its Subsidiaries or
impair, in any material manner, the use of such property for the purposes
for which such property is held by the Borrower or any such Subsidiary;
(e) Liens in favor of landlords securing operating leases permitted by
Section 8.3;
(f) Liens existing on the date of this Agreement and disclosed on
Schedule 8.1;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(h) Any attachment or judgment Lien not constituting an Event of
Default under Section 9.1(f);
(i) Any (i) interest or title of a lessor or sublessor under any
Capitalized Lease or any operating
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lease not prohibited by this Agreement, (ii) restriction or encumbrance
that the interest or title of such lessor or sublessor may be subject to,
or (iii) subordination of the interest of the lessee or sublessee under
such lease to any restriction or encumbrance referred to in the preceding
clause (ii);
(j) Liens arising from filing UCC financing statements relating solely
to leases permitted by this Agreement;
(k) Deposits in the ordinary course of business to secure liabilities
to insurance carriers, lessors, utilities and other service providers;
(l) Purchase money security interests (including mortgages,
conditional sales, Capitalized Leases and any other title retention or
deferred purchase devices) in personal property of the Borrower or any of
its Subsidiaries in an amount not exceeding $200,000 in respect of each
Hotel Facility, existing or created at the time of acquisition thereof or
within 60 days thereafter.
(m) Any Lien securing the renewal, extension or refunding of any
Indebtedness or other Obligation secured by any Lien permitted by this
Section 8.1 provided that such renewal, extension or refunding is otherwise
permitted by this Agreement and the amount of such Indebtedness or other
Obligation secured by such Lien and the assets subject to such Lien are not
increased.
(n) Any Lien securing Indebtedness permitted pursuant to Section
8.2(v) and 8.2(vi).
8.2. Indebtedness. (a) The Borrower shall not create, incur or
------------
suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to
exist, any Indebtedness, or incur, assume, endorse, be or become liable for, or
guarantee, directly or indirectly, or permit or suffer to exist, any Contingent
Obligation, except:
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(i) Indebtedness and Contingent Obligations in respect of the
Obligations or evidenced by a Loan Document;
(ii) current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or
services purchased, in the ordinary course of business consistent with the
past practice of the Borrower and its Subsidiaries;
(iii) Indebtedness of the Borrower consisting of fees and expenses
referred to in Section 4.1(n) and 4.2(f);
(iv) Indebtedness of the Borrower or any of its Subsidiaries under
Capital Financing Indebtedness in respect of each Hotel Facility in an
aggregate amount for such Hotel Facility not exceeding $200,000.00 at any
one time outstanding; and
(v) Indebtedness of the Borrower or any of its Subsidiaries
comprising pre-existing Indebtedness secured by Real Estate and any
personal property located thereon, which the Borrower or any of its
Subsidiaries assumes in connection with the acquisition of such Real
Estate, in an aggregate amount not exceeding $25,000,000.
(vi) Indebtedness of the Borrower or any of its Subsidiaries arising
pursuant to the Existing Facility.
(b) The Borrower shall not cancel, or permit any of its Subsidiaries
to cancel, any claim or Indebtedness owed to it except for adequate
consideration and in the ordinary course of business.
8.3. Lease Obligations. The Borrower shall not, and shall not permit
-----------------
any of its Subsidiaries to, become or remain liable as lessee or guarantor or
other surety with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed), whether
now owned or hereafter acquired, which (i) the Borrower or any of its
Subsidiaries has sold or
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transferred or is to sell or transfer to any other Person, or (ii) the Borrower
or any of its Subsidiaries intends to use for substantially the same purposes as
any other property which has been or is to be sold or transferred by that entity
to any other Person in connection with such lease.
8.4. [Intentionally Omitted].
8.5. Mergers, Stock Issuances, Asset Sales, Etc. (a) The Borrower
------------------------------------------
shall not sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets or properties, and shall not, and shall not
permit any of its Subsidiaries to, (i) merge with any Person, or (ii)
consolidate with any Person other than (A) the merger of a Subsidiary of the
Borrower into a wholly-owned Subsidiary of the Borrower that is a Loan Party, or
(B) the merger of a wholly-owned Subsidiary of the Borrower into the Borrower.
(b) The Borrower shall not transfer, or permit any of its
Subsidiaries to issue or transfer, any Stock or Stock Equivalents of any
Subsidiary other than any such issuance or transfer (i) by a Subsidiary of the
Borrower to a wholly-owned Subsidiary of the Borrower that is a Loan Party or
(ii) by a wholly-owned Subsidiary of the Borrower to the Borrower.
(c) The Borrower shall not and shall not permit any of its
Subsidiaries to effect, enter into, consummate or suffer to exist any Asset Sale
(other than an Asset Sale with respect to Mortgaged Properties as to which
subsection (d) below shall apply) without the prior written consent of the
Lender, such consent not to be unreasonably withheld or delayed.
(d) The Borrower shall not and shall not permit any of its
Subsidiaries to effect, enter into, consummate or suffer to exist any Asset Sale
with respect to any Mortgaged Property without (y) the prior written consent of
the Lender, such consent not to be unreasonably withheld or delayed, and (z)
prepayment of the Loans pursuant to Section 2.6(c).
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In the event that an Asset Sale of a Mortgaged Property is entered
into in violation of any of the provisions of this Section 8.5(d), in addition
to the other rights and remedies of the Lender hereunder, the Borrower shall
forthwith prepay the Loans upon receipt by the Borrower of its Subsidiaries of
the Asset Sale Proceeds relating thereto, in an amount equal to such Asset Sale
Proceeds, together with accrued interest to the date of such prepayment on the
principal amount prepaid.
8.6. Investments. The Borrower shall not, directly or indirectly,
-----------
make or maintain, or permit any of its Subsidiaries to make or maintain, any
loan or advance to any Person or own, purchase or otherwise acquire, or permit
any of its Subsidiaries to own, purchase or otherwise acquire, any Stock, Stock
Equivalents, other equity interest, obligations or other securities of, or all
or substantially all of the assets of, any Person or all or substantially all of
the assets constituting the business of a division, branch or other unit
operation of any Person, or enter into any joint venture or partnership with, or
make or maintain, or permit any of its Subsidiaries to make or maintain, any
capital contribution to, or otherwise invest in, any Person or incorporate or
organize any Subsidiary which was not in existence on the Closing Date (any such
transaction being an "Investment"), except Investments consisting of (a) the
Stock of wholly-owned Subsidiaries of the Borrower, (b) cash equivalent
securities in the ordinary course of business or (c) the purchase of the
Approved Hotel Facilities.
8.7. Change in Nature of Business or Organizational Documents(a) The
--------------------------------------------------------
Borrower shall not make, and shall not permit any of its Subsidiaries to make,
any material change in the nature or conduct of its business as carried on at
the date hereof.
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, amend its declaration of trust, certificate of incorporation or
by-laws other than for amendments which in the aggregate have no Material
Adverse Effect.
8.8. Modification of Material Agreements. The Borrower shall not,
-----------------------------------
and shall not permit any of its
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Subsidiaries to, (i) alter, rescind, terminate, amend, supplement, waive or
otherwise modify any provision of or permit any breach or default to exist under
the Advisory Agreement without the prior written consent of the Lender; or (ii)
alter, amend, modify, rescind, terminate, supplement or waive any of their
respective rights under, or fail to comply in all material respects with, any of
its material obligations arising under any Operating Lease or Management
Agreement; provided, however, that, with respect to any such failure to comply
-----------------
with any such obligations, the Borrower shall not be deemed in default of this
Section 8.8 if all such failures in the aggregate would have no Material Adverse
Effect; and provided, further, that in the event of any material breach or event
-----------------
of default by a Person other than the Borrower or any of its Subsidiaries, the
Borrower shall promptly notify the Lender of any such breach or event of default
and take all such action as may be reasonably necessary in order to endeavor to
avoid having such breach or event of default have a Material Adverse Effect.
8.9. Accounting Changes. The Borrower shall not make, nor permit any
------------------
of its Subsidiaries to make, any change in accounting treatment and reporting
practices or tax reporting treatment, except as required by GAAP or law and
disclosed to the Lender.
8.10. Transactions with Affiliates. The Borrower shall not, and
----------------------------
shall not permit any of its Subsidiaries, to enter into any transaction directly
or indirectly with or for the benefit of any Affiliate of the Borrower
(including, without limitation, employment contracts or contracts involving the
payment of management or consulting fees, guaranties and assumptions of
obligations of any such Affiliate) except for (A) transactions in the ordinary
course of business on a basis no less favorable to the Borrower or such
Subsidiary as would be obtained in a comparable arm's length transaction with a
Person not an Affiliate, and (B) salaries and other employee compensation and
benefits to officers or directors of the Borrower or any of its Subsidiaries
commensurate with current compensation and benefit levels.
8.11. Environmental Matters. (a) The Borrower shall not, and shall
---------------------
not permit any of its Subsidiaries or any Operator, or, to the extent
practicable, any other
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Person to dispose of any Hazardous Material by placing it in or on the ground or
waters of any property owned, operated or leased by the Borrower or any of its
Subsidiaries, except as in compliance with all applicable Environmental Laws
currently and hereinafter in effect; provided, however, that the Borrower shall
-----------------
not be deemed in default of this provision if all such disposals in the
aggregate would have no Material Adverse Effect.
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries or any Operator, or, to the extent practicable, any other Person
to, dispose or to arrange for the disposal of any Hazardous Material on any
property owned, operated or leased by any other Person, except as in compliance
with all applicable Environmental Laws currently and hereinafter in effect;
provided, however, that the Borrower shall not be deemed in default of this
- -------- -------
provision if all such disposals in the aggregate would have no Material Adverse
Effect.
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default. Each of the following events shall be an
-----------------
Event of Default:
(a) The Borrower shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal) of, or interest on, any
Loan, any fee, any other amount due hereunder or under the other Loan
Documents or other of the Obligations when the same becomes due and
payable; or
(b) Any representation or warranty made or deemed made by any Loan
Party in any Loan Document or by any Loan Party (or any of its officers) in
writing in connection with any Loan Document shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) Any Loan Party shall fail to perform or observe (i) any term,
covenant or agreement contained in Articles VI or VIII or in any Collateral
Document,
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or (ii) any other term, covenant or agreement contained in this Agreement
or in any other Loan Document if such failure under this clause (ii) shall
remain unremedied for fifteen (15) days after the date on which written
notice thereof shall have been given to the Borrower by the Lender; or
(d) Any Loan Party or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Indebtedness of such Loan Party
or Subsidiary (excluding Indebtedness evidenced by the Note) beyond the
period of grace (not to exceed 30 days), if any, with respect thereto
(whether the same becomes due and payable by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or any other event shall
occur or condition shall exist under any agreement or instrument relating
to any such Indebtedness, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall become or be declared to be
due and payable, or any Loan Party or any of its Subsidiaries shall be
required to repurchase or offer to repurchase such Indebtedness, prior to
the stated maturity thereof; or
(e) Any Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be instituted by or against
any Loan Party or any of its Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a custodian, receiver, trustee or other similar official for
it or for any substantial part of its property and, in the case of any such
proceedings instituted against any Loan Party or any of its Subsidiaries
(but not instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of sixty (60) days or any of the
actions sought in such proceedings shall occur; or any
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Loan Party or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount in excess of $100,000 to the extent not fully covered by
insurance shall be rendered against any Loan Party or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order, or (ii) there shall
be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(g) An ERISA Event shall occur which, in the reasonable determination
of the Lender, is reasonably likely to have a Material Adverse Effect; or
(h) The Borrower or any of its Subsidiaries shall have entered into
any consent or settlement decree or agreement or similar arrangement with
an Governmental Authority or any judgment, order, decree or similar action
shall have been entered against the Borrower or any of its Subsidiaries or
any Operator, in any case based on or arising from the violation of or
pursuant to any Environmental Law, or the generation, storage,
transportation, treatment, disposal or Release of any Hazardous Material
and such judgment, order, decree or similar action is reasonably likely to
have a Material Adverse Effect; or
(i) Any material provision of any Collateral Document after delivery
thereof under Article IV shall for any reason cease to be valid and binding
on any Loan Party thereto, or any Loan Party shall so state in writing; or
(j) Any Collateral Document after delivery thereof pursuant to Article
IV shall, for any reason, cease to create a valid Lien on any of the
Collateral purported to be covered thereby or such Lien shall cease to be a
perfected and first priority Lien, or any Loan Party shall so state in
writing; or
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(k) There shall occur a Material Adverse Change or an event which is
reasonable likely to have a Material Adverse Effect; or
(l) The Lender shall have determined in good faith, and shall have so
given notice to the Borrower, that the Borrower has at any time ceased to
be in a position to qualify, or has not qualified, as a real estate
investment trust for any of the purposes of the provisions of the Code
applicable to real estate investment trusts; provided that no Event of
Default under this subsection shall be deemed to have occurred and be
continuing if, within 10 days after notice of any such determination is
given to the Borrower, the Borrower shall have furnished the Lender with an
opinion of the Borrower's tax counsel (who shall be reasonably satisfactory
to the Lender) to the effect that the Borrower is then in a position to so
qualify, or has so qualified, as the case may be, which opinion shall not
contain any material qualification unsatisfactory to the Lender; or
(m) HRPT Advisors shall cease at any time to (A) hold beneficially and
of record at least 250,000 of the issued and outstanding common shares and
each other class of equity securities of the Borrower (adjusted for any
division, reclassification or stock dividend in respect of Common Shares),
or (B) hold the power to direct or cause the direction of the management
and policies of the Borrower; or
(n) Barry M. Portnoy and Gerard M. Martin shall cease at any time to
(A) hold beneficially and of record, in the aggregate, at least 51% of the
issued and outstanding common shares and each other class of equity
securities of HRPT Advisors (adjusted for any division, reclassification or
stock dividend in respect of Common Shares), or (B) hold the power to
direct or cause the direction of the management and policies of HRPT
Advisors; or
(o) HRPT Advisors shall cease to be the sole Advisor to Borrower
pursuant to and in accordance with the Advisory Agreement, without the
Lender's prior written consent or the Advisory Agreement shall be
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materially amended, supplemented or modified without the Lender's prior
written consent; or
(p) Advisor shall default in the observance or performance of any
material provision of the Subordination Agreement; or
(q) Any Manager shall default in the observance or performance of any
material provision of a Management Agreement and such defaults, in the
aggregate, are reasonably likely to have a Material Adverse Effect; or
(r) Any Operating Lessee shall default in the observance or
performance of any material provision of an Operating Lease and such
defaults, in the aggregate, are reasonably likely to have a Material
Adverse Effect.
9.2. Remedies. If there shall occur and be continuing any Event of
--------
Default, the Lender (i) may by notice to the Borrower, declare the obligation of
the Lender to make Loans to be terminated, whereupon the same shall forthwith
terminate, and (ii) may by notice to the Borrower, declare the Loans, all
interest thereon and all other amounts and Obligations payable under this
Agreement to be forthwith due and payable, whereupon the Note, all such interest
and all such amounts and Obligations (to the extent permitted by applicable
law), shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that upon the occurrence of the Event
-----------------
of Default specified in subparagraph (e) above, (A) the obligation of the Lender
to make Loans shall automatically be terminated and (B) the Loans, all such
interest and all such amounts and Obligations shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower. In addition to the
remedies set forth above, the Lender may exercise any remedies provided for by
the Collateral Documents in accordance with the terms thereof or any other
remedies provided by applicable law.
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ARTICLE X
MISCELLANEOUS
10.1. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement nor consent to any departure by the Borrower therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10.2. Notices, Etc. All notices and other communications provided
------------
for hereunder shall be in writing (including, without limitation, telegraphic,
telex, telecopy or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand.
If to the Borrower, at its address at:
400 Centre Street,
Newton, Massachusetts 02158
Attention: Mr. John G. Murray
(telecopy number: 617-332-2261)
(telephone number: 617-964-8389);
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Alexander A. Notopoulos, Esq.
(telecopy number: 617-338-2800)
(telephone number: 617-338-2880).
If to the Lender, at its address at
140 Broadway,
New York, New York 10005-1285
Attention: James W. Roiter, Managing Director
(telecopy number: 212-504-4096)
(telephone number: 212-504-4900)
82
<PAGE>
with a copy to:
Weil Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: J. Philip Rosen, Esq.
(telecopy number: 212-310-8007)
(telephone number: 212-310-8000)
or, as to the Borrower or the Lender, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall, when mailed, telegraphed, telexed, telecopied,
cabled or delivered, be effective three (3) Business Days after being deposited
in the mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the cable company or
delivered by hand to the addressee, respectively, except that notices and
communications to the Lender pursuant to Article II shall not be effective until
received by the Lender.
10.3. No Waiver; Remedies. No failure on the part of the Lender to
-------------------
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
10.4. Costs; Expenses; Indemnities. (a) The Borrower agrees to pay
----------------------------
to the Lender or as the Lender may direct, on demand, all costs and expenses of
the Lender (including, without limitation, the fees and out-of-pocket expenses
of counsel, retained by the Lender) in connection with the modification,
amendment or enforcement (whether through negotiation, legal proceedings or
otherwise) of this Agreement and the other Loan Documents.
(b) The Borrower agrees to indemnify and hold harmless the Lender and
its Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (including, without
limitation, those retained in connection with the satisfaction or attempted
satisfaction of any of the
83
<PAGE>
conditions set forth in Article IV) (each of the foregoing being an
"Indemnitee") from and against any and all claims, damages, liabilities,
obligations, losses, penalties, actions, judgments, suits, costs, disbursements
and expenses of any kind or nature (including, without limitation, fees and
disbursements of counsel to any such Indemnitee and experts, engineers and
consultants and the costs of investigation and feasibility studies) which may be
imposed on, incurred by or asserted against any such Indemnitee in connection
with or arising out of any investigation, litigation or proceeding, whether or
not any such Indemnitee is a party thereto, whether direct, indirect, or
consequential and whether based on any federal, state or local law or other
statutory regulation, securities or commercial law or regulation, or under
common law or in equity, or on contract, tort or otherwise, in any manner
relating to or arising out of or based upon or attributable to this Agreement,
any other Loan Document, any document delivered hereunder or thereunder, any
Obligation, or any act, event or transaction related or attendant to any
thereof, including, without limitation, (i) arising from any misrepresentation
or breach of warranty under Section 5.19 or any Environmental Claim or any
Environmental Lien or any Remedial Action arising out of or based upon anything
relating to real property owned, leased or operated by the Borrower or any of
its Subsidiaries and the facilities or operations (collectively, the
"Indemnified Matters"); provided, however, that the Borrower shall not have any
obligation under this Section 10.4(b) to an Indemnitee with respect to any
Indemnified Matter caused by or resulting from the gross negligence or willful
misconduct of that Indemnitee, as determined by a court of competent jurisdic
tion in a final non-appealable judgment or order.
(c) If the Lender receives any payment of principal of any Loan other
than on the last day of an Interest Period relating to such Loan, as a result of
any payment made by the Borrower or acceleration of the maturity of the Note
pursuant to Section 9.2 or for any other reason, the Borrower shall, upon demand
by the Lender, pay to the Lender all amounts required to compensate the Lender
for any additional losses, costs or expenses which it may reasonably incur as a
result of such payment, including, without limitation, any loss (including,
without limitation, loss of anticipated profits), cost or expense incurred by
reason of
<PAGE>
the liquidation or reemployment of deposits or other funds acquired by the
Lender to fund or maintain such Loan.
(d) The Borrower shall indemnify the Lender for, and hold the Lender
harmless from and against, any and all claims for brokerage commissions, fees
and other compensation made against the Lender for any broker, finder or
consultant with respect to any agreement, arrangement or understanding made by
or on behalf of any Loan Party or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement.
(e) The Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section 10.4) or any other Loan Document shall (i)
survive payment of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.
(f) The provisions of this Section 10.4 shall survive any termination
of this Agreement.
10.5. Right of Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
to or for the credit or the account of the Borrower against any and all of the
Obligations now or hereafter existing whether or not the Lender shall have made
any demand under this Agreement or any Note or any other Loan Document and
although such Obligations may be unmatured. The Lender agrees promptly to
notify the Borrower after any such set-off and application made by the Lender;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such set-off and application. The rights of the Lender under this
Section are in addition to the other rights and remedies (including, without
limitation, other rights of set-off) which the Lender may have.
10.6. Binding Effect. This Agreement shall become effective when it
--------------
shall have been executed by the
85
<PAGE>
Borrower and the Lender and thereafter shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lender.
10.7. Assignments and Participations. (a) The Lender may sell,
------------------------------
transfer, negotiate or assign to one or more other financial institutions all or
a portion of its Commitment, the Loans owing to it and an interest in the Note
held by it and a commensurate portion of its rights and obligations hereunder
and under the other Loan Documents subject to the proviso to subparagraph (c)
below.
(b) The Lender may sell participations to one or more banks or other
Persons in or to all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of the Commitment,
the Loans owing to it and the Note held by it). In the event of the sale of any
participation by the Lender, (i) the Lender's obligations under the Loan
Documents (including, without limitation, the Commitment) shall remain
unchanged, (ii) the Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the Lender shall remain
the holder of such Note and Obligations for all purposes of this Agreement, and
(iv) the Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this Agreement.
(c) Each participant shall be entitled to the benefits of Sections
2.10, 2.12 and 2.14 as if it were a Lender; provided, however, that anything
-------- -------
herein to the contrary notwithstanding, the Borrower shall not, at any time, be
obligated to pay to any participant of any interest of the Lender, under Section
2.10, 2.12 or 2.14, any sum in excess of the sum which the Borrower would have
been obligated to pay Lender in respect of such interest had such assignment not
been effected or had such participation not been sold.
(d) The Borrower shall cooperate with Lender, at no cost or expense
to the Borrower, and any other party to whom the Lender may assign or sell
participations (or
86
<PAGE>
negotiate for such assignment or sale) in all or a portion of the Commitment,
the Loans owing to it and an interest in the Note. Such cooperation of the part
of the Borrower shall include but shall not be limited to the execution and
delivery of (i) amendments, modifications and/or supplements to one or more Loan
Documents, in form and substance as may be required by Lender, and (ii) the
execution and delivery of one or more additional promissory notes, at no cost or
expense to the Borrower; provided however, that such promissory notes,
----------------
amendments, modifications and/or supplements do not materially increase the
obligations of the Borrower or materially diminish the rights of the Borrower
under the Loan Documents.
10.8. Governing Law; Severability. This Agreement and the Note and
---------------------------
the rights and obligations of the parties hereto and thereto shall be governed
by, and construed and interpreted in accordance with, the law of the State of
New York. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
10.9. Submission to Jurisdiction; Service of Process. (a) Any legal
----------------------------------------------
action or proceeding with respect to this Agreement or the Note or any document
related thereto may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The parties hereto hereby irrevocably waive any
objection, including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens, which any of them may now or
--------------------
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(b) The Borrower irrevocably consents to the service of process of
any of the aforesaid courts in any such action or proceeding by the mailing of
copies thereof
87
<PAGE>
by registered or certified mail, postage prepaid, to the borrower at its address
provided herein.
(c) Nothing contained in this Section 10.9 shall affect the right of
the Lender or any holder of the Note to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against the
Borrower in any other jurisdiction.
10.10. Section Titles. The Section titles contained in this
--------------
Agreement are and shall be without sub stantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
10.11. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by differ ent parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
10.12. Entire Agreement. This Agreement, together with all of the
----------------
other Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
10.13. Confidentiality. The Lender agrees to keep information
---------------
obtained by it pursuant hereto and the other Loan Documents confidential in
accordance with the Lender's customary practices and agrees that it will only
use such information in connection with the transactions contemplated by this
Agreement and not disclose any of such information other than (i) to the
Lender's employees, representatives and agents who are or are expected to be
involved in the evaluation of such information in connection with the
transactions contemplated by this Agreement and who are advised of the
confidential nature of such information, (ii) to the extent such information
presently is or hereafter becomes available to the Lender, as the case may be,
on a non-confidential basis from a source other than the Borrower, (iii) to the
extent disclosure is required by law, regulation or judicial order or requested
or required by bank regulators or auditors, or (iv) to assignees or
88
<PAGE>
participants or potential assignees or participants who agree to be bound by the
provisions of this sentence.
10.14. Waiver of Jury Trial. Each of the parties hereto waives any
--------------------
right it may have to trial by jury in respect of any litigation based on, or
arising out of, under or in connection with this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or action of any party hereto.
10.15. NON-LIABILITY OF TRUSTEES. THE DECLARATION OF TRUST OF THE
-------------------------
BORROWER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS
THERETO ("THE DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME
"HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION
COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO
TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE BORROWER SHALL BE HELD
TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, THE BORROWER. ALL PERSONS DEALING WITH THE BORROWER, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF THE BORROWER FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
10.16. Securitization Opinions. In the event the Loans become the
-----------------------
subject of a securitization underwritten by the Lender or any of its Affiliates,
the Borrower shall, provided it receives at least fifteen (15) Business Days
written notice of the Lender's request therefor, deliver on or at any time after
the Collateralization Date, a 10(b)(5) opinion and a nonconsolidation opinion,
each at the Borrower's sole cost and expense, in form and substance and
delivered by counsel acceptable to the Lender and the Rating Agency, as may be
required by the Lender and/or the Rating Agency in connection with such
securitization. The Borrower shall undertake all actions (including structural
reorgani zation including, without limitation, transferring assets to a
special/single purpose and bankruptcy remote entity, if appropriate) necessary
to enable its counsel to issue the opinion. The Borrower's failure to deliver
the opinions required hereby or otherwise comply with the provisions of this
Section 10.16 and the following Sections 10.17 through 10.18, shall constitute
an "Event of Default" hereunder.
89
<PAGE>
10.17. Cooperation With Rating Agencies. The Borrower covenants and
--------------------------------
agrees that in the event the Lender decides to include the Loans as an asset of
a securitization effective on or at any time after the Collateralization Date,
the Borrower shall upon the Lender's written request (a) proceed to establish,
so as to be effective only on or at any time after the Conversion Date as the
Lender may require, a cash management system and escrow accounts as required by
the Rating Agencies or the Lender, whereby all revenues shall be deposited
directly into an account in the name of the Lender to pay real estate taxes,
insurance premiums, monthly debt service and capital improvement reserves, with
the excess being available to the Borrower for its use, (b) gather any
environmental or engineering information required by the Rating Agency in
connection with such a securitization, (c) at the Lender's request, meet with
representatives of the Rating Agency to discuss the business and operations of
the Mortgaged Properties, and (d) cooperate with the requests of the Lender or
the Rating Agency in connection with all of the foregoing.
10.18. Securitization Financials. The Borrower covenants and agrees
-------------------------
that, upon the Lender's written request therefor in connection with a
securitization effective on or at any time after the Collateralization Date, in
which the Loans are to be included as an asset, the Borrower shall promptly
deliver audited financial statements and related documentation prepared by an
independent certified public accountant that satisfy securities laws and
requirements for use in a public registration statement (which may include up to
three (3) years of historical audited financial state ments). Notwithstanding
anything to the contrary in Sections 10.16, 10.17 and this Section 10.18, the
Lender agrees that the Loans shall not be included as an asset of a
securitization which is effective on or before the Final Maturity Date.
[remainder of this page intentionally left blank]
90
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
HOSPITALITY PROPERTIES TRUST
By:
------------------------------
Name:
Title:
DLJ MORTGAGE CAPITAL, INC.
By:
------------------------------
Name:
Title:
91
<PAGE>
EXHIBIT 10.17
- --------------------------------------------------------------------------------
RESIDENCE INN MANAGEMENT AGREEMENT
between
HMH PROPERTIES, INC.
("Owner")
and
RESIDENCE INN BY MARRIOTT, INC.
("Management Company")
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITION OF TERMS ................................................... 1
1.1 Definition of Terms .............................................. 1
ARTICLE II APPOINTMENT OF MANAGEMENT COMPANY ..................................... 27
2.1 Appointment ...................................................... 27
2.2 Delegation of Authority .......................................... 27
2.3 Operational Standards ............................................ 28
2.4 Limitations on Authority ......................................... 31
2.5 Covenants, Conditions or Restrictions ............................ 32
2.6 Licenses and Permits ............................................. 34
ARTICLE III OWNERSHIP OF THE INN .................................................. 34
3.1 Ownership of the Inn ............................................. 34
ARTICLE IV TERM .................................................................. 35
4.1 Term ............................................................. 35
4.2 Actions to be Taken Upon Termination ............................. 38
4.3 Performance Termination .......................................... 39
ARTICLE V COMPENSATION OF MANAGEMENT COMPANY:
DISTRIBUTIONS ........................................................ 41
5.1 Management Fees .................................................. 41
5.2 Distribution of Operating Profit ................................. 42
5.3 Accounting and Interim Payments .................................. 42
5.4 Accounting for Period Prior to Effective Date .................... 44
ARTICLE VI FINANCING OF THE INN .................................................. 44
6.1 Amendments of Management Agreement ............................... 44
6.2 Notice and Opportunity to Cure ................................... 46
6.3 Collateral Assignment of Management Agreement .................... 47
6.4 Subordination of Management Agreement ............................ 48
6.5 Non-Disturbance Agreement ........................................ 49
6.6 Attornment ....................................................... 50
6.7 No Modification or Termination of Agreement ...................... 51
6.8 Owner's Right to Finance the Inn ................................. 52
6.9 Cross Collateralization .......................................... 52
6.10 Sale/Leaseback Transactions ...................................... 53
ARTICLE VII WORKING CAPITAL AND FIXED ASSET SUPPLIES .............................. 54
7.1 Working Capital .................................................. 54
7.2 Fixed Asset Supplies ............................................. 55
ARTICLE VIII REPAIRS, MAINTENANCE AND REPLACEMENTS ................................. 56
8.1 Routine Repairs and Maintenance .................................. 56
8.2 FF&E Reserve ..................................................... 56
8.3 Building Alterations, Improvements, Renewals, and Replacements ... 60
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.4 Liens ........................................................... 65
8.5 Ownership of Replacements, Etc .................................. 65
ARTICLE IX BOOKKEEPING AND BANK ACCOUNTS ........................................ 65
9.1 Books and Records ............................................... 65
9.2 Inn Accounts. Expenditures ...................................... 67
9.3 Annual Operating Budget ......................................... 67
9.4 Operating Losses: Credit ........................................ 69
9.5 Consolidated Reports ............................................ 69
ARTICLE X PROPRIETARY MARKS; INTELLECTUAL PROPERTY .............................. 70
10.1 Proprietary Marks ............................................... 70
10.2 Purchase of Inventories and Fixed Asset Supplies ................ 71
10.3 Computer Software and Equipment ................................. 71
10.4 Intellectual Property ........................................... 72
10.5 Breach of Covenant .............................................. 72
ARTICLE XI POSSESSION AND USE OF INN ............................................. 72
11.1 Quiet Enjoyment ................................................. 72
11.2 Use ............................................................. 73
11.3 Chain Services .................................................. 73
11.4 Owner's Right to Inspect ........................................ 74
11.5 Indemnity ....................................................... 75
ARTICLE XII INSURANCE ............................................................. 76
12.1 Interim Insurance ............................................... 76
12.2 Property and Operational Insurance .............................. 76
12.3 General Insurance Provisions .................................... 78
12.4 Cost and Expense ................................................ 79
12.5 Owner's Option to Obtain Certain Insurance ...................... 80
ARTICLE XIII TAXES ................................................................. 82
13.1 Real Estate and Personal Property Taxes ......................... 82
ARTICLE XIV INN EMPLOYEES ......................................................... 85
14.1 Employees ....................................................... 85
ARTICLE XV DAMAGE CONDEMNATION AND FORCE MAJEURE ............................... 88
15.1 Damage and Repair ............................................... 88
15.2 Condemnation .................................................... 88
15.3 Force Majeure ................................................... 90
ARTICLE XVI DEFAULTS .............................................................. 91
16.1 Definition of "Default" ......................................... 91
16.2 Definition of "Event of Default" ................................ 92
16.3 Remedies Upon an Event of Default ............................... 92
16.4 Owner's Estate .................................................. 93
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XVII WAIVER AND PARTIAL INVALIDITY .......................................... 94
17.1 Waiver .......................................................... 94
17.2 Partial Invalidity .............................................. 94
ARTICLE XVIII ASSIGNMENT ............................................................ 95
18.1 Assignment ...................................................... 95
ARTICLE XIX SALE OF THE INN ........................................................ 97
19.1 Sale of the Inn ................................................. 97
ARTICLE XX MISCELLANEOUS .......................................................... 100
20.1 Right to Make Agreement ......................................... 101
20.2 Consents ........................................................ 101
20.3 Agency .......................................................... 102
20.4 Confidentiality ................................................. 103
20.5 Equity Offerings ................................................ 103
20.6 Applicable Law .................................................. 104
20.7 Recordation ..................................................... 104
20.8 Headings ........................................................ 104
20.9 Notices ......................................................... 104
20.10 Environmental Matters ........................................... 105
20.11 Estoppel Certificates ........................................... 106
20.12 Trade Area Restriction .......................................... 107
20.13 Arbitration ..................................................... 107
20.14 Entire Agreement ................................................ 109
</TABLE>
Exhibit "A" Location of Inn and Legal Description
Exhibit "A-1" Number of Suites and Brief Description of Facilities;
Priority Basis, Performance Termination Threshold; Loan
Priority Basis (Number set forth in (i) of Definition);
Revenue Index Threshold
Exhibit "B" Form of Accounting Period
Exhibit "C" [Intentionally Deleted]
Exhibit "D" Map of Restricted Area
Exhibit "D-1" Narrative Description of Restricted Area
Exhibit "E" Proprietary Marks which will remain the property of Owner
after Termination
Exhibit "F" Title Encumbrances; Existing CC&R's (separately describing
those charges thereunder which will be treated as capital
expenditures under Section 8.3); Existing Ground Lease (if
applicable); Existing Mortgages (if any)
iv
<PAGE>
RESIDENCE INN
MANAGEMENT AGREEMENT
--------------------
This Management Agreement ("Agreement") is executed as of the ____ day of
_________________, 1993 ("Effective Date"), by HMH PROPERTIES, INC., ("Owner"),
a Delaware corporation, with a mailing address at 10400 Fernwood Road, Bethesda,
Maryland 20817 and RESIDENCE INN BY MARRIOTT, INC. (Management Company"), a
Delaware corporation, with a mailing address at 10400 Fernwood Road, Bethesda,
Maryland 20817.
R E C I T A L S :
A. Owner is the owner of the Inn (as defined and more fully described in
Section 1.1 which is located as set forth on Exhibit "A" hereto; and
B. Owner desires to have Management Company manage and operate the Inn,
and Management Company is willing to perform such services for the account of
Owner on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
-------------------
1.1 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the meanings
indicated:
"Accounting Period" shall mean each of the four (4) week accounting periods
-----------------
which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
---------------------------
5.3.
"Additional Invested Capital" shall mean the cumulative total L as of any
---------------------------
given date during the Term, of the following: (i) any expenditures made by Owner
in response to a
<PAGE>
Building Estimate, pursuant to Section 8.3, and any expenditures by Owner
pursuant to Section 20.10.C; (ii) any contributions by Owner to the FF&E Reserve
(beyond the funding described in Section 8.2.B and 8.2.E); other than those
contributions which are reimbursed to Owner under Section 8.2.F; (iii) any
payments by Owner with regard to special assessments or impact fees, pursuant to
Section 13.1.B(2) or 13.1.B(3); and (iv) any costs, expenses and charges which
are described on Exhibit "F" hereto as "capital charges" pursuant to Section
2.5.A. Owner shall give Management Company prompt notice of any amounts for
which it has provided funding which constitute "Additional Invested Capital"
together with such evidence of funding as Management Company may reasonably
require.
"Affiliate" shall mean any individual or entity directly or indirectly
---------
through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to the exercise,
directly or indirectly, of fifty-one percent (51%) or more of the voting rights
attributable to the shares of the controlled corporation, and, with respect to
an entity that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of the
controlled entity.
"Agreement" shall have the meaning set forth in the Preamble.
---------
"Annual Operating Budget" shall have the meaning set forth in Section 9.3.
-----------------------
"Annual Operating Statement" shall have the meaning set forth in Section
--------------------------
9.1.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
-------------------
Year or portion thereof, (prorated for any partial Fiscal Year) during the Term
of this Agreement, equal to the excess, if any, of the Operating Profit for such
Fiscal Year over the sum of: (i) the applicable Owner's Priority in such Fiscal
Year, plus; (ii) the Base Management Fee, plus; (iii) Deferred Contingent Base
Management Fees paid to Manager in such Fiscal Year.
2
<PAGE>
"Base Management Fee" shall mean for each Fiscal Year (prorated for any
-------------------
partial Fiscal Year) during the Term of this Agreement, an amount equal to two
percent (2%) of Gross-Revenues, which shall be paid to Management Company as
compensation (in addition to the Residence Inn System Fee and Incentive
Management Fee) for the services performed pursuant to this Agreement.
"Building Estimate" shall have the meaning set forth in Section 3.3.A.
-----------------
"Capitalization Multiple" shall mean the number ten (10).
-----------------------
"Case Goods" shall mean furniture and furnishings used in the Inn,
----------
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, kitchen equipment, mirrors, pictures, wall decorations
and similar items.
"CC&R's" shall have the meaning set forth in Section 2.5.
------
"Chain Services" shall have the meaning set forth in Section 11.3.
--------------
"Coverage Ratio" shall mean the number one and three-tenths (1.3).
--------------
"Cure Payment" shall have the meaning set forth in Section
------------
"Deductions" shall have the meaning set forth in the definition of
----------
Operating Profit.
"Default" shall have the meaning set forth in Section 16.1.
-------
"Deferred Contingent Base Management Fees" shall mean an amount equal to
----------------------------------------
(a) the sum of all unpaid Base Management Fees deferred in accordance with
Section 5.2.B less (b) all sums paid to Management Company in accordance with
the provisions of Section 5.2.C.
"Effective Date" shall have the meaning set forth in the Preamble.
--------------
"Employee Claims" shall mean any and all claims (including all fines,
---------------
judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the
3
<PAGE>
employment at the Inn of such employee or employees. "Employee Claims" shall
include, without limitation, the following: (i) claims which are eventually
resolved by arbitration, by Litigation or by settlement; (ii) claims which also
involve allegations that any applicable employment-related contracts affecting
the employees at the Inn have been breached; and (iii) claims which involve
allegations that one or more of the Employment Laws has been violated; provided,
however, that "Employee Claims" shall not include claims for worker compensation
benefits (which shall be governed by Article XII hereof) or for unemployment
benefits.
"Employment Laws" shall mean any federal, state or local law (including the
---------------
common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Notification Act, the Occupational Safety and Health
Act, the Immigration Reform and Control Act of 1986, the Polygraph Protection
Act of 1988 and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean: any federal, state or local law, rule or
------------------
regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended; (ii) the regulations
promulgated thereunder, from time to time; (iii) all federal, state and local
laws, rules and regulations (now or hereafter in effect) dealing with the use,
generation, treatment, storage, disposal or abatement of Hazardous Materials;
and (iv) the regulations promulgated thereunder, from time to time.
4
<PAGE>
"Event of Default" shall have the meaning set forth in Section 16.2.
----------------
"Existing CC&R's" shall have the meaning set forth in Section 2.5.A.
---------------
"Existing Ground Leases" shall mean the ground leases which are listed on
----------------------
Exhibit "F", but for purposes of this Agreement shall not include any amendments
or modifications after the Effective Date.
"Existing Mortgages" shall mean the Mortgages which are listed on Exhibit
------------------
"F", but for purposes of this Agreement shall not include any amendments or
modifications after the Effective Date.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
----
Shuttle Vehicles, signage and equipment at the Inn (including, without
limitation, facsimile machines, communication systems, audio-visual equipment,
and all computer and other equipment needed for the reservation system and the
property management system, and all other electronic systems needed for any Inn,
from time to time, as well as similar systems based on other technologies which
may be developed in the future).
"FF&E Estimate" shall have the meaning set forth in Section 8.2.C.
-------------
"FF&E Reserve" shall have the meaning set forth in Section 8.2.A.
------------
"First Notice" shall have the meaning set forth in Section 6.2.
------------
"Fiscal Year" shall mean Management Company's Fiscal Year which now ends at
-----------
midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year and any partial Fiscal Year between the end of the last full
Fiscal Year and the Termination of this Agreement, shall constitute a separate
Fiscal Year. If Management Company's Fiscal Year is changed in the future,
appropriate adjustment to this Agreement's reporting and accounting procedures
5
<PAGE>
shall be made; provided, however, that no such change or adjustment shall alter
the Term of this Agreement, or in any way reduce the distributions of Operating
Profit or other payments due Owner hereunder, or otherwise significantly and
adversely affect Owner's rights or obligations under this Agreement.
"Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts, including linen, cleaning
supplies, china, glassware, tableware, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
-------------
governmental action (including the revocation or refusal to grant a License,
where such revocation or refusal is not due to the fault of the party whose
performance is to be excused for reasons of Force Majeure), strikes, lockouts,
fire, unavoidable casualties or any other causes beyond the reasonable control
of either party (excluding, however: (i) lack of financing; or (ii) general
economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
-----------
Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Inn. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Inn; (iv) a
transfer of either ownership or control of the Owner, by exercise of a stock
pledge or otherwise; (v) if title to the Inn is held by a tenant under a ground
lease, an assignment of the tenant's interest in such ground; (vi) any similar
judicial or non-judicial exercise of the remedies held by the Holder.
6
<PAGE>
"Foreclosure Date" shall mean the date on which title to or possession of
----------------
the Inn is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.5.B.
-------------
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
------------
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the Government of the United States,
appropriately adjusted for changes in the manner in which such index is prepared
and/or year upon which such index is based. Any dispute regarding the selection
of the Substitute Index or the adjustments to be made thereto shall be settled
by arbitration in accordance with Section 20.13. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease (except that, for purposes of this Agreement,
the GDP Deflator shall not be decreased below its level as of the Effective
Date) in the GDP Deflator which is issued for the month in which such adjustment
is to be made (or, if the GDP Deflator for such month is not yet publicly
available, the GDP Deflator for the most recent month for which the GDP Deflator
is publicly available) as compared to the GDP Deflator which was issued for the
month in which the Effective Date occurred.
"Gross Revenues" shall mean, for each Fiscal Year during the Term of this
--------------
Agreement, all revenues and receipts of every kind derived from operating the
Inn and parts thereof, including, but not limited to: income (from both cash and
credit transactions), before commissions and discounts for prompt or cash
payments, from rental of rooms, stores,
7
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offices, meeting, exhibit or sales space of every kind; parking fees, license,
lease and concession fees and rentals (not including gross receipts of
licensees, lessees and concessionaires); income from vending machines; health
club membership fees; food and beverage sales; wholesale and retail sales of
merchandise (other than proceeds from the sale of FF&E no longer necessary to
the operation of the Inn, which shall be deposited in the FF&E Reserve as set
forth in Section 8.2.D hereof); service charges, to the extent not distributed
to the employees at the Inn as gratuities; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to Inn employees; federal,
state or municipal excise, sales, use or similar taxes collected directly from
patrons or guests or included as part of the sales price of any goods or
services; insurance proceeds other than proceeds from business interruption or
other loss of income insurance); condemnation proceeds (other than for a
temporary taking); any proceeds from any Sale of the Inn or from the refinancing
of any debt encumbering the Inn; proceeds from the disposition of FF&E no longer
necessary for the operation of the Inn; interest which accrues on amounts
deposited in either the FF&E Reserve or any escrow accounts which are
established in accordance with Section 13.1.C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the Effective
-------------------
Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing -Ground Lease.
-------------
"Hazardous Materials" shall mean and include any substance or material
-------------------
containing one or more of any of the following: "hazardous material", "hazardous
waste", "hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or
8
<PAGE>
amount(s) as may impose clean-up, removal, monitoring or other responsibility
under any applicable Environmental Laws, or which may present a significant risk
of harm to guests, invitees or employees of the Inn.
"Holder" shall mean any holder, from time to time, of any Secured Loan.
------
"Impositions" shall mean all real estate and personal property taxes,
-----------
levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.1.B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or assessed of every character (including all interest and penalties
thereon), which at any time during or in respect of the Term of this Agreement
may be assessed, levied, confirmed or imposed on Owner with respect to the Inn
or otherwise in respect of or be a lien upon the Inn. Impositions shall not
include any income or franchise taxes payable by Owner or Management Company.
Impositions shall include any taxes, levies, assessments and similar charges
which may be enacted by the applicable governmental authority in lieu of, or in
complete or partial substitution for, Impositions.
"Incentive Management Fee" shall mean, for each Fiscal Year during the Term
------------------------
of this Agreement, the payments which shall be made to Management Company, as
compensation (in addition to the Base Management Fee and the Residence Inn
System Fee) to Management Company for its services under this Agreement, in the
amount of fifty percent (50%) of the Available Cash Flow in each Fiscal Year (or
portion thereof); provided, however, that the cumulative Incentive Management
Fee received by Management Company, from the Effective Date through any given
point in time during the Term of this Agreement, shall not
9
<PAGE>
exceed twenty percent (20%) of the cumulative Operating Profit from the
Effective Date through such point in time provided further, however, that in no
event shall the aforesaid cumulative limitation require Management Company to
refund to Owner any Incentive Management Fees which were paid in a previous
Fiscal Year and which were within such limitation as of the time when they were
paid.
"Initial Term" shall have the meaning set forth in Section 4.1.
------------
"Inn" shall mean the hotel, containing approximately the number of Suites
---
which are set forth on Exhibit "A"-l hereto, which Owner owns at the location
specified in Exhibit "A"; the term n Inn" shall include the Site, the
improvements built thereon, and all FF&E, Fixed Asset Supplies and Inventories
installed therein.
"Inn Retention" shall have the meaning set forth in Section 12.3 hereof.
-------------
"Intellectual Property" shall mean: (i) all Software; and (ii) all
---------------------
manuals, brochures and directives issued by Management Company to its employees
at the Inn regarding the procedures and techniques to be used in operating the
Inn.
"Interest Rate" shall mean an annual rate of interest equal to the Prime
-------------
Rate (as adjusted from time to time) plus three hundred (300) basis points
provided; however, that in no event shall the Interest Rate exceed the maximum
rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
-----------
Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
-----------------
ordinance, regulation or order of any governmental authority or agency having
jurisdiction
10
<PAGE>
over the business or operation of the Inn or the matters which are the subject
of this Agreement, including , without limitation, the following: (i) any
building, zoning or use laws, ordinances, regulations or orders and (ii)
Environmental Laws.
"License" shall mean any license, permit, decree, act, order, authorization
-------
or other approval or instrument which is necessary in order to operate the Inn
in accordance with Legal Requirements and pursuant to the Residence Inn System
Standards and otherwise in accordance with this Agreement.
"Litigation" shall mean: (i) any cause of action commenced in a federal,
----------
state or local court; and (ii) any claim brought before an administrative agency
or body (for example, without limitation, employment discrimination claims).
"Loan Priority Basis" shall mean the sum total, as of any given point in
-------------------
time during the Term, of: (i) the amount shown on Exhibit "A-l"; plus (ii) any
Additional Invested Capital expended by Owner, less the amount of any
condemnation award received by Owner and not applied to restoration of the Inn
pursuant to Section 15.2.B.
"Management Analysis Report" shall mean a report which, if required
--------------------------
pursuant to Section 9.1.B, shall be prepared by Management Company and delivered
to Owner and shall include a narrative description regarding the preceding
Fiscal Year, of: (i) the Inn's operating performance, including significant
variations from the Annual Operating Budget; (ii) an analysis of any significant
variation of the actual average daily revenue per available room from what was
set forth in the Annual Operating Budget; (iii) a review of the competitive
hotel market; (iv) a calculation of the Revenue Index, and Operating Profit less
Ground Lease Rental, if any, compared to the Performance Termination Threshold;
and (v) such
11
<PAGE>
other supplementary information as Owner or Management Company shall reasonably
deem necessary to an understanding of the operation of the Inn.
"Management Company" shall have the meaning set forth in the Preamble.
------------------
"Management Fees" shall mean the Base Management Fee, the Deferred
---------------
Contingent Base Management Fees, the Residence Inn System Fee and the Incentive
Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware corporation
--------
having an address at 10400 Fernwood Road, Bethesda, Maryland 20817.
"Mortgage" shall mean any security instrument which encumbers real
--------
property, including, without limitation, mortgages, deeds of trust, security
deeds and similar instruments.
"Net Operating Profit" shall mean the greater of (i) the excess, if any, of
--------------------
Operating Profit less Owner's Priority, or (ii) zero (0).
"Non-Disturbance Agreement" shall mean an agreement, in recordable form in
-------------------------
the jurisdiction in which the Inn is located, executed and delivered by a Holder
(which agreement shall by its terms be binding upon all Subsequent Owners), for
the benefit of Management Company, pursuant to which, in the event such Holder
or any Subsequent Owner comes into possession of or acquires title to the Inn
either at or following a Foreclosure, such Holder and all Subsequent Owners
shall (x) recognize Management Company's rights under this Agreement, and (y)
shall not name Management Company as a party in any Foreclosure action or
proceeding, and (z) shall not disturb Management Company in its right to
continue to manage the Inn pursuant to this Agreement; provided, however, that
at such time: (i) this Agreement has not expired or otherwise been earlier
terminated in accordance with its terms; (ii) there are no outstanding Events of
Default by Management Company, and (iii) no material event has occurred and no
material condition exists which, after notice or the passage of time or both,
would entitle Owner to terminate
12
<PAGE>
this Agreement.
"Operating Accounts" shall have the meaning set forth in Section 9.2.
------------------
"Operating Loss" shall mean a negative Operating Profit.
--------------
"Operating Profit" shall mean, in each Fiscal Year during the Term of this
----------------
Agreement, the excess of Gross Revenues over the following deductions
("Deductions") incurred by Management Company or its Affiliates (or, in the case
of any Owner Deductions, by Owner) in operating the Inn:
1. The cost of sales including, without limitation, salaries, wages,
employee benefits, Employee Claims (except to the extent specifically set
forth to the contrary in Section 14.1.C or 14.1.D), payroll taxes and other
costs related to Inn employees;
2. Departmental expenses; administrative and general expenses; the
cost of Inn advertising and business promotion; all utility costs,
including but not limited to the cost of heat, light, power and water; and
the cost of routine repairs, maintenance and minor alterations which are
treated as Deductions under Section 8.1;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Inn;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform
services required or permitted hereunder; provided that Management Company
will notify Owner at least thirty (30) days in advance of any proposed
expenditure under this paragraph 5 which
13
<PAGE>
is in excess of Twenty Thousand Dollars ($20,000) and which was not
specifically identified in the Annual Operating Budget, and Management
Company shall consider in good faith any comments which Owner may have with
respect to such proposed expenditure; and provided, further, that if such
expenditure involves immediately-needed repair work to the Inn or if
immediate action is otherwise required, the above described requirement
regarding thirty (30) days' prior notice shall be modified to require
whatever notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-
routine Inn work; provided, however, that the costs and expenses so
incurred shall only be Deductions to the extent such costs and expenses are
reasonable and competitively priced, as compared to similar work done by
outside consultants or experts; and provided, further, that Management
Company will notify Owner at least thirty (30) days in advance of any
proposed expenditure under this paragraph 6 which is in excess of Twenty
Thousand Dollars ($20,000.00) and which was not specifically identified in
the Annual Operating Budget, and Management Company shall consider in good
faith any comments which Owner may have with respect to such proposed
expenditure; and provided, further, that if such expenditure involves
immediately-needed repair work to the Inn or if immediate action is
otherwise required, the above-described requirement regarding thirty (30)
days' prior notice shall be modified to require whatever notice period is
reasonable under the circumstances;
14
<PAGE>
7. The Residence Inn System Fee;
8. Subject to Section 11.3.B, the Inn's pro rata share of costs and
expenses incurred by Management Company (or its Affiliate) in providing
Chain Services;
9. Insurance costs and expenses as provided in Section 12.4.B;
10. Taxes, if any, payable by or assessed against Management Company
related to this Agreement or to Management Company's operation of the Inn
(exclusive of Management Company's income taxes or franchise taxes) and all
Impositions assessed against the Inn;
11. Amounts which are required to be transferred into the FF&E
Reserve in accordance with the provisions of Section 8.2;
12. Transfers required to be made, as they may change from time to
time, to the System Marketing Fund, in order for the Inn to remain a member
of the System; (such contributions are presently two and one-half percent
(2 1/2%) of Suite Revenues);
13. The reimbursement to Owner of the amount of any Owner Deductions;
14. Lease payments pursuant to the leases of Shuttle Vehicles and
Telephone and Office Equipment (to the extent Management Company has not
elected to make such payments from the FF&E Reserve);
15. The payment to Management Company of the cost of preparing the
Management Analysis Report pursuant to Section 9.1.B; and
16. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses included in the
Residence Inn System Fee) as are specifically provided for elsewhere in
this Agreement or are otherwise
15
<PAGE>
reasonably necessary for the proper and efficient operation of the Inn
(including, without limitation, the costs and expenses of all functions
described in Section 2.3, to the extent such costs and expenses are not
already treated as Deductions elsewhere in this definition of Operating
Profit, unless, and to the extent that, any such costs and expenses are
specifically stated not to be Deductions under any provision of this
Agreement).
The term "Deductions" shall not include: (i) debt service payments pursuant
to any Secured Loan; nor (ii) rental payments pursuant to any ground lease of
the Site; both of the foregoing shall be paid by Owner from its own funds, and
not from Gross Revenues nor from the FF&E Reserve.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner Deductions" shall mean amounts paid by Owner with respect to: (i)
----------------
premiums for the insurance policies described in Section 12.4; and (ii)
reasonable costs of any negotiations or Litigation with respect to any contest
of Impositions, as described in Section 13.1.A; provided, however, that to the
extent Owner spends in excess of Five Thousand Dollars ($5,000.00) with respect
to any contest of Impositions and has not received Management Company's consent
as provided in Section 13.1.A, then any amount in excess of such Five Thousand
Dollars ($5,000.00) or such greater amount as may be approved by Management
Company, shall not be considered an Owner Deduction. Except as specifically set
forth in Section 8.2.F.2, the amount of any Owner Deductions paid by Owner shall
be reimbursed to Owner (as a Deduction) in the Fiscal Year in which they were
paid. Owner shall give Management Company prompt notice of any amounts it has
paid which constitute
16
<PAGE>
Owner Deductions together with such evidence of payment as Management Company
may reasonable require.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, funds distributed to Owner in accordance with
the provisions of Section 5.2 hereof which shall equal Operating Profit less any
Base Management Fees, Deferred Contingent Base Management Fees and Incentive
Management Fees paid to Management Company.
"Owner's Priority" shall mean, with respect to each Fiscal Year (prorated
----------------
for any partial Fiscal Years) during the Term of this Agreement, a dollar amount
equal to ten percent (10%) of the Priority Basis for that Fiscal Year.
If the Inn has an Existing Ground Lease, the annual rental payments for such
Fiscal Year (prorated for any partial Fiscal Year), shall be added to the
Owner's Priority.
"Performance Termination Threshold" shall mean, with respect to each full
---------------------------------
Fiscal Year during the Term of this Agreement, the dollar amount set forth on
Exhibit "A-l", plus eight percent (8%) of any Additional Invested Capital
expended by Owner pursuant to clause (ii) of the definition of Priority Basis;
provided, however, that the aforesaid dollar amount shall be adjusted, as of the
tenth (l0th) anniversary of the Effective Date, in an amount equal to seventy-
five percent (75%) of the percentage change in the GDP Deflator between the
Effective Date and the tenth (l0th) anniversary of the Effective Date; provided
that, in no event will the Performance Termination Threshold be lower than it is
as of the Effective Date; and provided further, that in calculating the
aforesaid change in the GDP Deflator during such period of time, both (i) the
two (2) years having the highest annual rates of change in the GDP Deflator
during such period, and (ii) the two (2) years having the lowest annual rates of
change in the GDP Deflator during such period, shall be ignored, and such
17
<PAGE>
percentage change in the GDP Deflator between the Effective Date and the tenth
(l0th) anniversary of the Effective Date shall be recalculated, for purposes of
this Agreement, using as the rate of change in the GDP Deflator for each of such
four (4) excluded years (i.e., those years described in clauses (i) and (ii),
above) the average annual rate of change in the GDP Deflator during the non-
excluded years; and provided further that, to the extent that certain portions
of the Performance Termination Threshold, as of immediately prior to such
tenth (l0th) anniversary adjustment, reflect expenditures which qualify as
Additional Invested Capital, the aforesaid GDP Deflator adjustment shall be
calculated with respect to such portions by using, as the base, not the GDP
Deflator as of the Effective Date, but rather the GDP Deflator as of either the
date of such expenditure or if construction is involved) the date on which the
items in question were substantially completed.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.6.
"Prime Rate" shall mean the "prime rate" as published in the "Money Rates"
----------
section of The Wall Street Journal; however, if such rate is, at any time during
-----------------------
the Term, no longer so published, the term "Prime Rate" shall mean the average
of the prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
"prime rate."
"Priority Basis" shall mean the sum total, as of any given point in time
--------------
during the Term, of: (i) the dollar amount shown on Exhibit "A-l"; plus (ii)
any Additional Invested Capital expended by Owner; provided that each
expenditure of Additional Invested Capital shall be added to the Priority Basis
at such date or dates as the expenditure occurred, taking into consideration at
what point (or points) during the Fiscal Year such expenditure occurred; less
(iii) the amount of any condemnation award received by Owner and not applied to
restoration of the Inn pursuant to Section 15.2.B.
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<PAGE>
"Proprietary Marks" shall mean all trademarks, trade names, symbols, logos,
-----------------
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify inns in the Residence Inn chain. The names "Marriott", "Residence Inn"
and "Residence Inn By Marriott", and any of the foregoing used in conjunction
with other words or names, are examples without limitation of Proprietary Marks.
The term "Proprietary Marks" shall include all present and future Proprietary
Marks, whether (ii) that such Holder is a "Qualified Lender" pursuant to the
terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial principal
--------------
amount, as of the date such Secured Loan is incurred, when added to the current
principal balance of all existing Secured Loans as of that date, is less than or
equal to the greater of the following:
(i) Seventy percent (70%) of the Loan Priority Basis; or
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Inn
immediately prior to the date of the incurrence of such Qualified
Loan, plus commercially reasonable Transaction Costs associated with
such refinancing, up to an amount equal to four percent (4%) of the
principal amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is satisfied, the existing (as of the Effective Date)
balance of any Secured Loan which is secured by an Existing Mortgage shall be
deemed to be a "Qualified Loan".
"Qualified Loan Acceleration" shall mean the acceleration of the
---------------------------
indebtedness incurred pursuant to any Qualified Loan, as a result of a default
under the terms and conditions of such Qualified Loan.
19
<PAGE>
"Renewal Terms" shall have the meaning set forth in Section 4.1.
-------------
"Residence Inn System Fee" shall during any given Fiscal Year (or portion
------------------------
thereof), be equal to four percent (4%) of Gross Revenues. It shall mean an
amount paid to Management Company for the Residence Inn System Services.
"Residence Inn System" shall mean the Residence Inn hotel system managed by
--------------------
Marriott (or one or more of its Affiliates) which is, as of the Effective Date,
operated under the trade name "Residence Inn by Marriott" or Marriott Residence
Inn".
"Residence Inn System Services" shall mean the following services which are
-----------------------------
paid for by the Residence Inn System Fee: System financial planning and policy
services; product planning and development; human resources management and
planning for the Residence Inn System (but not any particular inn within the
Residence Inn System); protection of the "Marriott Residence Inn" "Residence Inn
by Marriott," and "Residence Inn" trade names, trademarks, logos and
servicemarks; and the development and implementation of Management Company's
technical and operational programs designed for the periodic inspection and
consultation visits to the inns in the Residence Inn System (but not the
services of the personnel of the Architecture and Construction Division of
Management Company providing architectural, technical or procurement services
for the Inn, which shall be treated as a Deduction described in paragraph 6 of
the definition of "Operating Profit").
"Residence Inn System Standards" shall mean both the operational standards
------------------------------
(for example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of Residence Inn hotels in the Marriott chain as such operational
and physical standards may fluctuate from time to time (provided, however, that
the Residence Inn System Standards shall in no event be lower than the
operational and physical standards, as of the date in question, of
20
<PAGE>
comparable extended stay hotels in other hotel systems which are comparable to
the Residence Inn System).
"Restricted Area" shall mean that area which is shown on the map attached
---------------
hereto as Exhibit "D", as described in the narrative which is set forth in
Exhibit "D-1".
"Restricted Inn" shall mean any hotel whose size, facilities and market
--------------
positioning are such that, if such hotel had been operated by Management Company
or one of its Affiliates as of the Effective Date, it would have been operated
as a member of the Residence Inn System (that is, as an extended-stay hotel, as
opposed to a full service hotel or one of the other limited service brands also
operated by Affiliates of Management Company i.e. Courtyard by Marriott or
Fairfield Inn). The term "Restricted Inn" shall not include any one or more of
the following: (i) any existing (as of the Effective Date) member of the
Residence Inn System which is within the Restricted Area; (ii) any Courtyard by
Marriott (or other similar moderate-price lodging product) or any Fairfield Inn
(or other similar economy priced lodging product); (iii) any full service, suite
or resort hotel; (iv) any hotel or hotels which are members of a chain of hotels
(provided that such chain has a minimum of four (4) or more hotels in
operation), all or substantially all (but in no event less than four (4) hotels)
of which is acquired by, or merged with, or franchised by or joined through
marketing agreement with, Management Company or one of its Affiliates (or the
operation of which is transferred to Management Company or one of its
Affiliates); (v) any hotel or hotels which are members of a group of hotels
which is (in a single transaction with a single seller or transferor) acquired
by or merged with, or franchised by or joined through marketing agreement, with
Management Company or one of its Affiliates (or the operation of which is
transferred to Management Company or one of its Affiliates), provided that such
group of hotels contains no fewer than four (4) hotels; (vi) any future lodging
product developed by
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Management Company or one of its Affiliates which is not a lodging product which
would have been included within the Residence Inn System, as such system existed
as of the Effective Date; or (vii) any existing non-Marriott hotel within the
Restricted Area which is specifically designated on Exhibit D-1 as not being a
Restricted Inn.
"Revenue Data Publication" shall mean Smith's STAR Report, a monthly
------------------------
publication distributed by Smith Travel Research, Inc. of Gallatin, Tennessee or
an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Room of hotels in the general trade area of the Inn.
The "competitive set" for the Inn shall be determined (with periodic
adjustments) by Management Company, subject to Owner's approval (such approval
not to be unreasonably withheld). If such Smith's STAR Report is discontinued
in the future, or ceases (in the reasonable opinion of either Owner or
Management Company) to be a satisfactory source of data regarding the Revenue
Per Room of various hotels in the general trade area of the Inn, Management
Company shall select an alternative source, subject to Owner's approval (such
approval not to be unreasonably withheld). If the parties fail to agree on
either such competitive set or such alternative source, as the case may be,
within a reasonable period of time, the matter shall be resolved by arbitration
pursuant t O Section 20.13.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
-------------
Per Room for the Inn, divided by (b) the average Revenue Per Room for the hotels
in the Inn's competitive set (including the Inn), as set forth in the Revenue
Data Publication. Appropriate adjustments shall be made in the event of a major
renovation of the Inn.
"Revenue Index Threshold" shall mean the number set forth on Exhibit "A-l"
-----------------------
hereto. However, if the entry of a new hotel into the Inn's competitive set (or
the removal of a hotel from such competitive set) causes significant variations
in the Revenue Index which do not
22
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reflect the Inn's true position in the relevant market, appropriate adjustments
shall be made to the Revenue Index Threshold by mutual consent of Owner and
Management Company (neither such consent to be unreasonably withheld).
"Revenue Per Room" shall mean, (i) the term "revenue per room" as defined
----------------
by the Revenue Data Publication or (ii) if the Revenue Data Publication is no
longer being used (as more particularly set forth in the definition of "Revenue
Data Publication"), the aggregate gross room revenues of the hotel in question
for a given period of time divided by the total room nights for such period. If
clause (ii) of the preceding sentence is being used, a "room" shall be a hotel
guest room which is keyed as a single unit, and shall include rooms which are
temporarily unavailable due to: (i) maintenance, or (ii) ongoing renovation
work.
"Sale/Leaseback Transaction" shall have the meaning set forth in Section
--------------------------
6.10.
"Sale of the Inn" shall mean any sale, assignment, transfer or other
---------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Inn or the Site (either fee or leasehold title, as the case may be), but
shall not include a collateral assignment intended to provide security for a
loan. For purposes of this Agreement, a "Sale of the Inn" shall also include a
lease (or sublease) of the entire Inn or Site. The phrase "Sale of the Inn"
shall also include any sale, transfer, or other disposition, for value or
otherwise, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" shall mean the right to exercise, directly or indirectly,
fifty percent (50%) or more of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Owner. Notwithstanding the foregoing, the term "Sale
of the Inn" shall not include any sale,
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assignment, transfer or other disposition of the Inn or the Site by Owner to an
Affiliate of Owner.
"Second Notice" shall have the meaning set forth in Section 6.2.
-------------
"Secured Loan" shall mean and include: (i) any indebtedness secured by a
------------
Mortgage encumbering the Inn or all or any part of Owner's interest therein; and
(ii) all amendments, modifications, supplements and extensions of any such
Mortgage.
"Settlement Threshold Amount" shall mean the greater of (i) One Hundred
---------------------------
Thousand Dollars ($100,000) ( as adjusted by the GDP Deflator); or (ii) a
dollar amount (to be re-determined whenever reasonably necessary) equal to the
highest amount paid in a representative sampling of Employee Claims, which have
been settled within the preceding twelve (12) months where each of such
settlements can be reasonably characterized as being (i) within the normal
course of business at the Inn, and (ii) within the range of similar settlements
at other hotels comparable to the Inn. Any dispute between the parties as to
the appropriate amount under clause (ii) of the preceding sentence shall be
submitted to arbitration under Section 20.13.
"Shuttle Vehicles" shall mean any car, van, bus or similar motor vehicle
----------------
used primarily for the purpose of transporting Inn guests.
"Site" shall mean the parcel or parcels of land described in Exhibit "A"
----
attached hereto.
"Soft Goods" shall mean all fabric, textile and flexible plastic products
----------
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Inn, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
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"Software" shall mean all computer software and accompanying documentation
--------
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Management Company in connection with the property
management system, the reservation system and all future electronic systems
developed by Management Company for use in the Inn.
"Subsequent Owner" shall mean any individual or entity which acquires title
----------------
to or possession of the Inn at or through a Foreclosure.
"Suite" shall mean a lodging unit in the Inn.
-----
"Suite Revenues" shall mean that portion of the Gross Revenues of the Inn
--------------
which is attributable to the rental of Suites.
"System Marketing Fund" shall mean that certain fund (or any successor to
---------------------
such fund) maintained by Management Company or one of its Affiliates, in its
capacity as franchisor of the System, to pay for the following System costs: all
costs associated with developing, preparing, producing, directing,
administering, conducting, maintaining and disseminating advertising, marketing,
promotional and public relations materials, programs, campaigns, sales and
marketing seminars and training programs, and similar activities of every kind
and nature, including the Residence Inn directory; conducting market research;
and paying the central operational costs of the Residence Inn reservation
system; provided, however, that any costs described in this definition of System
Marketing Fund may, at the option of the Management Company and The Residence
Inn Association, be charged directly to each inn in the System on the basis of
actual use by or benefit to each inn and, in such event, shall become
Deductions.
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"Telephone and Office Equipment" shall mean the following equipment used in
------------------------------
the Inn and all ancillary equipment: (i) telephones; (ii) miscellaneous office
equipment such as copiers, postage meters, etc.; (iii) television sets; and (iv)
audiovisual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"The Residence Inn Association" (TRIA) is an advisory council to owners and
-----------------------------
franchisees of the Residence Inn System with respect to advertising, marketing,
reservations and other matters relating to Residence Inn System hotels. All
owners, franchisees of the Residence Inn System and Owner shall be members of
TRIA.
"Transaction Costs" shall mean, with respect to the incurring of any
-----------------
Secured Loan, all normal transaction costs (to the extent actually incurred)
including, without limitation, the following: state and local transfer taxes;
escrow fees; recording costs; Mortgage recording taxes; costs of any survey
required by the Holder; reasonable fees of the Holder's outside attorneys and
accountants; appraisal fees; title insurance premiums; financing costs
(including "points"); reasonable attorneys' fees of Owner in connection with
such Secured Loan; environmental inspection, testing and reporting fees to the
extent required by the Holder; and brokerage commissions (provided that no such
brokerage commissions shall be recognized as "Transaction Costs" hereunder if
they are made to a person or entity affiliated with Owner, to the extent (if
any) that such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of
New York City, Inc.
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Inn's business, including, without limitation, amounts kept in
petty cash funds,
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amounts deposited in operating bank accounts, receivables, prepaid expenses and
funds expended to purchase Inventories, less accounts payable and accrued
current liabilities.
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.1 Appointment. Owner hereby appoints and employs Management Company as
-----------
Owner's exclusive agent to supervise, direct and control the management and
operation of the Inn for the Term provided in Article IV. Management Company
accepts said appointment and agrees to manage the Inn during the Term of this
Agreement in accordance with the terms and conditions hereinafter set forth. The
performance of all activities by Management Company hereunder shall be for the
account of Owner.
2.2 Delegation of Authority. Except as otherwise specifically set forth in
-----------------------
this Agreement, Inn operations shall be under the exclusive supervision and
control of Management Company which, shall be responsible for the proper and
efficient operation of the Inn. Management Company shall have discretion and
control, free from interference, interruption or disturbance, but in all
respects subject to the provisions of this Agreement, in all matters relating to
management and operation of the Inn, including, without limitation, the
following: charges for Suites and commercial space; credit policies; food and
beverage services; employment policies; granting of leases, parking services,
licenses and concessions for shops and agencies within the Inn (provided that
the term of any such lease, license or concession shall not exceed the Term of
this Agreement and provided further that Owner's consent shall be required prior
to the execution by Management Company of any such lease, license or concession
which pertains to the Inn, and which (i) has a term of more than five (5) years;
or (ii) involves more than five hundred (500) square feet of space within the
Inn);
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receipt, holding and disbursement of funds; maintenance of bank accounts;
procurement of Inventories, supplies and services; promotion and publicity; and,
generally, all activities necessary for operation of the Inn.
2.3 Operational Standards. In accordance with the Residence Inn System
---------------------
Standards and the other terms of this Agreement, Management Company shall, in
connection with the Inn, perform each of the following functions (provided that
in all cases, except as otherwise specifically set forth in this Agreement-, the
costs and expenses of performing such functions shall be Deductions):
A. Obtain and keep in full force and effect, either in its own name
on behalf of Owner or in Owner's name, as may be required by the Legal
Requirements, any and all Licenses to the extent same is within the control of
Management Company (or, if same is not within the control of Management Company,
Management Company shall use all due diligence and reasonable efforts to obtain
and keep same in full force and effect).
B. Recruit, employ, supervise, direct and (when appropriate)
discharge all of the employees at the Inn.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Inn.
E. Procure (as agent for Owner) all Fixed Asset Supplies and
Inventories.
F. Maintain the Operating Accounts.
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G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the
Inn, including Suite rates.
I. As agent for Owner, negotiate and enter into leases, concessions
and licenses for shops and other facilities within the Inn.
J. Administer the leases, concessions and licenses for shops and
other facilities within the Inn (whether entered into pursuant to subsection I,
above, or otherwise).
K. Provide services included in the Residence Inn System Fee and the
Chain Services.
L. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Management Company under this Agreement, provided that the costs and expenses of
providing such services are to be paid as described in Section 12.4.B.
M. Reasonably cooperate with Owner concerning: (i) disputes with any
Holder regarding the Inn, (ii) contests of Impositions and Legal Requirements;
and (iii) adjustments of insurance claims and condemnation awards involving the
Inn.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.1, be obligated to enter
into any amendments of this Agreement) with Owner in any attempt(s) by Owner to
effectuate a Sale of the Inn (provided that nothing herein shall affect the
provisions of Section 20.05), or to obtain any Secured Loan. If given
reasonable notice, such cooperation shall include, without limitation: (i)
answering any reasonable questions by prospective purchasers and Holders;
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(ii) preparing lists and schedules of leases, concessions, FF&E, Fixed Asset
Supplies, Inventories, and similar items (but specifically excluding customer
lists); and (iii) making such certifications and representations to Owner, to
such purchasers and to such Holders, regarding the Inn and the operation
thereof, as Owner may reasonably request (taking into account the extent of
Management Company's control and responsibility provided for hereunder). Owner
shall promptly reimburse Management Company, from its own funds and not as a
Deduction, for the reasonable costs and expenses incurred by Management Company
in connection with any actions necessary to comply with the requirements of this
Section 2.3.N, provided that such actions are not otherwise required under other
provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and
prepare annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish
Inventories, Fixed Asset Supplies, payments on accounts payable and collections
of accounts receivable, so as to avoid or minimize any cash deficits with
respect to Inn operations, which deficits would otherwise require additional
funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in any
Existing Mortgages which are by their terms applicable to the operation of the
Inn; provided, however, that all practices and procedures used by Management
Company in the operation of the Inn as of the Effective Date shall be deemed to
be in compliance with the Existing Ground Lease and all Existing Mortgages; and
provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Inn are not in compliance with the
30
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provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Inn
operations, or would impose additional financial burdens on the Inn which are,
beyond the normal course of Inn operations, Owner (from its own funds, not as a
Deduction) shall compensate Management Company for such work and such additional
burdens.
2.4 Limitations on Authority.
------------------------
A. Notwithstanding anything in Section 2.2 or elsewhere in this
Agreement to the contrary (unless otherwise stated in this Section 2.4), and in
addition to the various other provisions of this Agreement which prohibit
Management Company from taking certain actions or which allow certain actions
only if Owner's consent thereto has been obtained, Management Company shall not,
without the prior written approval of Owner, which approval Owner may withhold
in its sole discretion, perform any of the following actions in connection with
the Inn and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except: (i)
items in the approved Building Estimate, and (ii) FF&E, Fixed Asset
Supplies and Inventories (to the extent the same constitute capital assets)
in the ordinary course of business as expressly provided for in this
Agreement;
3. Financing, refinancing or mortgaging of any portion of the Inn or
the revenue due to Owner therefrom;
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies
and Inventories in the ordinary course of business as expressly provided
for in this Agreement), leasing (other than as expressly provided for in
this
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Agreement, including without limitation, Section 2.2 of this Agreement) or
other transferring of, or the pledging or placing of any lien or
encumbrance on, any part of the Inn;
5. In the event of a total or partial condemnation, consenting to any
award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
License, except to the extent permitted under Section 2.2;
7. Adjusting any claim or settling any Litigation which (i) is not
covered by any of the insurance policies described in Article XII and is
not an Employee Claim, and which would result in a Deduction or payment in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in any Fiscal
Year, as adjusted by the GDP Deflator, or (ii) would impose on Owner any
material liability or obligation other than the payment of money, or would
require Owner to make any material admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Inn or its contents, where the
estimated cost of restoration is in excess of Five Hundred Thousand Dollars
($500,000.00), as adjusted by the GDP Deflator.
2.5 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants,
conditions, restrictions and/or agreements, including reciprocal easements or
cost-sharing arrangements (all of the foregoing types of encumbrances on the
Inn, or agreements relating to the Inn, whether existing as of the Effective
Date or not, shall be collectively referred to as "CC&R's"; those CC&R's which
are in existence as of the Effective Date shall be referred
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to in this Agreement as "Existing CC&R's"). Management Company hereby
gives its consent to all Existing CC&R's. Except as otherwise specifically set
forth to the contrary in Exhibit "F" hereto, all costs, expenses and charges
which are imposed on the Inn under the Existing CC&R's shall be paid from Gross
Revenues as Deductions. Those certain costs, expenses and charges which are
described on Exhibit "F" hereto as "capital charges" shall be paid by Owner,
from its own funds, and all such payments shall be treated for purposes of this
Agreement as Additional Invested Capital expended by Owner.
B. CC&R's which are entered into, or become encumbrances on the Inn
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's". Owner agrees that it will give Management Company, for
Management Company's prior approval, written notice of its intention to execute
any Future CC&R's, such notice to be reasonably in advance of the execution
thereof. Owner covenants that, during the Term of this Agreement, there will not
be (unless Management Company has given its prior written consent thereto) any
Future CC&R's affecting the Site or the Inn- (i) which purport to impose any
material financial obligations on the Inn; (ii) which would prohibit or limit
Management Company from operating the Inn in accordance with the Residence Inn
System Standards; or (iii) which would allow Inn facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Inn.
C. All financial obligations imposed on Owner or on Management
Company or on the Inn pursuant to any Future CC&R's shall be paid by Owner from
its own funds, and not from Gross Revenues or from the FF&E Reserve, unless
Management Company has given its prior written consent to such Future CC&R's.
Management Company agrees that it will not unreasonably withhold its consent to
any such Future CC&R's; provided, however, that Management Company shall be
entitled to withhold its consent in its
33
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discretion if a proposed Future CC&R would have a material impact on the
operation of the Inn, as described in clauses (i), (ii) or (iii) of Section
2.5.B. Upon receipt of such consent from Management Company, such sums shall be
Deductions in computing Operating Profit.
D. Owner shall not waive any protections which benefit the Hotel
pursuant to existing restrictive covenants without the prior written consent of
Management Company which consent shall not be unreasonably withheld, conditioned
or delayed.
2.6 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses.
ARTICLE III
OWNERSHIP OF THE INN
--------------------
3.1 Ownership of the Inn
--------------------
A. Each party acknowledges that the status of title to the Site and
to the Inn is as described on Exhibit "F" hereto; neither party will hold the
other party responsible for any defects in said status of title, and each party
hereby releases the other party from all claims stemming from any such defects.
B. Owner hereby covenants that, throughout the Term of this
Agreement, it will not change the status of title to the Site from that which is
described on Exhibit "F" hereto, except that Owner shall have the right either
(i) to effectuate of the Inn in accordance with Article XIX, or (ii) to encumber
the Site and the Inn with the following:
1. Mortgages which are given to secure any one or more Qualified
Loans;
2. Liens for Impositions or other public charges not yet due or which
are being contested in good faith; and
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3. Easements or other encumbrances (not including those described in
subsection 1 or 2 above) which do not adversely affect the operation of the
Inn by Management Company and which are not prohibited pursuant to Section
2.5.B of this Agreement.
C. Owner shall indemnify, defend and hold Management Company and its
Affiliates harmless from claims by entities which have loaned money to Owner
that Management Company (or any of such Affiliates) owes any such lender all or
any portion of such indebtedness.
D. Management Company shall indemnify, defend and hold Owner and its
Affiliates harmless from claims by entities which have loaned money to
Management Company that Owner (or any of such Affiliates) owes any such lender
all or any portion of such indebtedness.
ARTICLE IV
TERM
----
4.1 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence
with the Effective Date and, unless sooner terminated as herein provided, shall
continue until the expiration of Fiscal Year 2013. The Term shall thereafter be
automatically renewed for each of three (3) successive periods of ten (10) full
Fiscal Years each ("Renewal Terms"), unless either: (i) Management Company, at
its option, notifies Owner, in accordance with Section 20.9, at any time within
the period of eighteen (18) months prior to the expiration of the Initial Term
or the then current Renewal Term, as the case may be, of its intention not to
renew; or (ii) Management Company has committed an Event of Default, and has
been
35
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notified by Owner of such Event of Default, under Article XVI of this Agreement,
as of the date of any such renewal.
B. If Management Company so notifies Owner of its intention not to
renew pursuant to Section 4.1.A, Management Company shall continue to manage the
Inn pursuant to this Agreement until the termination date set forth in such
notice, provided that such termination date shall be: (i) no less than twelve
(12) months after the date of such notice; and (ii) in no event earlier than the
expiration date of the Initial Term or the then current Renewal Term, as the
case may be. Such termination date may be after the expiration of the Initial
Term or the then current Renewal Term, as the case may be, provided that the
requirements of the preceding sentence are satisfied. However, if Management
Company has so notified Owner of its intention not to renew, Owner may, at its
option, by written notice to Management Company at least ninety (90) days prior
to the date on which Owner desires Termination to occur, reduce the period of
time prior to Termination to any shorter period of time which Owner desires,
provided that such shorter period of time shall be at least the greater of: (a)
ninety (90) days (beginning as of the date of such notice from Owner), or (b)
the minimum period of time which Management Company reasonably decides is
prudent, given the requirements of the applicable Employment Laws regarding
employee discharges. In no event shall the fact that Management Company may,
pursuant to the preceding sentence, be managing the Inn after the expiration of
the Initial Term or the then current Renewal Term, as the case may be, be
construed as an election by Management Company to renew the Term, if Management
Company has elected (in accordance with this Section 4.1) in writing not to so
renew.
C. If Owner has the right, under the provisions of the Existing
Ground Lease, to elect to renew or extend the term of the Existing Ground Lease,
Owner shall so
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<PAGE>
notify Management Company at least one hundred eighty (180) days (but no more
than one (1) year) prior to the expiration of the period within which Owner is
obligated to notify the Ground Lessor of its election to renew or extend the
term of the Existing Ground Lease. Such notice from Owner shall contain all of
the relevant facts about the impending election to renew or extend, including
the length of the period of renewal or extension. Unless Management Company
notifies Owner, within a period of ninety (90) days after receipt of the
foregoing notice from Owner, that Management Company disapproves the renewal or
extension of the term of the Existing Ground Lease, Owner will, by proper notice
to the Ground Lessor, within the applicable time period under the Existing
Ground Lease, elect to renew or extend the term of the Existing Ground Lease.
D. If, after proper notice from Owner in accordance with Section 4.1
C, Management Company fails to disapprove the renewal or extension of the term
of the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with Section 4.1 C
or (ii) the date on which the Term Agreement would otherwise have expired absent
this sentence. If, in order to comply with the preceding sentence, it is
necessary for Management Company to waive its option not to renew with respect
to one or more Renewal Terms, such waiver shall be deemed to have been given;
however, Management Company shall retain the right not to renew (as more
particularly described in Section 4.1 A) as to any portion of such Renewal
Term(s) which would occur after the expiration of the term of the Existing-
Ground Lease, as renewed or extended in accordance with Section 4.1 C.
E. If, after proper notice from Owner in accordance with Section 4.1
C, Management Company disapproves the renewal or extension of the term of the
Existing
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Ground Lease, the Term of this Agreement shall be deemed to be automatically
reduced to the earlier of: (i) the expiration of the term of the Existing Ground
Lease; or (ii) the date on which the Term of this Agreement would otherwise have
expired absent this sentence.
4.2 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days after Termination
of this Agreement, prepare and deliver to Owner a final accounting statement
with respect to the Inn, as more particularly described in Section 9.1 hereof,
along with a statement of any sums due from Owner to Management Company pursuant
hereto, dated as of the date of Termination. Within thirty (30) days after the
receipt by Owner of such final accounting statement, the parties will make
whatever cash adjustments are necessary pursuant to such final statement. The
cost of preparing such final accounting statement shall be a Deduction, unless
the Termination occurs as a result of an Event of Default by either party, in
which case the defaulting party shall pay such cost. Management Company and
Owner acknowledge that there may be certain adjustments for which the necessary
information will not be available at the time of such final accounting, and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that (unless there
are ongoing disputes of which each party has received notice) all accounts shall
be deemed final as of one hundred eighty (180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by Management Company with respect to the
Inn, with the exception of funds to be held in escrow pursuant to Section 12.4,
and Section 14.1.F.
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During the period between the date of Termination and the date of such final
accounting, Management Company shall pay (or reserve against) all Deductions
which accrued (but were not paid) prior to the date of Termination, using for
such purpose any Gross Revenues prior to the date of Termination.
C. Management Company shall make available to Owner such books and
records respecting the Inn (including those from prior years, subject to
Management Company's reasonable records retention policies) as will be needed by
Owner to prepare the accounting statements, in accordance with the Uniform
System of Accounts, for the Inn for the year in which the Termination occurs and
for any subsequent year. Such books and records shall described in Sections 7.1,
10.2, 10.3, 10.4, 12.4.B, and 14.1.F.
D. Management Company shall peacefully vacate and surrender the Inn
to Owner.
The provisions of this Section 4.2 shall survive any Termination.
4.3 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.3.B below, Owner shall have
the option to terminate this Agreement if:
1. With respect to any two (2) consecutive full Fiscal Years (not
including any Fiscal Year prior to Fiscal Year 1996), Operating Profit less
the amount of Ground Lease Rental, if applicable, for each of such two (2)
Fiscal Years is less than the Performance Termination Threshold; and
2. The Revenue Index of the Inn during each of such two (2)
consecutive Fiscal Years; is less than the Revenue Index Threshold; and
3. The fact that the Inn is not meeting the tests set forth in
Section 4.3.A(1) and (2) is not the result of either (x) Force Majeure, or
(y) any major
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renovation of the Inn. Such option to terminate shall be exercised by
serving written notice thereof on Management Company no later than sixty
(60) days after the receipt by Owner of the annual accounting under Section
9.1 hereof for the second (2nd) of the two (2) Fiscal Years referred to in
Section 4.3.A(1). If Management Company does not elect to avoid such
Termination pursuant to Section 4.3.B below, this Agreement shall terminate
as of the end of the fourth (4th) full Accounting Period following the date
on which Management Company receives Owner's written notice of its intent
to terminate this Agreement; provided that such period of time shall be
extended as required by applicable Legal Requirements pertaining to the
termination of the employment of the employees at the Inn. Owner's failure
to exercise its right to terminate this Agreement pursuant to Section 4.3.A
with respect to any given Fiscal Year shall not be deemed an estoppel or
waiver of Owner's right to terminate this Agreement with respect to
subsequent Fiscal Years to which this Section 4.3.A may apply.
B. Upon receipt of Owner's written notice of Termination under
Section 4.3.A, Management Company shall have the option, to be exercised within
sixty (60) days after receipt of said notice, to avoid such Termination by
paying Owner an amount (the "Cure Payment") equal to one hundred five percent
(105%) of the amount by which Operating Profit less Ground Lease Rental, if any,
for either of the two (2) Fiscal Years in question (i.e., the two (2) Fiscal
Years referred to in Section 4.3.A(l)) was less than the Performance Termination
Threshold. Any such Cure Payment shall be accounted for as a fee to Owner in
connection with the avoidance of such Termination. In the event Management
Company makes a Cure Payment pursuant to this Section 4.3.B, the Fiscal Year
with respect to which such Cure Payment was made shall thereafter not be
treated, for
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purposes of subsequent elections by Owner pursuant to Section 4.3.A, as a Fiscal
Year in which the circumstances described in Section 4.3.A(l) have occurred. If
Management Company exercises such option to make such Cure Payment, then the
foregoing Owner's election to terminate this Agreement under Section 4.3.A shall
be canceled and of no force or effect with respect to the two (2) Fiscal Years
in question and this Agreement shall not terminate. Such cancellation, however,
shall not affect the right of Owner, as to each subsequent Fiscal Year to which
Section 4.3.A applies, to again elect to terminate this Agreement pursuant to
the provisions of Section 4.3.A (which subsequent election shall again be
subject to Management Company's rights under this Section 4.3.B). If Management
Company does not exercise its option to make the Cure Payment then this
Agreement shall be terminated as of the date set forth in Section 4.3.A. Any
Cure Payment which is paid by Management Company pursuant to this Section 4.3.B
shall not be recoverable by Management Company. Any Cure Payment which is paid
by Management Company pursuant to this Section 4.3.B shall only operate to
cancel Owner's election to terminate this Agreement under Section 4.3.A, and
shall not operate to cure any outstanding Defaults by Management Company under
Article XVI.
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY: DISTRIBUTIONS
-------------------------------------------------
5.1 Management Fees
---------------
A. In consideration of services to be performed during the Term of
this Agreement, Management Company shall retain the Management Fees. Owner's
Priority and the Management Fees shall be appropriately prorated for any partial
Fiscal Year.
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B. Notwithstanding the provisions of Article IX of this Agreement
permitting the consolidation of reports and co-mingling of certain funds with
other hotels owned by Owner, the Base Management Fee, Deferred Contingent Base
Management Fees, Residence Inn System Fee and Incentive Management Fee shall be
calculated based on the revenues generated by the Inn and not on a consolidated
basis with any other hotels which may be owned by Owner.
5.2 Distribution of Operating Profit
--------------------------------
In each Fiscal Year, Operating Profit shall be distributed to Owner and
Management Company in accordance with the following priorities:
A. Owner shall first receive an amount equal to the lesser of: (i)
Owner's Priority; or (ii) Operating Profit.
B. Management Company shall next receive the Base Management Fee;
provided, however, that if, in any Fiscal Year the Base Management Fee exceeds
Net Operating Profit, such Base Management Fee shall be deferred to the extent
of such excess and such deferred sums shall become "Deferred Contingent Base
Fees".
C. Management Company shall next receive an amount equal to the
Deferred Contingent Base Fees to the extent that Net Operating Profit is
otherwise sufficient for such purposes.
D. Management Company shall next receive an amount equal to the
Incentive Management Fee.
E. Owner shall receive all Operating Profit remaining after the
distributions made pursuant to the preceding subparagraphs of this Section 5.2.
5.3 Accounting and Interim Payments
-------------------------------
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A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Holders or Ground Lessors, at the addresses specified by
Owner. Such Accounting Period Statement shall set forth the results of the
operations of the Inn for the preceding Accounting Period and for the Fiscal
Year-to-date, all in accordance with generally accepted accounting principles
applied on a consistent basis. Each Accounting Period Statement shall be
accompanied by a statement, by the Controller, Assistant Controller or Vice
President of the Management Company that, to the best of his or her knowledge
and belief, and subject to routine year-end audit and adjustment, such
Accounting Period Statement is true and correct in all material respects. Each
Accounting Period Statement shall include: (i) calculations of Gross Revenues,
Deductions, Operating Profit, the Management Fees; and (ii) comparisons with the
applicable categories for the prior Fiscal Year. With each such Accounting
Period Statement, Management Company shall transfer any interim Owner's
Distribution due to Owner, and shall retain any interim Management Fees due to
Management Company. Calculations and payments of the Management Fees and the
Owner's Distribution with respect to each Accounting Period within a Fiscal Year
shall be accounted for cumulatively. B. Within seventy-five (75) days after the
close of each Fiscal Year, Management Company shall submit an Annual Operating
Statement, as more fully described in Section 9.1, for such Fiscal Year to
Owner, which Annual Operating Statement shall be controlling over the interim
Accounting Period Statements. Any adjustments or payments required by any such
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Annual Operating Statement shall be made promptly by the parties. Operating
Losses shall not be carried forward or backward to subsequent or prior Fiscal
Years.
5.4 Accounting for Period Prior to Effective Date
---------------------------------------------
A. It shall be a general principle in the accounting for the Inn that
all liabilities incurred and/or income generated prior to the Effective Date, or
properly allocated to the period prior to the Effective Date under generally
accepted accounting principles, shall be included in the Accounting Period
Statements and the Annual Operating Statements for the Inn pursuant to this
Agreement for the Fiscal Year in which such liabilities are paid or such income
is received, provided, however, that the foregoing shall not be reflected in the
computation of Operating Profit for purposes of Section 4.3.
B. As of the Effective Date, the cash on hand at the Inn shall be
deposited in one of the Operating Accounts set up by Management Company pursuant
to Section 9.2, and shall be treated as part of the Working Capital described in
Section 7.1.
ARTICLE VI
FINANCING OF THE INN
--------------------
6.1 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified
Lender (in which event such amendments shall take effect as of the funding of
such Qualified Loan), Management Company agrees to execute and deliver any
amendment of this Agreement which is reasonably required by such Qualified
Lender or prospective Qualified Lender, provided that Management Company shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Management Company hereunder; (ii) to materially increase
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Management Company's obligations under this Agreement; (iii) to change the Term
of this Agreement; (iv) to cause the Inn to be operated other than pursuant to
the Residence Inn System Standards; (v) to amend either Section 8.2 or Section
14.1; or (vi) to otherwise materially affect Management Company's rights under
this Agreement. Any such amendment shall take effect as of the funding of such
Qualified Loan.
B. In addition to the provisions of Section 6.1.A, if a Qualified
Lender or prospective Qualified Lender requests that Management Company enter
into an amendment of this Agreement, and if such amendment would impose
additional duties (for example, an increase in the reporting requirements or in
the record-keeping requirements, or adding the obligation to-prepare parallel
accounting statements using a different fiscal year) on Management Company or
would otherwise adversely affect Management Company's rights under this
Agreement, but not to the degree described in clauses (i) through (vi) of
Section 6.1.A, Management Company hereby agrees that it will execute and deliver
such requested amendment of this Agreement, provided that Owner compensates
Management Company for the additional burden imposed by such amendment out of
Owner's funds and not as a Deduction. It is understood that the word "burden",
as used in the preceding sentence, shall encompass not only additional work to
be performed by Management Company, but also any adverse effect on the Incentive
Management Fee which would be caused by requiring increased services by third
parties. Any dispute as to whether Management Company is entitled to any
compensation pursuant to this Section 6.1.B, or as to the amount of such
compensation, shall be resolved by arbitration pursuant to Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII, shall be governed exclusively by
Article XII.
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6.2 Notice and Opportunity to Cure
------------------------------
A. In the event of: (i) a Default by Owner in the performance or
observance of any of the terms and conditions of this Agreement; or (ii) any
other occurrence which entitles Management Company to terminate this Agreement,
and in-the event that Management Company gives written notice thereof to Owner
pursuant to Article XVI of this Agreement, Management Company shall also give a
duplicate copy (herein referred to as the "First Notice") of such notice to,
each Qualified Lender, at the address previously provided to Management
Company. Any such notice will be sent in the manner described in Section 2.9
hereof. In addition, in the event that such Default is not cured within the
applicable cure period under Article XVI of this Agreement, and Management
Company intends to exercise its remedy of terminating this Agreement, Management
Company shall send a second notice (the "Second Notice") to each Qualified
Lender, at the same address and in the same manner applicable to the First
Notice stating Management Company's intention to terminate this Agreement.
Management Company shall forbear from taking any action to terminate this
Agreement for a period of thirty (30) days after the service of the First
Notice, and for an additional period of thirty (30) days after the service of
the Second Notice (if such Second Notice is required, as set forth above).
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.2).
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C. No notice given by Management Company to Owner shall be effective
as a notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.2.A (either
the First Notice or the Second Notice, as the case may be) has been given. It
is understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.2, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
6.3 Collateral Assignment of Management Agreement
---------------------------------------------
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to distributions payable to Owner
pursuant to Article V thereof. If, pursuant to any such assignment (or
subsequent loan documentation entered into between Owner and a Qualified Lender
with a similar purpose), and provided that Management Company has previously
received a copy of such assignment and such subsequent documentation, Management
Company may receive (from time to time) a notice or notices from such Qualified
Lender directing Management Company to pay to such Qualified Lender subsequent
distributions under Article V of this Agreement which would otherwise be payable
to Owner, Management Company shall comply with any such notice. Management
Company shall continue to make payments in compliance with any such notice from
such
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Qualified Lender until Management Company receives written instructions to the
contrary from such Qualified Lender. Owner hereby gives its consent to any such
payments by Management Company to such Qualified Lender which are in compliance
with any such notice. The foregoing consent by Owner shall be deemed to be
irrevocable until the entire Qualified Loan has been discharged, as evidenced
either by the recordation of a satisfaction or release executed by such
Qualified Lender, or by the delivery of a written statement to that effect from
such Qualified Lender to Management Company. Management Company shall comply
with the direction set forth in any such notice without any necessity to
investigate why such Qualified Lender sent such notice, or to confirm whether or
not Owner is in fact in default under the terms of such Qualified Loan. If
Management Company receives such notices from more than one Qualified Lender,
Management Company shall (at its option) either: (i) comply with the provisions
of the notice sent by the Qualified Lender whose Qualified Loan has the senior
lien priority; or (ii) institute Litigation for a declaratory judgment to
determine to whom payments under this Agreement shall be made (in which case,
the costs and expenses of such Litigation, including attorneys' fees, shall be
Deductions).
6.4 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to
manage and operate the Inn pursuant to this Agreement, are and shall be subject
and subordinate to the lien of any Qualified Loan, (i.e., upon a Foreclosure of
any such Qualified Lender, at its option, unless such Qualified Lender has
otherwise agreed to the contrary in a Non-Disturbance Agreement shall have the
right to terminate this Agreement). Notwithstanding the foregoing, during the
Term of this Agreement, all debt service
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(including increased or accelerated payments after a default) payable with
respect to any Qualified Loan shall be paid exclusively from Owner's
Distribution.
B. Section 6.4.A is intended to be, and is, fully effective and
binding, as between Management Company and any such Qualified Lender; however!
Management Company agrees to execute such confirmatory documentation (in
recordable form in the jurisdiction in which the Inn is located) as such
Qualified Lender shall reasonably request.
C. Notwithstanding the possible termination of this Agreement which
is set forth in the foregoing provisions of this Section 6.4, it is understood
that, until such time as this Agreement is validly terminated either (i)
pursuant to the applicable provision of this Agreement, or (ii) pursuant to a
court order in connection with the Foreclosure of a Qualified Loan (assuming
that such termination does not breach any binding Non-Disturbance Agreement),
the Holder of each Qualified Loan will honor and recognize the right of
Management Company to operate the Inn in accordance with this Agreement
(including the right of Management Company to collect all Gross Revenues and to
make expenditures in accordance with this Agreement).
6.5 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of
any Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Management Company is, as of that point in time, reasonably prepared to make in
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order to satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Management Company toward Qualified Lenders which are
contained elsewhere in this Article VI.
B. Notwithstanding Section 6.5.A, Owner agrees that, prior to
obtaining any Qualified Loan, it will obtain from each prospective Holder or
Holders thereof a Non-Disturbance Agreement pursuant to which Management
Company's rights under this Agreement will not be disturbed as a result of a
loan default stemming from non-monetary factors which (i) relate to Owner and
(ii) are not Defaults by Management Company under Article XVI of this Agreement.
6.6 Attornment
----------
A. Management Company agrees that, subject to the provisions of
Section 6.6.B, upon a Foreclosure of any Qualified Loan, provided that this
Agreement has not expired or otherwise been earlier terminated in accordance
with its terms, Management Company shall attorn to any Subsequent Owner and
shall remain bound by all of the terms, covenants and conditions of this
Agreement for the balance of the remaining Term (including any Renewal Terms)
with the same force and effect as if such Subsequent Owner were the "Owner"
under this Agreement; provided, however, that Management Company shall be under
no such obligation to so attorn, and, to the contrary, shall thereupon have the
right to terminate this Agreement on thirty (30) days' prior written notice to
both Owner and such Subsequent Owner: (i) if such Subsequent Owner would not
qualify as a permitted transferee under Section 19.1.A of this Agreement; or
(ii) unless such Subsequent Owner, within twenty (20) days after the Foreclosure
Date (or, in the event such Subsequent Owner acquires title to the Inn after the
Foreclosure Date, within twenty (20) days after the date of
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such acquisition of title to the Inn), assumes all of the obligations of the
"Owner" under this Agreement which arise from and after the Foreclosure Date (or
such later date of acquisition of title to the Inn), pursuant to a written
assumption agreement which shall be delivered to Management Company. Upon the
written request of any Qualified Lender, Management Company shall periodically
execute and deliver a statement, in a form reasonably satisfactory to such
Qualified Lender, reaffirming Management Company's obligation to attorn as set
forth in this Section 6.6.A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.4, Management Company has an
interest in being informed, within a reasonable period of time after a Qualified
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Qualified Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement executed by the Holder of such Qualified Loan, Management
Company shall, as of the Post-Foreclosure Decision Date and thereafter, no
longer be under any obligation to attorn (pursuant to the provisions of Section
6.6.A) with respect to any Foreclosure of that Qualified Loan, and Management
Company shall have the option to terminate this Agreement, by written notice to
both Owner and the Holder of each existing Qualified Loan, at any time within
the sixty (60) day period immediately following the Post-Foreclosure Decision
Date.
6.7 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially
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affects such Qualified Lender, no such amendment or modification of this
Agreement shall be binding or effective unless such Qualified Lender shall have
consented in writing thereto.
6.8 Owner's Right to Finance the Inn.
--------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Inn
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
6.9 Cross Collateralization
-----------------------
A. In connection with obtaining Qualified Loans, Owner shall have the
right to cross collateralize the Inn with other inns which it owns in the
Residence Inn System, provided that:
1. the inns to be the subject of the Qualified Loans are owned by
Owner or an Affiliate of Owner;
2. the Qualified Loans are secured only by inns in the Residence Inn
System which are managed by Management Company or its Affiliates and are
not cross collateralized with any property other than inns managed by
Management Company or its Affiliates in the Residence Inn System;
3. the basic terms and conditions of the Qualified Loans for the Inn
and each other inn securing such loan are intended to be part of an
integrated transaction; and
4. the closing of the Qualified Loans shall take place within six (6)
months of each other.
B. Any Mortgage secured by the Inn shall contain a provision
requiring Holder to provide Management Company prior written notice of any
default under such
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Mortgage. Further, upon receipt of any notice of default by such Holder, Owner
shall forward a copy of such notice to Management Company within three (3) days
thereafter, in accordance with the notice provisions set forth in Section 20.9.
6.10 Sale/Leaseback Transactions
---------------------------
Any single transaction or related series of transactions in which (i)
Owner's interest in the Inn is sold or transferred by the then Owner ("Seller")
to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the Inn to the
Seller (as "tenant"), is hereby defined as a "Sale/Leaseback Transaction".
With respect to each Sale/Leaseback Transaction during the Term of this
Agreement, the following provisions will apply: (a) the sale or transfer of the
Inn will be considered a Sale of the Inn; however, the Seller (as tenant under
the aforesaid lease), not the Buyer, shall thereafter be treated as the "Owner"
for purposes of this Agreement; (b) the purchase price will not be a Secured
Loan, but any mortgage financing placed (either at the time of the transaction
or later) on the Buyer's interest in the Inn will be treated as a Secured Loan,
and the proceeds of each such Secured Loan will be aggregated with all
outstanding Secured Loans, which encumber either the Buyer's interest in the Inn
or the Seller's leasehold interest in the Inn, for purposes of determining
whether a given Secured Loan qualifies as a Qualified Loan; (c) payments
pursuant to such lease shall not be treated as Deductions, except for
Impositions and similar items which would have been treated as Deductions in the
absence of such Sale/Leaseback Transaction; and (d) all subsequent sales,
transfers or assignments of either Buyer's interest in the Inn or Seller's
interest in the Inn will be treated as Sales of the Inn. Owner will not enter
into any Sale/Leaseback Transaction unless Management Company and the proposed
Buyer have previously executed a mutually satisfactory attornment agreement
pursuant to which, as of the date of the termination of Seller's leasehold
interest, the provisions of this Agreement
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will (unless there has been an Event of Default or other event entitling either
party to terminate this Agreement) be binding both on Management Company and on
Buyer (as the successor "Owner"); such attornment agreement will also contain an
immediately-effective provision which will incorporate the terms of Section 6.8
of this Agreement, binding both on Management Company and on Buyer.
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.1 Working Capital
---------------
A. Owner shall, from time to time during the Term of this Agreement,
provide Management Company, within thirty (30) days after Owner's receipt of
written request therefor by Management Company, with the funds necessary to
maintain Working Capital at levels determined by Management Company to be
reasonably necessary to operate the Inn in accordance with the Residence Inn
System Standards. Any such request by Management Company shall be accompanied
by a detailed explanation of the reasons for the request. If Owner fails to
respond to any such request within thirty (30) days after Owner's receipt
thereof, Management Company shall be entitled, at its option, without affecting
other remedies which may be available pursuant to Article XVI, to lend Owner the
necessary additional Working Capital from Management Company's own funds, which
loan will bear interest at the Interest Rate (compounded annually), and will be
secured by a security interest subordinate to any Qualified Loan encumbering all
Working Capital previously or thereafter provided by either Owner or Management
Company, and will be repaid in accordance with such terms and conditions as
Management Company shall at that time reasonably determine.
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B. Management Company will manage the Working capital of the Inn
prudently and in accordance with the Residence Inn System Standards. Management
Company shall review and analyze the Working Capital needs of the Inn on an
annual basis. If Management Company reasonably determines that there is excess
Working Capital, such excess shall be returned to Owner.
C. Working Capital provided by Owner pursuant to this Section 7.1
shall remain the property of Owner throughout the Term of this Agreement. Upon
Termination, Owner shall retain any of its unused Working Capital, except for
Inventories purchased by Management Company pursuant to Section 10.2.
D. If Owner owns other inns in the Residence Inn By Marriott System
which are operated by Management Company, Management Company, at its option, may
co-mingle the Working Capital for the Inn with the Working Capital account for
Owner's other inn(s) in a single bank account.
7.2 Fixed Asset Supplies
--------------------
As of the Effective Date, Owner shall provide the Inn with the Fixed Asset
Supplies which are necessary to operate the Inn in accordance with the Residence
Inn System Standards. Owner shall, from time to time thereafter during the Term
of this Agreement, provide Management Company, within thirty (30) days after
Owner's receipt of written request therefor by Management Company, with any
additional funds necessary to maintain Fixed Asset Supplies at levels determined
by Management Company to be necessary to operate the Inn in accordance with the
Residence Inn System Standards. Fixed Asset Supplies shall remain the property
of Owner throughout the Term of this Agreement, except for Fixed Asset Supplies
purchased by Management Company pursuant to Section 10.2.
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ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.1 Routine Repairs and Maintenance
-------------------------------
Management Company shall maintain the Inn in good repair and condition, to
a standard comparable with competitive hotels and in conformity with applicable
Legal Requirements and the Residence Inn System Standards, and shall make or
cause to be made such routine maintenance, repairs and minor alterations, the
cost of which can be expensed under generally accepted accounting principles, as
it, from time to time, deems reasonably necessary for such purposes. The cost
of such maintenance, repairs and alterations shall be paid from Gross Revenues
and shall be treated as a Deduction in determining Operating Profit.
8.2 FF&E Reserve
------------
A. Management Company shall establish a reserve account (the "FF&E
Reserve") in a bank designated by Management Company (and approved by Owner,
such approval not to be unreasonably withheld) to cover the cost of:
1. Replacements and renewals to the Inn's FF&E;
2. Certain routine repairs and maintenance to the Inn building which
are normally capitalized under generally accepted accounting principles,
such as exterior and interior repainting, resurfacing building walls,
floors, roofs and parking areas, and replacing folding walls and the like
(but which are not major repairs, alterations, improvements, renewals or
replacements to the Inn's buildings' structure, roof, or exterior facade,
or to its mechanical, electrical, heating, ventilating, air conditioning,
plumbing or vertical transportation systems, the cost of which shall be
governed exclusively by Section 8.3); and
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3. At Management Company's option, lease payments for Telephone and
Office Equipment, Shuttle Vehicles and computer equipment used in
connection with the operation of the Inn.
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any Qualified Lender to assist
such Qualified Lender in establishing or perfecting its security interest in the
funds which are in the FF&E Reserve; provided, however, that no such
documentation shall contain any amendment or modification of any of the
provisions of this Agreement, including this Section 8.2.
B. During the period of time from the Effective Date through the
Termination of this Agreement, subject to the provisions of Sections 8.2.E and
8.2.F, Management Company shall transfer (as of the end of each Accounting
Period) into the FF&E Reserve an amount equal to five percent (5%) of Gross
Revenues for that Accounting Period. All such amounts transferred into the FF&E
Reserve after the Effective Date shall be paid from Gross Revenues and shall
constitute Deductions in determining Operating Profit.
C. Each year, at the same time as Management Company submits the
Annual Operating Budget described in Section 9.3, shall be entitled to depart
therefrom, in its reasonable discretion, provided that: (a) such departures from
the applicable FF&E Estimate result from circumstances which could not
reasonably have been foreseen at the time of the submission of such FF&E
Estimate; and (b) such departures from the applicable FF&E Estimate are in the
best interest of the Inn; and (c) if the deviations from the FF&E Estimate are
greater than Ten Thousand Dollars ($10,000) as adjusted by the GDP Deflator on
each anniversary of the Effective Date, Management Company has submitted to
Owner a revised FF&E Estimate setting forth and explaining such departures. At
the end of each
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Fiscal Year, any amounts remaining in the FF&E Reserve shall be retained in the
FF&E Reserve, and shall be carried forward to the next Fiscal Year. Upon a Sale
of the Inn funds in the FF&E Reserve will not be affected (or, if withdrawn,
will be replaced as set forth in Section 19.1.D), and all dispositions of such
funds (both before and after such Sale of the Inn) will continue to be made
exclusively pursuant to the provisions of this Agreement. Proceeds from the sale
of FF&E no longer necessary to the operation of the Inn shall be deposited in
the FF&E Reserve, as shall any interest which accrues on amounts placed in the
FF&E Reserve. Neither (i) proceeds from the disposition of FF&E, nor (ii)
interest which accrues on amounts held in the FF&E Reserve, shall either (x)
result in any reduction in the required contributions to the FF&E Reserve set
forth in subsection B above, or (y) be included in Gross Revenues. Telephone and
Office Equipment, as well as Shuttle Vehicles and computer equipment used in
connection with the operation of the Inn are the only items of FF&E which
Management Company is authorized to lease (rather than purchase). At Management
Company's option, lease payments with respect to Telephone and Office Equipment,
and Shuttle Vehicles and computer equipment used in connection with the
operation of the Inn shall be paid out of the FF&E Reserve, as set forth in
Section 8.2.A above. If Management Company proposes that other items of FF&E
(other than Telephone and Office Equipment, as well as Shuttle Vehicles and
computer equipment used in connection with the operation of Inn) should be
leased rather than purchased, Management Company shall submit such proposal to
Owner for Owner's approval (not to be unreasonably withheld); in connection with
the foregoing, it is understood that the failure of a Qualified Lender to
approve such leasing proposal shall justify Owner in withholding its approval
thereof, regardless of whether withholding such approval would otherwise be
deemed to be unreasonable.
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D. The percentage contribution for the FF&E Reserve which is
described in Section 8.2.B is an estimate. As the Inn ages, this percentage may
not be sufficient to keep the FF&E Reserve at the levels necessary to make the
replacements and renewals to the Inn's FF&E, or to make the repairs to the Inn
building of the nature described in Section 8.2.A.2, which are required to
maintain the Inn in accordance with the Residence Inn System Standards and
comparable with competitive hotels. If (i) any FF&E Estimate prepared in good
faith by Management Company exceeds the available funds in the FF&E Reserve or
would cause a shortfall to occur in future years , and (ii) Management Company
has prepared and delivered to Owner a financial plan describing the shortages in
the available funding in the FF&E Reserve for the Fiscal Years in question,
Management Company will have the right, during the time periods described in
such financial plan, to increase the percentage of Cross Revenues set forth in
Section 8.2.B to a higher percentage, provided that in no event will such
percentage exceed six percent (6%) of Gross Revenues per Fiscal Year.
E. If any FF&E Estimate which is prepared in accordance with clauses
(i) and (ii) of Section 8.2.E would require funding in excess of six percent
(6%) of Gross Revenues per Fiscal Year, Owner may either:
1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.2.B to provide the additional funds required; or
2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case, such lump-sum contribution shall be an Owner
Deduction and shall be reimbursed to Owner in equal annual payments over
the useful life of the FF&E which is purchased, and such reimbursements
shall be deductions).
If Owner elects not to agree to either option 1 or option 2 above within
thirty (30) days after the submission of such FF&E Estimate (or, if Owner has
elected option 2, and has
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not funded the required amount within sixty (60) days after expiration of the
aforesaid thirty (30) day period), Management Company shall be entitled, at its
option, to terminate this Agreement by written notice to Owner, (with a copy to
each Qualified Lender) which notice shall be delivered no later than ninety (90)
days after the expiration of the sixty (60) day period described in the
preceding sentence. The effective date of such Termination shall be the date set
forth in such notice, provided that in no event shall the effective date of such
Termination be less than one hundred eighty (180) days, and no more than three
hundred sixty five (365) days after the date of such notice. Such failure to
fund by Owner shall not be deemed a Default by Owner under Article XVI, and
Management Company shall not be entitled to any remedies with respect to such
failure other than such termination of this Agreement and as set forth in
Section 8.3.E. If Owner owns any other inn(s) in the Residence Inn By Marriott
System which is (are) operated by Management Company, Management Company shall
co-mingle the FF&E Reserve for the Inn with the FF&E reserve account for Owner's
other inn(s) in a single bank account unless such co-mingling is prohibited by
any Qualified Lender.
8.3 Building Alterations, Improvements, Renewals. and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements (which repairs, alterations,
improvements, renewals and replacements are not among those referred to in
Section 8.2.A.2) to the structure or exterior facade of the Inn mechanical,
electrical, heating, ventilating, air conditioning, plumbing, or vertical
transportation elements of the Inn building. Management Company shall submit
each such Building Estimate to Owner for its approval at the same time the
Annual Operating Budget is submitted, and Management Company shall not make any
expenditures for such
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purposes without the prior written consent of Owner. Owner shall not
unreasonably withhold its consent with respect to such changes, repairs,
alterations, improvements, renewals or replacements to the Inn as are required
by reason of any Legal Requirement, or required under Management Company's
current life-safety standards (provided that, in order for any such life-safety
standards to be "required" within the meaning of this Section 8.3.A, such
standards must be both required and in the process of being implemented at a
majority of the inns within the Residence Inn System operated by Management
Company which are comparable to the Inn), or otherwise required for the
continued safety of guests or prevention of material damage to property,
including the removal of Hazardous Materials in compliance with all
Environmental Laws pursuant to Section 20.10).
B. In the event of the receipt by Management Company of a
governmental order or other circumstances described in Section 8.3.A above,
Management Company shall give Owner notice thereof within five (5) business days
thereafter or sooner if circumstances reasonably warrant. Management Company
shall then be authorized (but not obligated) to take appropriate remedial action
without receiving Owner's prior consent as follows: (i) in an emergency
threatening the Inn, its guests, invitees or employees; or (ii) if the
continuation of the given condition could (in Management Company's reasonable
judgment) subject Management Company and/or Owner to either criminal or more
than de minimis civil liability, and Owner has either failed to remedy the
----------
situation or has failed to take appropriate legal action to stay the
effectiveness of any applicable Legal Requirement. Management Company shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall reimburse Management Company for any costs
incurred by Management Company in connection with any such remedial action
within thirty
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(30) days after Owner's receipt of notice from Management Company of the amount
of such costs.
C. The cost of all changes, repairs, alterations, improvements,
renewals or replacements referred to in Section 8.3.A or 8.3.B (including the
expenses incurred by either Owner or Management Company in connection with any
civil or criminal proceeding described above) shall be borne solely by Owner,
and shall not be paid from Gross Revenues or from the FF&E Reserve. Any failure
of Owner to either (i) approve and provide funding for any proposed expenditures
pursuant to the last sentence of Section 8.3.A, within seventy-five (75) days
after Management Company's request therefor, or (ii) in the case of any Legal
Requirement which is described in Section 8.3.B, to either comply therewith or
to stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Management
Company shall be entitled (without affecting its other remedies under Article
XVI) to terminate this Agreement upon ninety (90) days' written notice to Owner;
(with a copy to each Qualified Lender); provided, however, that Management
Company shall have the right to stipulate such shorter period of time as may be
appropriate, given the time periods which are mandated by Legal Requirements, as
described in Section 8.3.A, or given Management Company's good faith concerns
about its own civil and/or criminal liability.
D. Management Company shall have the right, from time to time, to set
forth in any Building Estimate (in addition to the expenditures described in
Section 8.3.A) such changes, alterations or improvements to the Inn as are
required, in Management Company's reasonable judgment, to keep the Inn in a
competitive, efficient and economical operating condition, in accordance with
the Residence Inn System Standards which Management Company shall substantiate
by demonstrating a reasonable return on the
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proposed investment to be made by Owner). The cost of all changes, alterations
or improvements referred to in this Section 8.3.D shall be paid, to the extent
reasonably possible (given the requirement, set forth in Section 8.2, that the
balance in the FF&E Reserve be maintained at a level sufficient to maintain the
Inn in accordance with the Residence Inn System Standards) from the FF&E
Reserve, and Owner shall pay such costs from its own funds only to the extent
there are not adequate funds for such purpose in the FF&E Reserve. Any failure
of Owner to approve and fund the Owner's portion of any proposed expenditures
pursuant to Section 8.3.D, as described in the preceding sentence, or provide
funding for items in Section 8.3.A (other than those items included in the last
sentence of Section 8.3.A) within sixty (60) days after Management Company's
request therefor, shall not be a Default by Owner but shall entitle Management
Company to terminate this Agreement and receive payment of the fee set forth in
Section 8.3.E. Such Termination shall be evidenced by written notice to Owner,
(with a copy to each Qualified Lender) which notice shall be delivered to Owner
no later than ninety (90) days after the expiration of the sixty (60) day period
described in the preceding sentence. The effective date of such Termination
shall be the date stated by Management Company in such notice, provided that
such effective date shall be no less than one hundred eighty (180) days, and no
more than three hundred sixty (360) days, after the date of such notice. It is
understood that "alterations" and "improvements" which either (a) increase or
decrease the number of guest rooms in the Inn, or (b) involve changing the
architectural footprint of the Inn or involve other significant changes in the
structural design of the Inn, in any case by more than a de minimis amount, are
----------
beyond the scope of this Article VIII, and would require an amendment
of this Agreement prior to implementation by either party.
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E. Notwithstanding anything to the contrary in Section 8.2.F or
8.3.D, if Owner owns five (5) or fewer inns in the Residence Inn System which
are managed by Management Company, and Management Company elects to terminate
the Management Agreement due to: (i) Owner's failure to elect either option 1 or
2 in Section 8.2.F; (ii) Owner's failure to fund the required amount in Section
8.2.F, having elected option 2, or (iii) Owner's failure to fund pursuant to
Section 8.3.D, as applicable, then upon Management Company's election to
terminate the Management Agreement, which pursuant to both Sections 8.2.F and
8.3.D must (a) be made within ninety (90) days following the expiration of the
time period in which Owner must provide such additional funds, and (b) set forth
an effective date of such Termination which is no less than one hundred eighty
(180) days and no more than three hundred sixty five (365) days after the date
of such notice, then, Owner agrees to pay to Management Company a fee equal to
three (3) times the Base Management Fee for the prior Fiscal Year (regardless of
whether said Base Management Fee was actually paid to Management Company);
provided, however, that if, within ten (10) days from receipt of Management
Company's notice to terminate, Owner provides the funds required pursuant to
Section 8.2.F or 8.3.D, as applicable, then upon receipt of such funds by
Management Company, Management Company's notice to terminate shall be deemed
null and void and this Agreement shall continue in full force and effect. Said
fee shall be paid to Management Company upon the termination date set forth in
the written notice from Management Company to Owner terminating this Agreement.
This fee shall be compensation for lost revenue and expenses and not as a
penalty. If Owner fails to pay such fee within the time period set forth herein,
then Management Company shall have the right (without affecting Management
Company's other right under this Agreement) to withhold the amount of such fee
from Owner's Distribution.
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8.4 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Inn which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Inn.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the full cost (including without limitation, all legal fees, court costs,
bonding fees and underlying debt) of obtaining the lien release.
8.5 Ownership of Replacements, Etc.
------------------------------
All repairs, alterations, improvements, renewals or replacements of the Inn
which are made pursuant to Article VIII or otherwise shall be the property of
Owner. Subject to the provisions of Section 8.2, the funds in the FF&E Reserve
shall be the property of Owner.
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.1 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis
and in material respects in accordance with the Uniform System of Accounts, with
the exceptions provided in this Agreement. Owner may at reasonable intervals
during Management Company's normal business hours examine such records. Within
seventy-five (75) days following the close of each Fiscal Year, Management
Company shall furnish Owner a statement (the "Annual Operating Statement") in
reasonable detail summarizing the Inn operations for such Fiscal Year and a
certificate of Management Company's chief accounting
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officer (or its controller or any vice-president), certifying that to
the best of his or her knowledge and belief such year-end Annual Operating
Statement is true and correct. Owner shall have sixty (60) days after receipt
to examine or review (at Owner's sole expense, and not as a Deduction) said
Annual Operating Statement. If Owner raises no objections within said sixty
(60) day period, the Annual Operating Statement shall be deemed to have been
accepted by Owner as true and correct, and Owner shall have no further right to
question its accuracy. If Owner does raise such an objection, by notice to
Management Company, Owner shall arrange for an audit to be commenced within
sixty (60) days after the date of such objection, and shall diligently cause
such audit to be completed within a reasonable period of time. Owner shall pay
all costs and expenses of such audit at its sole expense (and not as a
Deduction); however, if such audit establishes that Management Company has
understated the Operating Profit for that Fiscal Year by five percent (5%) or
more, the reasonable costs and expenses of such audit shall be paid as a
Deduction.
B. Upon written request by Owner, but in no event more frequently
than annually, Management Company shall prepare and deliver to Owner the
Management Analysis Report. In addition, Management Company shall, in
connection with an impending Sale of the Inn or proposed commitment by a
Qualified Lender to make a Qualified Loan, within thirty (30) days after written
request therefor from Owner, prepare and deliver to Owner an updated Management
Analysis Report describing significant changes since the effective date of the
most recent Management Analysis Report; provided, however that Management
Company shall not be required to prepare such updated Management Analysis
Report if a report has been delivered within the previous one hundred twenty
(120) days. The cost and expense of preparing the Management Analysis Report
shall be paid as a Deduction.
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C. Owner shall have the right to require that any given Annual
Operating Statement will include a reasonably detailed report setting forth the
components of Chain Services, the amounts billed for each such component during
the Fiscal Year in question and the method of allocation for each such
component; provided, however, that Owner must request Management Company to
prepare such report by no later than thirty (30) days prior to the date of such
Annual Operating Statement.
9.2 Inn Accounts. Expenditures
--------------------------
A. All funds derived from operation of the Inn shall be deposited by
Management Company in Inn bank accounts (the "Operating Accounts") in a bank or
banks designated by Management Company and approved by Owner. Withdrawals from
said accounts shall be made only by representatives of Management Company whose
signatures have been authorized. Reasonable petty cash funds shall be
maintained at the Inn.
B. All payments made by Management Company hereunder shall be made
from authorized bank accounts, petty cash funds, or from Working Capital
provided by Owner pursuant to Section 7.1. Management Company shall not be
required to make any advance or payment to or for the account of Owner except
out of such funds, and Management Company shall not be obligated to incur any
liability or obligation for Owner's account without assurances that necessary
funds for the discharge thereof will be provided by Owner. Debts and liabilities
incurred by Management Company as a result of its operation and management of
the Inn pursuant to the terms hereof, whether asserted before or after the
Termination of this Agreement, will be paid by Owner to the extent funds are not
available to Management Company for that purpose from Gross Revenues.
9.3 Annual Operating Budget
-----------------------
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A. Management Company shall submit to Owner for its review, at least
thirty (30) days prior to the beginning of each full Fiscal Year after the
Effective Date, a preliminary draft of the projection of the estimated financial
results of the operation of the Inn during the next Fiscal Year (the "Annual
Operating Budget"). Such Annual Operating Budget shall project the estimated
Gross Revenues and Operating Profit for the forthcoming Fiscal Year for the Inn.
In preparing the Annual Operating Budget for each Fiscal Year, Management
Company's goal will be the maximization of the long-term Operating Profit of the
Inn, in keeping with the Residence Inn System Standards and the general
standards of the hotel industry for similar properties. At Owner's request,
Management Company agrees to take reasonable steps to ensure that qualified
personnel from Management Company's staff are available to explain the
preliminary draft of the Annual Operating Budget, including any material items
which have been budgeted at significantly different amounts from the amounts
actually experienced (or projected) for the same items in the preceding Fiscal
Year. A meeting (or meetings) for such purpose shall be held, at Owner's
request, within a reasonable period of time after the submission to Owner of the
preliminary draft of the Annual Operating Budget. Management Company will at all
times give good faith consideration to Owner's suggestions regarding any Annual
Operating Budget. Management Company shall thereafter submit to Owner, within
ten (10) days after the beginning of such Fiscal Year, the final Annual
Operating Budget.
B. Management Company shall use its best efforts to adhere to the
Annual Operating Budget. It is understood, however, that the Annual Operating
Budget is an estimate only and that unforeseen circumstances such as, but not
limited to, the costs of labor, materials, services and supplies, casualty,
operation of law, or economic and market
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conditions may make adherence to the Annual Operating Budget impracticable, and
Management Company shall be entitled to depart therefrom for such reasons.
9.4 Operating Losses: Credit
------------------------
A. To the extent there is an Operating Loss, additional funds in the
amount of any such Operating Loss shall be provided by Owner within thirty (30)
days after Management Company has given written notice thereof to Owner;
provided, however, that if Owner has already received a request from Management
Company for additional Working Capital pursuant to Section 7.1.A, and if such
request under Section 7.1.A reflects fundamentally the same cash shortage which
resulted in a request under this Section 9.4.A, Owner and Management Company
shall mutually discuss the extent to which the requests under Section 7.1.A and
Section 9.4.A may overlap, and such requests shall be modified accordingly.
B. In no event shall either party borrow money in the name of or
pledge the credit of the other.
9.5 Consolidated Reports
--------------------
With respect to Management Company's reports, books and records required to
be kept and provided to Owner pursuant to Sections 9.1.A, 9.1.B and 9.3.A hereof
provided that Owner is also the owner of other hotels in the Residence Inn
System and that said Inns are managed by Management Company, Management Company
shall have the right, at Management Company's option, to prepare said reports on
a consolidated basis rather than by individual inn; provided, however that if
Owner reasonably determines that it requires individual reports for each
individual inn and requests individual reports from Management Company in
writing, together with Owner's reasons for requesting such individual reports,
Management Company shall comply with such request.
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ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.1 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Inn shall be known as a
"Residence Inn", "Residence Inn by Marriott" or "Marriott Residence Inn" with
such additional identification as may be agreed to by Owner and Management
Company to provide local identification. If the name of the "Residence Inn
System" is changed, Management Company shall have the right to change the name
of the Inn to conform thereto.
B. The name "Marriott", "Residence Inn", "Residence Inn by Marriott"
and "Marriott Residence Inn" whether used alone or in connection with another
word or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have no
right to use the Marriott or Residence Inn name or any other Proprietary Mark;
provided, however, that Owner shall have the right, during the Term of this
Agreement, to have Proprietary Signage installed (in strict conformance with the
specifications provided by Management Company prior to the Effective Date, or
subsequent specifications provided by Management Company from time to time
during the Term) in the Inn and on the Site.
C. Except as provided in Section 10.2, upon Termination, any use of
or right to use the Marriott or Residence Inn name or any other Proprietary Mark
under this Agreement by Owner shall immediately cease. As of the date of
Termination, Management Company shall remove all Proprietary Signage from the
Inn and from the Site (and from any
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locations other than the Site). The cost of such removal shall be paid as set
forth in Section 4.2.E.
D. Notwithstanding the foregoing, those trademarks, trade names,
symbols, logos and designs which are specifically listed on Exhibit "E" shall be
deemed "Proprietary Marks" only during the Term of this Agreement; upon a
Termination, the exclusive control of such Proprietary Marks shall revert to
Owner.
10.2 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
no later than thirty (30) days prior to Termination, to elect to purchase, at
their then book value, any items of the Inn's Inventories and Fixed Asset
Supplies as may be marked with the Marriott or Residence Inn name or any other
Proprietary Mark. In the event ManagementCompany does not exercise such option,
Owner agrees that it will use any such items not so purchased exclusively in
connection with the Inn until they are consumed.
10.3 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of
Management Company or one of its Affiliates (or the licensor of such Software,
as the case may be), and Owner shall have no right to use, or to copy, any
Software.
B. Upon Termination, Management Company shall have the right to
remove from the Inn, without compensation to Owner, all Software. Furthermore,
upon Termination, Management Company shall be entitled to remove from the Inn
any computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner,
Management Company shall reimburse
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Owner for all previous expenditures made by Owner for the purchase of such
equipment, subject to a reasonable allowance for depreciation.
10.4 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management Company
shall be entitled to take all reasonable steps to ensure that the Intellectual
Property remains confidential and is not disclosed to anyone other than
Management Company's employees at the Inn. Upon Termination, all Intellectual
Property shall be removed from the Inn by Management Company, without
compensation to Owner.
10.5 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
ARTICLE XI
POSSESSION AND USE OF INN
-------------------------
11.1 Quiet Enjoyment
---------------
Owner covenants that, so long as: (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement; and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the Inn
throughout the Term hereof free from hindrance or ejection by Owner or other
party claiming under, through or by right of Owner (except as may be otherwise
set forth in Section 6.4). Owner agrees to pay and discharge
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any payments and charges and, at its expense, to prosecute all appropriate
actions, judicial or otherwise, necessary to assure such free and quiet
occupation. Nothing set forth in the preceding sentence, however, shall be
deemed to create a recourse obligation by Owner to pay any payment or charge
pursuant to a contract which is non-recourse to Owner.
11.2 Use
---
A. Management Company shall use the Inn solely for the operation of a
hotel pursuant to the Residence Inn System Standards, and for all activities in
connection therewith which are customary and usual to such an operation.
B. Management Company shall comply with and abide by all applicable
Legal Requirements pertaining to its operation of the Inn, provided that: (i)
all costs and expenses (other than those which are specifically described in
clauses (ii) or (iii) of this Section 11.2.B) of such compliance shall be paid
from Gross Revenues as Deductions in the computation of Operating Profit; (ii)
all costs and expenses of compliance with Environmental Laws shall be paid as
set forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.3.A shall be paid as set
forth in Section 8.3; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which directly involve Owner's ownership interest in the
Inn in a material manner. The reasonable expenses of any such contest shall be
paid from Gross Revenues as Deductions.
11.3 Chain Services
--------------
A. Management Company shall, beginning with the Effective Date and
thereafter during the Term of this Agreement, cause to be furnished to the Inn
certain
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services ("Chain Services") which are furnished generally on a central or
regional basis to other Residence Inn hotels in the Residence Inn System managed
by the Manager. Chain Services shall include: (i) national sales office
services; central training services; career development; and the Residence Inn
computer payroll and central accounting services; and (ii) such additional
central or regional services as are or may be, from time to time, furnished for
the benefit of hotels in the Residence Inn System or in substitution for
services now performed at individual inns which may be more efficiently
performed on a group basis; including, but not limited to, regional managers and
accounting staff; provided, however, that services not currently included in
chain services pursuant to subsections 11.3.A(i) and 11.3.A(ii) above, shall
only be added to "Chain Services" if, and to the extent that, such services: (a)
are not services included in the Residence Inn System Fee (it being understood
that Management Company's sole compensation for providing the Residence Inn
System Services shall be receipt of the Residence Inn System Fee); (b) are not
services relating to non-routine work (it being understood that the cost and
expense of such non-routine services shall be Deductions as set forth in
paragraph 6 of the definition of Operating Profit); and (c) are either (x) new
services (i.e., not previously performed at or for the Inn) or (y) services
which theretofore had been performed at the Inn, but which can be performed more
efficiently and economically on a centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services
shall be allocated on a fair and equitable basis among all Residence Inns owned,
leased or managed by Management Company Deductions pursuant to said paragraph 8
of the definition of "Operating Profit" without regard to the aforesaid
limitation.
11.4 Owner's Right to Inspect
------------------------
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Owner or its agents shall have access to the Inn at all reasonable times
for the purpose of inspection or showing the Inn to prospective purchasers,
tenants or Holders.
11.5 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and
any officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's request, shall defend any action, cause of action,
suit, debt, cost, expense (including, without limitation, reasonable attorneys'
fees), claim or demand whatsoever brought or asserted by any third person
whomsoever, at law or in equity, arising by reason of: (i) liabilities stemming
from general corporate matters of Management Company or its Affiliates, to the
extent the same are not directly and primarily related to the Inn; (ii)
infringement and other claims relating to the Proprietary Marks; (iii) if
Management Company intentionally or negligently fails to maintain insurance
coverage that it is required to maintain pursuant to this Agreement, the excess
of the amount of any liability or loss that would have been covered over the
amount of any applicable deductible; and (iv) the bad faith or willful
misconduct of Management Company or its Affiliates, or any of their employees,
servants or agents or other persons for whom they are responsible, resulting in
a claim for bodily injury, death or property damage occurring on, in or in
conjunction with the business of the Inn, to the extent that such claim exceeds
the insurance proceeds (including Inn Retentions) which are available to pay
such claim.
B. If any claim, action or proceeding is made or brought against
Owner, against which claim, action or proceeding Management Company shall be
obligated to indemnify pursuant to the terms of this Agreement, then, upon
demand by the Owner, Management Company, at its sole cost and expense, shall
resist or defend such claim, action or proceeding (in Owner's name, if
necessary), using such attorneys as the Owner shall
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approve, which approval shall not be unreasonably withheld. If, in the Owner's
reasonable opinion, (i) there exis ts a conflict of interest which would make it
inadvisable to be represented by counsel for Management Company, or (ii) there
are legal defenses available to Management Company that are different from or
inconsistent with those available to Owner, or (iii) there are claims at issue
which are not covered by Management Company's insurance, Owner shall be entitled
to retain its own attorneys, and Management Company shall pay the reasonable
fees and disbursements of such attorneys.
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.1 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.5.
ARTICLE XII
INSURANCE
---------
12.1 Interim Insurance
-----------------
[Intentionally omitted]
12.2 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Inn building(s) and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage
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endorsement, all in an amount not less than one hundred percent (100%) of the
replacement cost thereof (excluding the cost of foundations and excavations);
B. Boiler and machinery insurance against loss or damage from
explosion of boilers or pressure vessels to the extent applicable to the Inn;
C. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 12.2 A and B, which shall be of a type
and in such amounts that such coverage shall in no event be for less than one
(1) year) as are generally established by Management Company at similar hotels
it owns, leases or manages under the Residence Inn name in the United States;
D. General liability insurance against claims for bodily injury,
death or property damage occurring on, in, or in conjunction with the business
of the Inn, and automobile liability insurance on vehicles operated in
conjunction with the Inn, with a combined single limit for each occurrence of
not less than Twenty-Five Million Dollars ($25,000,000.00); representatives of
Management Company and Owner shall meet, at Owner's request, at intervals of
approximately once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Inn;
F. Fidelity bonds, with reasonable limits to be determined by
Management Company, covering its employees in job classifications normally
bonded in other similar hotels it leases or manages under the Residence Inn name
in the United States or as otherwise required by law, and comprehensive crime
insurance to the extent Management Company and Owner mutually agree it is
necessary for the Inn; and
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G. Such other insurance in amounts as Management Company and Owner,
in their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Inn.
12.3 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.2 may be obtained by
Management Company by endorsement or equivalent means under its blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein. Upon the request of either Owner or any
Qualified Lender, representatives of the requesting party shall be entitled to
examine, at Management Company's corporate headquarters, all insurance policies
maintained by Management Company regarding the Inn.
B. Management Company may self insure or otherwise retain such risks
or portions thereof as it does with respect to other similar hotels it owns,
leases or manages under the Residence Inn name in the United States.
C. All policies of insurance required under Section 12.2 shall be
carried in the name of Management Company. The policies required under Sections
12.2.A, B, C and D shall include the Owner as an additional insured. Upon notice
by the Owner, Management Company shall also have the policies required under
Sections 12.2.A, B, C and D include any Qualified Lender as an additional
insured. Any property losses thereunder shall be payable to the respective
parties as their interests may appear. Any Mortgage on the Inn shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Section 12.2.A and B shall, with respect to any casualty involving
less than fifty percent (50%) of the replacement cost of the Inn, be available
for repair and restoration of the Inn.
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D. Management Company shall deliver to the Owner certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof.
E. All certificates of insurance provided for under Article XII
shall, to the extent obtainable, state that the insurance shall not be canceled
or materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Inn Retention" shall mean the amount of any loss or
reserve under Management Company's blanket insurance or self-insurance programs
which is allocated to the Inn, not to exceed the higher of (a) the maximum per
occurrence limit established for similar hotels participating in such programs,
or (b) the insurance policy deductible on any loss which may fall within high
hazard classifications as mandated by the insurer (e.g., earthquake, flood,
windstorm on coastal properties, etc.). If the Inn is not a participant under
Management Company's blanket insurance or self-insurance programs, "Inn
Retention" shall mean the amount of any loss or reserve allocated to the Inn,
not to exceed the insurance policy deductible.
12.4 Cost and Expense
----------------
A. [Intentionally omitted]
B. Insurance premiums and any other costs or expenses with respect to
the insurance or self-insurance required under Section 12.2, including any Inn
Retention, shall be paid from Gross Revenues as Deductions. To the extent that
such costs or expenses include reimbursement by Management Company of its own
costs or expenses, or those of one of its Affiliates, such costs or expenses
shall be generally competitive (as calculated over the Term of this Agreement)
with costs and expenses of nonaffiliated entities providing similar services.
Such premiums and costs shall be allocated on an equitable basis to the hotels
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participating under Management Company's blanket insurance or self-insurance
programs. Any reserves, losses, costs or expenses which are uninsured shall be
treated as a cost of insurance and shall be Deductions. Upon Termination, an
escrow fund in an amount reasonably acceptable to Management Company shall be
established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Owner) to cover the amount of any Inn Retention and all other
costs which will eventually have to be paid by either Owner or Management
Company with respect to pending or contingent claims, including those which
arise after Termination for causes arising during the Term of this Agreement.
Upon the final disposition of all such pending or contingent claims, any
unexpended funds remaining in such escrow shall be paid to Owner.
12.5 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Section 12.2.A, B and C, procure and maintain the insurance
specified in Section 12.2.A, B and C (in which case Management Company shall
allow such policies obtained by it under Section 12.2.A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of
Owner, with Management Company as an additional insured. Any property losses
thereunder shall be payable to the respective parties as their interests may
appear. The documentation with respect to each Secured Loan shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Section 12.1.A and B shall be available for repair and restoration
of the Inn, to the extent required pursuant to Section 12.3.C. However, any
Holder of such Secured Loan shall be entitled to impose reasonable conditions
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on the disbursement of insurance proceeds for the repair and/or restoration of
the Inn, including a demonstration by Owner and/or Management Company that the
amount of such proceeds (together with other funds Owner agrees to make
available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof.
C. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially change
a without at least thirty (30) days' prior written notice to the certificate
holder.
D. Premiums for such insurance coverage shall be treated as
Deductions, provided that if the cost of such insurance procured by Owner
exceeds the cost of Management Company's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Owner
and shall not be a Deduction.
E. Should Owner exercise its option to procure the insurance
described in this Section 12.5, Owner hereby waives its rights of recovery from
Management Company or any of its Affiliates (and their respective directors,
officers, shareholders, agents and employees) for loss or damage to the Inn, and
any resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described
in this Section 12.5, Owner acknowledges that Management Company is under no
obligation to thereafter include the Inn in its blanket insurance program (with
respect to the coverage described in Section 12.2.A, B and C) for the balance of
the Term of this Agreement. However, upon a Sale of the Inn, a successor Owner
shall have the right, notwithstanding the fact that the previous Owner may have
obtained insurance in accordance with this Section
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12.5, to have the Inn included in Management Company's blanket insurance program
(provided that the Inn, as of that point in time, satisfies the applicable
criteria for admission to such program, as established by the program's
insurance carriers) by making a written request to Management Company for such
inclusion not later than thirty (30) days after the date on which such party
becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
ARTICLE XIII
TAXES
-----
13.1 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all
Impositions which accrue during the Term of this Agreement (or are properly
allocable to such Term under generally accepted accounting principles) shall be
paid by Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Inn or the
Agreement, unless payment thereof is stayed; provided, however, that Management
Company shall not be responsible for any fine, penalty or interest resulting
through no fault of Management Company or caused by Owner. Owner shall within
five (5) business days after the receipt of any invoice, bill, assessment,
notice or other correspondence relating to any Imposition, furnish Management
Company with a copy thereof. Management Company shall, within the earlier of
thirty (30) days of payment or five (5) business days following written demand
by Owner, furnish Owner with copies of official tax bills and assessments which
Management Company has received, and evidence of payment or contest thereof.
Either Owner or Management Company (in which case each
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party agrees to sign the required applications and otherwise cooperate with the
other party in expediting the matter) may initiate proceedings to contest any
Imposition, and all reasonable costs of any negotiations or proceedings with
respect to any such contest shall either (i) be paid from Gross Revenues and be
a Deduction in determining Operating Profit; or (ii) be considered an Owner
Deduction; provided, however that in the event either Owner or Management
Company spends in excess of Five Thousand Dollars ($5,000.00) with respect to
such contest, such party shall provide written notice to the other party and the
other party shall approve or disapprove of such expenditure within ten (10) days
following receipt of such notice. Failure of such party to approve or disapprove
such expenditure shall be deemed approval. In the event that either party's
expenditures in excess of Five Thousand Dollars ($5,000.00) are not approved by
the other party such party may nevertheless proceed to spend whatever funds are
necessary with respect to such contest; provided, however, that any amounts in
excess of Five Thousand Dollars ($5,000.00) (or such higher amount as may have
been approved by the other party) shall be at the sole cost of Owner or
Management Company, as the case may be, and shall not be considered an Owner
Deduction by Owner nor be considered a Deduction from Operating Profit by either
Owner or Management Company.
B. The word "Impositions", as used in this Agreement, shall not
include the following, all of which shall be paid solely by Owner, not from
Gross Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
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2. Special assessments (regardless of when due or whether they are paid as
a lump sum or in installments over time) imposed because of facilities which are
constructed by or on behalf of the assessing jurisdiction (for example, roads,
sidewalks, sewers, culverts, etc.) which directly benefit the Inn (regardless of
whether or not they also benefit other buildings), which assessments shall not
be treated as Deductions, but rather shall be added to the Additional Invested
Capital as of each payment by Owner with respect thereto; provided, however,
that any installments (after the Effective Date) of any assessments which were
levied or imposed prior to the Effective Date shall be Deductions;
3. "Impact Fees" (regardless of when due or whether they are paid as a
lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall not be treated as Deductions, but rather shall
be added to the Additional Invested Capital as of each payment by Owner with
respect thereto; provided, however, that any installments (after the Effective
Date) of any impact fees which were levied or imposed prior to the Effective
Date shall be Deductions; and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Inn by temporarily reducing or abating normal Impositions in
return for substantially higher levels of Impositions at later dates.
C. Owner shall have the right to require Management Company to
establish an escrow account (with either any Qualified Lender or another entity
reasonably acceptable to both Owner and Management Company) from which
Impositions will be paid. Payments into such escrow account will be Deductions.
Any interest which accrues on
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amounts deposited in such escrow account shall be added to the balance in such
escrow account and used to pay Impositions.
ARTICLE XIV
INN EMPLOYEES
-------------
14.1 Employees
---------
A. All personnel employed at the Inn shall be the employees of
Management Company. Management Company shall have absolute ' discretion to
hire, promote, supervise, direct, train and discharge all employees at the Inn,
to fix their compensation and, generally, establish and maintain all policies
relating to employment.
B. Management Company shall decide which, if any, of the Inn's
employees shall reside at the Inn (provided that Owner's prior approval shall be
obtained if more than one such employee and his or her immediate families reside
at the Inn), and shall be permitted to provide free accommodations and amenities
to its employees and representatives living at or visiting the Inn in connection
with its management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Management
Company except in accordance with usual practices of the hotel and travel
industry.
C. Any proposed settlement of any Employee Claim where the amount
proposed to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be jointly approved by Management Company and
Owner. Any dispute between Owner and Management Company as to whether
Management Company's settlement recommendation is reasonable, where such
proposed settlement is in excess of the Settlement Threshold Amount shall be
resolved by arbitration under Section
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20.13 hereof; provided that Management Company shall have the right to settle
any Employee Claim (prior to the arbitration on the reasonableness of the
settlement, as described in this sentence) based on Management Company's
recommendation, which shall be Management Company's reasonable estimate, in good
faith, by using: (i) funds from Gross Revenues (as a Deduction) up to the amount
of Owner's settlement recommendation, which shall be Owner's reasonable
estimate, in good faith; and (ii) Management Company's own funds to the extent
Management Company's recommendation exceeds the amount described in subparagraph
(i) above. Following the settlement of such Employee Claim, the parties will
arbitrate under Section 20.13 the issue of whether Management Company's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Management Company's recommendation was reasonable,
Management Company shall be entitled to reimburse itself from Gross Revenues (as
a Deduction) in the amount of the funds advanced under subparagraph (ii) above,
together with accrued interest thereon at the Prime Rate. If the arbitrators
decide that Management Company's settlement recommendation was not reasonable,
then Management Company shall not be entitled to any reimbursement of the
amounts advanced by it under subparagraph (ii) above, nor to accrued interest
thereon.
D. Management Company shall pay from its own funds, and not from
Gross Revenues, any Employee Claim where the basis of such Employee Claim is
conduct by Management Company which: (i) is a substantial violation of the
standards of responsible labor relations as generally practiced by prudent
owners or operators of similar hotel properties in the general geographic area
of the Inn; and (ii) is not the isolated act of individual employees, but rather
is a direct result of corporate policies of Management Company which either
encourage or fail to discourage such conduct. In addition,
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Management Company shall indemnify, defend and hold harmless Owner from and
against any fines or judgments arising out of such conduct, and all Litigation
expenses (including reasonable attorneys' fees and expenses) incurred in
connection therewith. Any dispute between Owner and Management Company as to
whether or not certain conduct by Management Company is not in accordance with
the aforesaid standards shall be resolved by arbitration under Section 20.13
hereof. The arbitration proceedings described in the preceding sentence shall be
conducted independently of any arbitration proceedings with respect to such
Employee Claim pursuant to the applicable employee-related contract and/or
pursuant to Section 14.1.C of this Agreement.
E. With respect to all Litigation or arbitration involving Employee
Claims in which both Management Company and Owner are involved as actual or
potential defendants, Management Company shall have exclusive and complete
responsibility (subject to the rights of Owner to approve certain settlements,
as set forth in Section 14.1.C) for the resolution of such Employee Claims. In
the event that any Employee Claim is made against Owner, but not against
Management Company, Owner shall give notice to Management Company of the
Employee Claim in a timely manner so as to avoid any prejudice to the defense of
the Employee Claim, provided that Management Company shall in all events be so
notified within twenty (20) days after the date such Employee Claim is made
against Owner. Management Company will thereafter assume exclusive and complete
responsibility for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management Company for all costs and expenses incurred by
Management Company which
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arise out of either the transfer or the termination of employment of Management
Company's employees at the Inn, such as reasonable transfer costs, severance
pay, unemployment compensation and other employee liability costs.
ARTICLE XV
DAMAGE CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.1 Damage and Repair
-----------------
A. If, during the Term hereof, the Inn is damaged or destroyed by
fire, casualty or other cause, Owner shall, with all reasonable diligence, to
the extent that proceeds from the insurance described in Section 12.2 are
available (subject to the provisions of any Mortgage encumbering the Inn, but
with the limitations described in Section 12.3.C) for such purpose, repair or
replace the damaged or destroyed portion of the Inn to the same condition as
existed previously.
B. In the event damage or destruction to the Inn from any cause
materially and adversely affects the operation of the Inn and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Inn shall be substantially the same as it
was prior to such damage or destruction, such action shall be deemed an Event of
Default by Owner pursuant to Section 16.1.E and Management Company may, at its
option, elect to terminate this Agreement upon one hundred twenty (120) days'
written notice in addition to its remedies under Section 16.3.
15.2 Condemnation
------------
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A. In the event all or substantially all of the Inn shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the even* a portion of the Inn shall be so taken, but the result is that it is
unreasonable to continue to operate the Inn, this Agreement shall terminate.
B. In the event a portion of the Inn shall be taken by the events
described in Section 15.2.A, or the entire Inn is affected but on a temporary
basis and the result is not to make it unreasonable to continue to operate the
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render the Inn
equivalent to its condition prior to such event shall be used for such purpose;
the balance of such award, if any, shall be fairly and equitably apportioned
between Owner and Management Company in accordance with their respective
interests. The amount of any award received by Owner pursuant to Section 15.2.B
and not applied to restoration of the Inn shall be deducted from the Priority
Basis and the Loan Priority Basis at such time as the award is received by
Owner. In addition, the Performance Termination Threshold shall be reduced by
an amount equal to eight percent (8%) of such total amount (if any) of any award
received by Owner pursuant to this Section 15.2.B which is not used to restore
the Inn.
C. In the event of any proceeding described in Section 15.2.A or
15.2.B, Owner and Management Company shall each have the right to initiate such
proceedings as they deem advisable to recover any damages to which they may be
entitled; provided, however, that Management Company shall be entitled to retain
the award or compensation it may obtain through proceedings which are conducted
separately from those of Owner only if such award or compensation does not
reduce the award or compensation otherwise available
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to Owner. (For this purpose, any award or compensation received by any Holder
shall be deemed to be an award or compensation received by Owner).
15.3 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to
the operation of the Inn in accordance with the Residence Inn System Standards,
where such withdrawal or revocation: (i) is not due to the fault of either
Management Company or Owner, and (ii) is not otherwise within the reasonable
control of either Management Company or Owner, shall not be an Event of Default
under Article XVI of this Agreement. Management Company and Owner shall each, in
good faith, use all commercially reasonable efforts (including the diligent
pursuit of all available appeals), during the period of one hundred twenty (120)
days after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
days, either Owner or Management Company shall have the right, at its option, to
terminate this Agreement upon no less than sixty (60) days' notice to the other
party; provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative
body is issued, in connection with any legal or Litigation involving Owner,
which order, judgement or directive restricts or prevents Management Company, in
a material adverse manner, from operating the Inn in accordance with the
Residence Inn System Standards, and which,
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in Management Company's reasonable opinion, will have a significant adverse
effect upon operations of the Inn, Management Company shall be entitled, at its
option, to terminate this Agreement upon sixty (60) days' written notice;
provided, however, that Management Company shall (if it so elects) deliver such
notice of Termination to Owner by no later than ninety (90) days after the
issuance of such order, judgment or directive (or, if such order, judgment or
directive is appealed, within ninety (90) days after the final disposition of
such appeal).
ARTICLE XVI
DEFAULTS
--------
16.1 Definition of "Default"
----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or
a petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the
failure to vacate, within ninety (90) days from the date of entry thereof, any
order approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
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D. The failure of either party to make any payment required to be
made in accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.2 Definition of "Event of Default"
-------------------------------
A. Upon the occurrence of any Default by either party hereto
(hereinafter referred to as the "defaulting party") under Section 16.1.A, B or
C, such Default shall immediately and automatically, without the necessity of
any notice to the defaulting party, constitute an "Event of Default" under this
Agreement.
B. Upon the occurrence of any Default by a defaulting party under
Section 16.1.D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
C. Upon the occurrence of any Default by either party hereto under
Section 16.1.E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written notice from the non-defaulting party and demanding such cure,
or, if the Default is such that it cannot reasonably be cured within said thirty
(30) day period of time, if the defaulting party fails to commence the cure of
such Default within said thirty (30) day period of time or thereafter fails to
diligently pursue such efforts to completion.
16.3 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.2, the non-defaulting party shall have the right to pursue any one
or more of the
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following courses of action: (i) in the event of a material breach by the
defaulting party of its obligations under this Agreement, to terminate this
Agreement by written notice to the defaulting party, which termination shall be
effective as of the effective date which is set forth in said notice, provided
that said effective date shall be at least thirty (30) days after the date of
said notice; and provided further that, if the defaulting party is the employer
of all or a substantial portion of the employees at the Inn, the foregoing
period of thirty (30) days shall be extended to seventy-five (75) days (or such
longer period of time as may be necessary under applicable Legal Requirements
pertaining to termination of employment); (ii) to institute forthwith any and
all proceedings permitted by law or equity, including, without limitation,
actions for specific performance and/or damages; and (iii) to avail itself of
any one or more of the other remedies described in this Section 16.3.
B. Upon the occurrence of a Default by either party under the
provisions of Section 16.1.D, the amount owed to the nondefaulting party shall
accrue interest, at the Interest Rate, from and after the date on which such
payment was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and
shall not be in substitution for, but shall be in addition to, any and all
rights and remedies available to the non-defaulting party (including, without
limitation, injunctive relief and damages; provided that the satisfaction of
damage awards against Owner shall be limited by the provisions of Section 16.4)
by reason of applicable provisions of law or equity.
16.4 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Inn
(which shall for this purpose,
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include (i) amounts deposited in the Operating Accounts and the FF&E Reserve,
and (ii) accounts receivable) for the satisfaction of a money judgment against
Owner resulting from such Event of Default, and no other property or assets of
Owner, or of its partners, officers, directors, shareholders or principals,
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of such judgment. Management Company's right to look to Owner's
estate and interest in the Site and the Inn for satisfaction of such a money
judgment against Owner shall survive Termination and shall not be affected by
any one or more Sales of the Inn. Nothing contained in this Section 16.4 shall
be deemed to affect or diminish Management Company's remedies under this Article
XVI other than money damages against Owner (including, without limitation,
Termination of this Agreement).
ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.1 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.2 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on
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Management Company or Owner, or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in this Agreement.
ARTICLE XVIII
ASSIGNMENT
----------
18.1 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to: (i) assign its interest in this Agreement to any of its
Affiliates and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (ii) sublease shops or grant Licenses or
concessions at the Inn so long as the terms of any such subleases, Licenses or
concessions are consistent with the provisions of Section 2.2 and provided
further that Owner's consent shall be required prior to the execution by
Management Company of any such lease, License or concession which (a) has a term
of more than five (5) years, or (b) involves more than five hundred (500) square
feet of space within the Inn. In the event of such an assignment by Management
Company of its interest in this Agreement to an Affiliate, the Management
Company which is named in the Preamble to this Agreement: (i) shall
automatically be deemed to guarantee the performance of such Affiliate under
this Agreement; (ii) shall, at the request of Owner, execute a guaranty, in form
and substance reasonably satisfactory to both parties, of the performance of
such Affiliate under this Agreement (provided that the failure of Owner to
obtain an executed guaranty pursuant to this clause (ii) shall not affect the
validity or enforceability of the guaranty which is automatically created
pursuant to clause (i); and provided further, that,
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when Owner does so receive an executed guaranty pursuant to this clause (ii),
such executed guaranty shall be deemed to have superseded the guaranty described
in clause (i) above); and (iii) shall make available to such Affiliate, in
connection with the performance by such Affiliate under this Agreement,
Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement
other than (i) in connection with a Sale of the Inn which complies with the
provisions of Article XIX hereof; or (ii) as set forth in Section 18.1.C.
C. Nothing contained herein shall prevent: (i) the collateral
assignment of this Agreement by Owner as security for any Mortgage which
complies with the provisions of Section 3.1; or (ii) the transfer of this
Agreement in connection with a merger or consolidation or a sale of all or
substantially all of the assets of either party, provided that (x) if such
transfer is by Owner, the provisions of Article XIX hereof shall be complied
with, and (y) if such transfer is by Management Company, such transfer is being
done as a part of a merger, consolidation, etc., of all or substantially all of
the business which consists of managing the Residence Inn System.
D. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner
of its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the
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assignment complies with Section 18.1.B and if Management Company has received
an assumption agreement executed by the assignee (in form and substance
reasonably satisfactory to Management Company). An assignment (either
voluntarily or by operation of law) by Management Company of its interest in
this Agreement shall not relieve Management Company from its obligations under
this Agreement, unless Owner so agrees in writing.
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
ARTICLE XIX
SALE OF THE INN
---------------
19.1 Sale of the Inn
---------------
A. Owner shall not enter in-to any Sale of the Inn to any individual
or entity which: (i) does not have sufficient financial resources and liquidity
to fulfill Owner's obligations under this Agreement; (ii) is in control of or
controlled by persons who have been convicted of felonies involving moral
turpitude in any state or federal court; or (iii) is engaged in the business of
operating or franchising (as distinguished from owning) a branded hotel chain
having five hundred (500) or more guest rooms in competition with Management
Company. An individual or entity shall not be deemed to be in the business of
operating hotels in competition with Management Company solely by virtue of (x)
the ownership of such hotels, either directly or indirectly through
subsidiaries, affiliates and partnerships, or (y) holding a Mortgage or
Mortgages secured by one or more hotels. Notwithstanding the foregoing, if Owner
or an Affiliate of Owner is a corporation whose shares are listed on a public
stock exchange, and if a Sale of the Inn occurs as a result of purchases of such
shares,
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through such public stock exchange, in sufficient quantities to cause a transfer
of the "controlling interest" in Owner (as described in the definition of "Sale
of the Inn"), and if such Sale of the Inn is not in compliance with the
provisions of this Section 19.1.A, Management Company shall have the right, at
its option, to terminate this Agreement by written notice to Owner (as more
particularly described in Section 19.1.B), but such non-compliance with this
Section 19.1.A shall not be an Event of Default nor shall it subject Owner to
claims for damages by Management Company pursuant to Article XVI.
B. If Owner receives a bona fide written offer to enter into a Sale
of the Inn, Owner shall give written notice thereof to Management Company,
stating the name of the prospective purchaser or tenant, as the case may be.
Such notice shall include appropriate information relating to such prospective
purchaser or tenant demonstrating compliance with the provisions of Section
19.1.A together with such additional information as Management Company shall
reasonably request. If Management Company decides that a Sale of the Inn to such
prospective purchaser or tenant would violate the provisions of Section 19.1.A,
Management Company shall so notify Owner by no later than thirty (30) days after
receipt of such notice; provided, however, that any decision by Management
Company regarding any such prospective purchaser or tenant shall not be binding
if the information furnished by Owner pursuant to the preceding sentence is
inaccurate. Concurrently with the finalization of such Sale of the Inn, the
purchaser or tenant, as the case may be, shall, by appropriate instrument
reasonably satisfactory to Management Company, assume all of Owner's obligations
hereunder. An executed copy of such assumption agreement shall be delivered to
Management Company. If the proposed Sale of the Inn would violate the provisions
of Section 19.1.A, Owner will not enter into any agreement relating to such Sale
of the Inn. However, if Owner does enter into such an
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agreement, Management Company shall have the right to terminate this Agreement
by written notice to Owner, which notice will set an effective date for such
Termination not earlier than thirty (30) days, nor more than one hundred twenty
(120) days, following the date of the giving of such notice. Management Company
shall have the right to change such effective date of Termination to coincide
with the date of the finalization of the proposed Sale of the Inn. At Management
Company's election, said notice of Termination shall not be effective if such
Sale of the Inn is not finalized. If such Termination by Management Company
results from a Default by Owner under Section 19.1.A, such Termination shall not
relieve Owner (except as otherwise set forth to the contrary in the last
sentence of Section 19.1.A) of liability to Management Company for such Default.
C. In connection with the possibility of a Sale of the Inn achieved
by means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock, (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Inn below fifty percent (50%) or in which the former controlling
interest in Owner is reduced below fifty percent (50%). Management Company
agrees to use diligent efforts to keep all such lists confidential in accordance
with the provisions of Section 12.4.
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<PAGE>
D. It is understood that no Sale of the Inn (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E Reserve; or (iii) any of the Operating Accounts maintained
by Management Company pursuant to this Agreement. If, in connection with any
Sale of the Inn, the selling Owner intends to withdraw, for its own use, any of
the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Management Company to ensure
that such replenishment in fact occurs. The obligations described in this
Section 19.1.D shall survive such Sale of the Inn and shall survive Termination.
E. Management Company shall have the right to terminate this
Agreement, on thirty (30) days' written notice, if title to or possession of the
Inn is transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.1.A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement based on the assertion that a Qualified
Lender fails to so qualify as a permitted transferee under said clauses (i),
(ii) or (iii) of Section 19.1.A.
ARTICLE XX
MISCELLANEOUS
-------------
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<PAGE>
20.1 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the
execution of this Agreement nor the finalization of the transactions
contemplated hereby shall: (i) violate any provision of law or any judgment,
writ, injunction, order or decree of any court or governmental authority having
jurisdiction over it; (ii) result in or constitute a breach or default under any
indenture, contract, other commitment or restriction to which it is a party or
by which it is bound to the extent that the remedies for such breach or default
would have a material adverse effect on such party's ability to perform under
this Agreement; or (iii) require any consent, vote or approval which has not
been taken, or at the time of the transaction involved shall not have been given
or taken. Each party covenants that it has and will continue to have throughout
the Term of this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide
the other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a corporation), or written authorization by all
general partners (if it is a partnership) or other appropriate documentation
establishing its authority to execute this Agreement; and (ii) such opinions of
counsel as the other party shall reasonably request regarding the matters
described in this Section 20.1.
20.2 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or
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<PAGE>
approval. If either Owner or Management Company fails to respond within thirty
(30) days to a request by the other party for a consent or approval, such
consent or approval shall be deemed to have been given.
20.3 Agency
------
The relationship of Owner and Management Company shall be that of principal
and agent, and nothing contained in this Agreement shall be construed to create
a partnership or joint venture between them or their successors in interest.
Management Company's agency established by this Agreement is coupled with an
interest and may not be terminated by Owner until the expiration of the Term of
this Agreement, except as provided in Section 4.3 and in Articles XV or XVI.
Notwithstanding the agency relationship created by this Agreement, except to the
extent specifically set forth to the contrary in Section 20.12, nothing
contained herein shall prohibit, limit or restrict Management Company or any of
its Affiliates from developing, owning, operating, leasing, managing or
franchising hotels in the market area where the Inn is located.
The agency coupled with an interest herein was created by a complex,
single, integrated transaction between Marriott Corporation (the parent
corporation of Owner and Management Company as of the Effective Date) and its
subsidiaries whereby Marriott Corporation and its subsidiaries developed,
constructed, own and manage the Hotel. This agency is further intended to
provide security for the covenants, promises and guarantees herein. The agency
was purchased for valuable consideration, and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
it is terminable at will, and further agree to be equitably estopped from
asserting that the agency is not coupled with an interest.
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20.4 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Inn (subject to the provisions of Section 20.5, if
applicable).
20.5 Equity Offerings
----------------
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors in the Inn, unless Management Company has
previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus will not include: (i) any
Proprietary Mark; or (ii) except as required by applicable securities laws, the
text of this Agreement. Owner shall be entitled, however, to include in the
Prospectus an accurate summary of this Agreement; If there are no Legal
Requirements pursuant to which such information must be disclosed, appropriate
measures shall be taken to ensure that entities or individuals receiving such
Prospectus shall acknowledge the confidentiality of such information. Owner
shall indemnify, defend and
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hold Management Company and its Affiliates (and their respective directors,
officers, shareholders, employees and agents) harmless from and against all
loss, costs, liability and damage (including attorneys' fees and expenses, and
the cost of Litigation) arising out of any Prospectus or the offering described
therein.
20.6 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the state where the Inn is located.
20.7 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Inn is
located. Any cost of such recordation shall be borne by Management Company.
20.8 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
20.9 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either: (i) delivered by hand
against receipt; or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either a nationally utilized overnight
delivery service or by "facsimile" machine (provided that, in either case, a
confirmatory copy is thereafter sent by certified or registered mail):
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To Owner:
--------
c/o Host Marriott, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
--------------
c/o Host Marriott, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Asset Management Department 72-lAD-2
To Management Company:
---------------------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department - Hotel Operations
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Residence Inn, Vice President, Finance
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable
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Environmental Laws, on the Site or in the Inn by Management Company's employees,
representatives or agents during the Term of this Agreement. Regardless of
whether or not a given Hazardous Material is permitted on the Site under
applicable Environmental Law, Management Company shall only bring on the Site
such Hazardous Materials as are needed in the normal course of business of the
Inn.
B. In the event of the discovery of Hazardous Materials on any
portion of the Site or in the Inn during the Term of this Agreement, Owner shall
(except to the extent such removal is Management Company's responsibility
pursuant to Section 20.10.A) promptly remove (if required by applicable
Environmental Law) such Hazardous Materials, together with all contaminated soil
and containers, and shall otherwise remedy the problem in accordance with all
Environmental Laws. Owner shall (except to the extent that the removal of such
Hazardous Materials is Management Company's responsibility pursuant to Section
20.10.A) indemnify, defend and hold Management Company and its Affiliates (and
their respective directors, officers, shareholders, employees and agents)
harmless from and against all loss, cost, liability and damage (including,
without limitation, engineers' and attorneys' fees and expenses, and the cost of
Litigation) arising from the presence of Hazardous Materials on the Site or in
the Inn.
C. All costs and expenses of the removal of Hazardous Materials from
the Site or the Inn pursuant to Section 20.10.B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10.B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF%E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.3.
20.11 Estoppel Certificates
---------------------
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<PAGE>
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (i) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications
that the same, as modified, is in full force and effect and stating the
modifications); (ii) stating whether or not to the best knowledge of the
certifying party (a) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (b) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (iii) stating such other information as
the non-certifying party may reasonably request. Such statement shall be
binding upon the certifying party and may be relied upon by the non-certifying
party and/or such third party specified by the non-certifying party as
aforesaid. The obligations set forth in this Section 21.11 shall survive
Termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).
20.12 Trade Area Restriction
----------------------
Neither Management Company nor any of its Affiliates shall own, build,
franchise, manage or operate any Restricted Inn, under the "Residence Inn by
Marriott" or "Residence Inn" brand name, within the Restricted Area during the
period from the Effective Date through the sixth (6th) anniversary of the
Effective Date.
20.13 Arbitration
-----------
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<PAGE>
A. In the event of a dispute between Owner and Management Company
with respect to any issue of fact specifically mentioned herein as a matter to
be decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees
of a fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other, and the arbitrators so appointed, in the event of their failure to
agree within thirty (30) days after the appointment of the second arbitrator
upon the matter so submitted, shall appoint a third arbitrator. If either Owner
or Management Company shall fail to appoint an arbitrator, as aforesaid, for a
period of twenty (20) days after written notice from the other party to make
such appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon
a third arbitrator within forty-five (45) days after the appointment of the
second arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective counsel
engaged by the parties, and the fees of expert
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witnesses and other witnesses called for the parties, shall be paid by the
respective party engaging such counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty
(30) days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
20.14 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: OWNER:
HMH PROPERTIES, INC.
_____________________________ By: _________________________________
Assistant Secretary Vice President
Attest: MANAGER:
RESIDENCE INN BY MARRIOTT, INC.
_____________________________ By: _________________________________
Assistant Secretary Vice President
109
<PAGE>
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Location of Inn; Legal Description of the Site
----------------------------------------------
<PAGE>
EXHIBIT "A-1"
Number of Suites and Brief Description of Facilities: Priority
Basis; Performance Termination Threshold: Loan Priority Basis
(number set forth in (i) of Definition): Revenue Index Threshold:
-----------------------------------------------------------------
<PAGE>
EXHIBIT "A-1"
RESIDENCE INN BY MARRIOTT
Priority Basis
Loan Priority Basis
Performance Termination Threshold
Revenue Index
Number of Rooms
Brief Description of Facilities:
- --------------------------------
<PAGE>
EXHIBIT "B" TO MANAGEMENT AGREEMENT
Form of Accounting Period Statement
-----------------------------------
<PAGE>
EXHIBIT B
HOST MARRIOTT MANAGEMENT AGREEMENT
Form of Accounting Period Statement for Residence Inn
Period Last Year
------ ---------
Average Rate
Occupancy Rate
<TABLE>
<CAPTION>
Gross Revenue ------ ---------
<S> <C> <C>
House Profit ------ ---------
Less:
Base Management Fee
Residence Inn System Fee
Chain Services
Property Tax
Repairs and Equipment Reserve
Other Investment Factors ------ ----------
Operating Profit
Less: Incentive Management Fee ------ ----------
Partnership Profit ------ ----------
</TABLE>
Cash Due from (to) Management Company:
- -------------------------------------
Year-to-Date Cash from Operations
Less: Cash Paid by Management Company Year-to-Date __________
Amount Due from (to) Management Company __________
The above is the interim accounting of operations for the fiscal period ended
__________.
Sincerely,
Residence Inn Management Corporation
<PAGE>
EXHIBIT "C" TO MANAGEMENT AGREEMENT
[INTENTIONALLY DELETED]
----------------------
<PAGE>
EXHIBIT "D" TO MANAGEMENT AGREEMENT
Map of Restricted Area
----------------------
<PAGE>
EXHIBIT "D-1" TO MANAGEMENT AGREEMENT
Narrative Description of Restricted Area
----------------------------------------
<PAGE>
TRADE AREA RESTRICTION
----------------------
PRODUCT: Residence Inn
STATE:
METRO AREA:
MARKET:
RECOMMENDED TRADE AREA FALLS WITHIN THE FOLLOWING BOUNDARIES:
NORTH:
SOUTH:
EAST:
WEST:
SPECIFIC EXCLUSIONS:
COMMENTS:
<PAGE>
EXHIBIT "E" TO MANAGEMENT AGREEMENT
Proprietary Marks which will remain the property of Owner after Termination
---------------------------------------------------------------------------
NOT APPLICABLE
<PAGE>
EXHIBIT "F" TO MANAGEMENT AGREEMENT
Title Encumbrances; Existing CC&R's
(separately describing those charges thereunder which will be
treated as capital expenditures under Section 8.03)
Existing Ground Lease (if applicable); Existing Mortgages (if any)
------------------------------------------------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in the Registration
Statement on Form S-11 under the Securities Act of 1933, as amended, related to
the registration of 13,800,000 Common Shares of Beneficial Interest by
Hospitality Properties Trust.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
March 4, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of our
reports dated February 27, 1996, on our audits of the financial statements and
schedule of Garden Hotel Associates LP. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 5, 1996
