UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
Maryland 04-3262075
(State of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02458
617-964-8389
Securities registered pursuant to Section 12(b) of the Act:
Class Name of each exchange on which registered
Common Shares of Beneficial Interest New York Stock Exchange
Series A Cumulative Redeemable New York Stock Exchange
Preferred Shares of Beneficial Interest
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates was $1,046 million based on the $20.0625 closing price per share
for such stock on the New York Stock Exchange on March 22, 2000. For purposes of
this calculation, 4,000,000 Common Shares of Beneficial Interest, $0.01 par
value ("Common Shares") held by HRPT Properties Trust, and an aggregate of
348,495 Common Shares held by the Trustees and officers of the registrant, have
been included in the number of shares held by affiliates.
Number of the registrant's Common Shares, outstanding as of March 22, 2000:
56,462,612
The aggregate market value of the preferred stock of the registrant was $59.3
million based on the $19.75 closing price per share for such stock on the New
York Stock Exchange on March 22, 2000. All of this stock was held by
non-affiliates.
Number of the registrant's Series A Cumulative Redeemable Preferred Shares
outstanding as of March 22, 2000: 3,000,000
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is to be incorporated
herein by reference from the definitive Proxy Statement of Hospitality
Properties Trust (the "Company") for its annual meeting of shareholders
currently scheduled to be held on May 16, 2000.
---------------
CERTAIN IMPORTANT FACTORS
Our Annual Report on Form 10-K 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 Form 10-K and include statements regarding our intent, belief or
expectations, or the intent, belief or expectation of our Trustees or our
officers with respect to the declaration or payment of distributions, our
policies and plans regarding investments, financings, or other matters, our
qualification and continued qualification as a real estate investment trust or
trends affecting us or our tenants' or our hotels' financial condition or
results of operations. Readers 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
contained in the forward looking statements as a result of various factors. Such
factors include without limitation changes in financing terms, our ability or
inability to complete acquisitions and financing transactions, results of
operations of our hotels or our tenants and general changes in economic
conditions not presently contemplated. The accompanying information contained in
this Form 10-K, including the information under the headings "Business and
Properties" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", identifies other important factors that could cause such
differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
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 TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
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HOSPITALITY PROPERTIES TRUST
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Part I
Page
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Items 1. & 2. Business and Properties...................................................... 1
Item 3. Legal Proceedings............................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders.......................... 21
Part II
Item 5. Market for the Registrant's Common Equity and Related Shareholders Matters... 22
Item 6. Selected Financial Data...................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................... 29
Item 8. Financial Statements and Supplementary Data.................................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 30
Part III
To be incorporated by reference from our definitive Proxy
Statement for the annual meeting of shareholders currently
scheduled to be held on May 16, 2000, which is expected to be
filed not later than 120 days after the end of the Company's
fiscal year.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 31
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Items 1. and 2. Business and Properties
The Company. Hospitality Properties Trust is a real estate investment
trust ("REIT") formed in 1995 to buy, own and lease hotels to unaffiliated hotel
operators. At December 31, 1999, we owned 210 hotels with 28,449 rooms or suites
located in 35 states, which cost approximately $2,193 million. We are organized
as a Maryland real estate investment trust; our principal place of business is
400 Centre Street, Newton, Massachusetts 02458, and our telephone number is
(617) 964-8389.
Our principal growth strategy is to expand our investments in hotels
and to set minimum rents which produce income in excess of our operating and
capital costs. We seek to provide capital to unaffiliated hotel operators who
wish to divest their properties while remaining in the hotel business as tenants
and in doing so, ensure stability of cash flow through dependable and
diversified revenue sources. We believe that our operating philosophy affords us
opportunities to find high quality hotel investments on attractive terms. In
addition, our 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 our hotels.
Our hotels are leased to and managed by single purpose subsidiaries of
unaffiliated public companies. Each of our tenants are herein referred to as
"Lessees" and each of our operators are herein referred to as "Managers." The
annual rent payable to us for our 210 hotels totals $224 million in minimum rent
plus percentage rent ranging from 5% to 10% of increases in total hotel sales
over a base year level. In addition to rent payments, 5-6% of total hotel sales
is required to be paid and escrowed periodically by the Lessee or the Manager as
a reserve for renovations and refurbishment of the hotels.
Under the leases and management agreements, our hotels are currently
operated as Marriott Hotels, Resorts and Suites(R), Courtyard by Marriott(R),
Residence Inn by Marriott(R), Wyndham Garden(R), Wyndham(R), Summerfield Suites
by Wyndham(R), Sumner Suites(R), Candlewood Suites(R), Homestead Village(R) or
TownePlace Suites by Marriott(R). We believe that our portfolio of hotels is
among the newest of publicly owned hotel REITs. The average age of our hotels is
approximately 5.75 years at December 31, 1999.
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 size beds. Most Courtyard by Marriott(R)
hotels are situated on well landscaped grounds and typically are built with a
courtyard containing a patio, pool and socializing area that may be glass
enclosed depending upon location. Most of these hotels have lounges, meeting
rooms, an exercise room, a guest laundry 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 may not be available and meeting
and function rooms are limited in size and number. According to Marriott, as of
December 1999, over 450 Courtyard by Marriott(R) hotels were open and operating
in the United States and internationally. We believe that the Courtyard by
Marriott(R) brand is the leading brand in the upscale segment of the United
States hotel industry.
We have invested a total of $654 million in 66 Courtyard by Marriott(R)
hotels which have 9,353 rooms. For 1999, the average daily rate ("ADR"),
occupancy and revenue per available room ("REVPAR") for our 59 Courtyard by
Marriott(R) hotels which were open for a full year as of January 1, 1999 were as
follows:
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HPT COURTYARD BY MARRIOTT(R) HOTELS
ADR ................................$93.24
Occupancy........................... 80.0%
REVPAR..............................$74.59
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 and 130 studio,
one-bedroom and two-bedroom suites. Most Residence Inn by Marriott(R) hotels are
designed as 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 a complimentary evening
hospitality hour. In addition, each suite contains a fully equipped kitchen and
many have fireplaces. Most Residence Inn by Marriott(R) hotels also have
swimming pools, exercise rooms, sports courts and guest laundries. According to
Marriott, as of December 1999, over 325 Residence Inn by Marriott(R) hotels were
open and operating in the United States, Mexico and Canada. We believe that the
Residence Inn by Marriott(R) brand is the leading brand in the extended stay
segment of the United States hotel industry.
We have invested a total of $371 million in 34 Residence Inn by
Marriott(R) hotels which have 4,315 suites. For 1999, the ADR, occupancy and
REVPAR for our 29 Residence Inn by Marriott(R) hotels which were open for a full
year as of January 1, 1999 were as follows:
HPT RESIDENCE INN BY MARRIOTT(R) HOTELS
ADR ................................$96.89
Occupancy........................... 83.5%
REVPAR..............................$80.90
Wyndham(R) Hotels Eleven of our Wyndham(R) hotels are Wyndham Garden(R)
hotels. Wyndham Garden(R) hotels are mid-sized, full service hotels located
primarily near suburban business centers and airports, and are designed to
attract business travelers and small business groups. Each hotel contains 140 to
250 rooms and approximately 1,500 to 5,000 square feet of meeting space.
Amenities and services include large desks, 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 in a
flexible meeting room design with audiovisual equipment. Wyndham Garden(R)
hotels also feature a lobby lounge, most of which have a fireplace, libraries
typically overlooking landscaped gardens and swimming pools. In addition, many
Wyndham Garden(R) hotels contain whirlpool and exercise facilities. Each Wyndham
Garden(R) hotel contains a cafe restaurant which serves a full breakfast, lunch
and dinner menu. One Wyndham(R) hotel owned by us is a full service hotel
located in downtown Salt Lake City adjacent to the Salt Lake City Delta Center.
This hotel includes 381 rooms, 14,469 square feet of meeting space and two
restaurants/lounges. We believe this hotel is a leading convention hotel in Salt
Lake City. According to Wyndham, as of December 1999 there were 48 Wyndham
Garden(R) and 44 Wyndham(R) hotels open and operating in the United States.
The 12 Wyndham(R) and Wyndham Garden(R) hotels owned by us represent a
total investment of $183 million and contain 2,321 rooms. For 1999, these hotels
had ADR, occupancy and REVPAR as follows:
HPT WYNDHAM(R) HOTELS
ADR ................................$95.60
Occupancy........................... 70.0%
REVPAR..............................$66.92
Summerfield Suites by Wyndham(R) hotels are upscale, all suite extended
stay hotels which offer guests separate living and sleeping areas, full
kitchens, large work areas, complimentary breakfasts and evening social hours.
Private voice mail, video players, on site convenience stores and "room service"
contracted from area restaurants also are generally available. In addition,
Summerfield Suites by Wyndham(R) offers "signature" two bedroom, two bathroom
suites designed for equal-status business travelers in training classes or
attending meetings and for families on weekends. According to Wyndham, there
were 37 Summerfield Suites by Wyndham(R) open and operating in the United States
as of December 1999.
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The 15 Summerfield Suites by Wyndham(R) hotels which we own represent a
total investment of $240 million and contain 1,822 suites (2,766 rooms). For
1999, these hotels had ADR, occupancy and REVPAR as follows:
HPT SUMMERFIELD SUITES BY WYNDHAM(R) HOTELS
ADR ................................$120.99
Occupancy........................... 81.3%
REVPAR..............................$98.36
Sumner Suites(R) hotels are all suite hotels designed to attract
value-oriented business travelers. Sumner Suites(R) hotels compete in the all
suite segment of the lodging industry against such brands as Embassy Suites(R),
Hampton Inn & Suites(R) and AmeriSuites(R). Each Sumner Suites(R) guest room
offers an efficient space for working which includes two phones with data ports
and voice mail, a living area which includes a coffee maker, microwave,
mini-refrigerator, sleeper-sofa and 25-inch television, and a separate bedroom
area with either one king or two double beds. Each Sumner Suites(R) hotel has an
attractive lobby lounge where free continental breakfast is provided in the
mornings and cocktails are generally available in the evening. In addition, all
Sumner Suites(R) hotels have meeting rooms that can accommodate up to 150
persons, fitness facilities and a pool. Sumner Suites(R) hotels are generally
high-rise hotels of six or seven stories and are of masonry construction.
We have invested $205 million in our 20 Sumner Suites(R) hotels which
include 2,409 guest suites. Excluding five hotels which were not open for a full
year as of January 1, 1999, the ADR, occupancy and REVPAR for our Sumner
Suites(R) hotels in 1999 were as follows:
HPT SUMNER SUITES(R) HOTELS
ADR ................................$78.30
Occupancy........................... 60.3%
REVPAR..............................$47.21
Candlewood Suites(R) hotels are mid-priced extended stay hotels which
offer studio and one bedroom suites designed for business travelers expecting to
stay five or more nights. Candlewood Suites(R) hotels compete in the mid-priced
extended stay segment of the lodging industry against such other brands as
Sierra Suites(R), TownePlace Suites by Marriott(R) and MainStay Suites(R). Each
Candlewood Suites(R) suite contains a fully equipped kitchen area, a combination
living and work area and a sleeping area. The kitchen includes a full-size
microwave, full-size refrigerator, stove, dishwasher and coffee maker. The
living area contains a convertible sofa, recliner, 25-inch television,
videocassette player and compact disc player. The work area includes a large
desk and executive chair, two phone lines, voice mail and a speaker phone. Each
Candlewood Suites(R) suite contains a king size bed. Other amenities offered at
each Candlewood Suites(R) hotel include a fitness center, free guest laundry
facilities, and a Candlewood Cupboard(R) area where guests can purchase light
meals, snacks and other refreshments. According to Candlewood, there were 65
Candlewood Suites(R) hotels open and operating across the United States as of
December 1999.
We have invested $261 million in 34 Candlewood Suites(R) hotels which
include 3,892 suites. Nineteen were opened during 1998. For 1999, the ADR,
occupancy and REVPAR for our 15 Candlewood Suites(R) hotels which were open for
a full year as of January 1, 1999 were as follows:
HPT CANDLEWOOD SUITES(R) HOTELS
ADR ................................$58.27
Occupancy........................... 68.9%
REVPAR..............................$40.15
Homestead Village(R) hotels are extended stay hotels designed for
value-oriented business travelers. Each Homestead Village(R) room features a
kitchen with a full-size refrigerator, stovetop, microwave, coffee maker plus
utensils and dishes. A work area is provided with a well-lighted desktop and a
computer data port. Complimentary local phone calls, fax service, copy service
and personalized voice-mail are also available to guests. On-site laundry and
other personal care items are available. Housekeeping
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services are provided on a twice-weekly basis. According to Homestead, there
were over 130 Homestead Village(R) hotels open as of December 1999.
We have invested $145 million in 18 Homestead Village(R) hotels with a
total of 2,399 rooms. Four of these hotels have been open less than a full year
as of January 1, 1999. For 1999, the ADR, occupancy and REVPAR for our 14
Homestead Village(R) hotels which were open for a full year as of January 1,
1999 were as follows:
HPT HOMESTEAD VILLAGE(R) HOTELS
ADR ................................$49.21
Occupancy........................... 73.7%
REVPAR..............................$36.27
The Marriott St. Louis Airport hotel is a 601 room hotel located in
Missouri on approximately 12 acres of land at the I-70 exit for Lambert
International Airport, across the street from the airport entrance. The hotel
has two nine floor towers and three low rise buildings which create a courtyard
for the hotel's pool and gardens. The property includes 20 meeting rooms
totaling approximately 18,000 square feet of space, three restaurants and a
concierge floor. Included in the 601 rooms are 77 Rooms That Work(R); rooms
specifically designed by Marriott for the business traveler. The property has
been operated as a Marriott hotel since it opened.
The Marriott Nashville Airport hotel is a 399 room, 17 floor hotel
located in Tennessee on 17 acres of land in High Ridge Business Park across I-40
from the Nashville Airport and a short drive from downtown Nashville. The
property includes 14 meeting rooms totaling approximately 17,000 square feet of
space, a restaurant and a concierge floor. Included in the 399 rooms are 85
Rooms That Work(R). The property has been operated as a Marriott hotel since it
opened.
TownePlace Suites(R) are extended-stay hotels offering studio and
two-bedroom suites for business and family travelers. TownePlace Suites(R)
compete in the mid-priced extended-stay segment of the lodging industry. Each
suite offers a fully equipped kitchen and separate living and work areas. Other
amenities offered include voice mail, data lines, on-site business services,
laundry and a fitness center. According to Marriott, there were over 50
TownePlace Suites(R) open as of December 1999.
We have invested in nine TownePlace Suites which include 938 rooms for
$69 million. One of these hotels was opened in 1997, four were opened in 1998,
and four opened in 1999. We believe that the current performance of our
TownePlace Suites(R) hotels is not indicative of their operating potential
because of their recent development.
PRINCIPAL LEASE FEATURES
The principal features of our leases for the 210 hotels are as follows:
o Minimum rent. All of our leases require minimum annual rent equal to
between 10% and 11% of our investment in our hotels.
o Percentage rent. All of our leases require percentage rent equal to
between 5% and 10% of increases in gross hotel revenues over threshold
amounts.
o Long term leases. All of the leases for our hotels expire after 2010.
The weighted average lease term remaining for our hotels as of December
31, 1999 is 13.8 years.
o Pooled leases. Each of our hotels is part of a combination of hotels.
The tenant's lease obligations with respect to each hotel in a
combination are subject to cross default with the lease obligations
with respect to all the other hotels in the same combination. The
smallest combination includes nine hotels with 1,336 rooms in which we
have invested $129 million; the largest combination includes 53 hotels
with 7,610 rooms in which we have invested $508 million.
o Geographic diversification. Each combination of hotels leased to a
single tenant is geographically diversified. In addition, many of our
hotels are located in the vicinity of major demand generators such as
large suburban office parks, airports, medical or educational
facilities and major tourist attractions.
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o All or none renewals. All tenant renewal options for each combination
of our hotels may only be exercised on an all or none basis and not for
separate hotels.
o Security deposits. All of our leases require security deposits,
generally equal to one year's minimum rent.
o FF&E reserves. All of our leases require the tenants to deposit 5-6% of
gross hotel revenues into escrow to fund periodic renovations (the
"FF&E Reserve"). For hotels which were open for at least one year prior
to 1999 (162 hotels) the FF&E Reserve contributions in 1999 averaged
$1,431 per room.
o Subordinated fees. Management fees for our hotels are subordinated to
the rent due to us.
o Guarantees for new hotels. When we purchase and lease recently built
hotels, we require that payment of rent be guaranteed until the
operations of the hotels achieve negotiated rent coverage levels.
Except for guarantors whose obligations are investment grade rated, or
whose net worth is substantially in excess of the guaranteed annual
minimum rent, these guarantees are secured by deposits.
o Rent coverage. We define rent coverage as combined gross hotel revenues
minus all expenses which are not subordinated to rent and the required
FF&E Reserve contributions divided by the aggregate rent due to us.
During 1999, the 162 HPT hotels which had been open at least one year
at the beginning of 1999 had rent coverage of approximately 1.5 times.
All of our hotels, including 12 which opened in 1999, had rent coverage
of approximately 1.4 times in 1999. We believe that these are the
highest rent coverage ratios among all public hotel REITs.
At December 31, 1999 10 of our hotels were on leased land. In each
case, the remaining term of the ground lease (including renewal options) is in
excess of 36 years, and the ground lessors are unrelated to the sellers and to
us.
Ground rent payable under the ground leases is the responsibility of
our 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 $503,000 per year; two ground leases require rent to be pre-paid. 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 obligations
under the ground lease or elects not to renew any ground lease, we must perform
obligations under the ground lease or renew the ground lease in order to protect
our investment in the affected hotel. Any pledge of our interests in a ground
lease may also require the consent of the applicable ground lessor and its
lenders. We have no current requirement to make any pledge of our ground lease
interests.
INVESTMENT AND OPERATING POLICIES
In order to benefit from potential property appreciation, we prefer to
own and lease properties rather than make mortgage investments. We may invest in
real estate joint ventures if we conclude that we may benefit from the
participation of coventurers or that the opportunity to participate in the
investment is contingent on the use of a joint venture structure. We may invest
in participating, convertible or other types of mortgages if we conclude that we
may benefit from the cash flow or appreciation in the value of the mortgaged
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
December 31, 1999, we own no mortgages or joint venture interests.
We provide capital to unaffiliated hotel operators who wish to divest
their properties while remaining in the hotel business as tenants. Many other
public hotel REITs seek to control the operations of hotels in which they invest
by leasing their properties to affiliated tenants. These other hotel REITs
generally design their affiliated leases to capture substantially all net
operating revenues from their hotels as rent. Our leases are designed so that
net operating revenues from our hotels exceed rents by considerable coverage
margins. We believe that these differences in operating philosophy afford us a
competitive advantage over other hotel REITs in finding high quality hotel
investment opportunities on attractive terms and increase the dependability of
our cash flows used to pay dividends.
Our investment objectives include increasing per share dividends and
cash available for distribution ("CAD") from dependable and diverse resources.
To achieve these objectives, we seek 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 CAD per share because of positive spreads
between our 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
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revenues at our hotels; when market conditions permit, refinance debt with
additional equity or long term debt; and pursue diversification so that our CAD
is received from diverse properties and operators.
Our day-to-day operations are conducted by REIT Management & Research,
Inc. ("RMR"), our investment advisor. RMR originates and presents investment
opportunities to our Board of Trustees.
As a REIT, we may not operate hotels. We or our tenants have entered
into arrangements for operation of our hotels. Our leases require the lessee to
pay all operating expenses, including taxes, insurance and capital reserves and
to pay to us minimum rents plus percentage rents based upon increases in gross
revenues at the hotels.
ACQUISITION POLICIES
We intend to pursue growth through the acquisition of additional
hotels. Generally, we prefer to purchase and lease multiple hotels in one
transaction because we believe a single lease, cross default covenants and all
or none renewal rights for multiple hotels in diverse locations enhance the
credit characteristics of our leases and the security of our investments. In
implementing our acquisition strategy, we consider 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 hotel; (iii) the availability of a qualified lessee; (iv) the
design and physical condition of the hotel; (v) the estimated replacement cost
and proposed acquisition price of the hotel; (vi) the price segment in which the
hotel is operated; (vii) the reputation of the particular hotel management
organization, if any, with which the hotel is or may become affiliated; (viii)
the age of the hotel; (ix) the level of services and amenities offered at the
hotel; and (x) the hotel brand under which the hotel operates or is expected to
operate. In determining the competitive position of a hotel, we examine the
proximity of the hotel to business, retail, academic and tourist attractions and
transportation routes, the number and characteristics of competitive hotels
within the hotel's market and the existence of barriers to entry within that
market, including site availability, zoning restrictions and financing
constraints. While we have historically focused on the acquisition of upscale
limited service, extended stay and full service hotel properties, we consider
acquisitions in all segments of the hospitality industry. An important part of
our acquisition strategy is to identify and select qualified and experienced
hotel lessees and managers. We intend to continue to select hotels for
acquisition which will enhance the diversity of our portfolio in respect to
location, brand name, and lessee/operator.
DISPOSITION POLICIES
We have no current intention to dispose of any hotels, although we may
do so. We currently anticipate that disposition decisions, if any, will be made
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 our portfolio; (iv) the potential for, or the existence of, any
environmental or regulatory problems; (v) the existence of alternative sources,
uses or needs for capital; and (vi) the maintenance of our qualification as a
REIT.
FINANCING POLICIES
We currently intend to employ conservative financial policies in
pursuit of our growth strategies. Although there are no limitations in our
organizational documents on the amount of indebtedness we may incur, we
currently intend to pursue our growth strategies while maintaining a capital
structure under which our debt will not exceed 50% of our total capitalization.
We may from time to time re-evaluate and modify our financing policies in light
of then current economic conditions, relative availability and costs of debt and
equity capital, market values of properties, growth and acquisition
opportunities and other factors and may increase or decrease our ratio of debt
to total market capitalization accordingly.
Our Board of Trustees may determine to obtain a replacement for our
current credit facilities or to seek additional capital through additional
equity offerings, debt financings, or retention of net cash flows in excess of
distributions to shareholders, or a combination of these methods. To the extent
that the Board of Trustees decides to obtain additional debt financing, we may
do so on an unsecured basis (or a secured basis, subject to limitations which
may be present in existing financing or other arrangements) and may seek to
obtain other lines of credit or to issue securities senior to our common and/or
preferred shares, including preferred shares of beneficial interest and debt
securities, either of which may be convertible into common shares or be
accompanied by warrants to purchase common shares, or to engage in transactions
which may involve a sale or other conveyance of hotels to subsidiaries or to
unaffiliated special purpose entities. We may finance acquisitions through an
exchange of properties or through the issuance of additional common shares or
other securities. The proceeds from any of our financings 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.
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Investment Advisor. We have an agreement with RMR under which RMR
provides investment and administrative services to us. RMR is a Delaware
corporation owned by Barry M. Portnoy and Gerard M. Martin, who are Managing
Trustees, and has a principal place of business at 400 Centre Street, Newton,
Massachusetts, 02458, telephone number (617) 332-3990. RMR acts as the
investment advisor to HRPT Properties Trust (NYSE:HRP), the holder of 4,000,000
of our common shares and has other business interests. The directors of RMR are
Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The executive officers
of RMR are David J. Hegarty, President, John G. Murray, Executive Vice
President, Jennifer B. Clark, Vice President, David M. Lepore, Vice President,
John A. Mannix, Vice President, Thomas M. O'Brien, Vice President, Ajay Saini,
Vice President, and John C. Popeo, Treasurer. Mr. Murray and Mr. O'Brien are
also officers of HPT.
Employees. We have no employees. Services which would otherwise be
provided by employees are provided by RMR pursuant to our advisory agreement and
by our Managing Trustees and officers. As of March 22, 2000, RMR had
approximately 200 full-time employees.
Competition. The hotel industry is highly competitive. Each of our
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 average daily rates of the hotels located in that area. Agreements
with the operators of our hotels restrict the right of each operator and its
affiliates for a limited period of time to own, build, operate, franchise or
manage any other hotel of the same brand within various specified areas around
our hotels. Neither the operator nor its affiliates is restricted from operating
other branded hotels in the market areas of any of the hotels, and after such
limited period of time, the operators and their affiliates may also compete with
our hotels by opening, managing or franchising additional hotels under the same
brand name in direct competition with our hotels.
We expect to compete for hotel acquisition and financing opportunities
with entities which may have substantially greater financial resources than us,
including, without limitation, other REITs, banks, insurance companies, pension
plans and public and private partnerships. These entities may be able to accept
more risk than we 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 us or
increase the bargaining power of hotel owners seeking to sell or finance their
properties.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of federal income tax and ERISA consequences is
based on existing law, and is limited to investors who own our shares as
investment assets rather than as inventory or as property used in a trade or
business. The summary does not discuss the particular tax consequences that
might be relevant to you if you are subject to special rules under the federal
income tax law, for example if you are:
o a bank, life insurance company, regulated investment company, or other
financial institution,
o a broker or dealer in securities or foreign currency,
o a person who has a functional currency other than the U.S. dollar,
o a person who acquires our shares in connection with employment or other
performance of services,
o a person subject to alternative minimum tax,
o a person who owns our shares as part of a straddle, hedging
transaction, constructive sale transaction, or conversion transaction,
or
o except as specifically described in the following summary, a tax-exempt
entity or a foreign person.
The sections of the Internal Revenue Code that govern the federal income tax
qualification and treatment of a REIT and its shareholders are complex. This
presentation is a summary of applicable Internal Revenue Code provisions,
related rules and regulations and administrative and judicial interpretations,
all of which are subject to change, possibly with retroactive effect. Future
legislative, judicial, or administrative actions or decisions could affect the
accuracy of statements made in this summary. We have not sought a ruling from
the IRS with respect to any matter described in this summary, and we cannot
assure you that the IRS or a court will agree with the statements made in this
summary. In addition, the following summary is not exhaustive of all possible
tax consequences, and does not discuss any estate, gift, state, local, or
foreign tax consequences. For all these reasons, we urge you and any prospective
acquiror of our
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shares to consult with a tax advisor about the federal income tax and other tax
consequences of the acquisition, ownership and disposition of our shares.
Federal income tax consequences may differ depending on whether or not
you are a "U.S. shareholder." For purposes of this summary, a U.S. shareholder
for federal income tax purposes is:
o a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the substantial presence residency test under the federal income
tax laws,
o a corporation, partnership or other entity treated as a corporation or
partnership for federal income tax purposes, that is created or
organized in or under the laws of the United States, any state thereof
or the District of Columbia, unless otherwise provided by Treasury
regulations,
o an estate the income of which is subject to federal income taxation
regardless of its source, or
o a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust, or electing trusts in existence on August 20, 1996 to the
extent provided in Treasury regulations,
whose status as a U.S. shareholder is not overridden by an applicable tax
treaty. Conversely, a "non-U.S. shareholder" is a beneficial owner of our shares
who is not a U.S. shareholder.
Taxation as a REIT
We have elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ending December 31,
1995. Our REIT election, assuming continuing compliance with the federal income
tax qualification tests summarized below, continues in effect for subsequent
taxable years. Although no assurance can be given, we believe that we are
organized, have operated, and will continue to operate in a manner that
qualifies us to be taxed under the Internal Revenue Code as a REIT.
As a REIT, we generally will not be subject to federal income tax on
our net income distributed as dividends to our shareholders. Distributions to
our shareholders generally will be includable in their income as dividends to
the extent of our current or accumulated earnings and profits. A portion of
these dividends may be treated as capital gain dividends, as explained below. No
portion of any dividends will be eligible for the dividends received deduction
for corporate shareholders. Distributions in excess of current or accumulated
earnings and profits generally will be treated for federal income tax purposes
as a return of capital to the extent of a recipient shareholder's basis in our
shares, and will reduce this basis. Our current or accumulated earnings and
profits will generally be allocated first to distributions on our outstanding
preferred shares, if any, and thereafter to distributions on our common shares.
Our counsel, Sullivan & Worcester LLP, has opined that we have been
organized and have qualified as a REIT under the Internal Revenue Code for our
1995 through 1999 taxable years, and that our current investments and plan of
operation will enable us to meet the requirements for qualification and taxation
as a REIT under the Internal Revenue Code. Our actual qualification and taxation
as a REIT will depend upon our ability to meet the various REIT qualification
tests imposed under the Internal Revenue Code and summarized below. While we
believe that we will operate in a manner to satisfy the various REIT
qualification tests, our counsel has not reviewed and will not review compliance
with these tests on a continuing basis. If we fail to qualify as a REIT in any
year, we will be subject to federal income taxation as if we were a domestic
corporation, and our shareholders will be taxed like shareholders of ordinary
corporations. In this event, we could be subject to significant tax liabilities,
and the amount of cash available for distribution to our shareholders may be
reduced or eliminated.
If we qualify for taxation as a REIT and meet the annual distribution
tests described below, we generally will not be subject to federal corporate
income taxes on the amount distributed. However, even if we qualify for federal
income taxation as a REIT, we may be subject to federal tax in the following
circumstances:
o We will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including our undistributed
net capital gains.
o If our alternative minimum taxable income exceeds our taxable income,
we may be subject to the corporate alternative minimum tax on our items
of tax preference.
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o If we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other nonqualifying income from
foreclosure property, we will be subject to tax on this net income from
foreclosure property at the highest regular corporate rate, which is
currently 35%.
o If we have net income from prohibited transactions, including sales or
other dispositions of inventory or property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property, we will be subject to tax on this income at a 100% rate.
o If we fail to satisfy the 75% gross income test or the 95% gross income
test discussed below, but nonetheless maintain our qualification as a
REIT, we will be subject to tax at a 100% rate on the greater of the
amount by which we fail the 75% or the 95% test, multiplied by a
fraction intended to reflect our profitability.
o If we fail to distribute for any calendar year at least the sum of 85%
of our REIT ordinary income for that year, 95% of our REIT capital gain
net income for that year, and any undistributed taxable income from
prior periods, we will be subject to a 4% excise tax on the excess of
the required distribution over the amounts actually distributed.
o If we acquire an asset from a corporation in a transaction in which our
basis in the asset is determined by reference to the basis of the asset
in the hands of a present or former C corporation, and if we
subsequently recognize gain on the disposition of this asset during the
ten-year period beginning on the date on which the asset ceased to be
owned by the C corporation, then we will pay tax at the highest regular
corporate tax rate, which is currently 35%, on the lesser of the excess
of the fair market value of the asset over the C corporation's basis in
the asset on the date the asset ceased to be owned by the C
corporation, or the gain recognized in the disposition.
If we invest in properties in foreign countries, our profits from those
investments will generally be subject to tax in the countries where those
properties are located. The nature and amount of this taxation will depend on
the laws of the countries where the properties are located. If we operate as we
currently intend, then we will distribute our taxable income to our shareholders
and we will not pay federal income tax, and thus we generally cannot recover the
cost of foreign taxes imposed on our foreign investments by claiming foreign tax
credits against our federal income tax liability. We cannot pass through to our
shareholders any foreign tax credits.
If we fail to qualify for federal income taxation as a REIT in any
taxable year, then we will be subject to federal tax in the same manner as an
ordinary corporation. Distributions to our shareholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will these distributions
be required to be made. In that event, to the extent of our current and
accumulated earnings and profits, all distributions to our shareholders will be
taxable as ordinary dividend income and, subject to limitations in the Internal
Revenue Code, will be eligible for the dividends received deduction for
corporate recipients. Also in that event, we will generally be disqualified from
federal income taxation as a REIT for the four taxable years following
disqualification. Failure to qualify for federal income taxation as a REIT for
even one year could result in our incurring substantial indebtedness or
liquidating substantial investments in order to pay the resulting
corporate-level taxes.
REIT Qualification Requirements
General Requirements. Section 856(a) of the Internal Revenue Code
defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) that would be taxable, but for Sections 856 through 859 of the
Internal Revenue Code, as an ordinary domestic corporation;
(4) that is not a financial institution or an insurance company subject
to special provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) that is not "closely held" as defined under the personal holding
company stock ownership test, as described below; and
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(7) that meets other tests regarding income, assets and distributions,
all as described below.
Section 856(b) of the Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
pro rata part of a taxable year of less than 12 months. Section 856(h)(2) of the
Internal Revenue Code provides that conditions (5) and (6) need not be met for
our first taxable year as a REIT. We believe that we have satisfied conditions
(1) to (6), inclusive, during each of the requisite periods ending on or before
December 31, 1999, and that we will continue to satisfy those conditions in
future taxable years. There can, however, be no assurance in this regard.
By reason of condition (6) above, we will fail to qualify as a REIT for
a taxable year if at any time during the last half of the year more than 50% in
value of our outstanding shares is owned directly or indirectly by five or fewer
individuals. To help comply with condition (6), our declaration of trust
contains provisions restricting transfers of our shares. In addition, if we
comply with applicable Treasury regulations for ascertaining the ownership of
our outstanding shares and do not know, or by exercising reasonable diligence
would not have known, that we failed condition (6), then we will be treated as
satisfying condition (6). Also, our failure to comply with these applicable
Treasury regulations for ascertaining ownership of our outstanding shares may
result in a penalty of $25,000, or $50,000 for intentional violations.
Accordingly, we intend to comply with these Treasury regulations, and to request
annually from record holders of significant percentages of our shares
information regarding the ownership of our shares. Under our declaration of
trust, our shareholders are required to respond to these requests for
information.
For purposes of condition (6) above, shares in a REIT held by a pension
trust are treated as held directly by the pension trust's beneficiaries in
proportion to their actuarial interests in the pension trust. Consequently, five
or fewer pension trusts could own more than 50% of the interests in an entity
without jeopardizing that entity's federal income tax qualification as a REIT.
However, as discussed below, if a REIT is a "pension-held REIT," each pension
trust owning more than 10% of the REIT's shares by value generally will be taxed
on a portion of the dividends received from the REIT, based on the ratio of:
(1) the REIT's gross income for the year that would be unrelated trade
or business income if the REIT were a qualified pension trust, to
(2) the REIT's total gross income for the year.
Our Wholly-Owned Subsidiaries and Our Investments through Partnerships.
Section 856(i) of the Internal Revenue Code provides that any corporation 100%
of whose stock is held by a REIT is a qualified REIT subsidiary and shall not be
treated as a separate corporation. The assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as the REIT's.
We believe that each of our direct and indirect wholly-owned subsidiaries will
either be a qualified REIT subsidiary within the meaning of Section 856(i) of
the Internal Revenue Code, or a noncorporate entity that for federal income tax
purposes is not treated as separate from its owner under regulations issued
under Section 7701 of the Internal Revenue Code. Thus, in applying all the
federal income tax REIT qualification requirements described in this summary,
all assets, liabilities and items of income, deduction and credit of our direct
and indirect wholly-owned subsidiaries are treated as ours.
We may invest in real estate through one or more limited or general
partnerships or limited liability companies that are treated as partnerships for
federal income tax purposes. In the case of a REIT that is a partner in a
partnership, regulations under the Internal Revenue Code provide that, for
purposes of the REIT qualification requirements regarding income and assets
discussed below, the REIT is deemed to own its proportionate share of the assets
of the partnership corresponding to the REIT's proportionate capital interest in
the partnership and is deemed to be entitled to the income of the partnership
attributable to this proportionate share. In addition, for these purposes, the
character of the assets and gross income of the partnership generally retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities, and items of income of each partnership in which we are
a partner is treated as ours for purposes of the income tests and asset tests
discussed below. In contrast, for purposes of the distribution requirement
discussed below, we must take into account as a partner our distributive share
of the partnership's income as determined under the general federal income tax
rules governing partners and partnerships under Sections 701 through 777 of the
Internal Revenue Code.
Income Tests. There are two gross income requirements for qualification
as a REIT under the Internal Revenue Code:
o At least 75% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be derived
from investments relating to real property, including "rents from real
property" as defined under Section 856 of the Internal Revenue Code,
mortgages on real property, or shares in other REITs. When we receive
new capital in exchange for our shares or in a public offering of
five-year or longer debt instruments, income attributable to the
temporary investment of this
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new capital in stock or a debt instrument, if received or accrued
within one year of our receipt of the new capital, is generally also
qualifying income under the 75% test.
o At least 95% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be derived
from a combination of items of real property income that satisfy the
75% test described above, dividends, interest, payments under interest
rate swap or cap agreements, options, futures contracts, forward rate
agreements, or similar financial instruments, and gains from the sale
or disposition of stock, securities, or real property.
For purposes of these two requirements, income derived from a "shared
appreciation provision" in a mortgage loan is generally treated as gain
recognized on the sale of the property to which it relates. Although we will use
our best efforts to ensure that the income generated by our investments will be
of a type which satisfies both the 75% and 95% gross income tests, there can be
no assurance in this regard.
In order to qualify as "rents from real property" under Section 856 of
the Internal Revenue Code, several requirements must be met:
o The amount of rent received generally must not be based on the income
or profits of any person, but may be based on receipts or sales.
o Rents do not qualify if the REIT owns 10% or more by vote or value of
the tenant, whether directly or after application of attribution rules.
While we intend not to lease property to any party if rents from that
property would not qualify as rents from real property, application of
the 10% ownership rule is dependent upon complex attribution rules and
circumstances that may be beyond our control. For example, an
unaffiliated third party's ownership directly or by attribution of 10%
or more by value of our shares, as well as 10% or more by vote or value
of the stock of one of our lessees, would result in that lessee's rents
not qualifying as rents from real property. Our declaration of trust
disallows transfers or purported acquisitions, directly or by
attribution, of our shares that could result in disqualification as a
REIT under the Internal Revenue Code and permits our trustees to
repurchase the shares to the extent necessary to maintain our status as
a REIT under the Internal Revenue Code. Nevertheless, there can be no
assurance that these provisions in our declaration of trust will be
effective to prevent REIT status under the Internal Revenue Code from
being jeopardized under the 10% lessee affiliate rule. Furthermore,
there can be no assurance that we will be able to monitor and enforce
these restrictions, nor will our shareholders necessarily be aware of
ownership of shares attributed to them under the Internal Revenue
Code's attribution rules.
o In order for rents to qualify, we generally must not manage the
property or furnish or render services to the tenants of the property,
except through an independent contractor from whom we derive no income.
There is an exception to this rule permitting a REIT to perform
customary tenant services of the sort which a tax-exempt organization
could perform without being considered in receipt of "unrelated
business taxable income" as defined in Section 512(b)(3) of the
Internal Revenue Code. In addition, a de minimis amount of noncustomary
services will not disqualify income as "rents from real property" so
long as the value of the impermissible services does not exceed 1% of
the gross income from the property.
o If rent attributable to personal property leased in connection with a
lease of real property is 15% or less of the total rent received under
the lease, then the rent attributable to personal property will qualify
as rents from real property; if this 15% threshold is exceeded, the
rent attributable to personal property will not so qualify. The portion
of rental income treated as attributable to personal property is
determined according to the ratio of the tax basis of the personal
property to the total tax basis of the real and personal property which
is rented. For taxable years after 2000, the ratio will be determined
by reference to fair market values rather than tax bases.
We believe that all or substantially all our rents have qualified or will
qualify as rents from real property for purposes of Section 856 of the Internal
Revenue Code.
In order to qualify as mortgage interest on real property for purposes
of the 75% test, interest must derive from a mortgage loan secured by real
property with a fair market value, at the time the loan is made, at least equal
to the amount of the loan. If the amount of the loan exceeds the fair market
value of the real property, the interest will be treated as interest on a
mortgage loan in a ratio equal to the ratio of the fair market value of the real
property to the total amount of the mortgage loan.
Any gain we realize on the sale of property held as inventory or other
property held primarily for sale to customers in the ordinary course of business
will be treated as income from a prohibited transaction that is subject to a
penalty tax at a 100% rate. This prohibited transaction income also may have an
adverse effect upon our ability to satisfy the 75% and 95% gross income tests
for federal income tax qualification as a REIT. We cannot provide assurances as
to whether or not the IRS might successfully assert that one or more
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of our dispositions is subject to the 100% penalty tax. However, we believe that
dispositions of assets that we might make will not be subject to the 100%
penalty tax, because we intend to:
o own our assets for investment with a view to long-term income
production and capital appreciation;
o engage in the business of developing, owning and operating our existing
properties and acquiring, developing, owning and operating new
properties; and
o make occasional dispositions of our assets consistent with our
long-term investment objectives.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if:
o our failure to meet the test was due to reasonable cause and not due to
willful neglect;
o we report the nature and amount of each item of our income included in
the 75% or 95% gross income tests for that taxable year on a schedule
attached to our tax return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is impossible to state whether in all circumstances we would be entitled to
the benefit of this relief provision for the 75% and 95% gross income tests.
Even if this relief provision did apply, a special tax equal to 100% is imposed
upon the greater of the amount by which we failed the 75% test or the 95% test,
multiplied by a fraction intended to reflect our profitability.
Asset Tests. At the close of each quarter of each taxable year, we must
also satisfy three percentage tests relating to the nature of our assets:
o At least 75% of our total assets must consist of real estate assets,
cash and cash items, shares in other REITs, government securities, and
stock or debt instruments purchased with proceeds of a stock offering
or an offering of our debt with a term of at least five years, but only
for the one-year period commencing with our receipt of the offering
proceeds.
o Not more than 25% of our total assets may be represented by securities
other than those securities that count favorably toward the preceding
75% asset test.
o Of the investments included in the preceding 25% asset class, the value
of any one issuer's securities that we own may not exceed 5% of the
value of our total assets, and we may not own more than 10% of any one
non-REIT issuer's outstanding voting securities. For taxable years
after 2000, we may not own more than 10% of the vote or value of any
one non-REIT issuer's outstanding securities, unless that issuer is our
taxable REIT subsidiary or the securities are straight debt securities.
When a failure to satisfy the above asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. We intend to maintain records of the value of our assets to
document our compliance with the above three asset tests, and to take actions as
may be required to cure any failure to satisfy the tests within 30 days after
the close of any quarter.
Annual Distribution Requirements. In order to qualify for taxation as a
REIT under the Internal Revenue Code, we are required to make annual
distributions other than capital gain dividends to our shareholders in an amount
at least equal to the excess of:
(A) the sum of 95% of our "real estate investment trust taxable
income," as defined in Section 857 of the Internal Revenue Code, computed by
excluding any net capital gain and before taking into account any dividends paid
deduction for which we are eligible, and 95% of our net income after tax, if
any, from property received in foreclosure, over
(B) the sum of our qualifying noncash income, e.g., imputed rental
income or income from transactions inadvertently failing to qualify as like-kind
exchanges.
For our taxable years after 2000, the preceding 95% percentages are reduced to
90%. The distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for the earlier taxable year and if paid on or before the first regular
distribution payment after that declaration. Dividends declared in October,
November, or December and paid
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during the following January will be treated as having been both paid and
received on December 31 of the prior taxable year. A distribution which is not
pro rata within a class of our beneficial interests entitled to a distribution,
or which is not consistent with the rights to distributions among our classes of
beneficial interests, is a preferential distribution that is not taken into
consideration for purposes of the distribution requirements, and accordingly the
payment of a preferential distribution could affect our ability to meet the
distribution requirements. Taking into account our distribution policies,
including the dividend reinvestment plan we have adopted, we expect that we will
not make any preferential distributions. The distribution requirements may be
waived by the IRS if a REIT establishes that it failed to meet them by reason of
distributions previously made to meet the requirements of the 4% excise tax
discussed below. To the extent that we do not distribute all of our net capital
gain and all of our real estate investment trust taxable income, as adjusted, we
will be subject to tax on undistributed amounts.
In addition, we will be subject to a 4% excise tax to the extent we
fail within a calendar year to make required distributions to our shareholders
of 85% of our ordinary income and 95% of our capital gain net income plus the
excess, if any, of the "grossed up required distribution" for the preceding
calendar year over the amount treated as distributed for that preceding calendar
year. For this purpose, the term "grossed up required distribution" for any
calendar year is the sum of our taxable income for the calendar year without
regard to the deduction for dividends paid and all amounts from earlier years
that are not treated as having been distributed under the provision.
If we do not have enough cash or other liquid assets to meet the 95%
distribution requirements, we may find it necessary to arrange for new debt or
equity financing to provide funds for required distributions, or else our REIT
status for federal income tax purposes could be jeopardized. We can provide no
assurance that financing would be available for these purposes on favorable
terms.
If we fail to distribute sufficient dividends for any year, we may be
able to rectify this failure by paying "deficiency dividends" to shareholders in
a later year. These deficiency dividends may be included in our deduction for
dividends paid for the earlier year, but an interest charge would be imposed
upon us for the delay in distribution. Although we may be able to avoid being
taxed on amounts distributed as deficiency dividends, we will remain liable for
the 4% excise tax discussed above.
Recent Federal Taxation Changes. The Tax Relief Extension Act of 1999
was enacted late in 1999 and is effective for taxable years after 2000. This
legislation contained several tax provisions regarding REITs, including a
reduction of the annual distribution requirement for real estate investment
trust taxable income from 95% to 90%, as mentioned above. The Act also changed
the 10% voting securities test under current law to a 10% vote or value test.
Thus, subject to exceptions, a REIT will no longer be allowed to own more that
10% by vote or value of the outstanding securities of any issuer, other than a
qualified REIT subsidiary or another REIT. Another exception to this new test,
which is also an exception to the 5% asset test under current law, allows a REIT
to own any or all of the securities of an electing "taxable REIT subsidiary,"
provided that no more than 20% of the REIT's assets is represented by the stock
or securities of taxable REIT subsidiaries. A taxable REIT subsidiary can
perform noncustomary services for tenants of a REIT without disqualifying rents
received from the tenants for purposes of the REIT's gross income tests and can
also undertake third-party management and development activities and activities
that are not related to real estate. A taxable REIT subsidiary will be taxed as
a subchapter C corporation but will be subject to earnings stripping limitations
on the deductibility of interest paid to the REIT. In addition, a REIT will be
subject to a 100% excise tax on certain excess amounts to ensure that:
o tenants who pay a taxable REIT subsidiary for services are charged an
arm's length amount by the taxable REIT subsidiary for these services;
o shared expenses of a REIT and its taxable REIT subsidiary are allocated
fairly between the two; and
o interest paid by a taxable REIT subsidiary to the REIT that owns it is
commercially reasonable.
Depreciation and Federal Income Tax Treatment of Leases
Our initial tax bases in our assets will generally be our acquisition
cost. We will generally depreciate our real property on a straight-line basis
over 40 years and our personal property over nine years. These depreciation
schedules may vary for properties that we acquire through tax-free or carryover
basis acquisitions.
We will be entitled to depreciation deductions from our facilities only
if we are treated for federal income tax purposes as the owner of the
facilities. This means that the leases of the facilities must be classified for
federal income tax purposes as true leases, rather than as sales or financing
arrangements, and we believe this to be the case. In the case of sale-leaseback
arrangements, the IRS could assert that we realized prepaid rental income in the
year of purchase to the extent that the value of a leased property, at the time
of purchase, exceeded the purchase price for that property. While we believe
that the value of leased property at the time of purchase did not
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exceed purchase prices, because of the lack of clear precedent, we cannot
provide assurances as to whether the IRS might successfully assert the existence
of prepaid rental income in any of our sale-leaseback transactions.
Additionally, Section 467 of the Internal Revenue Code, which concerns
leases with increasing rents, may apply to those of our leases which provide for
rents that increase from one period to the next. Section 467 of the Internal
Revenue Code provides that in the case of a so-called "disqualified leaseback
agreement" rental income must be accrued at a constant rate. Where constant rent
accrual is required, we could recognize rental income from a lease in excess of
cash rents and, as a result, encounter difficulty in meeting the annual
distribution requirement. Disqualified leaseback agreements include leaseback
transactions where a principal purpose for providing increasing rent under the
agreement is the avoidance of federal income tax. Recently issued Treasury
regulations provide that rents will not be treated as increasing for tax
avoidance purposes where the increases are based upon a fixed percentage of
lessee receipts. Therefore, the additional rent provisions in our leases that
are based on a fixed percentage of lessee receipts generally should not cause
the leases to be disqualified leaseback agreements under Section 467.
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Taxation of U.S. Shareholders
As long as we qualify as a REIT for federal income tax purposes, a
distribution to our U.S. shareholders that we do not designate 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. Distributions made out
of our current or accumulated earnings and profits that we properly designate as
capital gain dividends will be taxed as long-term capital gains, as discussed
below, to the extent they do not exceed our actual net capital gain for the
taxable year. However, corporate shareholders may be required to treat up to 20%
of any capital gain dividend as ordinary income under Section 291 of the
Internal Revenue Code:
In addition, we may elect to retain net capital gain income and treat
it as constructively distributed. In that case:
(1) we will be taxed at regular corporate capital gains tax rates on
retained amounts,
(2) each U.S. shareholder will be taxed on its designated proportionate
share of our retained net capital gains as though that amount were distributed
and designated a capital gain dividend,
(3) each U.S. shareholder will receive a credit for its designated
proportionate share of the tax that we pay,
(4) each U.S. shareholder will increase its adjusted basis in our
shares by the excess of the amount of its proportionate share of these retained
net capital gains over its proportionate share of this tax that we pay, and
(5) both we and our corporate shareholders will make commensurate
adjustments in our respective earnings and profits for federal income tax
purposes.
If we elect to retain our net capital gains in this fashion, we will notify our
U.S. shareholders of the relevant tax information within 60 days after the close
of the affected taxable year.
For noncorporate U.S. shareholders, long-term capital gains are
generally taxed at maximum rates of 20% or 25%, depending upon the type of
property disposed of and the previously claimed depreciation with respect to
this property. If for any taxable year we designate as capital gain dividends
any portion of the dividends paid or made available for the year to our U.S.
shareholders, including our retained capital gains treated as capital gain
dividends, then the portion of the capital gain dividends so designated that
will be allocated to the holders of a particular class of shares will on a
percentage basis equal the ratio of the amount of the total dividends paid or
made available for the year to the holders of that class of shares to the total
dividends paid or made available for the year to holders of all classes of our
shares. We will similarly designate the portion of any capital gain dividend
that is to be taxed to noncorporate U.S. shareholders at the maximum rates of
20% or 25% so that the designations will be proportional among all classes of
our shares.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent that they do not exceed
the shareholder's adjusted basis in the shareholder's shares, but will reduce
the shareholder's basis in those shares. To the extent that these excess
distributions exceed the adjusted basis of a U.S. shareholder's shares, they
will be included in income as capital gain, with long-term gain generally taxed
to noncorporate U.S. shareholders at a maximum rate of 20%. No U.S. shareholder
may include on his federal income tax return any of our net operating losses or
any of our capital losses.
Dividends that we declare in October, November or December of a taxable
year to U.S. shareholders of record on a date in those months will be deemed to
have been received by shareholders on December 31 of that taxable year, provided
we actually pay these dividends during the following January. Also, items that
are treated differently for regular and alternative minimum tax purposes are to
be allocated between a REIT and its shareholders under Treasury regulations
which are to be prescribed. It is possible that these Treasury regulations will
require tax preference items to be allocated to our shareholders with respect to
any accelerated depreciation or other tax preference items that we claim.
A U.S. shareholder's sale or exchange of our shares will result in
recognition of gain or loss in an amount equal to the difference between the
amount realized and the shareholder's adjusted basis in the shares sold or
exchanged. This gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the shareholder's holding period in the shares exceeds
one year. In addition, any loss upon a sale or exchange of our shares held for
six months or less will generally be treated as a long-term capital loss to the
extent of our long-term capital gain dividends during the holding period.
Noncorporate U.S. shareholders who borrow funds to finance their
acquisition of our shares could be limited in the amount of deductions allowed
for the interest paid on the indebtedness incurred. Under Section 163(d) of the
Internal Revenue Code, interest paid or
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accrued on indebtedness incurred or continued to purchase or carry property held
for investment is generally deductible only to the extent of the investor's net
investment income. A U.S. shareholder's net investment income will include
ordinary income dividend distributions received from us and, if an appropriate
election is made by the shareholder, capital gain dividend distributions
received from us; however, distributions treated as a nontaxable return of the
shareholder's basis will not enter into the computation of net investment
income.
Taxation of Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
REIT to a tax-exempt employees' pension trust did not constitute "unrelated
business taxable income," even though the REIT may have financed some its
activities with acquisition indebtedness. Although revenue rulings are
interpretive in nature and subject to revocation or modification by the IRS,
based upon the analysis and conclusion of Revenue Ruling 66-106, our
distributions made to shareholders that are tax-exempt pension plans, individual
retirement accounts, or other qualifying tax-exempt entities should not
constitute unrelated business taxable income, unless the shareholder has
financed its acquisition of our shares with "acquisition indebtedness" within
the meaning of the Internal Revenue Code.
Special rules apply to tax-exempt pension trusts, including so-called
401(k) plans but excluding individual retirement accounts or government pension
plans, that own more than 10% by value of a "pension-held REIT" at any time
during a taxable year. The pension trust may be required to treat a percentage
of all dividends received from the pension-held REIT during the year as
unrelated business taxable income. This percentage is equal to the ratio of:
(1) the pension-held REIT's gross income derived from the conduct of
unrelated trades or businesses, determined as if the pension-held REIT were a
tax-exempt pension fund, less direct expenses related to that income, to
(2) the pension-held REIT's gross income from all sources, less direct
expenses related to that income,
except that this percentage shall be deemed to be zero unless it would otherwise
equal or exceed 5%. A REIT is a pension-held REIT if:
o the REIT is "predominantly held" by tax-exempt pension trusts, and
o the REIT would otherwise fail to satisfy the "closely held" ownership
requirement discussed above if the stock or beneficial interests in the
REIT held by tax-exempt pension trusts were viewed as held by
tax-exempt pension trusts rather than by their respective
beneficiaries.
A REIT is predominantly held by tax-exempt pension trusts if at least one
tax-exempt pension trust owns more than 25% by value of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension trusts, each owning
more than 10% by value of the REIT's stock or beneficial interests, own in the
aggregate more than 50% by value of the REIT's stock or beneficial interests.
Because of the restrictions in our declaration of trust regarding the ownership
concentration of our shares, we believe that we are not and will not be a
pension-held REIT. However, because our shares are publicly traded, we cannot
completely control whether or not we are or will become a pension-held REIT.
Taxation of Non-U.S. Shareholders
The rules governing the United States federal income taxation of
non-U.S. shareholders are complex, and the following discussion is intended only
as a summary of these rules. If you are a non-U.S. shareholder, we urge you to
consult with your own tax advisor to determine the impact of United States
federal, state, local, and foreign tax laws, including any tax return filing and
other reporting requirements, with respect to your investment in our shares.
In general, a non-U.S. shareholder will be subject to regular United
States federal income tax in the same manner as a U.S. shareholder with respect
to its investment in our shares if that investment is effectively connected with
the non-U.S. shareholder's conduct of a trade or business in the United States.
In addition, a corporate non-U.S. shareholder that receives income that is or is
deemed effectively connected with a trade or business in the United States may
also be subject to the 30% branch profits tax under Section 884 of the Internal
Revenue Code, which is payable in addition to regular United States federal
corporate income tax. The balance of this discussion on the United States
federal income taxation of non-U.S. shareholders addresses only those non-U.S.
shareholders whose investment in our shares is not effectively connected with
the conduct of a trade or business in the United States.
A distribution by us to a non-U.S. shareholder that is not attributable
to gain from the sale or exchange of a United States real property interest and
that is not designated 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 of this type will generally be subject to
United States federal
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income tax and withholding at the rate of 30%, or the lower rate that may be
specified by a tax treaty if the non-U.S. shareholder has in the manner
prescribed by the IRS demonstrated its entitlement to benefits under a tax
treaty. Because we cannot determine our current and accumulated earnings and
profits until the end of the taxable year, withholding at the rate of 30% or
applicable lower treaty rate will be imposed on the gross amount of any
distribution to a non-U.S. shareholder that we make and do not designate a
capital gain dividend. Notwithstanding this withholding on distributions in
excess of our current and accumulated earnings and profits, these distributions
are a nontaxable return of capital to the extent that they do not exceed the
non-U.S. shareholder's adjusted basis in our shares, and the nontaxable return
of capital will reduce the adjusted basis in these shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the non-U.S. shareholder's adjusted basis in our shares, the distributions will
give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or exchange of these shares, as
discussed below. A non-U.S. shareholder may seek a refund of amounts withheld on
distributions to him in excess of our current and accumulated earnings and
profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from the sale or exchange of a United States real property
interest are taxed to a non-U.S. shareholder as if these distributions were
gains effectively connected with a trade or business in the United States
conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder will
be taxed on these amounts at the normal capital gain rates applicable to a U.S.
shareholder, subject to any applicable alternative minimum tax and to a special
alternative minimum tax in the case of nonresident alien individuals; the
non-U.S. shareholder will be required to file a United States federal income tax
return reporting these amounts, even if applicable withholding is imposed as
described below; and corporate non-U.S. shareholders may owe the 30% branch
profits tax under Section 884 of the Internal Revenue Code in respect of these
amounts. We will be required to withhold from distributions to non-U.S.
shareholders, and remit to the IRS, 35% of the maximum amount of any
distribution that could be designated as a capital gain dividend. In addition,
for purposes of this withholding rule, if we designate prior distributions as
capital gain dividends, then subsequent distributions up to the amount of the
designated prior distributions will be treated as capital gain dividends. The
amount of any tax withheld is creditable against the non-U.S. shareholder's
United States federal income tax liability, and any amount of tax withheld in
excess of that tax liability may be refunded provided that an appropriate claim
for refund is filed with the IRS. If for any taxable year we designate as
capital gain dividends any portion of the dividends paid or made available for
the year to our shareholders, including our retained capital gains treated as
capital gain dividends, then the portion of the capital gain dividends so
designated that will be allocated to the holders of a particular class of shares
will on a percentage basis equal the ratio of the amount of the total dividends
paid or made available for the year to the holders of that class of shares to
the total dividends paid or made available for the year to holders of all
classes of our shares.
Tax treaties may reduce the withholding obligations on our
distributions. Under some treaties, however, rates below 30% generally
applicable to ordinary income dividends from United States corporations may not
apply to ordinary income dividends from a REIT. If the amount of tax withheld by
us with respect to a distribution to a non-U.S. shareholder exceeds the
shareholder's United States federal income tax liability with respect to the
distribution, the non-U.S. shareholder may file for a refund of the excess from
the IRS. In this regard, note that the 35% withholding tax rate on capital gain
dividends corresponds to the maximum income tax rate applicable to corporate
non-U.S. shareholders but is higher than the 20% and 25% maximum rates on
capital gains generally applicable to noncorporate non-U.S. shareholders.
Generally effective with respect to distributions paid after December 31, 2000,
new Treasury regulations alter the information reporting and backup withholding
rules applicable to non-U.S. shareholders and provide presumptions under which a
non-U.S. shareholder is subject to backup withholding and information reporting
until we or the applicable withholding agent receives certification from the
shareholder of its non-U.S. shareholder status. In some instances, these
certification requirements are more burdensome than those applicable under
current Treasury regulations. These new Treasury regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, our distributions to a non-U.S. shareholder that
is an entity should be treated as paid to the entity or to those owning an
interest in that entity, and whether the entity or its owners are entitled to
benefits under the tax treaty. These new Treasury regulations encourage non-U.S.
shareholders and withholding agents to use the new IRS Forms W-8 series, rather
than the predecessor IRS Forms W-8, 1001, and 4224, and require use of the IRS
Forms W-8 series for payments made after December 31, 2000.
If our shares are not "United States real property interests" within
the meaning of Section 897 of the Internal Revenue Code, a non-U.S.
shareholder's gain on sale of these shares generally will not be subject to
United States federal income taxation, except that a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year will be subject to a 30% tax on this gain. Our shares will not
constitute a United States real property interest if we are a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which at all times
during the preceding five-year period less than 50% in value of its shares is
held directly or indirectly by foreign persons. We believe that we are and will
be a domestically controlled REIT and thus a non-U.S. shareholder's gain on sale
of our shares will not be subject to United States federal income taxation.
However, because our shares are publicly traded, we can provide no assurance
that we will be a domestically controlled REIT. If we are not a domestically
controlled REIT, a non-U.S. shareholder's gain on sale of our shares will not be
subject to United States federal income taxation as a sale of a United States
real property interest, if that class of shares is "regularly traded," as
defined by applicable Treasury regulations, on an established
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securities market like the New York Stock Exchange, and the non-U.S. shareholder
has at all times during the preceding five years owned 5% or less by value of
that class of shares. If the gain on the sale of our shares were subject to
United States federal income taxation, the non-U.S. shareholder will generally
be subject to the same treatment as a U.S. shareholder with respect to its gain,
will be required to file a United States federal income tax return reporting
that gain, and in the case of corporate non-U.S. shareholders might owe branch
profits tax under Section 884 of the Internal Revenue Code. A purchaser of our
shares from a non-U.S. shareholder will not be required to withhold on the
purchase price if the purchased shares are regularly traded on an established
securities market or if we are a domestically controlled REIT. Otherwise, a
purchaser of our shares from a non-U.S. shareholder may be required to withhold
10% of the purchase price paid to the non-U.S. shareholder and to remit the
withheld amount to the IRS.
Backup Withholding and Information Reporting
Information reporting and backup withholding may apply to distributions
or proceeds paid to our shareholders under the circumstances discussed below.
Amounts withheld under backup withholding are generally not an additional tax
and may be refunded or credited against the REIT shareholder's federal income
tax liability.
A U.S. shareholder will be subject to backup withholding at a 31% rate
when it receives distributions on our shares or proceeds upon the sale,
exchange, redemption, retirement or other disposition of our shares, unless the
U.S. shareholder properly executes under penalties of perjury an IRS Form W-9 or
substantially similar form that:
o provides the U.S. shareholder's correct taxpayer identification number;
and
o certifies that the U.S. shareholder is exempt from backup withholding
because it is a corporation or comes within another exempt category, it
has not been notified by the IRS that it is subject to backup
withholding, or it has been notified by the IRS that it is no longer
subject to backup withholding.
If the U.S. shareholder does not provide its correct taxpayer identification
number on the IRS Form W-9 or substantially similar form, it may be subject to
penalties imposed by the IRS and the REIT or other applicable withholding agent
may also have to withhold a portion of any capital gain distributions paid to
it. Unless the U.S. shareholder has established on a properly executed IRS Form
W-9 or substantially similar form that it is a corporation or comes within
another exempt category, distributions on our shares paid to it during the
calendar year, and the amount of tax withheld if any, will be reported to it and
to the IRS.
Distributions on our shares to a non-U.S. shareholder during each
calendar year and the amount of tax withheld, if any, will generally be reported
to the non-U.S. shareholder and to the IRS. This information reporting
requirement applies regardless of whether the non-U.S. shareholder is subject to
withholding on distributions on our shares or whether the withholding was
reduced or eliminated by an applicable tax treaty. Also, distributions paid to a
non-U.S. shareholder on our shares may be subject to backup withholding at a 31%
rate, unless the non-U.S. shareholder properly certifies its non-U.S.
shareholder status on an IRS Form W-8 or substantially similar form in the
manner described above. Similarly, information reporting and 31% backup
withholding will not apply to proceeds a non-U.S. shareholder receives upon the
sale, exchange, redemption, retirement or other disposition of our shares, if
the non-U.S. shareholder properly certifies its non-U.S. shareholder status on
an IRS Form W-8 or substantially similar form. Even without having executed an
IRS Form W-8 or substantially similar form, however, in some cases information
reporting and 31% backup withholding will not apply to proceeds that a non-U.S.
shareholder receives upon the sale, exchange, redemption, retirement or other
disposition of our shares if the non-U.S. shareholder receives those proceeds
through a broker's foreign office. As described above, new Treasury regulations
alter the information reporting and backup withholding rules applicable to
non-U.S. shareholders for payments made after December 31, 2000, and in general
these new Treasury Regulations replace IRS Forms W-8, 1001, and 4224 with the
new IRS Forms W-8 series. For a non-U.S. shareholder whose income and gain on
our shares is effectively connected to the conduct of a United States trade or
business, a slightly different rule may apply to proceeds received upon the
sale, exchange, redemption, retirement or other disposition of our shares. Until
the non-U.S. shareholder complies with the new Treasury regulations, information
reporting and 31% backup withholding may apply in the same manner as to a U.S.
shareholder, and thus the non-U.S. shareholder may have to execute an IRS Form
W-9 or substantially similar form to prevent the backup withholding.
Other Tax Consequences
You should recognize that our and our shareholders' federal income tax
treatment may be modified by legislative, judicial, or administrative actions at
any time, which actions may be retroactive in effect. The rules dealing with
federal income taxation are constantly under review by the Congress, the IRS and
the Treasury Department, and statutory changes as well as promulgation of new
regulations, revisions to existing regulations, and revised interpretations of
established concepts occur frequently. No prediction can be made as to the
likelihood of passage of new tax legislation or other provisions either directly
or indirectly affecting us and our
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shareholders. Revisions in federal income tax laws and interpretations of these
laws could adversely affect the tax consequences of an investment in our shares.
We and our shareholders may also be subject to state or local taxation in
various state or local jurisdictions, including those in which we or our
shareholders transact business or reside. State and local tax consequences may
not be comparable to the federal income tax consequences discussed above.
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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,
ERISA, must consider whether:
o their investment in our shares satisfies the diversification
requirements of ERISA;
o the investment is prudent in light of possible limitations on the
marketability of our shares;
o they have authority to acquire our shares under the applicable
governing instrument and Title I of ERISA; and
o the investment is otherwise consistent with their fiduciary
responsibilities.
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, these fiduciaries may be subject to a
civil penalty of up to 20% of any amount recovered by the plan on account of a
violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified
retirement plan not subject to Title I of ERISA, referred to as "non-ERISA
plans," should consider that a plan may only make investments that are
authorized by the appropriate governing instrument. Fiduciary shareholders
should consult their own legal advisors if they have any concern as to whether
the investment is consistent with the foregoing criteria.
Prohibited Transactions
Fiduciaries of ERISA plans and persons making the investment decision
for an IRA or other non-ERISA plan should consider the application of the
prohibited transaction provisions of ERISA and the Internal Revenue Code in
making their investment decision. Sales and other transactions between an ERISA
plan or a non-ERISA plan, and persons related to it are prohibited transactions.
The particular facts concerning the sponsorship, operations and other
investments of an ERISA plan or 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 Internal Revenue Code or a penalty under
ERISA upon the disqualified person or party in interest with respect to the
plan. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA or Roth IRA is maintained or his
beneficiary, the IRA or Roth IRA may lose its tax-exempt status and its assets
may be deemed to have been distributed to the individual in a taxable
distribution on account of the prohibited transaction, but no excise tax will be
imposed. Fiduciary shareholders should consult their own legal advisors as to
whether the ownership of our shares involves a prohibited transaction.
Special Fiduciary and Prohibited Transactions Consequences
The Department of Labor, which has administrative responsibility over
ERISA plans as well as non-ERISA plans, has issued a regulation defining "plan
assets." The regulation generally provides that when an ERISA or non-ERISA plan
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 plan's or
non-ERISA plan's assets include both the equity interest and an undivided
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.
Each class of our shares, that is, our common shares and any class of
preferred shares that we have issued or may issue, must be analyzed separately
to ascertain whether it is a publicly offered security. 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, or sold under an effective registration
statement under the Securities Act of 1933, provided the securities are
registered under the Securities Exchange Act of 1934 within 120 days after the
end of the fiscal year of the issuer during which the offering occurred. All our
outstanding shares have been registered under the Securities Exchange Act of
1934.
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. Our common shares and our preferred shares have been widely
held and we expect our common shares and our preferred shares to continue to
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be widely held. We expect the same to be true of any additional class of
preferred stock that we may issue, but we can give no assurance in that regard.
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, some restrictions on transfer ordinarily will not, alone or in
combination, affect a finding that these securities are freely transferable. The
restrictions on transfer enumerated in the regulation as not affecting that
finding include:
o any restriction on or prohibition against any transfer or assignment
which would result in a termination or reclassification for federal or
state tax purposes, or would otherwise violate any state or federal law
or court order;
o any requirement that advance notice of a transfer or assignment be
given to the issuer 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;
o any administrative procedure which establishes an effective date, or an
event prior to which a transfer or assignment will not be effective;
and
o any limitation or restriction on transfer or assignment which is not
imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our declaration of trust
on the transfer of shares do not result in the failure of our shares to be
"freely transferable." Furthermore, we believe that at present there exist no
other facts or circumstances limiting the transferability of our shares which
are not included among those enumerated as not affecting their free
transferability under the regulation, and we do not expect or intend to impose
in the future, or to permit any person to impose on our behalf, any limitations
or restrictions on transfer which would not be among the enumerated permissible
limitations or restrictions.
Assuming that each class of our shares will be "widely held" and that
no other facts and circumstances exist which restrict transferability of these
shares, we have received an opinion of our counsel Sullivan & Worcester LLP that
our shares will not fail to be "freely transferable" for purposes of the
regulation due to the restrictions on transfer of the shares under our
declaration of trust and that under the regulation the shares are publicly
offered securities and our assets will not be deemed to be "plan assets" of any
ERISA plan or non-ERISA plan that invests in our shares.
Item 3. Legal Proceedings
Although in the ordinary course of business we may become involved in
legal proceedings, we are not aware of any material pending legal proceeding
affecting us or any of our hotels for which we might become liable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
Our common shares are traded on the New York Stock Exchange (symbol:
HPT). The following table sets forth for the periods indicated the high and low
closing sale prices for our common shares as reported in the New York Stock
Exchange Composite Transactions reports.
1998 High Low
First Quarter $ 36 $ 32 9/16
Second Quarter 35 3/8 30 1/16
Third Quarter 33 3/16 25 13/16
Fourth Quarter 28 15/16 24 1/8
1999 High Low
First Quarter $ 27 9/16 $ 25 1/2
Second Quarter 29 5/8 26 9/16
Third Quarter 27 13/16 22 3/16
Fourth Quarter 22 7/8 18
The closing price of the common shares on the New York Stock Exchange
on March 22, 2000, was $20.0625 per share.
As of March 22, 2000, there were approximately 1,200 shareholders of
record, and we estimate that as of such date there was in excess of 73,000
beneficial owners of the common shares.
Information about distributions paid to common shareholders is
summarized in the table below. Common share distributions are generally paid in
the quarter following the quarter to which they relate.
Common Annualized
Distribution Common
Per Share Distribution Rate
1998
First Quarter $0.64 $2.56
Second Quarter 0.65 2.60
Third Quarter 0.66 2.64
Fourth Quarter 0.67 2.68
1999
First Quarter $0.68 $2.72
Second Quarter 0.69 2.76
Third Quarter 0.69 2.76
Fourth Quarter 0.69 2.76
All common distributions declared have been paid. We intend to continue to
declare and pay future common share distributions on a quarterly basis.
In order to qualify for the beneficial tax treatment accorded to REITs by
Sections 856 through 860 of the Internal Revenue Code, we are required to make
distributions to shareholders which annually will be at least 95% of our taxable
income. All of our distributions will be made at the discretion of the Board of
Trustees and will depend on our earnings, cash available for distribution,
financial condition and such other factors as the Board of Trustees deems
relevant. We intend to distribute substantially all of our "real estate
investment trust taxable income" to our shareholders.
22
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
The following table sets forth selected financial data from inception
through December 31, 1999.
February 7, 1995
Year Ended Year Ended Year Ended Year Ended (Inception) to
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
--------------- -------------- ---------------- --------------- ---------------
(In thousands, except per Share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues:
Rental income $ 212,669 $ 157,223 $ 98,561 $ 69,514 $ 19,531
FF&E reserve income 20,931 16,108 14,643 12,169 4,037
Interest income 3,618 1,630 928 946 74
---------- ---------- ---------- ---------- ----------
Total revenues 237,218 174,961 114,132 82,629 23,642
Expenses:
Interest 37,352 21,751 15,534 5,646 5,063
Depreciation and amortization 74,707 54,757 31,949 20,398 5,820
Terminated acquisition costs -- -- 713 -- --
General and administrative 13,230 10,471 6,783 4,921 1,410
---------- ---------- ---------- ---------- ----------
Total expenses 125,289 86,979 54,979 30,965 12,293
---------- ---------- ---------- ---------- ----------
Income before extraordinary item 111,929 87,982 59,153 51,664 11,349
Extraordinary loss from
extinguishment of debt 6,641 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income 111,929 81,341 59,153 51,664 11,349
Preferred dividends 5,106 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income available for common
shareholders $ 106,823 $ 81,341 $ 59,153 $ 51,664 $ 11,349
========== ========== ========== ========== ==========
Per Common Share Data:
Income before extraordinary item $ 2.13 $ 2.08 $ 2.15 $ 2.23 $ 2.51
Net income $ 2.13 $ 1.92 $ 2.15 $ 2.23 $ 2.51
Net income available for common
shareholders $ 2.03 $ 1.92 $ 2.15 $ 2.23 $ 2.51
Weighted average common shares
outstanding 52,566 42,317 27,530 23,170 4,515
Balance Sheet Data (as of December 31):
Real estate properties, net $2,082,999 $1,774,811 $1,207,868 $ 816,469 $ 326,752
Total assets 2,194,852 1,837,638 1,313,256 871,603 338,947
Total debt, net of discount 414,780 414,753 125,000 125,000 --
Shareholders' equity 1,519,715 1,173,857 1,007,893 645,208 297,951
</TABLE>
23
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following discussion should be read in conjunction with the
financial statements and the notes thereto included elsewhere herein.
Results of Operations
Year Ended December 31, 1999 versus Year Ended December 31, 1998
Total revenues in 1999 were $237.2 million versus 1998 total revenues
of $175.0 million. Total revenues were comprised principally of minimum and
percentage rent of $212.7 million and FF&E reserve income of $20.9 million in
1999 versus $157.2 million and $16.1 million, respectively, in the 1998 period.
During 1999 we earned percentage rent of $3.67 million versus $3.44 million in
1998. The 35.9% increase in minimum rent revenue reflects the full year impact
of 51 hotels acquired in 1998 and the partial impact of 40 hotels acquired
during 1999. The increases in percentage rent revenue of 6.7% and FF&E reserve
income of 29.9% result from the impact of additional hotels purchased as well as
increased gross hotel revenues at our hotels.
Total expenses in 1999 were $125.3 million versus $87.0 million in
1998. The 44.0% increase is the result of increases in depreciation and
amortization, interest and general and administrative expenses. The increase in
depreciation and amortization was $20 million, or 36.4%, interest increased
$15.6 million, or 71.7%, and general and administrative expenses increased $2.8
million, or 26.3%. Depreciation and amortization and general and administrative
expenses increased primarily as a result of new investments since January 1,
1998. Interest expense in 1999 increased primarily as a result of an increase in
the average daily balance of indebtedness outstanding. This increase in average
daily balance was due to three 1998 issuances totaling $415 million of senior
debt and borrowings under our revolving credit facility.
Net income available for common shareholders in 1999 was $106.8
million, or $2.03 per common share versus $81.3 million, or $1.92 per common
share in 1998. The increase in net income available for common shareholders is
primarily a result of an increase in revenue from new investments and the 1998
extraordinary loss of $6.6 million recognized from the early extinguishment of
debt, offset by preferred dividends paid in 1999.
Funds from operations, or FFO, is net income available for common
shareholders before extraordinary and non-recurring items plus depreciation and
amortization of real estate assets plus those deposits made into FF&E Reserve
escrows by our tenants which are not included in HPT's revenue. Cash available
for distribution, or CAD, is FFO less all FF&E Reserve deposits plus
amortization of deferred financing costs and other non-cash charges. FFO and CAD
in 1999 were $194.6 million, or $3.70 per common share and $163.3 million, or
$3.11 per common share, respectively. FFO and CAD were $152.8 million, or $3.61
per common share and $130.3 million, or $3.08 per share, respectively, in 1998.
Growth in FFO and CAD is primarily related to the effects of acquisitions in
1998 and 1999.
FFO and CAD do not represent cash flows from operating activities as
determined in accordance with generally accepted accounting principles and
should not be considered an alternative to net income as an indicator of our
financial performance or to cash flows from operating activities as a measure of
liquidity. Cash flow provided by (used for) operating, investing and financing
activities was $171.6 million, ($325.0 million), and $202.3 million,
respectively for the year ended December 31, 1999. Cash flow from operations in
1999 increased 27.7% from $134.4 million in 1998 primarily due to the impact of
new investments in 1998 and 1999. Cash used in investing activities and provided
by financing activities decreased in 1999 over 1998 levels primarily because of
investments in 40 hotels in 1999 versus 51 hotels in 1998.
Our total assets increased to $2,195 million as of December 31, 1999
from $1,838 million as of December 31, 1998. The increase resulted primarily
from hotel acquisitions completed in 1999.
Year Ended December 31, 1998 versus Year Ended December 31, 1997
Total revenues in 1998 were $175.0 million versus 1997 revenues of
$114.1 million. Total revenues were comprised principally of minimum and
percentage rent of $157.2 million and FF&E reserve income of $16.1 million in
1998 versus $98.6 million and $14.6 million, respectively, in the 1997 period.
During 1998 we earned percentage rent of $3.4 million versus $2.5 million in
1997. The 60.1% increase in minimum rent revenue reflects the full year impact
of 37 hotels acquired in 1997 and the partial impact of 51 hotels acquired
during 1998. The increases in percentage rent revenue of 35.9% and FF&E reserve
income of 10.0% result from the impact of additional hotels owned as well as
increased gross hotel revenues at our hotels.
24
<PAGE>
Total expenses in 1998 were $87.0 million versus $55.0 million in 1997.
The 58.2% increase is the result of increases in depreciation and amortization
of $22.8 million, or 71.4%, interest of $6.2 million or 40.0%, and general and
administrative expenses of $3.7 million, or 54.4%. Depreciation and amortization
and general and administrative expenses increased primarily as a result of new
investments since January 1, 1997. Interest expense in 1998 increased primarily
as a result of an increase in the average daily balance of indebtedness
outstanding. This increase in average daily balance was due to three separate
issuances of senior debt in 1998 including $150 million at a rate of 7% in
February, $115 million at a rate of 8.25% in November and $150 million at a rate
of 8.5% in December and borrowings under our revolving credit facility.
Net income available for common shareholders in 1998 was $81.3 million,
or $1.92 per common share versus $59.2 million, or $2.15 per common share in
1997. The change in net income available for common shareholders is primarily a
result of an increase in revenue from new investments offset by the 1998
extraordinary loss of $6.6 million recognized from the early extinguishment of
debt.
FFO and CAD in 1998 were $152.8 million, or $3.61 per common share and
$130.3 million, or $3.08 per common share, respectively. FFO and CAD were $95.7
million, or $3.48 per common share and $79.3 million, or $2.88 per common share,
respectively, in 1997. Growth in FFO and CAD is primarily related to the effects
of acquisitions in 1997 and 1998.
Cash flow provided by (used for) operating, investing and financing
activities was $134.4 million, ($557.9 million) and $366.3 million,
respectively, for the year ended December 31, 1998. Cash flow from operations in
1998 increased 65.5% from $81.2 million in 1997 primarily due to the impact of
new investments in 1997 and 1998. Cash used in investing activities and provided
by financing activities increased in 1998 over 1997 levels primarily because of
investments in 51 hotels in 1998 versus 37 hotels in 1997.
Our total assets increased to $1,838 million as of December 31, 1998
from $1,313 million as of December 31, 1997. The increase resulted primarily
from hotel acquisitions completed in 1998.
Liquidity and Capital Resources
Our primary source of cash to fund day to day operations, interest and
distributions is the minimum and percentage rent we receive. Minimum rent is
received from our tenants monthly in advance and percentage rent is received
either monthly or quarterly in arrears. This flow of funds from rent has
historically been sufficient for us to pay day to day operating expenses,
interest and distributions. We believe that our operating cash flow will be
sufficient to meet our operating expenses, interest and distribution payments.
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 make distributions or pay operating expenses, we have entered into a
revolving credit facility with a group of commercial banks. The credit facility
is for up to $300 million, all of which was available at December 31, 1999.
Drawings under the credit facility are unsecured. Funds may be drawn, repaid and
redrawn until maturity, and no principal repayment is due until maturity. The
credit facility matures in March 2002. Interest on borrowings under the credit
facility are payable at a spread above LIBOR.
In the second quarter of 1999, we issued three million shares of 9 1/2%
Series A Cumulative Redeemable Preferred Shares raising gross proceeds of $75.0
million, net proceeds of $72.2 million. Also in the second quarter of 1999, we
issued 10.8 million common shares of beneficial interest, raising gross proceeds
of $289.9 million, net proceeds of $274.7 million. The net proceeds of these
offerings were used to repay all amounts outstanding under our revolving credit
facility, acquire hotels and for general business purposes.
At December 31, 1999 we had cash and cash equivalents of $73.6 million
and the ability to draw up to the full amount, or $300 million, under our credit
facility.
We expect to use existing cash balances, borrowings under our credit
facility or other lines of credit and/or net proceeds of offerings of equity or
debt securities to fund future hotel acquisitions. To the extent we borrow on
the credit facility, we will explore various refinancing alternatives in the
short-term for both the timing and method of repayment of such amounts.
We have no debt which matures in the next twelve months and no
principal or sinking-fund payments in the next twelve months. Our credit
facility matures in 2002. To the extent we borrow on the credit facility and, as
appropriate, as the maturity dates of our credit facility and our term debt
approach in the long term, we will explore various alternatives for the
repayment of amounts due or replacement of such credit facilities or term debt
with alternative facilities.
25
<PAGE>
Such alternatives in the short-term and long-term may include incurring
additional long term debt and/or issuing new equity securities. On January 15,
1998, our shelf registration statement for up to $2 billion of securities,
including debt securities, was declared effective by the Securities and Exchange
Commission, or SEC. An effective shelf registration statement enables us to
issue specific securities to the public on an expedited basis by filing a
prospectus supplement with the SEC. We have $1.0 billion available on our shelf
registration statement as of December 31, 1999.
Although there can be no assurance that we will consummate any debt or
equity security offerings or other financings, we believe we will have access to
various types of financing in the future, including investment grade debt or
equity securities offerings, with which to finance future acquisitions and
payment of our debt and other obligations.
Property Leases
As of March 22, 2000 we own 210 hotels which are grouped into eleven
combinations and leased to separate affiliates of publicly owned hotel companies
including Marriott International, Inc., Host Marriott Corporation, Wyndham
International, Inc., Homestead Village, Inc., Candlewood Hotel Company and
ShoLodge, Inc. The tables on the following pages summarize the key terms of our
leases and the operating results of our hotels including average occupancy,
average daily rates, or ADR and revenue per available room, or RevPAR.
26
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Residence Residence Marriott(R)/Residence
Courtyard by Residence Inn by Inn(R)/Courtyard by Inn(R)/Courtyard by Inn(R)/Courtyard(R)/
Lease Pool Marriott(R) Marriott(R) Marriott(R) Marriott(R) TownePlace Suites(R)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Hotels 53 18 14 9 17
Number of Rooms 7,610 2,178 1,819 1,336 2,663
Number of States 24 14 7 8 7
Tenant Subsidiary of Host Subsidiary of Host Subsidiary of Subsidiary of Subsidiary of
Marriott Marriott Marriott
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Marriott Marriott Marriott Marriott Marriott
Investment at
December 31, 1999
(000's) $507,933 $174,671 $148,812 $129,377 $201,643
Security Deposit
(000's) $50,540 $17,220 $14,881 $12,938 $21,322
End of Initial
Lease Term 2012 2010 2014 2012 2013
Renewal Options (1) 3 for 12 years each 1 for 10 years, 1 for 12 years, 2 for 10 years each 2 for 10 years each
2 for 15 years each 1 for 10 years
Current Annual
Minimum Rent $50,793 $17,412 $14,881 $12,938 $21,322
(000's)
Percentage Rent (2) 5.0% 7.5% 7.0% 7.0% 7.0%
Number of
Comparable Hotels
(3) 53 18 14 3 3
1999 (3): Occupancy 80.4% 83.0% 81.8% 79.2% 77.7%
ADR $93.97 $100.96 $86.97 $98.75 $93.34
RevPAR $75.58 $83.79 $71.11 $78.21 $72.53
1998 (3): Occupancy 80.5% 84.0% 79.7% 73.8% 77.2% (4)
ADR $90.71 $102.2 $84.37 $93.89 $91.86 (4)
RevPAR $73.02 $85.85 $67.24 $69.29 $70.92 (4)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(2) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over base year
levels.
(3) Represents only hotels open for at least a full year as of January 1, 1999.
(4) Includes periods prior to the acquisition of certain properties by us.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Summerfield
Suites by Sumner Candlewood Candlewood Homestead
Lease Pool Wyndham(R) Wyndham(R) Suites(R) Suites(R) Suites(R) Village(R)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Hotels 12 15 20 17 17 18
Number of Rooms 2,321 1,822 2,409 1,839 2,053 2,399
Number of States 8 8 12 14 14 5
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham ShoLodge Candlewood Candlewood Homestead
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham ShoLodge Candlewood Candlewood Homestead
Investment at
December 31, 1999
(000's) $182,570 $240,000 $205,000 $118,500 $142,400 $145,000
Security Deposit
(000's) $18,325 $15,000 $21,280 $12,081 $14,253 $15,960
End of Initial
Lease Term 2014 (1) 2017 (1) 2011 (2) 2011 2011 2015
Renewal Options (3) 4 for 12 4 for 12 5 for 10 3 for 15 3 for 15 2 for 15
years each years each years each years each years each years each
Current Annual
Minimum Rent (000's)
$18,325 $25,000 $21,280 $12,081 $14,253 $15,960
Percentage Rent (4) 8.0% 7.5% 8.0% 10.0% 10.0% 10.0%
Number of
Comparable Hotels
(5) 12 15 15 14 -- 14
1999 (5): Occupancy 70.0% 81.3% 60.3% (6) 69.2% (6) 73.7% (6)
ADR $95.60 $120.99 $78.30 (6) $58.76 (6) $49.21 (6)
RevPAR $66.92 $98.36 $47.21 (6) $40.66 (6) $36.27 (6)
1998 (5): Occupancy 73.4% 80.6% (6) 58.2% (6) 71.8% (6) 75.2% (6)
ADR $97.14 $120.50 (6) $78.29 (6) $54.38 (6) $44.94 (6)
RevPAR $71.30 $97.12 (6) $45.56 (6) $39.04 (6) $33.792 (6)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In 1999, the initial lease term was extended by two years.
(2) In 1999, the initial lease term was extended by three years.
(3) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(4) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over base year
levels.
(5) Represents only hotels open for at least a full year as of January 1, 1999.
(6) Includes information for periods prior to the acquisition of certain properties by us.
</FN>
</TABLE>
28
<PAGE>
Seasonality
Our 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 our rental income because we believe that
the net revenues generated by our hotels will be sufficient for the lessees to
pay rents on a regular basis notwithstanding seasonal fluctuations.
Year 2000
None of our in-house computer systems had failures associated with
recognition and processing of data related to the year 2000. Based on responses
to our oral inquiries, we believe the efforts of our material vendors, customers
and tenants and their material vendors and customers were adequate to address
year 2000 concerns. Our costs related to the year 2000 issues were immaterial.
Inflation
We believe that inflation should not have a material adverse effect on
us. Although increases in the rate of inflation may tend to increase interest
rates which we may be required to pay for borrowed funds, we have a policy of
obtaining interest rate caps in appropriate circumstances to protect us from
interest rate increases. In addition, our leases provide for the payment of
percentage rent to us based on increases in total sales, and such rent should
increase with inflation.
Certain Considerations
The discussion and analysis of our financial condition and results of
operations requires us to make certain estimates and assumptions and contains
certain statements of our beliefs, intentions or expectations concerning
projections, plans, future events and performance. The estimates, assumptions
and statements, such as those relating to our ability to expand our portfolio,
performance of our assets, the ability to make distributions, our tax status as
a "real estate investment trust," the ability to appropriately balance the use
of debt and equity and to access capital markets, depend upon various factors
over which we and/or our lessees have or may have limited or no control. Those
factors include, without limitation, the status of the economy, capital markets
(including prevailing interest rates), compliance with the changes to
regulations within the hospitality industry, competition, changes to federal,
state and local legislation and other factors. We cannot predict the impact of
these factors, if any. However, these factors could cause our actual results for
subsequent periods to be different from those stated, estimated or assumed in
this discussion and analysis of our financial condition and results of
operations. We believe that our estimates and assumptions are reasonable and
prudent at this time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to risks associated with market changes in interest
rates. We manage our exposure to this market risk by monitoring our available
financing alternatives. Our strategy to manage exposure to changes in interest
rates is unchanged from December 31, 1998. We do not foresee any significant
changes in our exposure other than as described below to fluctuations in
interest rates or in how we manage this exposure in the near future. At December
31, 1999, our total outstanding debt consisted of three issues of fixed rate,
senior unsecured notes:
Principal Balance Coupon Maturity Interest Payments Due
- ----------------- ------ -------- ---------------------
$115 million 81/4% 2005 Monthly
$150 million 7% 2008 Semi-Annually
$150 million 81/2% 2009 Monthly
No principal repayments are due under these notes until maturity.
Because interest on all of our outstanding debt at December 31, 1999 is at fixed
rates, changes in interest rates during the term of this debt will not effect
our operating results. If at maturity these notes were refinanced at interest
rates which are 10% higher than shown above, our per annum interest cost would
increase by approximately $3.3 million. Based on the balances outstanding as of
December 31, 1999 a hypothetical immediate 10% change in interest rates would
change the fair value of our fixed rate debt obligations by approximately $21.0
million.
Each of our fixed rate debt arrangements allow us to make repayments
earlier than the stated maturity date. In some cases, we are allowed to make
early repayment at par after a set date and in other cases we are allowed to
make prepayments only at a premium to face value. These prepayment rights may
afford us the opportunity to mitigate the risk of refinancing at maturity at
higher rates by refinancing prior to maturity.
29
<PAGE>
Our revolving credit facility bears interest at floating rates and has
a maturity in 2002. As of December 31, 1999, there was zero outstanding and $300
million was available for drawing under our revolving credit facility. Our
revolving credit facility is available to finance our acquisition commitments
and for general business purposes. Repayments under the revolving credit
facility may be made at any time without penalty.
Our exposure to fluctuations in interest rates may in the future
increase if we incur debt to fund future acquisitions or otherwise.
Item 8. Financial Statements and Supplementary Data
Our financial statements and financial statement schedule begin on Page
F-1 (see index in Item 14(a)).
One of our tenants, HMH HPT Courtyard LLC, a subsidiary of Host Marriott
Corporation, operates hotels which represent 23% of our investments, at cost.
During 1999, HMH HPT Courtyard LLC began to sublease the property leased from us
to CCMH Courtyard I LLC, a subsidiary of Crestline Capital Corporation, with our
consent. The financial statements for HMH HPT Courtyard LLC as of December 31,
1999 and December 31, 1998 and for the three fiscal years ended December 31,
1999, begin on page F-15. The financial statements of CCMH Courtyard I LLC as of
December 31, 1999 and for the year ended December 31, 1999, begin on page F-27.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information in Part III (Items, 10, 11, 12 and 13) is incorporated by
reference to our definitive Proxy Statement, which is expected to be filed not
later than 120 days after the end of our fiscal year.
30
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements and schedule of
Hospitality Properties Trust are included herein on the pages indicated:
Page
Report of Independent Public Accountants....................................F-1
Consolidated Balance Sheet as of December 31, 1999 and 1998.................F-2
Consolidated Statement of Income for the three years ended
December 31, 1999...........................................................F-3
Consolidated Statement of Shareholders' Equity for the three years ended
December 31, 1999...........................................................F-4
Consolidated Statement of Cash Flows for the three years ended
December 31, 1999...........................................................F-5
Notes to Consolidated Financial Statements..................................F-6
Report of Independent Public Accountants on Schedule III....................F-11
Schedule III - Real Estate and Accumulated Depreciation.....................F-12
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
The following audited financial statements of HMH HPT Courtyard, LLC, a
subsidiary of Host Marriott Corporation and the lessee of 23% of our investments
assets, at cost, are included herein on the pages indicated.
Page
Introduction to Supplementary Financial Statements
of HMH HPT Courtyard LLC................................................ F-14
Report of Independent Public Accountants................................ F-15
Balance Sheets as of December 31, 1999 and 1998......................... F-16
Statements of Operations for the fiscal years ended December 31, 1999,
December 31, 1998 and January 2, 1998................................... F-17
Statements of Shareholder's and Member's Equity for the fiscal years
ended December 31, 1999, December 31, 1998 and January 2, 1998.......... F-18
Statements of Cash Flows for the fiscal years ended December 31, 1999,
December 31, 1998 and January 2, 1998................................... F-19
Notes to Financial Statements........................................... F-20
31
<PAGE>
The following audited financial statements of CCMH Courtyard I LLC, a
subsidiary of Crestline Capital Corporation, and the sublessee of 23% of our
investments, at cost, are included herein on the pages indicated. These assets
are subleased by CCMH Courtyard I LLC from HMH HPT Courtyard LLC, a subsidiary
of Host Marriott Corporation, whose audited financial statements appear on the
pages indicated above.
Page
Introduction to Supplementary Financial Statements
of CCMH Courtyard I LLC....................................................F-26
Report of Independent Public Accountants...................................F-27
Balance Sheet as of December 31, 1999......................................F-28
Statement of Operations for the fiscal year ended December 31, 1999........F-29
Statement of Shareholder's Equity for the fiscal year ended
December 31, 1999..........................................................F-30
Statement of Cash Flows for the fiscal year ended December 31, 1999........F-31
Notes to Financial Statements..............................................F-32
32
<PAGE>
(b) Reports on Form 8-K
During the fourth quarter of 1999, the Company did not file any Current
Reports on Form 8-K.
Exhibits
3.1 Composite copy of Amended and Restated Declaration of Trust dated
August 21, 1995, as amended to date. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998)
3.2 Articles Supplementary dated June 2, 1997. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997)
3.3 Articles Supplementary dated April 8, 1999. (Incorporated by reference
to the Company's Current Report on Form 8-K dated April 7, 1999)
3.4 Bylaws of the Company, as amended. (Incorporated by reference to the
Company's Current Report on Form 8-K dated November 11, 1998)
4.1 Form of Common Share Certificate. (Incorporated by reference to the
Company's Registration Statement on Form S-11 (File No. 33-92330))
4.2 Form of 9-1/2% Series A Cumulative Redeemable Preferred Share
Certificate. (Filed herewith)
4.3 Rights Agreement, dated as of May 20, 1997, between the Company and
State Street Bank and Trust Company, as Rights Agent. (Incorporated by
reference to the Company's Current Report on Form 8-K dated May 20,
1997)
4.4 Indenture, dated as of February 25, 1998, between the Company and State
Street Bank and Trust Company. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997)
4.5 Supplemental Indenture No. 1, dated as of February 25, 1998, between
the Company and State Street Bank and Trust Company, relating to the
Company's 7.00% Senior Notes due 2008, including form thereof.
(Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997)
4.6 Supplemental Indenture No. 2, dated as of November 12, 1998, by and
between the Company and State Street Bank and Trust Company, relating
to the Company's 8-1/4% Monthly Income Senior Notes due 2005, including
form thereof. (Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998)
4.7 Supplemental Indenture No. 3, dated as of December 16, 1998, by and
between the Company and State Street Bank and Trust Company, relating
to the Company's 8-1/2% Monthly Income Senior Notes due 2009, including
form thereof. (Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998)
8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters. (Filed
herewith)
10.1 Advisory Agreement, dated January 1, 1998, by and between REIT
Management & Research, Inc. and the Company (+). (Incorporated by
reference to the Company's Current Report on Form 8-K dated February
11, 1998)
10.2 The Company's 1995 Incentive Share Award Plan (+). (Incorporated by
reference to the Company's Registration Statement on Form S-11 (File
No. 33-92330))
33
<PAGE>
10.3 Amended and Restated Revolving Credit Agreement, dated as of March 19,
1998, among the Company, as borrower, the institutions party thereto
from time to time as lenders, and Dresdner Bank AG, New York Branch and
Grand Cayman Branch, as Agent. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997)
10.4 Second Amended and Restated Revolving Credit Agreement, dated as of
June 10, 1998, among the Company, as borrower, the institutions party
thereto from time to time as lenders, and Dresdner Bank AG, New York
Branch and Grand Cayman Branch, as Agent. (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998)
10.5 Investment Manager's Subordination Agreement, dated as of March 19,
1998, among REIT Management & Research, Inc., the Company and Dresdner
Bank AG, New York Branch and Grand Cayman Branch. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997)
10.6 Form of Courtyard Management Agreement between HMH Courtyard
Properties, Inc., d/b/a/ HMH Properties, Inc. and Courtyard Management
Corporation. (Incorporated by reference to the Company's Registration
Statement on Form S-11 (File No. 33-92330))
10.7 Form of First Amendment to Courtyard Management Agreement between
Courtyard Management Corporation and the Company and Consolidation
Letter Agreement by and between Courtyard Management Corporation and
the Company. (Incorporated by reference to the Company's Registration
Statement on Form S-11 (File No.
33-92330))
10.8 Form of Lease Agreement between the Company and HMH HPT Courtyard, Inc.
(Incorporated by reference to the Company's Registration Statement on
Form S-11 (File No. 33-92330))
34
<PAGE>
10.9 Agreement of Purchase and Sale, dated as of March 18, 1998, between
Patriot American Hospitality Partnership, L.P. and Chatsworth
Summerfield Associates, L.P. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997)
10.10 Assignment of Rights under Agreements of Purchase and Sale, dated as of
March 18, 1998, by Patriot American Hospitality Partnership, L.P. to
and for the benefit of HPTSHC Properties Trust. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997)
10.11 Amended and Restated Master Lease Agreement, dated as of December 23,
1999, by and between HPTSHC Properties Trust and Summerfield HPT Lease
Company, L.P., (Filed herewith)
10.12 Purchase and Sale Agreement, dated as of December 29, 1998, by and
among Residence Inn by Marriott, Inc., Courtyard Management
Corporation, Nashville Airport Hotel, LLC, St. Louis Airport Hotel, LLC
and TownePlace Management Corporation, as sellers, and the Company, as
purchaser. (Incorporated by reference to the Company's Current Report
on Form 8-K dated March 23, 1999)
10.13 Limited Rent Guaranty, dated as of December 29, 1998, by and among
Marriott International, Inc., the Company and HPTMI III Properties
Trust. (Incorporated by reference to the Company's Current Report on
Form 8-K dated March 23, 1999)
10.14 Agreement to Lease, dated as of December 29, 1998, by and between the
Company and CRTM17 Tenant Corporation (including form of lease).
(Incorporated by reference to the Company's Current Report on Form 8-K
dated March 23, 1999)
10.15 Master Lease Agreement, dated as of April 30, 1999, by and among the
Company, HPTCY Properties Trust and HMH HPT Courtyard LLC. (Filed
herewith)
12.1 Ratio of Earnings to Fixed Charges. (Filed herewith)
12.2 Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
(Filed herewith)
21.1 Subsidiaries of the Registrant. (Filed herewith)
23.1 Consent of Arthur Andersen LLP. (Filed herewith)
23.2 Consent of Sullivan & Worcester LLP (included in Exhibit 8.1 to this
Annual Report)
27.1 Financial Data Schedule (Filed herewith)
- -------------------------
(+) Management contract or compensatory plan or agreement.
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited the accompanying consolidated balance sheet of Hospitality
Properties Trust and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hospitality
Properties Trust and subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 14, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
As of December 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Real estate properties, at cost:
Land ....................................................... $ 304,792 $ 243,337
Buildings, improvements and equipment ...................... 1,965,838 1,644,398
----------- -----------
2,270,630 1,887,735
Less accumulated depreciation .............................. 187,631 112,924
----------- -----------
2,082,999 1,774,811
Cash and cash equivalents .................................... 73,554 24,610
Restricted cash (FF&E reserve) ............................... 26,034 22,797
Other assets, net ............................................ 12,265 15,420
----------- -----------
$ 2,194,852 $ 1,837,638
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other ................................... $ 12,866 $ 10,851
Due to affiliate ............................................. 1,249 1,610
Dividends payable ............................................ -- 30,549
Revolving credit facility .................................... -- --
Senior notes, net of discount ................................ 414,780 414,753
Security and other deposits .................................. 246,242 206,018
----------- -----------
Total liabilities .......................................... 675,137 663,781
Shareholders' equity:
Series A preferred shares, 9 1/2% cumulative redeemable; no
par value; 100,000,000 shares authorized; 3,000,000 and zero
shares issued and outstanding, respectively ................ 72,207 --
Common shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 56,449,743
and 45,595,539 shares issued and outstanding, respectively 564 456
Additional paid-in capital ................................. 1,506,494 1,230,849
Cumulative net income ...................................... 315,436 203,507
Cumulative preferred dividends ............................. (5,106) --
Cumulative common dividends ................................ (369,880) (260,955)
----------- -----------
Total shareholders' equity ................................. 1,519,715 1,173,857
----------- -----------
$ 2,194,852 $ 1,837,638
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Year Ended
December 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income:
Minimum rent .................................. $ 209,003 $ 153,787 $ 96,033
Percentage rent ............................... 3,666 3,436 2,528
--------- --------- ---------
212,669 157,223 98,561
FF&E reserve income ............................. 20,931 16,108 14,643
Interest income ................................. 3,618 1,630 928
--------- --------- ---------
Total revenues ................................ 237,218 174,961 114,132
Expenses:
Interest (including amortization of
deferred financing costs of $2,223,
$2,599 and $1,340, respectively) .............. 37,352 21,751 15,534
Depreciation and amortization ................... 74,707 54,757 31,949
Terminated acquisition costs .................... -- -- 713
General and administrative ...................... 13,230 10,471 6,783
--------- --------- ---------
Total expenses ................................ 125,289 86,979 54,979
--------- --------- ---------
Income before extraordinary item .................. 111,929 87,982 59,153
Extraordinary item: loss from early
extinguishment of debt ........................ -- 6,641 --
--------- --------- ---------
Net income ........................................ 111,929 81,341 59,153
Preferred dividends ............................... 5,106 -- --
--------- --------- ---------
Net income available for common shareholders ...... $ 106,823 $ 81,341 $ 59,153
========= ========= =========
Weighted average common shares outstanding ........ 52,566 42,317 27,530
Basic and diluted earnings (loss) per common share:
Income before extraordinary item .............. $ 2.13 $ 2.08 $ 2.15
Extraordinary item ............................ -- (.16) --
--------- --------- ---------
Net income .................................... $ 2.13 $ 1.92 $ 2.15
========= ========= =========
Net income available for common
shareholders ................................. $ 2.03 $ 1.92 $ 2.15
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Preferred Shares Common Shares
--------------------------- ----------------------------------
Number Number
of Common of Common
Shares Shares Dividends Shares Shares Dividends
------ ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .. -- $ -- $ -- 26,856,800 $ 269 $ (74,327)
Issuance of common shares, net -- -- -- 12,000,000 120 --
Common share grants ........... -- -- -- 21,495 -- --
Net income .................... -- -- -- -- -- --
Dividends ..................... -- -- -- -- -- (73,408)
--------- ------- ------- ---------- -------- ---------
Balance at December 31, 1997 .. -- -- -- 38,878,295 389 (147,735)
Issuance of common shares, net -- -- -- 6,692,413 67 --
Common share grants ........... -- -- -- 24,831 -- --
Net income .................... -- -- -- -- -- --
Dividends ..................... -- -- -- -- -- (113,220)
--------- ------- ------- ---------- -------- ---------
Balance at December 31, 1998 .. -- -- -- 45,595,539 456 (260,955)
Issuance of shares, net ....... 3,000,000 72,207 -- 10,812,400 108 --
Common share grants ........... -- -- -- 41,804 -- --
Net income .................... -- -- -- -- -- --
Dividends ..................... -- -- (5,106) -- -- (108,925)
--------- ------- ------- ---------- -------- ---------
Balance at December 31, 1999 .. 3,000,000 $72,207 $(5,106) 56,449,743 $ 564 $(369,880)
========= ======= ======= ========== ======== =========
<CAPTION>
Additional Cumulative
Paid-In Net
Capital Income Total
------- ------ -----
<S> <C> <C> <C>
Balance at December 31, 1996 .. $ 656,253 $ 63,013 $ 645,208
Issuance of common shares, net 376,146 -- 376,266
Common share grants ........... 674 -- 674
Net income .................... -- 59,153 59,153
Dividends ..................... -- -- (73,408)
---------- -------- ------------
Balance at December 31, 1997 .. 1,033,073 122,166 1,007,893
Issuance of common shares, net 196,938 -- 197,005
Common share grants ........... 838 -- 838
Net income .................... -- 81,341 81,341
Dividends ..................... -- -- (113,220)
---------- -------- ------------
Balance at December 31, 1998 .. 1,230,849 203,507 1,173,857
Issuance of shares, net ....... 274,565 -- 346,880
Common share grants ........... 1,080 -- 1,080
Net income .................... -- 111,929 111,929
Dividends ..................... -- -- (114,031)
---------- -------- ------------
Balance at December 31, 1999 .. $1,506,494 $315,436 $ 1,519,715
========== ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended
December 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 111,929 $ 81,341 $ 59,153
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary item ............................... -- 6,641 --
Depreciation and amortization .................... 74,707 54,757 31,949
Amortization of deferred finance costs as interest 2,223 2,599 1,340
FF&E reserve income .............................. (20,931) (16,108) (14,643)
Changes in assets and liabilities:
Decrease/(increase) in other assets ........... 1,172 1,341 (469)
Increase in accounts payable and other ........ 2,036 3,701 3,419
Increase in due to affiliate .................. 485 128 476
--------- --------- ---------
Cash provided by operating activities ............ 171,621 134,400 81,225
--------- --------- ---------
Cash flows from investing activities:
Real estate acquisitions ........................... (365,201) (613,846) (409,799)
Increase in security and other deposits ............ 40,224 59,356 65,302
Purchase of FF&E reserve ........................... -- (3,377) (2,794)
--------- --------- ---------
Cash used in investing activities ................ (324,977) (557,867) (347,291)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred shares, net .... 72,207 -- --
Proceeds from issuance of common shares, net ....... 274,673 197,005 376,266
Debt issuance, net of discount ..................... -- 414,730 --
Repayment of debt .................................. -- (125,000) --
Draws on Credit Facility ........................... 172,000 307,000 261,000
Repayments of Credit Facility ...................... (172,000) (307,000) (261,000)
Deferred finance costs incurred .................... -- (13,222) (1,784)
Dividends paid to preferred shareholders ........... (5,106) -- --
Dividends paid to common shareholders .............. (139,474) (107,164) (64,761)
--------- --------- ---------
Cash provided by financing activities ............ 202,300 366,349 309,721
--------- --------- ---------
Increase/(decrease) in cash and cash equivalents ..... 48,944 (57,118) 43,655
Cash and cash equivalents at beginning of period ..... 24,610 81,728 38,073
--------- --------- ---------
Cash and cash equivalents at end of period ........... $ 73,554 $ 24,610 $ 81,728
========= ========= =========
Supplemental cash flow information:
Cash paid for interest ............................. $ 35,028 $ 15,387 $ 14,086
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve ........ 18,670 14,041 14,213
Purchases of fixed assets with FF&E reserve ........ (17,694) (7,853) (13,549)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share, per share and percent data)
1. Organization
Hospitality Properties Trust ("HPT") is a Maryland real estate
investment trust organized on February 7, 1995, which invests in income
producing lodging related real estate. At December 31, 1999, HPT, directly and
through subsidiaries, owned 210 properties.
The properties of HPT and its subsidiaries (the "Company") are leased
to and managed by subsidiaries (the "Lessees and the Managers") of companies
unaffiliated with HPT: Host Marriott Corporation; Marriott International, Inc.
("Marriott"); Wyndham International, Inc.; Homestead Village, Inc.; Candlewood
Hotel Company, Inc.; and ShoLodge, Inc.
2. Summary of Significant Accounting Policies
Consolidation. These consolidated financial statements include the
accounts of HPT and its subsidiaries, all of which are 100% owned by HPT. All
intercompany transactions have been eliminated.
Real estate properties. Real estate properties are recorded at cost.
Depreciation is provided for on a straight-line basis over estimated useful
lives of 7 to 40 years. The Company periodically evaluates the carrying value of
its long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121.
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 equal to its fair value.
Deferred financing costs. Costs incurred to secure certain borrowings
are capitalized and amortized over the terms of the related borrowing. The
unamortized balance was $10,221, $12,644 and $8,293 at December 31, 1999, 1998
and 1997, respectively, net of accumulated amortization of $2,941, $893 and
$1,143, respectively.
Financial instruments--interest rate cap agreements. The Company had
entered into interest rate protection agreements to limit exposure to risks of
rising interest rates. In May 1999 the Company sold these agreements for the
approximate carrying value at the time of the sale with no resulting gain or
loss. A $1,402 charge is included in 1998 interest expense for the difference
between the carrying amount of the agreements and their market value at the time
the debt they related to was repaid. As of December 31, 1999 the Company is not
party to any interest rate cap or swap agreements.
Revenue recognition. Rental income from operating leases is recognized
on a straight line basis over the life of the lease agreements. Percentage rent
and interest income are recognized as earned.
Per common share amounts. Per common share amounts are computed using
the weighted average number of common shares outstanding during the period. The
Company has no common share equivalents, instruments convertible into common
shares or other dilutive instruments.
Reclassifications. Certain reclassifications have been made to prior
years' financial statements to conform with the current year's presentation.
F-6
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share, per share and percent data)
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.
Information about segments. The Company derives its revenues from a
single line of business, real estate leasing.
Income taxes. The Company is a real estate investment trust under the
Internal Revenue Code of 1986. The Company is not subject to Federal income
taxes on its net income provided it distributes its taxable income to
shareholders and meets certain other requirements. The characterization of the
dividends for 1999 and 1998 was 100% and 75.3% ordinary income, respectively,
and 0.0% and 24.7% return of capital, respectively.
New Accounting Pronouncements. The Financial Accounting Standards Board
issued Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133") in 1998. FAS 133 must be adopted for the Company's year
2001 financial statements and is expected to have no impact on the Company's
financial condition or results of operations.
3. Preferred Shares
In March 1999 the Company issued 3,000,000 Series A cumulative
redeemable preferred shares in a public offering. Each Series A preferred share
carries dividends of $2.375 per Series A preferred share per annum, payable in
equal quarterly payments. Each Series A preferred share has a liquidation
preference of $25. Series A preferred shares are redeemable, at the Company's
option, for $25 each plus accrued and unpaid dividends at any time on or after
April 12, 2004. As of December 31, 1999, the Company had 3,000,000 outstanding
preferred shares with an aggregate liquidation preference of $75,000. There were
no preferred shares outstanding as of December 31, 1998.
4. Real Estate Properties
The Company's properties are leased pursuant to long term operating
leases with initial terms expiring between 2010 and 2017. The leases provide for
various renewal terms generally totaling 20-50 years unless the Lessee properly
notifies the Company in accordance with the leases. Each lease is a triple net
lease and generally requires the Lessee to pay: minimum rent, percentage rent of
between 5% and 10% of increases in total hotel sales over a base year threshold,
5%-6% of total hotel sales into reserves escrowed for replacement and
refurbishment of the Company's hotels (FF&E reserve), and all operating costs
associated with the leased property. Each Lessee has posted a security deposit
generally equal to one year's minimum rent. Each of the Company's properties is
part of a portfolio of properties leased to a single tenant. At December 31,
1999, the Company owned 11 portfolios of hotel properties, ranging in size from
nine to 53 hotels. Each property within a portfolio is subject to certain lease
provisions including cross default provisions and the ability to use FF&E
reserves generated by all hotels in the portfolio for the maintenance and
refurbishment of any hotel within the portfolio. The FF&E reserve may be used by
the Manager and Lessee to maintain the properties in good working order and
repair. If the FF&E reserve is not sufficient to fund these expenditures, the
Company may make the expenditures, in which case annual minimum rent will be
increased. The Company's real estate properties net of accumulated depreciation
consisted of land of $304,792, building and improvements of $1,618,821 and
furniture, fixtures and equipment of $159,386, as of December 31, 1999 and land
of $243,337, building and improvements of $1,389,817 and furniture, fixtures and
equipment of $141,657, as of December 31, 1998.
During 1999, 1998 and 1997, the Company purchased and leased 40, 51 and
37 properties, respectively for aggregate purchase prices of approximately
$361,000, $606,000 and $407,000 excluding closing costs, respectively. As of
December 31, 1999, the Company owned and leased 210 hotel properties.
Future minimum lease payments to be received by the Company during the remaining
initial terms of its leases total $3,086,800 ($223,700 annually). As of December
31, 1999, the weighted average remaining initial term
F-7
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share, per share and percent data)
of the Company's leases was approximately 13.8 years, and the weighted average
remaining total term (including all renewal options) was approximately 51.1
years.
5. Indebtedness December 31,
-----------------------
1999 1998
-----------------------
Revolving credit facility, unsecured ................. $ -- $ --
7% Senior Notes, unsecured, due 2008 ................. 150,000 150,000
8.25% Monthly Income Senior Notes, unsecured, due 2005 115,000 115,000
8.5% Monthly Income Senior Notes, unsecured, due 2009 150,000 150,000
Less: unamortized discounts .......................... (220) (247)
--------- ---------
$ 414,780 $ 414,753
========= =========
In December 1998 the Company issued $150 million of unsecured 8.5%
Monthly Income Senior Notes ("8.5% Notes") which mature in January 2009. The
8.5% Notes cannot be redeemed prior to December 15, 2002. From and after
December 15, 2002, the Company may redeem some or all of the 8.5% Notes from
time to time before they mature. The redemption price will equal the outstanding
principal of the 8.5% Notes being redeemed plus accrued interest. Interest is
payable monthly in arrears. As of December 31, 1999, the market value of these
notes was $142,080 based on public quotes.
In November 1998 the Company issued $115 million of unsecured 8.25%
Monthly Income Senior Notes ("8.25% Notes") which mature in November 2005. The
8.25% Notes cannot be redeemed prior to November 15, 2001. From and after
November 15, 2001, the Company may redeem some or all of the 8.25% Notes from
time to time before they mature. The redemption price will equal the outstanding
principal of the 8.25% Notes being redeemed plus accrued interest. Interest is
payable monthly in arrears. As of December 31, 1999, the market value of these
notes was $108,928 based on public quotes.
In March 1998 the Company entered into a new unsecured revolving credit
facility (the "Credit Facility") of $250,000. In June 1998 the Credit Facility
was syndicated to a group of commercial banks and expanded to $300,000. The
Credit Facility matures in March 2002 and bears interest at LIBOR plus a spread
based on the Company's senior unsecured debt ratings. The Credit Facility
contains financial covenants requiring the Company to, among other things,
maintain a debt to asset ratio (as defined) of no more than 50% and meet certain
debt service coverage ratios (as defined). The weighted average interest rate on
Credit Facility borrowings during 1999 was 6.17%. As of December 31, 1999, the
Company had no outstanding borrowings under the Credit Facility.
In February 1998 the Company issued $150 million of 7% senior unsecured
notes due 2008 ("7% Notes"). The 7% Notes mature in March 2008 and are
prepayable at any time. If prepaid, the redemption price will equal the
outstanding principal of the 7% Notes being redeemed plus accrued interest and a
"make-whole amount" (as defined). Interest is payable semi-annually in arrears.
As of December 31, 1999, the market value of these notes was $130,905 based on
public quotes.
As of December 31, 1999 none of the Company's assets were pledged or
mortgaged.
6. Transactions with Affiliates
The Company has an advisory agreement with REIT Management & Research,
Inc. ("RMR") whereby RMR provides investment, management and administrative
services to the Company. RMR 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 plus an incentive fee based upon improvements in
cash available for distribution per share (as
F-8
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share, per share and percent data)
defined). Advisory fees excluding incentive fees earned for the years ended
1999, 1998 and 1997 were $10,949, $8,301 and $5,299, respectively. Incentive
advisory fees are paid in restricted Common Shares based on a formula. The
Company accrued $237, $846 and $551 in incentive fees during 1999, 1998 and
1997, respectively. The Company issued 32,904 and 15,931 restricted Common
Shares in satisfaction of the 1998 and 1997 incentive fees, respectively. The
1999 fee was paid to RMR in restricted Common Shares in February 2000. As of
December 31, 1999, RMR and its affiliates owned 345,236 shares of HPT. RMR is
owned by Gerard M. Martin and Barry M. Portnoy, who also serve as Managing
Trustees of the Company.
7. Concentration
The Company's assets are income producing lodging related real estate
located throughout the United States. The Company's lessees at December 31, 1999
were:
<TABLE>
<CAPTION>
Annual Total
Leased to Number of Initial % of Minimum % of Rent In % of
Subsidiary of: Properties Investment Total Rent Total 1999(1) Total
- -------------- ---------- ---------- ----- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Host Marriott Corp. 53 $505,400 23% $50,540 23% $ 53,429 25%
Host Marriott Corp. 18 172,200 8% 17,220 8% 17,733 8%
Marriott International, Inc. 17 201,643 9% 21,322 10% 15,933 7%
Marriott International, Inc. 14 148,812 7% 14,881 7% 14,881 7%
Marriott International, Inc. 9 129,377 6% 12,938 6% 12,940 6%
Wyndham International, Inc. 15 240,000 11% 25,000 11% 25,081 12%
Wyndham International, Inc. 12 182,570 8% 18,325 8% 18,087 9%
Homestead Village, Inc. 18 145,000 7% 15,960 7% 13,585 6%
Candlewood Hotel Company 17 142,400 7% 14,253 6% 11,410 6%
Candlewood Hotel Company 17 118,500 5% 12,081 5% 13,398 6%
ShoLodge, Inc. 20 205,000 9% 21,280 9% 16,192 8%
--- ----------- ------ --------- ------ ---------- -----
210 $2,190,902 100% $223,800 100% $212,669 100%
<FN>
(1) Includes minimum rent and percentage rent from the later of January 1, 1999 or the date of purchase through
December 31, 1999.
</FN>
</TABLE>
At December 31, 1999 the Company's 210 hotels contain 28,449 rooms and
are located in 35 states, with between 5% and 11% of its hotels in each of
Virginia, Florida, Arizona, Georgia, Texas, and California.
8. Pro Forma Information (Unaudited)
In 1999 and 1998 the Company completed offerings of 10,812,400 and
6,692,413 common shares of beneficial interest, respectively, 3,000,000
preferred shares of beneficial interest, and the acquisition of 40 and 51
additional hotels, respectively. The Company completed debt offerings totaling
$415,000 in 1998. If such transactions occurred on January 1, 1998, unaudited
pro forma 1999 revenues, net income available for common shareholders and net
income available for common shareholders per share would have been $251,314,
$117,845 and $2.09, respectively. The unaudited pro forma 1998 revenues, net
income and net income per share would have been $242,497, $115,370 and $2.04,
respectively.
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 unaudited pro forma data is not necessarily indicative of what the
actual consolidated results of operations for the Company would have been for
the years indicated, nor does it purport to represent the results of operations
for the Company for future periods.
F-9
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share, per share and percent data)
9. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of
operations of the Company for 1999 and 1998:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenues............................................... $53,273 $58,991 $62,343 $62,611
Net income available for common shareholders........... 22,896 26,066 28,624 29,237
Net income available for common shareholders per share(1) .50 .51 .51 .52
Dividends per share(2)................................. .68 .69 .69 .69
<CAPTION>
1998
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenues............................................... $37,370 $44,194 $45,175 $48,222
Income before extraordinary item....................... 19,554 22,670 22,112 23,646
Income before extraordinary item share(1)............... .49 .54 .52 .53
Net income and net income available for common
shareholders........................................ 13,238 22,372 22,107 23,624
Net income and net income available for common
shareholders per share(1)............................ .33 .53 .52 .53
Dividends per share(2)................................. .64 .65 .66 .67
<FN>
(1) The sum per common share amounts for the four quarters differs from annual per share amounts due to the required
method of computing weighted average number of shares in interim periods and rounding.
(2) Amounts represent dividends declared with respect to the periods shown.
</FN>
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited in accordance with auditing standards generally
accepted in the United States the consolidated financial statements of
Hospitality Properties Trust and have issued our report thereon dated January
14, 2000. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule and related notes on pages F-12 and
F-13 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 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
Vienna, Virginia
January 14, 2000
F-11
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(dollars in millions)
Costs
Capitalized
Subsequent
Initial to Gross Amount at which
Cost to Company Acquisition Carried at Close of Period
--------------------- -------------- ------------------------------
Buildings & Buildings &
Encumbrances Land Improvements Improvements Land Improvements Total
<S> <C> <C> <C> <C> <C> <C> <C>
66 Courtyards $-- $106 $503 $5 $106 $508 $614
34 Candlewood Hotels -- 25 213 -- 25 213 238
34 Residence Inns -- 65 286 1 65 287 352
20 Sumner Suites -- 21 164 -- 21 164 185
18 Homestead Village -- 28 106 -- 28 106 134
15 Summerfield Suites -- 23 196 -- 23 196 219
12 Wyndham Hotels -- 16 154 1 16 155 171
2 Marriott Full Service -- 8 50 -- 8 50 58
9 TownePlace Suites -- 14 51 -- 14 51 65
-- ---- -------- ---- ---- ------- ------
Total (210 hotels) $-- $306 $1,723 $7 $306 $1,730 $2,036
=== ==== ====== === ==== ====== ======
<CAPTION>
Life on which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Depreciation Construction Acquired Computed
------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
66 Courtyards $(47) 1987 through 1999 1995 through 1999 15 - 40 Years
34 Candlewood Hotels (9) 1996 through 1998 1997 through 1999 15 - 40 Years
34 Residence Inns (20) 1989 through 1999 1996 through 1999 15 - 40 Years
20 Sumner Suites (7) 1992 through 1999 1997 through 1999 15 - 40 Years
18 Homestead Village (3) 1996 through 1998 1999 15 - 40 Years
15 Summerfield Suites (10) 1989 through 1993 1998 15 - 40 Years
12 Wyndham Hotels (13) 1987 through 1990 1996 through 1997 15 - 40 Years
2 Marriott Full Service (2) 1972 through 1981 1998 15 - 40 Years
9 TownePlace Suites (1) 1997 through 1999 1998 through 1999 15 - 40 Years
------
Total (210 hotels) $(112)
======
</TABLE>
F-12
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1999
(dollars in thousands)
(A) The change in accumulated depreciation for the period from January 1, 1997
to December 31, 1999 is as follows:
1999 1998 1997
---- ---- ----
Balance at beginning of period $ 68,289 $ 35,942 $ 16,701
Additions: depreciation expense 44,032 32,347 19,241
---------- ---------- ----------
Balance at close of period $ 112,321 $ 68,289 $ 35,942
========== ========== ==========
(B) The change in total cost of properties for the period from January 1, 1997
to December 31, 1999 is as follows:
1999 1998 1997
---- ---- ----
Balance at beginning of period $1,698,457 $1,144,973 $ 773,497
Additions: hotel acquisitions and
capital expenditures 337,520 553,484 371,476
---------- ---------- ----------
Balance at close of period $2,035,977 $1,698,457 $1,144,973
========== ========== ==========
(C) The net tax basis of the Company's real estate properties was $1,923,254 as
of December 31, 1999.
F-13
<PAGE>
Introduction to Supplementary Financial Statements of HMH HPT Courtyard LLC
- ---------------------------------------------------------------------------
HMH HPT Courtyard LLC is the lessee of 23% of Hospitality Properties
Trust's investments, at cost. HMH HPT Courtyard LLC is a subsidiary of Host
Marriott Corporation and is not owned by Hospitality Properties Trust. The
following financial statements of HMH HPT Courtyard LLC are presented to comply
with applicable accounting regulations of the Securities and Exchange Commission
and were prepared by HMH HPT Courtyard LLC's management.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HMH HPT Courtyard LLC:
We have audited the accompanying balance sheets of HMH HPT Courtyard
LLC (the "Company") as of December 31, 1999 and 1998, and the related statements
of operations, shareholder's and member's equity and cash flows for the fiscal
years ended December 31, 1999 and 1998, and January 2, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 the Company, as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the fiscal years ended December 31, 1999 and 1998, and January 2, 1998 in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
March 8, 2000
F-15
<PAGE>
HMH HPT COURTYARD LLC
BALANCE SHEETS
December 31, 1999 and December 31, 1998
(in thousands)
1999 1998
------- -------
ASSETS
Rent receivable ........................................ $ 3,658 $ --
Due from Hospitality Properties Trust................... 1,192 --
Due from Marriott International, Inc. .................. -- 3,244
Security deposit ....................................... 50,540 50,540
Note receivable from Crestline ......................... 5,100 5,100
Restricted cash ........................................ 7,331 --
------- -------
Total assets .................................... $67,821 $58,884
======= =======
LIABILITIES AND MEMBER'S EQUITY
Due to Host Marriott, L.P. ............................. $ 9,918 $ 5,899
Due to Hospitality Properties Trust .................... 879 --
Due to CCMH Courtyard I LLC ............................ 1,959 --
Deferred gain .......................................... 30,916 33,793
------- -------
Total liabilities ............................... 43,672 39,692
------- -------
Member's equity ....................................... 24,149 19,192
------- -------
Total liabilities and member's equity ........... $67,821 $58,884
======= =======
See Notes to Financial Statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
HMH COURTYARD LLC
STATEMENTS OF OPERATIONS
For the Fiscal Years December 31, 1999, December 31, 1998 and January 2, 1998
(in thousands)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES (Note 1):
Rental income ..................................... $ 60,463 $ -- $ --
Hotel sales ....................................... -- 224,305 211,889
Interest income ................................... 326 -- --
Amortization of deferred gain ..................... 2,877 2,877 2,900
--------- --------- ---------
Total revenues .............................. 63,666 227,182 214,789
EXPENSES:
Hotel expenses .................................... -- 109,547 103,473
Rent expense ...................................... 53,586 52,784 52,335
FF&E contribution expense ......................... -- 11,216 10,595
Base and incentive management fees paid to Marriott
International, Inc. .............................. -- 26,348 23,323
Property taxes .................................... -- 7,842 7,491
Corporate expenses ................................ 1,933 1,947 1,991
Other expenses .................................... 23 3,591 4,583
--------- --------- ---------
Total expenses .............................. 55,542 213,275 203,791
--------- --------- ---------
INCOME BEFORE INCOME TAXES ............................... 8,124 13,907 10,998
Provision for income taxes ............................... -- (5,563) (4,400)
--------- --------- ---------
NET INCOME ............................................... $ 8,124 $ 8,344 $ 6,598
========= ========= =========
</TABLE>
See Notes to Financial Statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
HMH HPT COURTYARD LLC
STATEMENTS OF SHAREHOLDER'S AND MEMBER'S EQUITY
For the Fiscal Years Ended December 31, 1999, December 31, 1998 and January 2, 1998
(in thousands)
Additional
Common Paid-In Retained Member's
Stock Capital Earnings/(Deficit) Equity
----- ------- ------------------ ------
<S> <C> <C> <C> <C>
Balance, January 3, 1997 ...................... $ -- $ 15,478 $ (720) $ --
Adjustment to 1996 capital contribution by Host
Marriott .................................. -- (183) -- --
Dividend to Host Marriott ..................... -- -- (4,858) --
Net income .................................... -- -- 6,598 --
----------- -------- -------- --------
Balance at January 2, 1998 .................... -- 15,295 1,020 --
Dividend to Host Marriott ..................... -- -- (5,467) --
Net income .................................... -- -- 8,344 --
Balance contributed to HMH HPT Courtyard LLC
(See Note 1) .............................. -- (15,295) (3,897) 19,192
----------- -------- -------- --------
Balance at December 31, 1998 .................. -- -- -- 19,192
Dividend to Host Marriott ..................... -- -- -- (3,167)
Net income .................................... -- -- -- 8,124
----------- -------- -------- --------
Balance at December 31, 1999 .................. $ -- $ -- $ -- $ 24,149
=========== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
HMH HPT COURTYARD LLC
STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended December 31, 1999, December 31, 1998 and January 2, 1998
(in thousands)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................ $ 8,124 $ 8,344 $ 6,598
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of deferred gain ..................... (2,877) (2,877) (2,900)
Changes in operating accounts:
Increase in rent receivable ................... (3,658) -- --
Increase in due from Hospitality Properties Trust (1,192) -- --
Increase in restricted cash ................... (7,331) -- --
Decrease (increase) in due from Marriott
International, Inc. ......................... 3,244 (11) 65
Increase in due to Host Marriott, L.P. ........ 4,019 11 1,095
Increase in due to Hospitality Properties Trust 879 -- --
Increase in due to CCMH Courtyard I LLC ....... 1,959 -- --
------- ------- -------
Cash provided by operations ................... 3,167 5,467 4,858
------- ------- -------
FINANCING ACTIVITIES:
Dividend to Host Marriott ......................... (3,167) (5,467) (4,858)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................ -- -- --
CASH AND CASH EQUIVALENTS, beginning of year ........... -- -- --
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year ................. $ -- $ -- $ --
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
HMH HPT Courtyard, Inc. was incorporated in Delaware on February 7,
1995 as a wholly-owned indirect subsidiary of Host Marriott Corporation. HMH HPT
Courtyard, Inc. had no operations prior to March 24, 1995 (the "Commencement
Date"). In connection with the REIT conversion discussed below HMH HPT
Courtyard, Inc. was merged into HMH HPT Courtyard LLC on December 23, 1998
(collectively the activities of HMH HPT Courtyard, Inc. and HMH HPT Courtyard
LLC are referred to as the "Company").
On the Commencement Date, affiliates of Host Marriott Corporation
("Host Marriott" or the "Sellers") sold 21 Courtyard properties to Hospitality
Properties Trust ("HPT"). On August 22, 1995, HPT purchased an additional 16
Courtyard properties from the Sellers. On March 22, 1996 and April 4, 1996, a
total of 16 additional Courtyard properties were purchased by HPT for a total of
53 Courtyard hotels (the "Hotels"). The Sellers contributed the assets and
liabilities related to the operations of such properties to the Company,
including working capital advances to the manager, prepaid rent under leasing
arrangements and rights to other assets as described in Note 2. Such assets have
been accounted for at their historical cost.
On April 17, 1998, Host Marriott announced that its Board of Directors
authorized Host Marriott to reorganize its business operations to qualify as a
real estate investment trust ("REIT") to become effective as of January 1, 1999
(the "REIT Conversion"). On December 29, 1998, Host Marriott announced that it
had completed substantially all the steps necessary to complete the REIT
Conversion and expected to qualify as a REIT under the applicable Federal income
tax laws beginning January 1, 1999. Subsequent to the REIT Conversion, Host
Marriott is referred to as Host REIT. In connection with the REIT Conversion,
Host Marriott contributed substantially all of its hotel assets to a
newly-formed partnership, Host Marriott, LP ("Host LP").
In connection with the REIT Conversion, the following steps occurred:
1) in December 1998, HMH HPT Courtyard LLC was formed as a wholly owned
subsidiary of Host Marriott Hospitality, Inc. ("Hospitality") a then wholly
owned subsidiary of Host Marriott; 2) on December 23, 1998, HMH HPT Courtyard,
Inc. merged into HMH HPT Courtyard LLC and HMH HPT Courtyard, Inc. ceased to
exist; and 3) on December 24, 1998, Hospitality contributed its LLC interest in
the Company to Host LP, such that the Company is wholly owned by Host LP. As of
December 31, 1999, Host REIT owns 78% of the outstanding limited partner units
of Host LP and unaffiliated partners own the remaining 22%. The merger of HMH
HPT Courtyard, Inc. and HMH HPT Courtyard LLC was accounted for as a
reorganization of affiliated entities and the assets and liabilities of HMH HPT
Courtyard, Inc. were carried over at their historical cost.
As REITs are not currently permitted to derive revenues directly from
the operations of hotels, the Company subleases its hotels and has assigned its
interest in the management agreements to subsidiaries of Crestline Capital
Corporation ("Crestline"). See Notes 2 and 5.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
Fiscal Year End Change
The U.S. Internal Revenue Code of 1986, as amended, requires REITs to
file their U.S. income tax return on a calendar year basis. Accordingly in 1998,
the Company changed its fiscal year-end to December 31 for both financial and
tax reporting requirements. Previously, the Company's fiscal year ended on the
Friday nearest to December 31.
F-20
<PAGE>
Revenues
1999 revenues primarily represent sublease rental income from Crestline
and are not comparable to 1998 hotel revenues which reflect gross sales
generated by the hotel properties. The rent due under each sublease is the
greater of base rent or percentage rent, as defined. Sublease percentage rent
applicable to room, food and beverage and other types of hotel revenue varies by
sublease and is calculated by multiplying fixed percentages by the total amounts
of such revenues over specified threshold amounts. Both the sublease minimum
rent and the revenue thresholds used in computing sublease percentage rents are
subject to annual adjustments based on increases in the United States Consumer
Price Index and the Labor Index, as defined.
Application of New Accounting Standards
In December 1999, the staff of the Securities & Exchange Commission
issued Staff Accounting Bulletin 101 - Revenue Recognition ("SAB 101"). SAB 101
discusses factors to consider in determining when contingent revenue should be
recognized during interim periods. The Company retroactively changed its method
of accounting for contingent sublease rental revenues to conform to SAB 101
effective January 1, 1999. SAB 101 has no impact on full-year 1999 revenues or
net income because all rental revenues considered contingent under SAB 101 were
earned as of December 31, 1999. The change in accounting principle has no effect
on prior years because contingent rent relates to rental income on the sublease
which began in 1999.
Corporate Expenses
The Company operates as a unit of Host LP, utilizing Host LP's
employees, centralized system for cash management, insurance and administrative
services. The Company has no employees. All cash received by the Company is
commingled with Host LP's general corporate funds. Operating expenses and other
cash requirements of the Company are paid by Host LP and charged directly or
allocated to the Company. Certain general and administrative costs of Host LP
are allocated to the Company, based on Host LP's specific identification of
individual cost items when appropriate and otherwise based upon estimated levels
of effort devoted by its general and administrative departments to individual
entities. In the opinion of management, the methods for allocating corporate,
general and administrative expenses and other direct costs are reasonable. It is
not practicable to estimate the costs that would have been incurred by the
Company if it had been operated on a stand-alone basis, however, management
believes that these expenses are comparable to the expected allocations by Host
LP of general and administrative costs on a forward-looking basis.
Concentration of Credit Risk
The Company's largest asset is the security deposit (see Note 3) which
constitutes 75% of the Company's total assets as of December 31, 1999. The
security deposit is not collateralized and is due from HPT at the termination of
the leases, which are described in Note 2.
Restricted CashRestricted cash consists of cash and cash equivalents
held in an interest-bearing deposit account pursuant to the Cash Management and
Security Agreement between HPT, Crestline, and Host LP. Base and percentage rent
under the Lease are collected and disbursed through the account, which is
controlled by HPT.
Deferred Gain
Host Marriott contributed to the Company deferred gains relating to the
sale of the 53 Courtyard properties to HPT in 1995 and 1996. The Company is
amortizing the deferred gain over the initial term of the Lease, as defined
below.
NOTE 2. LEASE COMMITMENTS
Leases with HPT
On the Commencement Date, the Company entered into a lease for 21
Courtyard properties. On August 22, 1995, the Company entered into a lease for
an additional 16 Courtyard properties. On March 22, 1996 and April 4, 1996, the
Company entered into a lease for an additional 16 Courtyard properties
(collectively, the "Lease"). The
F-21
<PAGE>
initial term of the Lease expires in 2012. Thereafter, the Lease may be renewed
for three consecutive twelve-year terms at the option of the Company.
The Company is required to pay rents equal to aggregate minimum annual
rent of $50,793,000 ("Base Rent"), and percentage rent equal to 5% of the excess
of total hotel sales over base year 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. The Company is also required to provide Marriott
International (the "Manager") with working capital to meet the operating needs
of the Hotels.
Under the sublease agreements discussed below, Crestline is responsible
for making the payments required under the Lease 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.
The Lease also requires the Company to escrow, or cause the Manager to
escrow, an amount equal to 5% of the annual total hotel sales into an HPT-owned
furniture, fixture and equipment reserve (the "FF&E Reserve"), which is
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 the Company. In the event of HPT Fundings,
Base Rent shall be adjusted upward by an amount equal to 10% of HPT Fundings.
The Company is required to maintain a minimum net worth equal to one
year's base rent. For purposes of this covenant, net worth is defined as
member's equity plus the deferred gain. Net worth, as defined, was $55,277,000
at December 31, 1999.
As of December 31, 1999, future minimum annual rental commitments for
the Lease on the Hotels are as follows (in thousands).
Minimum
Lease
Payments
2000......................................... 50,793
2001......................................... 50,793
2002......................................... 50,793
2003......................................... 50,793
2004......................................... 50,793
Thereafter................................... 406,346
----------
Total minimum lease payments.......... $ 660,311
==========
Total minimum lease payments exclude percentage rent which was
$2,686,000, $2,284,000 and $1,771,000 for fiscal years 1999, 1998 and 1997,
respectively.
Ground Leases
The land under eight 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 subject to minimum amounts. The minimum
rentals are adjusted at various anniversary dates throughout the lease terms, as
defined in the agreements. As is discussed below, under the sublease agreements,
Crestline makes ground lease rent payments.
Subleases with Crestline
In connection with the REIT Conversion, the Company agreed to sublease
the Hotels (the "Subleases") to separate indirect sublessee subsidiaries of
Crestline ("Sublessee"), subject to the terms of the applicable Lease with HPT.
Under the Subleases, the Company will have committed aggregate minimum subrental
income of $660 million, which is equal to the Company's minimum lease payment
obligation described above.
F-22
<PAGE>
The terms of each Sublease expire simultaneously with the expiration of
the initial term of the Lease to which it relates and automatically renews for
the corresponding renewal term under the Lease, unless either the Company (the
"Sublessor") elects not to renew the Lease, or the Sublessee elects not to renew
the Sublease at the expiration of the initial term provided, however, that
neither party can elect to terminate fewer than all of the Subleases. Rent under
the Subleases consists of minimum rent of $50.7 million in 1999 and an
additional percentage which totals $9.8 million in 1999. The percentage rent is
sufficient to cover the additional rent due under the Lease with HPT, with any
excess being retained by the Company. The rent payable under the Sublease is
guaranteed by the Sublessee up to a maximum amount of $20 million.
The Sublessee is responsible for paying all of the expenses of
operating the applicable hotels, including all personnel costs, utility costs
and general repair and maintenance of the hotels. Crestline is also responsible
for paying real estate taxes, personal property taxes (to the extent the Company
owns the personal property), casualty insurance on the structures, ground lease
rent payments, required expenditures for FF&E (including maintaining the FF&E
reserve, to the extent such is required by the applicable management agreement)
and other capital expenditures. Crestline also is responsible for all fees
payable to the applicable manager, including base and incentive management fees,
chain services payments, and franchise or system fees, with respect to periods
covered by the term of the sublease. The Company also remains liable under each
management agreement.
NOTE 3. SECURITY DEPOSIT
HPT holds $50,540,000 as a security deposit for the obligations of the
Company under the Leases (the "Security Deposit"). The Security Deposit is due
upon termination of the Lease.
NOTE 4. INCOME TAXES
Host Marriott has contributed the Security Deposit and deferred gain to
the Company without contributing their related tax attributes and has agreed
that the Company will not be responsible for any tax liability or benefit
associated with the Security Deposit or deferred gain. Accordingly, no deferred
tax balances are reflected in the accompanying balance sheets. There is no
difference between the basis of assets and liabilities for income tax and
financial reporting purposes other than for the Security Deposit and the
deferred gain. Subsequent to the REIT Conversion, Host REIT is generally no
longer required to pay federal and state income taxes. For this reason, Host
REIT no longer allocates a tax provision to the Company. For periods prior to
the REIT Conversion, Host Marriott allocated a tax provision to the Company
based on the separate return method.
The components of the Company's effective income tax rate follow:
1998 1997
Statutory Federal tax rate...................... 35.0% 35.0%
State income tax, net of Federal tax benefit.... 5.0 5.0
-------- --------
40.0% 40.0%
======== ========
The provision for income taxes consists of the following (in
thousands):
1998 1997
Current - Federal................................... $ 4,868 $ 3,849
- State..................................... 695 551
-------- --------
$ 5,563 $ 4,400
======== ========
The allocation of taxes to the Company for 1998 is included in Due to
Host Marriott in the accompanying balance sheet as of December 31, 1998.
NOTE 5. MANAGEMENT AGREEMENTS
The Sellers' rights and obligations under management agreements (the
"Agreements") with the Manager, were transferred to HPT and then through the
Leases to the Company. In connection with the REIT Conversion, Host Marriott
assigned its rights and obligations under the Agreements to subsidiaries of
Crestline. The Agreement
F-23
<PAGE>
has an initial term expiring in 2012 with options to extend the Agreement on all
of the Hotels for up to 36 years. The 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 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. As a result of the REIT Conversion, beginning in 1999
all fees payable under the Agreements are the obligation of the Sublessee. The
obligations of the Lessees are guaranteed to a limited extent by Crestline. The
Company remains obligated to the managers if the Sublessee fails to pay these
fees (but would be entitled to reimbursement from the Sublessee under the terms
of the Subleases).
Pursuant to the terms of the Agreements, the Manager is required to
furnish the hotels with certain services ("Chain Services") which are generally
provided on a central or regional basis to all hotels in the Marriott
International hotel system. Chain Services include central training, advertising
and promotion, a national reservation system, computerized payroll and
accounting services, and such additional services as needed which may be more
efficiently performed on a centralized basis. Costs and expenses incurred in
providing such services are allocated among all domestic hotels managed, owned
or leased by Marriott International or its subsidiaries. In addition, the Hotels
participate in Marriott Rewards and Marriott's Courtyard Club programs. The
costs of these programs are charged to all hotels in the system.
Crestline, as the Company's Sublessee, is obligated to provide the
Manager with sufficient funds to cover the cost of (a) certain non-routine
repairs and maintenance to the Hotels which are normally capitalized; and (b)
replacements and renewals to the Hotels' property and improvements. Under
certain circumstances, the Company will be required to establish escrow accounts
for such purposes under terms outlined in the Agreements.
Pursuant to the terms of Agreements, the Company is required to provide
Marriott International with funding for working capital to meet the operating
needs of the hotels. Marriott International converts cash advanced by the
Company into other forms of working capital consisting primarily of operating
cash, inventories and trade receivables. Under the terms of the Agreements,
Marriott International maintains possession of and sole control over the
components of working capital. Upon termination of the Agreements, the working
capital will be returned to the Company. In connection with the REIT Conversion,
the Company sold the existing working capital to the Sublessee in return for a
note receivable that bears interest at a rate of 5.12%. Interest accrued on the
note is due simultaneously with each periodic rent payment. The principal amount
of the note is payable upon termination of the Subleases. The Sublessee can
return the working capital in satisfaction of the note. As of December 31, 1999,
the note receivable from Crestline for working capital was $5.1 million.
NOTE 6. REVENUES AND HOTEL EXPENSES
As of January 1, 1999, the Company subleases all of its hotels to
subsidiaries of Crestline due to the REIT conversion. As a result of these
subleases, the Company no longer records property-level revenues and operating
expenses; rather the Company recognizes rental income on the subleases and
specified owner expenses, including rent due under the Lease.
The following table presents the detail of hotel revenues and expenses
(house profit) for 1999, 1998, and 1997 (in thousands). Amounts in 1999
represent the revenues and hotel expenses of the sublessee and are unaudited.
F-24
<PAGE>
1999 1998 1997
---- ---- ----
(unaudited)
Revenues:
Rooms ................................ $209,408 $202,029 $189,426
Food and beverage .................... 15,034 14,932 14,789
Other ................................ 8,378 7,344 7,674
-------- -------- --------
Total Revenues ................. 232,820 224,305 211,889
-------- -------- --------
Hotel expenses:
Rooms (a) ............................ 45,950 42,535 39,280
Food and beverage (b) ................ 13,214 12,950 12,657
Other operating departments (c) ...... 1,839 2,089 2,245
General and administrative (d) ....... 24,461 24,239 22,536
Utilities (e) ........................ 7,494 7,751 8,046
Repairs, maintenance and accidents (f) 8,448 8,803 8,613
Marketing and sales (g) .............. 2,253 2,078 2,281
Chain services (h) ................... 9,473 9,102 7,815
-------- -------- --------
Total Hotel expenses ........... 113,132 109,547 103,473
-------- -------- --------
House Profit ................................ $119,688 $114,758 $108,416
======== ======== ========
(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.
(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
Agreements.
F-25
<PAGE>
Introduction to Supplementary Financial Statements of CCMH Courtyard I LLC
CCMH Courtyard I LLC is the sublessee of 23% of Hospitality Properties Trust's
investments, at cost. CCMH Courtyard I LLC is a subsidiary of Crestline Capital
Corporation and is not owned by Hospitality Properties Trust. The following
financial statements of CCMH Courtyard I LLC are presented to comply with
applicable accounting regulations of the Securities and Exchange Commission and
were prepared by CCMH Courtyard I LLC's management.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCMH Courtyard I LLC:
We have audited the accompanying balance sheet of CCMH Courtyard I LLC
(a Delaware corporation) as of December 31, 1999, and the related statements of
operations, shareholder's equity and cash flows for the fiscal year then ended.
These financial statements are the responsibility of CCMH Courtyard I LLC's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 CCMH Courtyard I LLC
as of December 31, 1999 and the results of its operations and its cash flows for
the fiscal year then ended in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 24, 2000
F-27
<PAGE>
CCMH COURTYARD I LLC
BALANCE SHEET
AS OF DECEMBER 31, 1999
(in thousands)
ASSETS
Current assets
Cash and cash equivalents ........................... $ 100
Due from Marriott International ..................... 3,009
Note receivable from Crestline Capital .............. 20,000
-------
23,109
Hotel working capital .................................... 5,100
Sublease deposit ......................................... 1,948
-------
Total assets ........................................ $30,157
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Lease payable to HMH ................................ $ 3,658
Other ............................................... 3
-------
3,661
Hotel working capital notes payable to HMH ............... 5,100
-------
Total liabilities ................................... 8,761
-------
Shareholder's equity
Common stock (100 shares at $1.00 par value) ........ --
Additional paid-in capital .......................... 20,000
Retained earnings ................................... 1,396
-------
Total shareholder's equity ...................... 21,396
-------
Total liabilities and shareholders' equity ...... $30,157
=======
See Notes to Financial Statements.
F-28
<PAGE>
CCMH COURTYARD I LLC
STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 1999
(in thousands)
REVENUES
Rooms ............................................ $ 209,408
Food and beverage ................................ 15,034
Other ............................................ 8,378
---------
Total revenues ............................... 232,820
---------
OPERATING COSTS AND EXPENSES
Property-level operating costs and expenses
Rooms ............................................ 45,950
Food and beverage ................................ 13,214
Other ............................................ 81,911
Other operating costs and expenses
Lease expense paid to HMH ........................ 60,463
Management fees paid to Marriott International ... 23,935
---------
Total operating costs and expenses ........... 225,473
---------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST 7,347
Corporate expenses .................................... (342)
Interest expense ...................................... (261)
Interest income ....................................... 80
---------
INCOME BEFORE INCOME TAXES ............................ 6,824
Provision for income taxes ............................ (2,798)
---------
NET INCOME ............................................ $ 4,026
=========
See Notes to Financial Statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
CCMH COURTYARD I LLC
STATEMENT OF SHAREHOLDER'S EQUITY
Fiscal Year Ended December 31, 1999
(in thousands)
Common Additional Retained
Stock Paid-in Capital Earnings Total
----- --------------- -------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1999 ....... $ -- $ 20,000 $ -- $ 20,000
Dividend to Crestline Capital -- -- (2,630) (2,630)
Net income .................. -- -- 4,026 4,026
----------- -------- -------- --------
Balance, December 31, 1999 ..... $ -- $ 20,000 $ 1,396 $ 21,396
=========== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
CCMH COURTYARD I LLC
STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 1999
(in thousands)
OPERATING ACTIVITIES
Net income ....................................... $ 4,026
Change in amounts due from Marriott International (3,009)
Change in lease payable to Host Marriott and other 3,661
-------
Cash provided by operating activities ....... 4,678
-------
INVESTING ACTIVITIES
Sublease deposit ................................. (1,948)
-------
FINANCING ACTIVITIES
Dividend to Crestline Capital .................... (2,630)
-------
Increase in cash and cash equivalents ............ 100
Cash and cash equivalents, beginning of year ..... --
-------
Cash and cash equivalents, end of year ........... $ 100
=======
See Notes to Financial Statements.
F-31
<PAGE>
CCMH COURTYARD I LLC
NOTES TO FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
CCMH Courtyard I LLC (the "Company") was incorporated in the state of
Delaware on December 28, 1998 as a wholly owned subsidiary of Crestline Capital
Corporation ("Crestline"). On December 29, 1998, Crestline became a publicly
traded company when Host Marriott Corporation ("Host Marriott") completed its
plan of reorganizing its business operations by spinning-off Crestline to the
shareholders of Host Marriott as part of a series of transactions pursuant to
which Host Marriott converted into a real estate investment trust (the
"Distribution").
On December 31, 1998, the Company entered into sublease agreements with
HMH HPT Courtyard LLC ("HMH"), a wholly owned subsidiary of Host Marriott to
sublease 53 of HMH's limited-service hotels with the existing management
agreements of the subleased hotels assigned to the Company. As of December 31,
1999, the Company subleased 53 limited-service Courtyard hotels from HMH.
The Company operates as a unit of Crestline, utilizing Crestline's
employees, insurance and administrative services since the Company does not have
any employees. Certain direct expenses are paid by Crestline and charged
directly or allocated to the Company. Certain general and administrative costs
of Crestline are allocated to the Company, using a variety of methods,
principally Crestline's specific identification of individual costs and
otherwise through allocations based upon estimated levels of effort devoted by
general and administrative departments to the Company or relative measures of
the size of the Company based on revenues. In the opinion of management, the
methods for allocating general and administrative expenses and other direct
costs are reasonable.
Fiscal Year
The Company's fiscal year ends on the Friday nearest December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase as cash equivalents.
Revenues
The Company records the gross property-level revenues generated by the
hotels as revenues.
Use of Estimates in the Preparation of Financial Statements
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.
Note 2. Subleases
HMH leases 53 limited-service hotels under the Courtyard by Marriott
brand (the "HPT Leases") from Hospitality Properties Trust, Inc. ("HPT"). The
HPT Leases have initial terms expiring through 2012 and are renewable at the
option of HMH. In connection with the Distribution, the Company entered into
sublease agreements with HMH for these limited-service hotels (the "Subleases").
The terms of the Subleases will expire simultaneously with the expiration of the
initial term of the HPT Leases. If HMH elects to renew the HPT Leases, the
Company can elect to also renew the Subleases for the corresponding renewal
term.
F-32
<PAGE>
Each Sublease provides that generally all of the terms in the HPT
Leases will apply to the Subleases. The HPT Leases require the lessee to pay
rent equal to (i) a fixed minimum rent of $50,646,000 plus (ii) an additional
rent equal to 5% of the excess of hotel revenues over a base year total of hotel
revenues. In addition, the HPT Leases require the lessee to pay all repair and
maintenance costs, impositions, utility charges, insurance premiums and all fees
payable under the hotel management agreements. Pursuant to the Subleases, the
Company is required to pay rent to HMH equal to the minimum rent due under the
HPT Leases and an additional rent based on a percentage of revenues.
Pursuant to the Subleases, the Company is required to maintain a
minimum net worth of $20 million. The Company is also not permitted under its
Subleases to pay dividends or advance funds to Crestline or its affiliates in
excess of its cumulative net income. The Subleases also required the Company to
provide a security deposit to HMH for $1,948,000, which shall be returned to the
Company upon the termination of the Subleases.
In the event that changes in the federal income tax laws allow Host
Marriott or its subsidiaries to directly operate the hotel without jeopardizing
its REIT status, Host Marriott may terminate all, but not less than all, of the
Subleases upon payment of a termination fee equal to the fair market value of
the Company's leasehold interests in the remaining term of the Subleases using a
discount rate of five percent.
Recent Tax Legislation
Effective January 1, 2001, will allow a REIT to lease hotels to a
"taxable REIT subsidiary" if the hotel is operated and managed on behalf of such
subsidiary by an independent third party. A taxable REIT subsidiary is a
corporation that is owned more than 35 percent by a REIT. This law will enable
Host Marriott, beginning in 2001 to lease its hotels to a taxable REIT
subsidiary. Host Marriott may, at its discretion, elect to terminate the
Company's subleases, beginning in 2001, and pay termination fees determined
according to formulas specified in the leases. If Host Marriott elects to
terminate the Subleases, it would have to terminate all of the Subleases.
Future minimum annual rental commitments for all non-cancelable leases
as of December 31, 1999 are as follows (in thousands):
2000 ........................................................... $ 50,646
2001 ........................................................... 50,646
2002 ........................................................... 50,646
2003 ........................................................... 50,646
2004 ........................................................... 50,646
Thereafter ..................................................... 405,168
--------
Total minimum lease payments ................................... $658,398
========
Rent expense for 1999 consisted of the following (in thousands):
Base rent ...................................................... $ 53,457
Percentage rent ................................................ 9,817
--------
$ 63,274
========
Note 3. Working Capital Notes
Upon the commencement of the Subleases, the Company purchased the
working capital of the subleased hotels from HMH for $5,100,000 with the
purchase price evidenced by notes that bear interest at 5.12%. Interest on each
note is due simultaneously with the rent payment of each Sublease. The principal
amount of each note is due upon the termination of each Sublease. Upon
termination of the Subleases, the Company will sell HMH the existing working
capital at its current value. To the extent the working capital delivered to HMH
is less than the value of the note, the Company will pay HMH the difference in
cash. However, to the extent the working capital delivered to HMH exceeds the
value of the note, HMH will pay the Company the difference in cash. As of
December 31, 1999, the outstanding balance of the working capital notes was
$5,100,000.
F-33
<PAGE>
Debt maturities at December 31, 1999 are as follows (in thousands):
2000......................................... $ --
2001......................................... --
2002......................................... --
2003......................................... --
2004......................................... --
Thereafter................................... 5,100
--------
$ 5,100
========
Cash paid for interest expense in 1999 totaled $241,000.
Note 4. Management Agreements
The hotels are managed by Marriott International, Inc. ("Marriott
International") under long-term management agreements between HPT and Marriott
International (the "Agreements"). HPT's rights and obligations under the
Agreements were transferred to HMH through the HPT Leases. HMH's rights and
obligations under the Agreements with Marriott International were assigned to
the Company for the term of the Subleases. The Agreements have an initial term
expiring in 2012 with an option to extend the Agreements on all of the hotels
for up to 36 years. The Agreements provide that Marriott International be paid a
system fee equal to 3% of hotel revenues, a base management fee of 2% of hotel
revenues ("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, Marriott International 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 Marriott International. Base rent on the Subleases
are 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 Marriott International.
Pursuant to the terms of the Agreements, Marriott International is
required to furnish the hotels with certain services ("Chain Services") which
are generally provided on a central or regional basis to all hotels in the
Marriott International hotel system. Chain Services include central training,
advertising and promotion, a national reservation system, computerized payroll
and accounting services, and such additional services as needed which may be
more efficiently performed on a centralized basis. Costs and expenses incurred
in providing such services are allocated among all domestic hotels managed,
owned or leased by Marriott International or its subsidiaries. In addition, the
hotels participate in Marriott Rewards and Marriott's Courtyard Club programs.
The cost of these programs are charged to all hotels in the system.
The Company is obligated to provide Marriott International with
sufficient funds to cover the cost of (a) certain non-routine repairs and
maintenance to the hotels which are normally capitalized; and (b) replacements
and renewals to the hotels' property and improvements. To the extent the
reserves for FF&E replacements are insufficient to meet the hotel's capital
expenditure requirements, HPT is required to fund the shortfall.
Note 5. Income Taxes
The Company is included in the consolidated Federal income tax return
of Crestline and its affiliates (the "Group"). Tax expense is allocated to the
Company as a member of the Group based upon the relative contribution to the
Group's consolidated taxable income/loss and changes in temporary differences.
This allocation method results in Federal and state tax expense allocated for
the period presented that is substantially equal to the expense that would have
been recognized if the Company had filed separate tax returns.
F-34
<PAGE>
The provision for income taxes for 1999 consists of the following (in
thousands):
Current-Federal..............................................$ 2,389
-State............................................... 409
---------
$ 2,798
========
A reconciliation of the statutory Federal tax rate to the Company's
effective income tax rate for 1999 follows:
Statutory federal tax rate.................................... 35.0%
State income taxes, net of federal tax benefit................ 6.0
--------
41.0%
========
As of December 31, 1999, the Company had no deferred tax assets or
liabilities.
Note 6. Note Receivable from Crestline
The Company was capitalized with a $20 million note receivable from
Crestline. The note is non-interest bearing and is payable upon demand. Fair
value approximates book value at December 31, 1999.
F-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
John G. Murray
President and Chief Operating Officer
Dated: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, or by their
attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John G. Murray President and March 24, 2000
John G. Murray Chief Operating Officer
/s/ Thomas M. O'Brien Treasurer and Chief March 24, 2000
Thomas M. O'Brien Financial Officer
/s/ John L. Harrington Trustee March 24, 2000
John L. Harrington
/s/ Arthur G. Koumantzelis Trustee March 24, 2000
Arthur G. Koumantzelis
/s/ William J. Sheehan Trustee March 24, 2000
William J. Sheehan
/s/ Gerard M. Martin Trustee March 24, 2000
Gerard M. Martin
/s/ Barry M. Portnoy Trustee March 24, 2000
Barry M. Portnoy
[FRONT OF CERTIFICATE]
9 1/2% SERIES A CUMULATIVE 91/2% SERIES A CUMULATIVE
REDEEMABLE PREFERRED SHARES REDEEMABLE PREFERRED SHARES
[Graphic which shows three men and a woman standing on a map of
the United States surrounded by graphic representations of various hotels]
THIS CERTIFICATE IS TRANSFERABLE CUSIP 44106M 30 0
IN BOSTON OR IN NEW YORK CITY SEE REVERSE FOR IMPORTANT
NOTICE ON TRANSFER RESTRICTIONS
AND OTHER INFORMATION
HOSPITALITY PROPERTIES TRUST
A MARYLAND REAL ESTATE INVESTMENT TRUST
THIS CERTIFIES THAT
--SPECIMEN--
IS THE REGISTERED
HOLDER OF
FULLY PAID AND NONASSESSABLE 91/2% SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARES OF BENEFICIAL INTEREST, WITHOUT PAR VALUE, IN
[Superimposed over the following paragraph are the words "PREFERRED
SHARES"] Hospitality Properties trust (the "Trust"), a Maryland real estate
investment trust established by Declaration of Trust made as of May 12, 1995, as
amended from time to time, a copy of which, together with all amendments thereto
(the "Declaration") is on file with the State Department of Assessments and
Taxation of Maryland. The provisions of the Declaration and the Bylaws of the
Trust, and all amendments thereto, are hereby incorporated in and made a part of
this certificate as fully as if set forth herein in their entirety, to all of
which provisions the holder and every transferee or assignee hereof by accepting
or holding the same agrees to be bound. See reverse for existence of Trustees'
authority to determine preferences and other rights of subsequent series of
shares, and of restriction on transfer provisions governing the shares evidenced
by this certificate. This certificate and the shares evidenced hereby are
negotiable and transferable on the books of the Trust by the registered holder
hereof in person or by its duly authorized agent upon surrender of this
certificate properly endorsed or assigned to the same extent as a stock
certificate and the shares of a Maryland corporation. This certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Trust and the facsimile signatures of
its duly authorized officers.
Dated:
Countersigned and Registered
STATE STREET BANK AND TRUST COMPANY [Signature of Thomas M. O'Brien]
(BOSTON) [Signature of John G. Murray]
Transfer Agent and Registrar
BY
Authorized Signature Treasurer President
[Seal of the Trust]
<PAGE>
THE DECLARATION OF TRUST 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 NO TRUSTEE, SHAREHOLDER,
EMPLOYEE OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY
OR SEVERALLY, IN CONNECTION WITH THIS INSTRUMENT. ALL PERSONS DEALING WITH THE
TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF THE TRUST FOR PAYMENT OF ANY
SUM OR PERFORMANCE OF ANY OBLIGATION.
[The left side of the front of the Certificate contains a graphic design, at the
top of which is a box labeled "NUMBER" and at the bottom of which is a facsimile
of the Trust's seal]
[The borders of the front of the Certificate contain a graphic design, at the
top of which is a box labeled "SHARES".]
(ii)
<PAGE>
[REVERSE OF CERTIFICATE]
HOSPITALITY PROPERTIES TRUST
IMPORTANT NOTICE
THE TRUST WILL FURNISH TO ANY SHAREHOLDER, ON REQUEST AND WITHOUT CHARGE, A FULL
STATEMENT OF THE INFORMATION REQUIRED BY SECTION 8-203(d) OF THE CORPORATIONS
AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH RESPECT TO THE
DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS,
QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE SHARES OF EACH
CLASS OF BENEFICIAL INTEREST WHICH THE TRUST HAS AUTHORITY TO ISSUE AND, IF THE
TRUST IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN SERIES, (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH
SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF TRUSTEES TO SET
SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. THE FOREGOING SUMMARY DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DECLARATION OF TRUST OF THE TRUST, A COPY OF WHICH WILL BE SENT
WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS. SUCH REQUEST MUST BE MADE TO
THE SECRETARY OF THE TRUST AT ITS PRINCIPAL OFFICE OR TO THE TRANSFER AGENT.
IF NECESSARY TO EFFECT COMPLIANCE BY THE TRUST WITH REQUIREMENTS OF THE INTERNAL
REVENUE CODE RELATING TO REAL ESTATE INVESTMENT TRUSTS, OWNERSHIP OF THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE RESTRICTED BY THE TRUST AND/OR THE
TRANSFER THEREOF MAY BE PROHIBITED ALL UPON THE TERMS AND CONDITIONS SET FORTH
IN THE DECLARATION OF TRUST. THE TRUST WILL FURNISH A COPY OF SUCH TERMS AND
CONDITIONS TO THE REGISTERED HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT
CHARGE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT-______Custodian_______
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act_________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received _______________________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF NEW OWNER
[Box]___________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE.
<PAGE>
________________________________________________________________________________
Shares of Beneficial Interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said shares on the books of the within-named Trust with full
power of substitution in the premises.
Dated _______________________
(Sign here)___________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:_____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
(ii)
Exhibit 8.1
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
March 30, 2000
Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Ladies and Gentlemen:
In connection with the filing by Hospitality Properties Trust, a
Maryland real estate investment trust (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 (the "Form 10-K"), under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the following
opinion is furnished to you to be filed with the Securities and Exchange
Commission (the "SEC") as Exhibit 8.1 to the Form 10-K.
We have acted as counsel for the Company in connection with the
preparation of its Form 10-K, and we have examined originals or copies,
certified or otherwise identified to our satisfaction, of corporate records,
certificates and statements of officers and accountants of the Company and of
public officials, and such other documents as we have considered relevant and
necessary in order to furnish the opinion hereinafter set forth. Specifically,
and without limiting the generality of the foregoing, we have reviewed: (i) the
declaration of trust, as amended and restated, and the by-laws of the Company,
as amended and restated; and (ii) the sections in the Company's Form 10-K
captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and
Individual Retirement Accounts." With respect to all questions of fact on which
such opinions are based, we have assumed the accuracy and completeness of and
have relied on the information set forth in the Form 10-K and in the documents
incorporated therein by reference, and on representations made to us by officers
of the Company. We have not independently verified such information.
The opinion set forth below is based upon the Internal Revenue Code of
1986, as amended, the Treasury Regulations issued thereunder, published
administrative interpretations thereof, and judicial decisions with respect
thereto, all as of the date hereof (collectively, the "Tax Laws"), and upon the
Employee Retirement Income Security Act of 1974, as amended, the Department of
Labor regulations issued thereunder, published administrative interpretations
thereof, and judicial decisions with respect thereto, all as of the date hereof
(collectively, the
<PAGE>
Hospitality Properties Trust
March 30, 2000
Page 2
"ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws
will not change. In preparing the discussions with respect to Tax Laws and ERISA
Laws matters in the sections of the Annual Report captioned "Federal Income Tax
Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement
Accounts," we have made certain assumptions and expressed certain conditions and
qualifications therein, all of which assumptions, conditions and qualifications
are incorporated herein by reference.
Based upon and subject to the foregoing, we are of the opinion that the
discussions with respect to Tax Laws and ERISA Laws matters in the sections of
the Annual Report captioned "Federal Income Tax Considerations" and "ERISA
Plans, Keogh Plans and Individual Retirement Accounts," in all material respects
are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues
addressed therein, and hereby confirm that the opinions of counsel referred to
in said sections represent our opinions on the subject matter thereof.
We hereby consent to the incorporation of this opinion by reference as
an exhibit to the Form 10-K and to the reference of our firm therein, and to the
incorporation of this opinion by reference in the Company's Registration
Statements on Form S-3 (File Nos. 333-43573, 333-89307) under the Securities Act
of 1933, as amended (the "Act"). In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Act or under the rules and regulations of the SEC promulgated
thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
EXHIBIT 10.11
AMENDED AND RESTATED
MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 23, 1999
BY AND BETWEEN
HPTSHC PROPERTIES TRUST
AS LANDLORD
AND
SUMMERFIELD HPT LEASE COMPANY, L.P.,
AS TENANT
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ARTICLE 1 DEFINITIONS............................................................................................1
1.1 "Accountants"..........................................................................1
1.2 "Additional Rent"......................................................................1
1.3 "Additional Charges"...................................................................1
1.4 "Adjusted Purchase Price"..............................................................1
1.5 "Affiliated Person"....................................................................2
1.6 "Agreement"............................................................................2
1.7 "Applicable Laws"......................................................................2
1.8 "Assignment Agreement".................................................................2
1.9 "Award"................................................................................2
1.10 "Base Total Hotel Sales"...............................................................3
1.11 "Base Year"............................................................................3
1.12 "Business Day".........................................................................3
1.13 "Capital Addition".....................................................................3
1.14 "Capital Expenditure"..................................................................3
1.15 "Claim"................................................................................3
1.16 "Code".................................................................................3
1.17 "Commencement Date"....................................................................3
1.18 "Condemnation".........................................................................3
1.19 "Condemnor"............................................................................4
1.20 "Consolidated Financials"..............................................................4
1.21 "Date of Taking".......................................................................4
1.22 "Default"..............................................................................4
1.23 "Disbursement Rate"....................................................................4
1.24 "Distribution".........................................................................4
1.25 "Encumbrance"..........................................................................4
1.26 "Entity"...............................................................................4
1.27 "Environment"..........................................................................5
1.28 "Environmental Obligation".............................................................5
1.29 "Environmental Notice".................................................................5
1.30 "Event of Default".....................................................................5
1.31 "Excess Total Hotel Sales".............................................................5
1.32 "Extended Terms".......................................................................5
1.33 "FF&E Bank"............................................................................5
1.34 "FF&E Estimate"........................................................................5
1.35 "FF&E Funded Amount"...................................................................5
1.36 "FF&E Reserve".........................................................................5
1.37 "Financial Officer's Certificate"......................................................5
1.38 "Fiscal Year"..........................................................................5
1.39 "Fixed Term"...........................................................................5
1.40 "Fixtures".............................................................................5
1.41 "GAAP".................................................................................5
1.42 "Government Agencies"..................................................................5
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1.43 "Hazardous Substances".................................................................6
1.44 "Hotel"................................................................................6
1.45 "Hotel Mortgage".......................................................................6
1.46 "Hotel Mortgagee"......................................................................7
1.47 "Immediate Family".....................................................................7
1.48 "Impositions"..........................................................................7
1.49 "Incidental Documents".................................................................7
1.50 "Indebtedness".........................................................................8
1.51 "Insurance Requirements"...............................................................8
1.52 "Interest Rate"........................................................................8
1.53 "Land".................................................................................8
1.54 "Landlord".............................................................................8
1.55 "Landlord Liens".......................................................................8
1.56 "Lease Guaranty".......................................................................8
1.57 "Lease Year"...........................................................................8
1.58 "Leased Improvements"..................................................................8
1.59 "Leased Intangible Property"...........................................................8
1.60 "Leased Personal Property".............................................................9
1.61 "Leased Property"......................................................................9
1.62 "Legal Requirements"...................................................................9
1.63 "Lien".................................................................................9
1.64 "Management Agreements"................................................................9
1.65 "Manager"..............................................................................9
1.66 "Minimum Rent".........................................................................9
1.67 "Notice"...............................................................................9
1.68 "Officer's Certificate"................................................................9
1.69 "Overdue Rate".........................................................................9
1.70 "Parent"...............................................................................9
1.71 "Patriot"..............................................................................9
1.72 "Permitted Encumbrances"..............................................................10
1.73 "Permitted Liens".....................................................................10
1.74 "Permitted Use".......................................................................10
1.75 "Person"..............................................................................10
1.76 "Property"............................................................................10
1.77 "Purchase Agreements".................................................................10
1.78 "Records".............................................................................10
1.79 "Rent"................................................................................10
1.80 "SEC".................................................................................10
1.81 "Security Deposit"....................................................................10
1.82 "Separateness Agreement"..............................................................10
1.83 "SHC".................................................................................10
1.84 "Special Organizational Document Provisions"..........................................10
1.85 "State"...............................................................................10
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1.86 "Subsidiary"..........................................................................10
1.87 "Successor Landlord"..................................................................11
1.88 "Tangible Net Worth"..................................................................11
1.89 "Tenant"..............................................................................11
1.90 "Tenant FF&E Security Agreement"......................................................11
1.91 "Tenant General Partner"..............................................................11
1.92 "Tenant Pledge Agreement".............................................................11
1.93 "Tenant General Partner Pledge Agreement".............................................11
1.94 "Tenant Security Agreement"...........................................................11
1.95 "Tenant's Personal Property"..........................................................11
1.96 "Term"................................................................................12
1.97 "Total Hotel Sales"...................................................................12
1.98 "Uniform System of Accounts"..........................................................12
1.99 "Unsuitable for Its Permitted Use"....................................................12
1.100 "Work"................................................................................13
1.101 "Wyndham".............................................................................13
ARTICLE 2 LEASED PROPERTY AND TERM..............................................................................13
2.1 Leased Property.......................................................................13
2.2 Condition of Leased Property..........................................................14
2.3 Fixed Term............................................................................14
2.4 Extended Term.........................................................................14
2.5 Landlord's Early Termination Right....................................................15
ARTICLE 3 RENT..................................................................................................15
3.1 Rent..................................................................................15
3.1.1 Minimum Rent.................................................................15
3.1.2 Additional Rent..............................................................16
3.1.3 Additional Charges...........................................................18
3.2 Late Payment of Rent, Etc.............................................................19
3.3 Net Lease.............................................................................20
3.4 No Termination, Abatement, Etc........................................................20
3.5 Security Deposit......................................................................21
ARTICLE 4 USE OF THE LEASED PROPERTY............................................................................22
4.1 Permitted Use.........................................................................22
4.1.1 Permitted Use................................................................22
4.1.2 Necessary Approvals..........................................................22
4.1.3 Lawful Use, Etc..............................................................22
4.2 Compliance with Legal/Insurance Requirements, Etc.....................................23
4.3 Environmental Matters.................................................................23
4.3.1 Restriction on Use, Etc......................................................23
4.3.2 Environmental Report.........................................................24
4.3.3 Indemnification of Landlord..................................................24
4.3.4 Survival.....................................................................25
ARTICLE 5 MAINTENANCE AND REPAIRS...............................................................................25
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5.1 Maintenance and Repair................................................................25
5.1.1 Tenant's General Obligations.................................................25
5.1.2 FF&E Reserve.................................................................25
5.1.3 Landlord's Obligations.......................................................27
5.1.4 Nonresponsibility of Landlord, Etc...........................................27
5.2 Tenant's Personal Property............................................................28
5.3 Yield Up..............................................................................28
5.4 Management Agreement..................................................................28
ARTICLE 6 IMPROVEMENTS, ETC.....................................................................................29
6.1 Improvements to the Leased Property...................................................29
6.2 Salvage...............................................................................30
ARTICLE 7 LIENS.................................................................................................30
7.1 Liens.................................................................................30
7.2 Landlord's Lien.......................................................................30
ARTICLE 8 PERMITTED CONTESTS....................................................................................31
ARTICLE 9 INSURANCE AND INDEMNIFICATION.........................................................................32
9.1 General Insurance Requirements........................................................32
9.2 Replacement Cost......................................................................33
9.3 Waiver of Subrogation.................................................................33
9.4 Form Satisfactory, Etc................................................................33
9.5 Blanket Policy........................................................................34
9.6 No Separate Insurance.................................................................34
9.7 Indemnification of Landlord...........................................................34
ARTICLE 10 CASUALTY.............................................................................................35
10.1 Insurance Proceeds....................................................................35
10.2 Damage or Destruction.................................................................35
10.2.1 Damage or Destruction of Leased Property.....................................35
10.2.2 Partial Damage or Destruction................................................35
10.2.3 Insufficient Insurance Proceeds..............................................35
10.2.4 Disbursement of Proceeds.....................................................36
10.3 Damage Near End of Term...............................................................37
10.4 Tenant's Property.....................................................................37
10.5 Restoration of Tenant's Property......................................................37
10.6 No Abatement of Rent..................................................................37
10.7 Waiver................................................................................37
ARTICLE 11 CONDEMNATION.........................................................................................38
11.1 Total Condemnation, Etc...............................................................38
11.2 Partial Condemnation..................................................................38
11.3 Abatement of Rent.....................................................................39
11.4 Temporary Condemnation................................................................39
11.5 Allocation of Award...................................................................39
ARTICLE 12 DEFAULTS AND REMEDIES................................................................................40
12.1 Events of Default.....................................................................40
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12.2 Remedies..............................................................................42
12.3 Tenant's Waiver.......................................................................43
12.4 Application of Funds..................................................................43
12.5 Landlord's Right to Cure Tenant's Default.............................................43
ARTICLE 13 HOLDING OVER.........................................................................................44
ARTICLE 14 LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT......................................................44
14.1 Landlord Notice Obligation............................................................44
14.2 Landlord's Default....................................................................44
ARTICLE 15 PURCHASE RIGHTS......................................................................................45
15.1 First Refusal to Purchase.............................................................45
15.2 Purchase by Tenant....................................................................45
15.3 Landlord's Option to Purchase Tenant's Personal Property; Transfer of Licenses........46
ARTICLE 16 SUBLETTING AND ASSIGNMENT............................................................................46
16.1 Subletting and Assignment.............................................................46
16.2 Required Sublease Provisions..........................................................47
16.3 Permitted Sublease....................................................................48
16.4 Sublease Limitation...................................................................48
ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.......................................................48
17.1 Estoppel Certificates.................................................................48
17.2 Financial Statements..................................................................49
17.3 General Operations....................................................................50
ARTICLE 18 LANDLORD'S RIGHT TO INSPECT..........................................................................50
ARTICLE 19 HOTEL MORTGAGES......................................................................................50
19.1 Landlord May Grant Liens..............................................................50
19.2 Subordination of Lease................................................................50
19.3 Notice to Mortgagee and Superior Landlord.............................................52
ARTICLE 20 ADDITIONAL COVENANTS OF TENANT.......................................................................52
20.1 Prompt Payment of Indebtedness........................................................52
20.2 Conduct of Business...................................................................52
20.3 Maintenance of Accounts and Records...................................................52
20.4 Notice of Litigation, Etc.............................................................53
20.5 Indebtedness of Tenant................................................................53
20.6 Financial Condition of Tenant.........................................................54
20.7 Distributions, Payments to Affiliated Persons, Etc....................................54
20.8 Prohibited Transactions...............................................................54
20.9 Liens and Encumbrances................................................................54
20.10 Merger; Sale of Assets; Etc...........................................................54
ARTICLE 21 REPRESENTATIONS AND WARRANTIES.......................................................................55
21.1 Representations of Tenant.............................................................55
21.1.1 Status and Authority of Tenant...............................................55
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21.1.2 Action of Tenant.............................................................55
21.1.3 No Violations of Agreements..................................................55
21.1.4 Litigation...................................................................55
21.1.5 Existing Leases, Agreements, Etc.............................................55
21.1.6 Disclosure...................................................................56
21.1.7 Utilities, Etc...............................................................56
21.1.8 Compliance With Law..........................................................56
21.1.9 Hazardous Substances.........................................................56
21.2 Representations of Landlord...........................................................56
21.2.1 Status and Authority of Landlord.............................................56
21.2.2 Action of Landlord...........................................................57
21.2.3 No Violations of Agreements..................................................57
21.2.4 Litigation...................................................................57
21.3 Survival, Etc.........................................................................57
ARTICLE 22 MISCELLANEOUS........................................................................................58
22.1 Limitation on Payment of Rent.........................................................58
22.2 No Waiver.............................................................................58
22.3 Remedies Cumulative...................................................................58
22.4 Severability..........................................................................58
22.5 Acceptance of Surrender...............................................................58
22.6 No Merger of Title....................................................................59
22.7 Conveyance by Landlord................................................................59
22.8 Quiet Enjoyment.......................................................................59
22.9 Memorandum of Lease...................................................................59
22.10 Notices...............................................................................59
22.11 Trade Area Restriction................................................................61
22.12 Construction..........................................................................61
22.13 Counterparts; Headings................................................................61
22.14 Applicable Law, Etc...................................................................61
22.15 Nonrecourse...........................................................................62
22.16 Confidentiality.......................................................................62
22.17 Costs and Expenses....................................................................62
22.18 Nonliability of Trustees..............................................................62
EXHIBITS
A-1 through A-15 The Land
B .........Allocated Purchase Price
C .........Restricted Trade Area
D .........Management Agreement
</TABLE>
vi
<PAGE>
AMENDED AND RESTATED
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is entered into as of this ___ day of
December, 1999, by and between HPTSHC PROPERTIES TRUST, a Maryland real estate
investment trust, as landlord ("Landlord"), and SUMMERFIELD HPT LEASE COMPANY,
L.P., a Kansas limited partnership, 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) described in Exhibits A-1 through
A-15.
WHEREAS, pursuant to that certain Master Lease Agreement (the "Initial
Lease") dated as of March 20, 1998, between HPTSHC Properties Trust, a Maryland
real estate investment trust ("Landlord"), and Summerfield HPT Lease Company,
L.P., a Texas limited partnership ("Tenant"), Landlord leased the Leased
Property to Tenant and Tenant leased the Leased Property from Landlord; and
WHEREAS, Landlord and Tenant wish to amend and restate of the Initial
Lease, 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 to amend and restate the Initial Lease 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 "Accountants" shall have the meaning given such term in Section
3.1.2(c).
1.2 "Additional Rent" shall have the meaning given such term in Section
3.1.2(a).
1.3 "Additional Charges" shall have the meaning given such term in
Section 3.1.3.
1.4 "Adjusted Purchase Price" shall mean, for any Property, the amount
allocated to such Property as set forth on Exhibit B, plus the aggregate amount
of all disbursements by
<PAGE>
Landlord pursuant to Sections 5.1.3(b), 10.2.3 or 11.2 with respect to such
Property, plus any other amount disbursed or advanced by Landlord to finance, or
to reimburse Tenant for its financing of, any Capital Addition to such Leased
Property.
1.5 "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
or member of, 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).
1.6 "Agreement" shall mean this Amended and Restated Master Lease
Agreement, including Exhibits A-1 through A-15, B and C hereto, as it and they
may be amended from time to time as herein provided.
1.7 "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, pesticides,
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.
1.8 "Assignment Agreement" shall mean the Assignment of Rights under
Agreements of Purchase and Sale, dated as of March 20, 1998, between Patriot
American Hospitality Partnership, L.P., a Delaware partnership, and Landlord.
1.9 "Award" shall mean all compensation, sums or other value awarded,
paid or received by virtue of a total or partial Condemnation of any of the
Leased Property (after deduction of all 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).
-2-
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1.10 "Base Total Hotel Sales" with respect to each Property shall mean
Total Hotel Sales for such Property 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, for two hundred seventy (270) days or more in any Lease Year, a reduction in
the number of rooms at any Hotel or a change in the services provided at any
Hotel (including, without limitation, closing of restaurants or the
discontinuation of food or beverage services) 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 Total Hotel Sales for such Property shall
be reduced as follows: (a) in the event of and for the duration of a complete
closing of such Hotel following application of any business interruption or
Award proceeds collected with respect thereto, Total Hotel Sales during the
applicable period of the Base Year throughout the period of such closing shall
be subtracted from Base Total Hotel Sales for such Property; (b) in the event of
a partial closing of such Hotel affecting any number of guest rooms in such
Hotel and following application of any business interruption or Award proceeds
collected with respect thereto, Total Hotel Sales for such Property 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 Total Hotel Sales attributable to rooms no
longer in service shall be subtracted from Base Total Hotel Sales throughout the
period of such closing; and (c) in the event of any other change in
circumstances affecting such Hotel, Base Total Hotel Sales shall be equitably
adjusted in such manner as Landlord and Tenant shall reasonably agree.
1.11 "Base Year" shall mean, with respect to each Property, the 1998
Fiscal Year.
1.12 "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 Texas are authorized by law or executive action to close.
1.13 "Capital Addition" shall mean any renovation, repair or
improvement to the Leased Property (or portion thereof), the cost of which
constitutes a Capital Expenditure.
1.14 "Capital Expenditure" shall mean any expenditure treated as
capital in nature in accordance with GAAP.
1.15 "Claim" shall have the meaning given such term in Article 8.
1.16 "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.
1.17 "Commencement Date" shall mean the date of the Initial Lease.
1.18 "Condemnation" shall mean, with respect to any Property, (a) the
exercise of any governmental power with respect to such Property, whether by
legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b)
a voluntary sale or transfer of such 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 such
-3-
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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 such Property, whether or not the same shall have actually
been commenced.
1.19 "Condemnor" shall mean any public or quasi-public authority, or
private corporation or Person, having the power of Condemnation.
1.20 "Consolidated Financials" shall mean:
(a) for any Fiscal Year or other accounting period of Tenant,
annual audited and quarterly unaudited financial statements of Tenant,
including Tenant's balance sheet and the related statements of income
and cash flow; and
(b) for any Fiscal Year or other accounting period of Wyndham,
annual audited and quarterly unaudited financial statements of Wyndham
prepared on a consolidated basis, including Wyndham's consolidated
balance sheet and the related statements of income and cash flow;
in each case 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.
1.21 "Date of Taking" shall mean the date the Condemnor has the right
to possession of such Property, or any portion thereof, in connection with a
Condemnation.
1.22 "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.
1.23 "Disbursement Rate" shall mean an annual rate of interest equal to
the greater of, as of the date of determination, (i) the Interest Rate and (ii)
the per annum rate for ten (10) year U.S. Treasury Obligations as published in
The Wall Street Journal plus three hundred fifty (350) basis points.
1.24 "Distribution" shall mean (a) any declaration or payment of any
dividend (except dividends payable equity interests in Tenant) on or in respect
of any equity interests in Tenant, (b) any purchase, redemption, retirement or
other acquisition of any equity interests in an Entity, (c) any other
distribution on or in respect of any equity interests in an Entity, or (d) any
return of capital to equity interest holders.
1.25 "Encumbrance" shall have the meaning given such term in Section
19.1.
1.26 "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.
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1.27 "Environment" shall mean soil, surface waters, ground waters,
land, stream,
sediments, surface or subsurface strata and ambient air.
1.28 "Environmental Obligation" shall have the meaning given such term
in Section 4.3.1.
1.29 "Environmental Notice" shall have the meaning given such term in
Section 4.3.1.
1.30 "Event of Default" shall have the meaning given such term in
Section 12.1.
1.31 "Excess Total Hotel Sales" shall mean, with respect to any Lease
Year, or portion thereof, the amount of Total Hotel Sales for such Lease Year,
or portion thereof, in excess of Base Total Hotel Sales for the equivalent
period.
1.32 "Extended Terms" shall have the meaning given such term in Section
2.4.
1.33 "FF&E Bank" means Bank One Texas, N.A. or other bank designated by
Tenant and approved by Landlord.
1.34 "FF&E Estimate" shall have the meaning given such term in Section
5.1.2(c).
1.35 "FF&E Funded Amount" shall mean $2,000,000.
1.36 "FF&E Reserve" shall have the meaning given such term in Section
5.1.2(a).
1.37 "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 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 no Event of
Default has occurred and is continuing hereunder.
1.38 "Fiscal Year" shall mean the calendar year.
1.39 "Fixed Term" shall have the meaning given such term in Section
2.3.
1.40 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.41 "GAAP" shall mean generally accepted accounting principles
consistently applied.
1.42 "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 any State or any county or any political
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subdivision of any of the foregoing, whether now or hereafter in existence,
having jurisdiction over Tenant or such Property or any portion thereof or the
Hotel operated thereon.
1.43 "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 ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 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 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 such Property causes or
materially threatens to cause an unlawful nuisance upon such Property
or to adjacent properties or poses or materially threatens to pose a
hazard to such Property or to the health or safety of persons on or
about such 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 any Applicable Laws
promulgated by any Government Agencies.
1.44 "Hotel" shall mean, with respect to any Property described on
Exhibits A-1 through A-15, the all suites hotel being operated on such Property.
1.45 "Hotel Mortgage" shall mean any Encumbrance placed upon the Leased
Property in accordance with Article 19.
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1.46 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage.
1.47 "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.
1.48 "Impositions" shall mean collectively, all taxes (including,
without limitation, all taxes imposed under the laws of the relevant State, as
such laws may be amended from time to time, and all ad valorem, sales and use,
or similar taxes as the same relate 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, (iv) any single
business, gross receipts tax, transaction privilege, rent or similar taxes as
the same relate to or are imposed upon Landlord, (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 any agreement governing Landlord's conduct or
operation or as a result of the gross negligence or willful misconduct of
Landlord.
1.49 "Incidental Documents" shall mean, collectively, the Assignment
Agreement, the Agreement to Lease, the Tenant Security Agreement, the Tenant
Pledge Agreement, the Tenant General Partner Pledge Agreement, the Tenant FF&E
Security Agreement, the Separateness Agreement, the Lease Guaranty, and any
other agreements from time to time entered into with respect to this Agreement,
as they may be amended from time to time.
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1.50 "Indebtedness" shall mean, with respect to any Person, all
obligations, contingent or otherwise, which in accordance with GAAP should be
reflected on such Person's balance sheet as liabilities.
1.51 "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.
1.52 "Interest Rate" shall mean ten percent (10%) per annum.
1.53 "Land" shall have the meaning given such term in Section 2.1(a).
1.54 "Landlord" shall have the meaning given such term in the preambles
to this Agreement and shall also include its permitted successors and assigns.
1.55 "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.
1.56 "Lease Guaranty" shall mean the Lease Guaranty, dated as of the
date hereof, made by the general partner of Tenant for the benefit of Landlord,
as it may be amended from time to time.
1.57 "Lease Year" shall mean any Fiscal Year or portion thereof,
commencing with the 1998 Fiscal Year, during the Term.
1.58 "Leased Improvements" shall have the meaning given such term in
Section 2.1(b).
1.59 "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; 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.
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1.60 "Leased Personal Property" shall have the meaning given such term
in Section 2.1(e).
1.61 "Leased Property" shall have the meaning given such term in
Section 2.1.
1.62 "Legal Requirements" shall mean all federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting any 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 any Property for its Permitted Use, and (b) all covenants, agreements,
restrictions and encumbrances contained in any instruments at any time in force
affecting any Property, including those which may (i) require material repairs,
modifications or alterations in or to any 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.
1.63 "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.
1.64 "Management Agreements" shall mean the Management Agreements, set
forth in Exhibit D, between Tenant and Manager, together with all permitted
amendments, modifications and supplements thereto.
1.65 "Manager" shall mean Wyndham Management Corporation (or other
direct or indirect Subsidiary of Wyndham), and its permitted successors and
assigns.
1.66 "Minimum Rent" shall mean, with respect to each calendar month,
the sum of $2,083,334, which amount shall be allocated among the Properties in
accordance with their Allocable Purchase Prices
1.67 "Notice" shall mean a notice given in accordance with Section
22.10.
1.68 "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.
1.69 "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.
1.70 "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.
1.71 "Patriot" shall mean Patriot American Hospitality, Inc., a
Delaware corporation, and all permitted successors and assignees of such
corporation.
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1.72 "Permitted Encumbrances" shall mean, with respect to each
Property, all rights, restrictions, and easements of record set forth on
Schedule B to the applicable owner's title insurance policy issued to Landlord
in connection with the Landlord's acquisition of such Leased Property, plus any
other such encumbrances as may have been consented to in writing by Landlord
from time to time.
1.73 "Permitted Liens" shall mean any Liens granted in accordance with
Section 20.9(a).
1.74 "Permitted Use" shall mean, with respect to any Property any use
of the Leased Property permitted pursuant to Section 4.1.1.
1.75 "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.
1.76 "Property" shall have the meaning given such term in Section 2.1.
1.77 "Purchase Agreements" shall mean those fifteen Agreements of
Purchase and Sale, each dated as of March 18, 1998, by and between Patriot and
the Kansas limited partnership identified therein as "Summerfield".
1.78 "Records" shall have the meaning given such term in Section 7.2.
1.79 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent
and Additional Charges.
1.80 "SEC" shall mean the Securities and Exchange Commission.
1.81 "Security Deposit" shall have the meaning given such term in
Section 3.5.
1.82 "Separateness Agreement" shall mean that certain Amended and
Restated Separateness Agreement, dated as of the date hereof (and as the same
may be amended from time to time) among Tenant, Summerfield HPT Lease Company,
L.L.C., Patriot American Hospitality Partnership, L.P., PAH LP, Inc. and PAH GP,
Inc. for the benefit of (i) Landlord and Hospitality Properties Trust, among
others, and (ii) Locke Liddell & Sapp LLP.
1.83 "SHC" shall mean Summerfield Hotel Corporation, a Delaware
corporation.
1.84 "Special Organizational Document Provisions" shall mean,
collectively, provisions similar to Sections 1.02 and 3.03 of Tenant's Agreement
of Limited Partnership and Sections 3, 9, 10 and 13 of the Operating Agreement
of the general partner of Tenant.
1.85 "State" shall mean, with respect to any Property, the state,
commonwealth or district in which the such Property is located.
1.86 "Subsidiary" shall mean, with respect to any Person, any Entity
(a) in which such Person owns directly, or indirectly through one or more
Subsidiaries, more than fifty percent
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(50%) 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).
1.87 "Successor Landlord" shall have the meaning given such term in
Section 19.2.
1.88 "Tangible Net Worth" shall mean, for any Person, the excess of
total assets over total liabilities, total assets and total liabilities of such
Person to be determined in accordance with GAAP, excluding, however, from the
determination of total assets: (a) goodwill, organizational expenses, research
and development expenses, trademarks, trade names, copyrights, patents, patent
applications, 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; excluding, however, from the determination
of total liabilities accrued fees payable to the Manager in accordance with the
Management Agreement that are subordinated to the payment of Rents hereunder in
accordance with Section 5.4.
1.89 "Tenant" shall have the meaning given such term in the preambles
to this Agreement and shall also include its permitted successors and assigns.
1.90 "Tenant FF&E Security Agreement" shall mean the Assignment and
Security Agreement, dated as of the date hereof, made by Tenant for the benefit
of Landlord, as it may be amended from time to time.
1.91 "Tenant General Partner" shall mean Summerfield HPT Lease Company
L.L.C., a Delaware limited liability company.
1.92 "Tenant Pledge Agreement" shall mean the Confirmation and
Restatement of Partnership Interest Pledge Agreement, dated as of the date
hereof, as the same made by the partners of Tenant to Landlord, as the same may
be amended from time to time.
1.93 "Tenant General Partner Pledge Agreement" shall mean the
Confirmation and Restatement of Membership Interest Pledge Agreement, dated as
of the date hereof, made by Patriot American Hospitality Partnership, L.P., the
sole member of Tenant General Partner, to Landlord.
1.94 "Tenant Security Agreement" shall mean the Confirmation and
Restatement of Security Agreement, dated as of the date hereof, made by Tenant
for the benefit of Landlord, as it may be amended from time to time.
1.95 "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 tangible 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
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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.
1.96 "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.
1.97 "Total Hotel Sales" shall mean, with respect to each Property, for
each Fiscal Year during the Term, all revenues and receipts of every kind
derived by Tenant or any subtenant from operating such Property and parts
thereof, including, but not limited to: income (from both cash and credit
transactions) (after deductions for bad debts, and discounts for prompt or cash
payments and refunds) from rental of rooms, stores, offices, meeting, exhibit or
sales space of every kind; 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
furnishings, fixture and equipment no longer necessary to the operation of any
Hotel, which shall be deposited in the FF&E Reserve); service charges, to the
extent not distributed to the employees at such Hotel as gratuities; and
proceeds, if any, from business interruption or other loss of income insurance;
provided, however, that Total Hotel Sales shall not include the following:
gratuities to Hotel 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); Award
proceeds (other than for a temporary Condemnation); any proceeds from any sale
of such Property or from the refinancing of any debt encumbering such Property;
proceeds from the disposition of furnishings, fixture and equipment no longer
necessary for the operation of such Hotel; interest which accrues on amounts
deposited in the FF&E Reserve; and recoveries against predecessors in title to
the extent such recoveries are compensation attributable to items not otherwise
includable in the calculation of Total Hotel Sales.
1.98 "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.
1.99 "Unsuitable for Its Permitted Use" shall mean, with respect to any
Hotel, a state or condition of such Hotel such that (a) following any damage or
destruction involving such Hotel, such Hotel cannot be operated in the good
faith judgment of Tenant 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 twelve (12) 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, such Hotel cannot be operated, in the good faith
judgment of Tenant or the Manager on a commercially practicable basis for its
Permitted Use.
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1.100 "Work" shall have the meaning given such term in Section 10.2.4.
1.101 "Wyndham" shall mean Wyndham International, Inc., a Delaware
corporation, and its permitted successors and assigns.
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 (each
of items (a) through (g) below which, as of the Commencement Date, relates to
any single Hotel, a "Property" and, collectively, the "Leased Property"):
(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibits A-1 through A-15 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 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");
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(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.
2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term")
shall commence on the Commencement Date and shall expire December 31, 2017.
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,
the Term shall be automatically extended for four (4) consecutive renewal terms
of twelve (12) 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).
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
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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.
2.5 Landlord's Early Termination Right. Landlord shall have the right,
to terminate this Agreement with respect to the Leased Property, subject to and
upon the following terms and conditions:
(a) Landlord gives Tenant Notice that Landlord reasonably
believes that the minimum net worth of Wyndham (determined in
accordance with GAAP) is less than or equal to One Billion Dollars
($1,000,000,000); and
(b) Within ten (10) days after receipt of the Notice described
in clause (a) above, Tenant fails to deliver to Landlord evidence
reasonably satisfactory to Landlord that the minimum net worth of
Wyndham (determined in accordance with GAAP) exceeds One Billion
Dollars ($1,000,000,000).
In the event Landlord elects so to terminate this Agreement, this
Agreement shall so terminate upon the date set forth in such Notice (but in no
event less than ten (10) days after the date thereof).
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 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 month; 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 5.1.3(b), 10.2.3 or 11.2. Effective on the date of each
disbursement to pay for the cost of
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any repairs, maintenance, renovations or replacements pursuant to
Sections 5.1.3(b), 10.2.3 or 11.2 with respect to any Property, the
Minimum Rent shall be increased by a per annum amount equal to the
Disbursement Rate times the amount so disbursed. If any such
disbursement is made during any month on a day other than the first day
of a month, Tenant shall pay to Landlord on the first day of the
immediately following month (in addition to the amount of Minimum Rent
payable with respect to such month, as adjusted pursuant to this
paragraph (b)) the amount by which Minimum Rent for the preceding
month, as adjusted for such disbursement on a per diem basis, exceeded
the amount of Minimum Rent paid by Tenant for such preceding month.
(c) Adjustments of Minimum Rent Following Partial Lease
Termination. If this Lease shall terminate with respect to any Property
but less than all of the Leased Property, Minimum Rent shall be reduced
by the affected Property's allocable share of Minimum Rent.
3.1.2 Additional Rent.
(a) Amount. Commencing with the second Lease Year, for each
Lease Year or portion thereof, Tenant shall pay an aggregate amount of
additional rent ("Additional Rent") with respect to each Property for
such Lease Year in an amount, not less than zero, equal to seven and
one-half percent (7.5%) of Excess Total Hotel Sales for such Property.
(b) Monthly Installments. Installments of Additional Rent for
each Lease Year or portion thereof shall be calculated and paid monthly
in arrears. Such payment shall be accompanied by an Officer's
Certificate setting forth the calculation of Additional Rent due and
payable for such month.
(c) Reconciliation of Additional Rent. On or before April 30,
1999, Tenant shall deliver to Landlord an Officer's Certificate setting
forth the calculation of Total Hotel Sales for each Property for the
Base Year, together with an audit thereof by Ernst & Young LLP, Arthur
Anderson and Co., or another "Big Four," so-called, firm of independent
certified public accountants proposed by Tenant and approved by
Landlord (which approval shall not be unreasonably withheld or delayed)
(the "Accountants"). In addition, on or before April 30 of each year,
commencing April 30, 2000, Tenant shall deliver to Landlord an
Officer's Certificate setting forth the Total Hotel Sales for each
Property for the preceding Lease Year and the calculation of Additional
Rent payable with respect to such Property for such Lease Year,
together with an audit thereof, conducted by the Accountants.
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
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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 the 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
by 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 each Property in
accordance with its usual and customary practices and in accordance
with GAAP, which will accurately record all Total Hotel Sales 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 Total Hotel Sales for such Property 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
four percent (4%) of the Total Hotel Sales 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 the 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 pursuant to the provisions of this Agreement shall be treated
as confidential, except that
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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 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 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.
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Landlord shall give prompt Notice to Tenant 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 (other than any penalties that accrue due to the
failure of Landlord to promptly notify Tenant), unless such failure
continues for more than twelve (12) months after the date Landlord
learned of such Imposition.
(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) Obligations under Purchase Agreements. 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), imposed upon or incurred by or asserted
against Landlord under any Purchase Agreement or the Assignment
Agreement, excluding, however, (i) the payment of the Purchase Price by
Landlord specified in Part 3 of Schedule A1 of each Purchase Agreement,
and (ii) any liability of Landlord arising under any Purchase Agreement
that is determined, in a final non-appealable judgment by a court of
competent jurisdiction, to have resulted from the gross negligence,
wilful misconduct or failure of Landlord to perform the obligations of
purchaser thereunder that arise after the effective date of the
Assignment Agreement.
(e) Other Charges. Tenant shall pay or cause to be paid all
other amounts, liabilities and obligations with respect to the Leased
Property and this Agreement, including, without limitation, all amounts
payable under any equipment leases and all agreements to indemnify
Landlord under Sections 4.3.3 and 9.7.
(f) 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.
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 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
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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, Tenant shall promptly pay and discharge, as Additional Charges, every
fine, penalty, interest and cost which is 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 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 (a) to modify, surrender or terminate this Agreement or
quit or surrender the Leased Property or any portion thereof, or (b) which would
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
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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 Deposit. Tenant has deposited with Landlord the amount of
Fifteen Million Dollars ($15,000,000) (the "Security Deposit"). The Security
Deposit shall be held by Landlord as 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. The Security Deposit shall not
be mortgaged, assigned, transferred or otherwise encumbered by Tenant without
the prior written consent of Landlord, and any such act on the part of Tenant
without first having obtained Landlord's consent (which consent may be given or
withheld by Landlord in Landlord's sole and absolute discretion) shall be
without force and effect and shall not be binding upon Landlord.
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 Security Deposit 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 and Tenant shall, upon demand, restore the Security Deposit to the
original sum deposited. It is understood and agreed that the Security Deposit is
not to be considered as prepaid rent, nor shall damages be limited to the amount
of the Security Deposit. Should Tenant comply with all the terms, covenants and
conditions of this Agreement, the Security Deposit shall be returned in full to
Tenant at the end of the Term. Landlord shall have no obligation to pay interest
on the Security Deposit and shall have the right to commingle the same with
Landlord's other funds. If Landlord conveys Landlord's interest under this
Agreement, the Security Deposit, or any part thereof not previously applied, may
be turned over by Landlord to Landlord's grantee, and, if so turned over, Tenant
shall look solely to such grantee for proper application of the Security Deposit
in accordance with the terms of this Section 3.5 and the return thereof in
accordance herewith. No Hotel Mortgagee shall be responsible to Tenant for the
return or application of the Security Deposit, whether or not it succeeds to the
position of Landlord hereunder, unless the Security Deposit shall have been
received in hand by such holder.
In the event of bankruptcy or other creditor-debtor proceedings against
Tenant, the Security Deposit shall be deemed to be applied first to the payment
of the Rent and other charges due Landlord for all periods prior to the filing
of such proceedings.
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ARTICLE 4
USE OF THE LEASED PROPERTY
4.1 Permitted Use.
4.1.1 Permitted Use.
(a) 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,
each Property as a Summerfield Suites Hotel and any uses incidental
thereto. 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
5.1.3(b)), comply (or direct the Manager to comply) with all Insurance
Requirements. 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
any Property or any part thereof for its Permitted Use.
(b) Notwithstanding the foregoing, in the event that, in the
reasonable determination of Tenant, it shall no longer be economically
practical to operate any Property as an all suites 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
Property or a replacement property therefor (in which event the
affected Property shall be transferred to Tenant or Tenant's designee),
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, all approvals necessary to use and operate, for
its Permitted Use, each 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 any Property, or in the related 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 any Property, or any portion thereof, to be
used in such a manner as (i) might
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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 such Property or any portion
thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Subject to the
provisions of Article 8 and Section 5.1.3(b), Tenant, at its sole expense, shall
(or shall direct the Manager to) (i) comply with all material 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) 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 quantities
that are customary in normal operation and maintenance of hotel properties, and
then only in compliance with all Applicable Laws. During the Term and any other
time that Tenant shall be in possession of any Property, Tenant shall maintain
(and shall direct the Manager to maintain) such Property at all times free of
any Hazardous Substance (except in quantities that are customary in normal
operation and maintenance of hotel properties, and then only 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 or similar report 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, and any release notification form
filed by Tenant or the Manager with respect to the Leased Property pursuant to
CERCLA 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 official, court or agency of
competent jurisdiction relating to the use or maintenance or requiring the
removal, treatment, containment 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.
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If, at any time prior to the termination of this Agreement, Hazardous
Substances in amounts or concentrations requiring investigation or cleanup
(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 are required by
any Government Agency and by Applicable Law, (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 Environmental Report. From time to time during the Term,
Landlord shall have the right to require an update of the Phase I environmental
site assessment reports furnished to Landlord prior to the date hereof with
respect to the Leased Property, which report shall be prepared by an
environmental engineering firm selected by Landlord. The costs and expenses of
such engineering firm shall be divided equally between Landlord and Tenant.
4.3.3 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 in possession of the Leased
Property) in, upon or under the soil or ground water of the Leased Property or
any properties surrounding the Leased 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 acts or
omissions of Landlord or any other Indemnitee or during any period that Landlord
or a Person designated by Landlord (other than Tenant) is in possession of the
Leased Property. 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. 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) reasonably incurred by Landlord and arising from a failure of
Tenant 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.
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4.3.4 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 General Obligations. Tenant shall, at its sole
cost and expense (except as expressly provided in Sections 5.1.3(b), 10.2.3 or
11.2), or shall direct the Manager to, keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal
Property) 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 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 shall be limited in the event of any casualty or Condemnation as set forth
in Sections 10.2 and 11.2 and also as set forth in Section 5.1.3(b) and Tenant's
obligations with respect to Hazardous Substances are as set forth in Section
4.3.
5.1.2 FF&E Reserve.
(a) Tenant has established a reserve account (the "FF&E
Reserve") for each Hotel in the FF&E Bank. The purpose of the FF&E
Reserve is to cover the cost of:
(i) Replacements and renewals to any Hotel's
furnishings, fixtures and equipment;
(ii) Certain routine repairs and maintenance to any
Hotel building which are normally capitalized under GAAP such
as exterior and interior repainting, resurfacing building
walls, floors, roofs and parking areas, and replacing folding
walls and the like; and
(iii) Major repairs, alterations, improvements,
renewals or replacements to any Hotel's buildings' structure,
roof, or exterior facade, or to its mechanical, electrical,
heating, ventilating, air conditioning, plumbing or vertical
transportation systems.
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Tenant agrees that it will, from time to time, execute such
reasonable documentation as may be requested by Landlord and any Hotel
Mortgagee to assist Landlord and such Hotel Mortgagee in establishing
or perfecting the Hotel Mortgagee's security interest in Landlord's
residual interest in the funds which are in the FF&E Reserve, it being
acknowledged and agreed that the funds in the FF&E Reserve are the
property of Tenant; provided, however, that no such documentation shall
contain any amendment to or modification of any of the provisions of
this Agreement. It is understood and agreed that, during the Term, the
FF&E Reserve may not be applied against debts secured by a Hotel
Mortgage nor shall any Hotel Mortgagee have the right to approve the
release of such funds pursuant to the terms of this Agreement unless
and until Landlord shall default in its obligations to such Hotel
Mortgagee.
(b) Throughout the Term, Tenant shall transfer (as of the end
of each month of the Term) into the FF&E Reserve an amount equal to
five percent (5%) of aggregate Total Hotel Sales for the Leased
Property for such month. Together with the documentation provided to
Landlord pursuant to Section 3.1.2(c), Tenant shall deliver to Landlord
an Officer's Certificate setting forth the total amount of deposits
made to and expenditures from the FF&E Reserve for the preceding Fiscal
Year, together with a reconciliation of such expenditures with the
applicable FF&E Estimate.
(c) Each year, on or before December 1 of the preceding year,
Tenant shall prepare an estimate (the "FF&E Estimate") of FF&E Reserve
expenditures necessary during the ensuing calendar year and shall
submit such FF&E Estimate to Landlord for its review and approval,
which approval shall not be unreasonably withheld or delayed. In the
event Landlord shall fail to respond within thirty (30) days after
receipt of the FF&E Estimate, such FF&E Estimate shall be deemed
approved by Landlord. All expenditures from the FF&E Reserve shall be
(as to both the amount of each such expenditure and the timing thereof)
both reasonable and necessary, given the objective that each Hotel will
be maintained and operated to a standard comparable to competitive
hotels. All expenditures from the FF&E Reserve may only be used to pay
expenditures entered into on an "arm's length" basis with Persons that
are not Affiliated Persons of Tenant, in each case without mark-up or
the payment of allocated internal costs of Tenant or any Affiliated
Person (except for a purchasing fee that may be paid to an Affiliated
Person of Tenant in respect of any item purchased with funds from the
FF&E Reserve in an amount not to exceed 3.5% of the lower of cost or
the fair market value of such item).
(d) Tenant shall, consistent with the FF&E Estimate approved
by Landlord, from time to time make expenditures from the FF&E Reserve
as it deems necessary provided that Tenant shall not materially deviate
from the FF&E Estimate approved by Landlord without the prior approval
of Landlord, except in the case of emergency where immediate action is
necessary to prevent imminent danger to person or property.
(e) Upon the expiration or sooner termination of this
Agreement, funds in the FF&E Reserve and all property purchased with
funds from the FF&E Reserve during the Term shall be paid, granted and
assigned to Landlord as Additional Charges.
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(f) The FF&E Funded Amount, together with amounts transferred
into the FF&E Reserve in accordance with Section 5.1.2(b) hereof during
the 1998 calendar year, shall be used to fund the expenditures
identified in the FF&E Estimate for the 1998 calendar year, and to the
extent of any excess, subsequent years.
5.1.3 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 Sections 5.1.3(b), 10.2 and 11.2, to make any expenditure
whatsoever with respect thereto, or to maintain 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, funds in the FF&E Reserve shall be
insufficient for necessary and permitted expenditures thereof or,
pursuant to the terms of this Agreement, Tenant is required to make any
expenditures in connection with any repair, maintenance or 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 or such repair, maintenance or renovation is not a permitted
expenditure from the FF&E Reserve as described in Section 5.1.2(a)(i),
(ii) and (iii), 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);
provided, however, that, in the event that Landlord shall elect not to
disburse any funds pursuant to this Section 5.1.3(b), Tenant's sole
recourse shall be to elect not to make the applicable repair,
maintenance or renovation.
5.1.4 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.
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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 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 any 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, 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 excepted).
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. If requested
by Landlord, Tenant will direct the Manager to continue to manage any Hotel
designated by Landlord after the termination of this Agreement with respect to
any Property and for up to one hundred twenty (120) days, on such reasonable
terms (which shall include a market rate management fee and an agreement to
reimburse the Manager for its reasonable out-of-pocket costs and expenses, and
reasonable administrative costs), as Landlord shall reasonably request.
5.4 Management Agreement. Tenant shall not, without Landlord's prior
written consent, amend or modify the provisions of the Management Agreement
which provide (i) that all amounts due from Tenant to the Manager shall be
subordinate to all amounts due from Tenant to
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Landlord (provided that, as long as no Event of Default has occurred and is
continuing, Tenant may pay amounts due the Manager under the Management
Agreement), (ii) for operation of the Leased Property under the "Summerfield"
name, (iii) that the Manager and their Affiliated Persons are prohibited from
operating, managing or franchising another Summerfield Suites hotel within the
designated area on Exhibit C and (iv) for termination thereof, at Landlord's
option, upon the termination of this Agreement. Tenant shall not take any
action, grant any consent or permit any action under the Management Agreement
which might have a material adverse effect on Landlord, without the prior
written consent of Landlord; provided, however, that Landlord's consent shall
not be required in connection with any assignment of the Manager's rights under
the Management Agreement to (x) any Affiliated Person of the Manager having the
full power, right and authority to provide all services and organizational
expertise as contemplated and required by the Management Agreement or (y) any
Person who acquires all or substantially all of the management contracts of the
Manager, provided that, in either such case, the Leased Property will retain the
right to use the "Summerfield" name. In the event of an assignment pursuant to
clause (y) preceding, provided that the successor Manager (i) assumes, in
writing all obligations of the Manager under the Management Agreement, and (ii)
has a Tangible Net Worth, as of the date of assignment, equal to the greater of
the Tangible Net Worth of the Manager as of the date of this Agreement, and the
Tangible Net Worth of the Manager as of the date of such assignment, the Manager
shall be released from all liabilities arising under the Management Agreement
from and after the effective date of such assignment. Tenant shall not agree to
any change in the Manager (except as provided in the preceding sentences), to
any change in the Management Agreement (except as provided in the preceding
sentences), terminate the Management Agreement or permit the Manager to assign
the Management Agreement (except as provided in the preceding sentences) without
the prior written approval of Landlord in each instance; provided, however, that
the Manager may grant a security interest in its right to receive payments under
the Management Agreement without Landlord's prior written approval.
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 (other than Capital Additions of the type described in
Section 5.1.2(a)(ii) and approved pursuant to Section 5.1.2(c) with respect to
any Property 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 such 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 construction of any Capital Addition, Tenant shall
submit, or shall direct the Manager or 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
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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 such 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 such
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
attachment, 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 Section
16.1, (e) liens for Impositions or for sums resulting from 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
19, and (h) Landlord Liens and any other voluntary liens created by Landlord.
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 liquor licenses and permits), and
Tenant's interest in 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
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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 relevant 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 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 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 of Tenant's exercise of its rights under this Article 8. 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 penalties 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 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.
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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 each Property and all property located therein or thereon,
insured against the risks and in the amounts as follows and shall maintain, with
respect to each Property, the following insurance:
(a) "All-risk" property insurance, including insurance against
loss or damage by fire, vandalism and malicious mischief, earthquake,
explosion of steam boilers, pressure vessels or other similar
apparatus, now or hereafter installed in the Hotel located at such
Property, with 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);
(b) Business interruption insurance 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 in a form reasonably satisfactory to
Landlord (and including, without limitation, broad form contractual
liability, independent contractor's hazard and completed operations
coverage) in an amount not less than One Million Dollars ($1,000,000)
per occurrence, Three Million Dollars ($3,000,000) in the aggregate and
umbrella coverage of all such claims in an amount not less than Fifty
Million Dollars ($50,000,000);
(d) Flood (if such 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 if required by
applicable law for all persons employed by Tenant on such 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.
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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 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 determination 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 relevant 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
be issued by insurance carriers authorized to do business in the relevant 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)
for any one Leased Property and no deductible in excess of One Million Dollars
($1,000,000) in the aggregate for the Collective Leased Properties, and, with
the exception of the insurance described in Section 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 of insurance 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
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 accrued thereon at the Overdue Rate from the date such
payment is made until (but excluding) the date repaid.
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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, 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 be subject
to only a per location aggregate limit, except for flood, earthquake and
umbrella coverages.
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 any 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, or any prior owner or operator
of any Property, of any Property or Tenant's Personal Property or any
litigation, proceeding or claim by governmental entities or other third parties
to which Landlord is made a party or participant relating to any 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.
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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 any 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), calculated on a Property
by Property basis, shall be paid directly to Tenant and such losses may be
adjusted without Landlord's consent. If Tenant is required to reconstruct or
repair such 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 such 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. In
the event that the provisions of Section 10.2.1 are 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, any 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 with respect to such Property, in which event, whereupon, this
Agreement shall terminate with respect to the affected Property, Landlord shall
be entitled to retain the insurance proceeds payable on account of such damage
and Tenant shall thereafter have no obligation to pay Rent as to such Property
for periods arising after the effective date of termination.
10.2.2 Partial Damage or Destruction. If, during the Term, any
Property shall be totally or partially destroyed but the Hotel is not rendered
Unsuitable for Its Permitted Use, Tenant shall promptly restore such Hotel as
provided in Section 10.2.4 unless this Agreement is terminated as to such Hotel
as provided in Section 10.2.3.
10.2.3 Insufficient Insurance Proceeds. If this Agreement is
not otherwise terminated pursuant to this Article 10 and the cost of the repair
or restoration of any Property exceeds the amount of insurance proceeds received
by Landlord and Tenant pursuant to Section 9.1(a), (c), (d) or, if applicable,
(f), 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
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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 with respect to the affected Property by Notice to the
other, whereupon, this Agreement shall terminate with respect to the affected
Property 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
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 any Property pursuant to Section 10.2, Tenant shall (or
shall direct the Manager or (following the Patriot Acquisition Date) Subtenant
to) commence promptly and continue diligently to perform the repair and
restoration of any Property (hereinafter called the "Work"), so as to restore
such Property in compliance with all Legal Requirements and so that such
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,
delayed or conditioned), (iii) general contractors' estimates, (iv) architect's
certificates, (v) unconditional lien waivers of general contractors, 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 during the last two (2) years of the Term shall be subject to the release of
such proceeds by any Hotel Mortgagee to Landlord; otherwise each such Hotel
Mortgagee shall be obligated to make such funds available for Landlord's use in
accordance with the terms of this Agreement. If any Hotel Mortgagee shall be
unwilling to disburse insurance proceeds in accordance with the terms of this
Agreement, Tenant shall have the right, by the giving of Notice thereof to
Landlord within ten (10) Business Days after Tenant learns of such
unwillingness, to treat such Property as rendered Unsuitable for its Permitted
Use for purposes of Section 10.2.1. Tenant's obligation to restore the
applicable Property pursuant to this Article 10 shall be subject to the release
of
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available insurance proceeds by the applicable Hotel Mortgagee to Landlord or
directly to Tenant.
Tenant's obligation to restore the affected 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 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 any Property occurs
during the last twelve (12) months of the Term (including any exercised Extended
Terms) 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
the end of such Term, the provisions of Section 10.2.1 shall apply as if such
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
any 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 such Property.
10.6 No Abatement of Rent. Unless terminated by either party pursuant
to this Article 10 (and then only with respect to the affected Property), 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 any 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 any 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 any Property or any
portion thereof.
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ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc. If either (i) the whole of any Property
shall be taken by Condemnation or (ii) a Condemnation of less than the whole of
any Property renders any Property Unsuitable for Its Permitted Use, this
Agreement shall terminate with respect to such Property, Tenant and Landlord
shall seek the Award for their interests in the applicable Property as provided
in Section 11.5 and, as the effective date of taking, the Minimum Rent payable
hereunder shall be reduced by such Property's allocable share thereof.
11.2 Partial Condemnation. In the event of a Condemnation of less than
the whole of any Property such that such Property is still suitable for its
Permitted Use, Tenant shall, to the extent of the Award actually received by
Tenant 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 such 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 with respect to the affected
Property, whereupon, the entire Award shall be retained by Landlord and Tenant
shall thereafter have no obligation to pay Rent for periods arising after the
effective date of termination.
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 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
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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) during the last two
(2) years of the Term, the release of such Award by the applicable Hotel
Mortgagee; otherwise each such Hotel Mortgagee shall be obligated to make such
funds available for Landlord's use in accordance with the terms of this
Agreement. If any Hotel Mortgagee shall be unwilling to disburse Award proceeds
in accordance with the terms of this Agreement, by the giving of Notice thereof
to Landlord within ten (10) Business Days after Tenant learns of such
unwillingness, to treat such Property as rendered Unsuitable for its Permitted
Use for purposes of Section 11.1. Tenant's obligation to restore the Leased
Property shall be subject to the release of the Award by the applicable Hotel
Mortgagee to Landlord or directly to Tenant.
11.3 Abatement of Rent. Unless terminated by either party pursuant to
this Article 11 (and then only with respect to the affected Property), 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 any Property. The provisions of this Article 11 shall be
considered an express agreement governing any Condemnation involving any
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 any 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 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 such 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 any Property, loss of business 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.
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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; or
(b) should Tenant fail to maintain the insurance coverages
required under Article 9 and such failure shall continue for ten (10)
Business 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 fifteen (15)
Business Days after Notice thereof from Landlord to Tenant; 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) Business 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 one hundred eighty (180) days in the
aggregate) as may be necessary to cure such default with all due
diligence; or
(d) should an event of default by Tenant or any Affiliated
Person as to Tenant occur and be continuing beyond the expiration of
any applicable cure period under any of the Incidental Documents or the
Management Agreement; or
(e) should any material representation or warranty made by
Tenant or any Affiliated Person as to Tenant under or in connection
with this Agreement or any Incidental Document 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 and the same shall continue for five (5)
Business Days after Notice thereof from Landlord; or
(f) 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
(g) 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 Tenant a bankrupt
or insolvent, or seeking liquidation, reorganization, arrangement,
adjustment or composition of Tenant's debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the
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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 Tenant
take any action to authorize or effect any of the actions set forth
above in this paragraph; or
(h) should Tenant cause or institute any proceeding for its
dissolution or termination; or
(i) should the estate or interest of Tenant in any 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
(j) should any of Tenant or Manager cease to be a direct or
indirect Subsidiary of Wyndham (provided, however that it shall not be
an Event of Default if Manager ceases to be a direct or indirect
Subsidiary of Wyndham as a consequence of a transaction in which a
Person, including, but not limited to, a Lending Institution, acquires
all or substantially all of the management contracts of Manager,
provided, that the Hotels will retain the right to use the "Summerfield
Suites" name); or
(k) should any provision of the Special Organizational
Document Provisions or Separateness Agreement be violated or modified,
and such violation or modification continues for ten (10) Business Days
after Notice thereof;
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement with respect to any or all of the
Leased Property by giving Notice thereof to Tenant and upon the expiration of
the time, if any, fixed in such Notice, this Agreement shall terminate with
respect to all or the designated portion of the Leased Property and all rights
of Tenant under this Agreement with respect thereto 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, 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 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 ten (10) days before the date of sale. The
proceeds from
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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 with
respect to any Property or all of the Leased Property 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 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 (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
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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 ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN
FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
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 relevant 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.
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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 two (2) times the Minimum 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 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 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.
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 (to the extent permitted by law) 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 date demand for such funds was made by Tenant until the date of
final adverse determination and,
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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
PURCHASE RIGHTS
15.1 First Refusal to Purchase. Provided, (a) no Default or Event of
Default shall have occurred and be continuing, (b) this Agreement shall be of
full force and effect, and (c) other than as expressly permitted or required by
Section 16 or consented to by Landlord (which consent may be given or withheld
by Landlord in its sole discretion), Tenant shall not have assigned this
Agreement or subleased all or any portion of the Leased Property, Tenant shall
have a first refusal option to purchase any Property upon the same price, terms
and conditions as Landlord shall propose to sell such Property, or upon the same
price, terms and conditions of any offer from a third party to purchase such
Property which Landlord intends to accept (or has accepted subject to Tenant's
right of first refusal herein provided); provided, however, that, if the
proposed purchase price is for other than cash, Tenant shall have the right to
purchase such Property on cash equivalent terms determined by the agreement of
the parties or, if they cannot agree within ten (10) Business Days, by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. If, during the Term, Landlord reaches such agreement with a
third party or proposes to offer any Property for sale, Landlord shall promptly
give written notice to Tenant of the purchase price and all other material terms
and conditions of such agreement or proposed sale and Tenant shall have sixty
(60) days thereafter to exercise Tenant's option to purchase by written notice
to Landlord thereof. Failure of Tenant to respond within such 60-day period
shall be deemed a waiver of Tenant's right to purchase the Property with respect
to such offer pursuant to this Section 15.1. If Tenant exercises its option, the
sale to Tenant shall be consummated upon the same terms and conditions as
contained in such agreement or Landlord's notice of the proposed sale. If Tenant
shall not exercise its option to purchase within the time period and in the
manner above provided, Landlord shall be free to sell such Property to such
third party at the price and upon terms substantially similar to those offered
to Tenant. The rights granted to Tenant pursuant to this Section 15.1 shall not
apply to any financing or sale-leaseback transaction or any transaction pursuant
to which Landlord is merged or consolidated with another Person; provided,
however, that any Person who shall acquire the Leased Premises shall acquire
them subject to, and shall be bound by, the provisions of this Section 15.1. The
provisions of this Section 15.1 shall inure to the benefit of Tenant and any
permitted successors and assigns of Tenant pursuant to this Agreement.
15.2 Purchase by Tenant. In the event that, in the reasonable
determination of Tenant, it shall no longer be economically practical to operate
any Property as an "all suites" hotel, and Tenant and Landlord have not agreed
on an alternative use for such Property or on the substitution of one or more
other properties for such Property as provided in Section 4.1.1(b), Tenant may
permanently cease operation of such Property (notwithstanding Section 4.1.1(a))
and concurrently give Landlord irrevocable written Notice (i) of Tenant's
election to terminate this Agreement with respect to such Property and
simultaneously purchase such Property from Landlord for a purchase price equal
to one hundred twenty five percent (125%) of the Adjusted
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Purchase Price for such Property (the "Buyout Price") and (ii) certifying that
Tenant has permanently ceased operating such Property as an "all suites" hotel.
Such purchase shall occur on the Business Day designated in such Notice, which
shall be a date not later than ninety (90) days after the date of such Notice
(the "Purchase Date"). Landlord shall, upon receipt from Tenant of the Buyout
Price for such Property, together with full payment of any unpaid Rent and other
charges due and payable with respect to any period ending on or before the
Purchase Date, and so long as no Default or Event of Default shall have occurred
and be continuing at such time, deliver to Tenant an appropriate deed and other
instruments, conveying the entire interest of Landlord in and to such Property
to Tenant, free and clear of all encumbrances created through the act or
omission of Landlord, and such other documents as are customarily and reasonably
required of sellers by title companies or purchasers. This Agreement shall
thereupon terminate as to such Property. The Buyout Price and all other amounts
to be paid to Landlord on the Purchase Date shall be paid in immediately
available funds as directed by Landlord. Other than as specifically provided
above, such Property shall be conveyed to Tenant on an "as is" basis, and in its
then physical condition. The closing of any such sale shall be contingent upon
and subject to Tenant's obtaining any required governmental consents and
approvals for such transfer, provided that Landlord shall reasonably cooperate
with Tenant in obtaining such consents and approvals. All expenses of such
conveyance, including, without limitation, all transfer and sales taxes,
documentary fees, the fees and expenses of counsel to Landlord and the cost of
any title examination or title insurance, shall be for the account of Tenant.
15.3 Landlord's Option to Purchase Tenant's Personal Property; Transfer
of Licenses. Landlord shall have the option to purchase Tenant's Personal
Property, at the expiration or termination of this Agreement, for an amount
equal to the then net market value thereof (current replacement cost as
determined by appraisal less accumulated depreciation on Tenant's books
pertaining thereto), subject to, and with appropriate price adjustments for, all
equipment leases, conditional sale contracts, UCC-1 financing statements and
other encumbrances to which such Personal Property is subject. Upon the
expiration or sooner termination of this Agreement, Tenant shall use its best
efforts to transfer and assign to Landlord or its designee, or assist Landlord
or its designee in obtaining, any contracts, licenses, and certificates required
for the then operation of the Leased Property.
ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment. Except as provided in Section 16.3,
Tenant shall not, without Landlord's prior written consent (which consent may be
given or withheld in Landlord's sole and absolute, good faith, 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
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16.1, an assignment and/or transfer 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 Wyndham, 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.
If this Agreement is assigned or otherwise transferred or if the Leased
Property or any part thereof are sublet (or occupied by anybody other than
Tenant, the Manager and their respective employees or hotel guests) 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 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
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 occupying
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
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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.
16.3 Permitted Sublease. Notwithstanding the foregoing, including,
without limitation, Section 16.1, but subject to any other express conditions or
limitations set forth herein Tenant may, in each instance after Notice to
Landlord, 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 two thousand (2,000) square feet per
Property, 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 or otherwise enter into any agreement with respect to the
Leased Property or any part thereof on any basis such that the rental or other
fees to be paid by any sublessee thereunder would be based, in whole or in part,
on the income or profits derived by the business activities of such sublessee,
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 or would otherwise
disqualify Landlord for treatment as a real estate investment trust.
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
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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 or cause to have
furnished, as applicable, the following statements to Landlord:
(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 month, 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 or Wyndham sends to its security holders
generally, and copies of all periodic reports which Tenant or Wyndham
files with the SEC or any stock exchange on which its shares are listed
or traded;
(e) at any time and from time to time upon not less than
twenty (20) 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; and
(f) promptly, upon Notice from Landlord, such other
information concerning the business, financial condition and affairs of
Tenant or Wyndham, 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.
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.
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17.3 General Operations. Tenant shall furnish to Landlord:
(a) Within thirty (30) days after receipt or modification
thereof, copies of all licenses with respect to any Hotel authorizing
Tenant and/or the Manager to operate such 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 Hotels, on both a combined and a
Hotel-by-Hotel basis, 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 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
HOTEL MORTGAGES
19.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord
may, subject to the terms and conditions set forth in this Section 19.1, 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. Notwithstanding anything
to the contrary set forth in Section 19.2, any such Encumbrance shall include
the right to prepay (whether or not subject to a prepayment penalty) and shall
provide (subject to Section 19.2) that it is subject to the rights of Tenant
under this Agreement.
19.2 Subordination of Lease. Subject to Section 19.1 and this Section
19.2, 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
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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 provided that Tenant has received
a nondisturbance and attornment agreement from each Superior Mortgagee and/or
Superior Landlord, consistent with the provisions of this Section 19.2 and
otherwise in form and substance reasonably satisfactory to Tenant. 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 19.2.
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 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 Landlord under this Agreement to
render the Leased Property ready for occupancy by Tenant (subject to Landlord's
obligations under Section 5.1.3(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
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Tenant with an instrument of nondisturbance and attornment from each such
Superior Mortgagee and Superior Landlord in form and substance reasonably
satisfactory to Tenant. Nothing contained in this Section 19.2 shall relieve
Landlord from any liability to Tenant under this Agreement following the
exercise of remedies by a Superior Mortgagee.
19.3 Notice to Mortgagee and Superior Landlord. Subsequent to the
receipt by Tenant of Notice from Landlord as to the identity of any Hotel
Mortgagee or Superior Landlord under a lease with Landlord, as ground lessee,
which includes the Leased Property as part of the demised premises and which
complies with Section 19.1 and 19.2 (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 Superior Landlord at the address set forth in
the above described Notice, and the curing of any of Landlord's defaults by such
Hotel Mortgagee or Superior Landlord shall be treated as performance by
Landlord.
ARTICLE 20
ADDITIONAL COVENANTS OF TENANT
20.1 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 with respect to the Leased Property, (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.
20.2 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property 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 or partnership existence, as
applicable, and its rights and licenses necessary to conduct such business.
20.3 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,
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or in separate schedules to such financial statements, information sufficient to
show the effect of any such changes on such financial statements.
20.4 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 uninsured liability equal to or greater than Two Hundred
Fifty Thousand Dollars ($250,000) or which, in Tenant's reasonable opinion, may
otherwise result in any material adverse change in the business, operations,
property, prospects, 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.
20.5 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) operating liabilities incurred in the ordinary course of
Tenant's business;
(e) Indebtedness incurred to finance the acquisition of
equipment or personal property acquired in accordance with Section 6.1;
provided that (i) the terms of such Indebtedness permit assumption by
Landlord or an Affiliated Person thereof, and are otherwise approved by
Landlord in writing (which approval shall not be unreasonably withheld,
delayed or conditioned), and (ii) any Lien securing such Indebtedness
is permitted by Section 20.9(a); and
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(f) fees payable to the Manager pursuant to the Management
Agreement; provided however that (i) no fees shall be paid to the
Manager upon the occurrence and during the continuance of a Default or
Event of Default and (ii) such fees shall be fully subordinated in
right of payment the payment of Rent hereunder.
20.6 Financial Condition of Tenant. Tenant shall at all times maintain
Tangible Net Worth in an amount of not less than $15,000,000 (provided, however,
that it is expressly understood and agreed that the amount of the Security
Deposit may for such purpose be counted as equity at the full amount thereof).
20.7 Distributions, Payments to Affiliated Persons, Etc. Tenant shall
not declare, order, pay or make, directly or indirectly, any Distribution or
payment to, or investment in, 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, an Event of Default shall exist.
Otherwise, as long as no Event of Default shall have occurred and be continuing,
Tenant may make Distributions, loans and payments to Affiliated Persons (other
than from the FF&E Reserve, which shall be governed by Section 5.1.2) without
restriction.
20.8 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 or as otherwise provided in Section 20.5(e).
20.9 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) Liens securing Indebtedness incurred in accordance with
Section 20.5(e); 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 20.5(b) or (c).
20.10 Merger; Sale of Assets; Etc. Except as otherwise permitted by
this Agreement, 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 property; provided, however, that, notwithstanding the
provisions of clause (iii) preceding, Tenant may dispose of equipment or
fixtures which have become inadequate,
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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 21
REPRESENTATIONS AND WARRANTIES
21.1 Representations of Tenant. To induce Landlord to enter into this
Agreement, Tenant represents and warrants to Landlord as of the date hereof as
follows:
21.1.1 Status and Authority of Tenant. Tenant is a limited
partnership duly organized, validly existing and in corporate good standing
under the laws of the State of Kansas. The Tenant General Partner is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. Each of Tenant and the Tenant General Partner
have all requisite power and authority under the laws of its state of formation
and its respective organizational documents to enter into and perform its
obligations under this Agreement and the Incidental Documents and to consummate
the transactions contemplated hereby. Each of Tenant and the Tenant General
Partner has duly qualified to transact business in each jurisdiction in which
the nature of the business conducted by it requires such qualification.
21.1.2 Action of Tenant. Each of Tenant and Tenant General
Partner have taken all necessary action to authorize the execution, delivery and
performance of this Agreement; this Agreement constitutes the valid and binding
obligation and agreement of Tenant, enforceable against Tenant 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.
21.1.3 No Violations of Agreements. Neither the execution,
delivery or performance of this Agreement by Tenant, 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 Tenant or the Leased
Property pursuant to the terms of any indenture, mortgage, deed of trust, note,
evidence of indebtedness or any other material agreement or instrument by which
Tenant or, to Tenant's knowledge, the Leased Property is bound.
21.1.4 Litigation. To Tenant's knowledge, and except as set
forth in sections 3.9 and 3.10 of the Disclosure Schedule attached to the
Purchase Agreements or otherwise disclosed to Landlord in writing, no action or
proceeding is pending or 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, will result in any material
adverse change in the business, operation, affairs or condition of the Leased
Property or Tenant, result in or subject the Leased Property or Tenant to a
material liability, or involves condemnation or eminent domain proceedings
against any part of the Leased Property.
21.1.5 Existing Leases, Agreements, Etc. To Tenant's
knowledge, other than any agreements provided to Landlord prior to the March 20,
1998, there are no material agreements
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affecting the Leased Property which will be binding on Landlord subsequent to
the Commencement Date.
21.1.6 Disclosure. To Tenant's knowledge there is no fact or
condition which materially and adversely affects the business or condition of
the Leased Property which has not been set forth in this Agreement or in the
other documents, certificates or statements furnished to Landlord in connection
with the transactions contemplated hereby.
21.1.7 Utilities, Etc. To Tenant's knowledge, all utilities
and services necessary for the use and operation of the Leased Property
(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 current use and operation of the
Leased Property and for its intended purposes. To Tenant's knowledge, no fact,
condition or proceeding exists which would result in the termination or material
impairment of the furnishing of such utilities to the Leased Property.
21.1.8 Compliance With Law. To Tenant's knowledge, the Leased
Property 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 there are presently in effect all material licenses,
permits and other authorizations necessary for the current use, occupancy and
operation thereof. To Tenant's knowledge, there is no threatened request,
application, proceeding, plan, study or effort which would materially adversely
affect the present use or zoning of the Leased Property or which would modify or
realign any adjacent street or highway in a manner which would materially
adversely affect the use and operation of the Leased Property.
21.1.9 Hazardous Substances. Except as disclosed to Landlord
in writing or as described in any environmental report delivered to Landlord on
or prior to March 20, 1998, to Tenant's knowledge, no tenant or other occupant
or user of the Leased Property, 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 Substances, and, to Tenant's knowledge,
except as disclosed to Landlord in writing or as described in any environmental
report delivered to Landlord on or prior to March 20, 1998, the Leased Property
is free from any such Hazardous Substances, except any such materials maintained
in accordance with Applicable Law.
21.2 Representations of Landlord. To induce Tenant to enter in this
Agreement, Landlord represents and warrants to Tenant as follows:
21.2.1 Status and Authority of Landlord. Landlord is a real
estate investment trust duly organized, validly existing and in corporate good
standing under the laws of the State of Maryland. Landlord has all requisite
power and authority under the laws of its state of formation and its respective
charter documents to enter into and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. Landlord has duly
qualified to transact business in each jurisdiction in which the nature of the
business conducted by it requires such qualification.
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21.2.2 Action of Landlord. Landlord has taken all necessary
action to authorize the execution, delivery and performance of this Agreement;
this Agreement constitutes the valid and binding obligation and agreement of
Landlord, enforceable against Landlord 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.
21.2.3 No Violations of Agreements. Neither the execution,
delivery or performance of this Agreement by Landlord, nor compliance with the
terms and provisions hereof, will result in any material 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 material
property or assets of Landlord pursuant to the terms of any material indenture,
mortgage, deed of trust, note, evidence of indebtedness or any other agreement
or instrument by which Landlord is bound.
21.2.4 Litigation. No investigation, action or proceeding is
pending and, to Landlord's 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.
21.3 Survival, Etc. The representations and warranties set forth in
Section 21.1.5 shall remain in effect only for a one-year period after the date
of this Agreement. Except as otherwise expressly provided in this Agreement,
Tenant disclaims the making of any representations or warranties, express or
implied, regarding the Leased Property or matters affecting the Leased Property,
whether made by Tenant, on Tenant's behalf or otherwise, including, without
limitation, the physical condition of the Leased Property, title to or the
boundaries of the Land, 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 Leased Property or the
market and physical environments in which it is located. Landlord acknowledges
(i) that Landlord 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 the Leased Property
and (ii) that Landlord 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 Landlord by Tenant. Landlord
further acknowledges that it has not received from or on behalf of Tenant 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,
Landlord shall purchase the Leased Property in its "as is" condition on the date
hereof.
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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.
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.
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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, provided such successor owner shall have a
Tangible Net Worth of not less than Five Million Dollars ($5,000,000), (y) such
conveyance shall occur subsequent to the first anniversary of the Commencement
Date and (z) Landlord shall transfer in cash any unapplied balance of the
Security Deposit to such successor owner, 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 19 or otherwise permitted to be created
by Landlord hereunder provided that the holder of such Encumbrance has, to the
extent appropriate, executed a nondisturbance agreement pursuant to Section 19.2
or a subordination agreement in form and substance reasonably acceptable to
Tenant, (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 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 relevant 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
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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:
c/o Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Attn: Mr. John G. Murray
[Telecopier No. (617) 969-5730]
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attn: Alexander A. Notopoulos, Jr., Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
c/o Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: General Counsel
[Telecopier: (214) 863-1262]
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with a copy to:
Locke, Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attn: J. Mitchell Bell, Esq.
[Telecopier No. (214) 740-8800]
(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 Trade Area Restriction. Neither Tenant nor any of its Affiliated
Persons shall own, build, franchise, manage or operate any Summerfield Suites
hotel within the designated area on Exhibit C, at any time during the Term; it
being expressly understood and agreed that hotels other than Summerfield Suites
hotels (e.g., garden, full service, Sierra Suites or resort hotels) are not
subject to the foregoing restriction.
22.12 Construction. 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 provisions of this Agreement. Except as
otherwise set forth in this 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.
22.13 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.
22.14 Applicable Law, Etc. This Agreement shall be interpreted,
construed, applied and enforced in accordance with the laws of The Commonwealth
of Massachusetts applicable to contracts between residents of The Commonwealth
of Massachusetts which are to be performed entirely within The Commonwealth of
Massachusetts, regardless of (i) where this Agreement is
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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 Commonwealth of Massachusetts; 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 Commonwealth of Massachusetts as is provided by law; and the parties consent
to the jurisdiction of said court or courts located in The Commonwealth of
Massachusetts and to service of process by registered mail, return receipt
requested, or by any other manner provided by law.
22.15 Nonrecourse. Nothing contained in this Agreement shall be
construed to impose any liabilities or obligations on SHC or any of its
shareholders for the payment or performance of the obligations or liabilities of
Tenant under this Agreement.
22.16 Confidentiality. Except to prospective lenders and purchasers or
as may be required by law, the SEC or any securities and exchange commission,
Landlord shall not disclose any of Tenant's confidential or proprietary
information to any Person.
22.17 Costs and Expenses. Tenant shall pay its and Landlord's expenses
incident to the negotiation, preparation and carrying out of this Agreement,
including, without limitation, all reasonable fees and expenses of Landlord's
counsel. Tenant shall also pay the cost of all recording fees, transfer fees and
other like costs and expenses incident to this Agreement.
22.18 Nonliability of Trustees. THE DECLARATION OF TRUST ESTABLISHING
LANDLORD, 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 "HPTSHC 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 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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date above first written.
LANDLORD:
HPTSHC PROPERTIES TRUST
By: /s/ John G. Murray
Its President
TENANT:
SUMMERFIELD HPT LEASE COMPANY, L.P.,
a Kansas limited partnership
By: Summerfield HPT Lease Company
L.L.C., its General Partner
By: /s/ Judy L. Hendrick
Its: Authorized Representative
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EXHIBIT 10.15
MASTER LEASE AGREEMENT,
dated as of April 30, 1999,
by and among
HOSPITALITY PROPERTIES TRUST AND
HPTCY PROPERTIES TRUST,
as Landlord,
and
HMH HPT COURTYARD LLC,
as Tenant
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
1.1 "Accounting Period...............................................2
1.2 "Additional Rent.................................................2
1.3 "Additional Charges..............................................2
1.4 "Affiliated Person...............................................2
1.5 "Agreement.......................................................2
1.6 "Applicable Laws.................................................3
1.7 "Award...........................................................3
1.8 "Base Hotel Sales................................................3
1.9 "Base Year.......................................................3
1.10 "Business Day...................................................4
1.11 "Capital Addition...............................................4
1.12 "Capital Expenditure............................................4
1.13 "Cash Management Agreement......................................5
1.14 "Claim..........................................................5
1.15 "Code...........................................................5
1.16 "Collective Leased Properties...................................5
1.17 "Commencement Date..............................................5
1.18 "Condemnation...................................................5
1.19 "Condemnor......................................................5
1.20 "Consolidated Financials........................................6
1.21 "Date of Taking.................................................6
1.22 "Default........................................................6
1.23 "Distribution...................................................6
1.24 "Encumbrance....................................................6
1.25 "Entity.........................................................6
1.26 "Environment....................................................6
1.27 "Environmental Obligation.......................................7
1.28 "Environmental Notice...........................................7
1.29 "Event of Default...............................................7
1.30 "Excess Total Hotel Sales.......................................7
1.31 "Extended Terms.................................................7
1.32 "FF&E Reserve...................................................7
1.33 "Financial Officer's Certificate................................7
1.34 "Financials.....................................................7
1.35 "Fiscal Year....................................................8
1.36 "Fixed Term.....................................................8
1.37 "Fixtures.......................................................8
1.38 "GAAP...........................................................8
1.39 "Government Agencies............................................8
1.40 "Ground Lease...................................................8
<PAGE>
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1.41 "Hazardous Substances...........................................8
1.42 "Host...........................................................9
1.43 "Hotel..........................................................9
1.44 "Hotel Mortgage................................................10
1.45 "Hotel Mortgagee...............................................10
1.46 "Immediate Family..............................................10
1.47 "Impositions...................................................10
1.48 "Incidental Documents..........................................11
1.49 "Indebtedness..................................................11
1.50 "Initial Leases................................................11
1.51 "Insurance Requirements........................................12
1.52 "Interest Rate.................................................12
1.53 "Land..........................................................12
1.54 "Landlord......................................................12
1.55 "Landlord Liens................................................12
1.56 "Lease Year....................................................12
1.57 "Leased Improvements...........................................12
1.58 "Leased Intangible Property....................................12
1.59 "Leased Personal Property......................................13
1.60 "Leased Property...............................................13
1.61 "Legal Requirements............................................13
1.62 "Lending Institution...........................................13
1.63 "Lien..........................................................14
1.64 "Management Agreements.........................................14
1.65 "Manager.......................................................14
1.66 "Membership Pledge.............................................14
1.67 "Minimum Rent..................................................14
1.68 "Notice........................................................14
1.69 "Officer's Certificate.........................................14
1.70 "Overdue Rate..................................................15
1.71 "Parent........................................................15
1.72 "Permitted Encumbrances........................................15
1.73 "Permitted Liens...............................................15
1.74 "Permitted Use.................................................15
1.75 "Person........................................................15
1.76 "Pledge and Security Agreement.................................15
1.77 "Purchase Agreement............................................15
1.78 "Records.......................................................15
1.79 "Rent..........................................................16
1.80 "Request Notice................................................16
1.81 "Response Notice...............................................16
1.82 "SEC...........................................................16
1.83 "State.........................................................16
1.84 "Sublease Consent Agreement....................................16
1.85 "Subordination Agreement.......................................16
<PAGE>
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1.86 "Subsidiary....................................................16
1.87 "Subtenant Pledge..............................................16
1.88 "Subtenant Note Pledge.........................................16
1.89 "Successor Landlord............................................17
1.90 "Tangible Net Worth............................................17
1.91 "Tenant........................................................17
1.92 "Tenant's Personal Property....................................17
1.93 "Term..........................................................17
1.94 "Total Hotel Sales.............................................18
1.95 "Uniform System of Accounts....................................18
1.96 "Unsuitable for Its Permitted Use..............................18
1.97 "Work..........................................................18
ARTICLE 2
COLLECTIVE LEASED PROPERTIES AND TERM................................18
2.1 Collective Leased Properties....................................18
2.2 Condition of Collective Leased Properties.......................20
2.3 Fixed Term......................................................21
2.4 Extended Term...................................................21
2.5 Ground Lease Extensions.........................................21
ARTICLE 3
RENT.................................................................22
3.1 Rent............................................................22
3.2 Late Payment of Rent, Etc.......................................28
3.3 Net Lease.......................................................29
3.4 No Termination, Abatement, Etc..................................29
3.5 Security for Tenant's Performance...............................30
ARTICLE 4
USE OF THE COLLECTIVE LEASED PROPERTIES, ETC.........................31
4.1 Permitted Use...................................................31
4.2 Compliance with Legal/Insurance Requirements, Etc...............33
4.3 Environmental Matters...........................................33
ARTICLE 5
MAINTENANCE AND REPAIRS..............................................36
5.1 Maintenance and Repair..........................................36
5.2 Tenant's Personal Property......................................39
5.3 Yield Up........................................................39
5.4 Management Agreements...........................................40
<PAGE>
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ARTICLE 6
IMPROVEMENTS, ETC....................................................40
6.1 Improvements to the Leased Property.............................40
6.2 Salvage.........................................................41
ARTICLE 7
LIENS................................................................42
7.1 Liens...........................................................42
7.2 Landlord's Lien..................................................42
ARTICLE 8
PERMITTED CONTESTS...................................................43
ARTICLE 9
INSURANCE AND INDEMNIFICATION........................................44
9.1 General Insurance Requirements..................................44
9.2 Replacement Cost................................................46
9.3 Waiver of Subrogation...........................................46
9.4 Form Satisfactory, Etc..........................................46
9.5 Blanket Policy..................................................47
9.6 No Separate Insurance...........................................48
9.7 Indemnification of Landlord.....................................48
ARTICLE 10
CASUALTY.............................................................49
10.1 Insurance Proceeds.............................................49
10.2 Damage or Destruction..........................................49
10.3 Damage Near End of Term........................................52
10.4 Tenant's Property..............................................53
10.5 Restoration of Tenant's Property...............................53
10.6 No Abatement of Rent...........................................54
10.7 Waiver.........................................................54
ARTICLE 11
CONDEMNATION.........................................................54
11.1 Total Condemnation, Etc........................................54
11.2 Partial Condemnation...........................................54
11.3 Abatement of Rent..............................................56
<PAGE>
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11.4 Temporary Condemnation.........................................56
11.5 Allocation of Award............................................57
ARTICLE 12
DEFAULTS AND REMEDIES................................................57
12.1 Events of Default..............................................57
12.2 Remedies.......................................................61
12.3 Tenant's Waiver................................................63
12.4 Application of Funds...........................................64
12.5 Landlord's Right to Cure Tenant's Default......................64
ARTICLE 13
HOLDING OVER.........................................................65
ARTICLE 14
LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT......................65
14.1 Landlord Notice Obligation.....................................65
14.2 Landlord's Default.............................................65
ARTICLE 15
INTENTIONALLY DELETED................................................66
ARTICLE 16
SUBLETTING AND ASSIGNMENT............................................66
16.1 Subletting and Assignment......................................66
16.2 Required Sublease Provisions...................................68
16.3 Permitted Sublease.............................................70
16.4 Sublease Limitation............................................70
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.......................70
17.1 Estoppel Certificates..........................................70
17.2 Financial Statements...........................................71
17.3 General Operations.............................................72
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT..........................................73
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ARTICLE 19
INTENTIONALLY DELETED................................................73
ARTICLE 20
HOTEL MORTGAGES......................................................73
20.1 Landlord May Grant Liens.......................................73
20.2 Subordination of Lease.........................................74
20.3 Notices........................................................76
20.4 Transfer of Collective Leased Properties.......................76
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT.......................................77
21.1 Prompt Payment of Indebtedness.................................77
21.2 Conduct of Business............................................77
21.3 Maintenance of Accounts and Records............................77
21.4 Notice of Litigation, Etc......................................78
21.5 Indebtedness of Tenant.........................................78
21.6 Financial Condition of Tenant..................................79
21.7 Distributions, Payments to Affiliated Persons, Etc.............79
21.8 Prohibited Transactions........................................80
21.9 Liens and Encumbrances.........................................80
21.10 Merger; Sale of Assets; Etc....................................80
ARTICLE 22
MISCELLANEOUS........................................................81
22.1 Limitation on Payment of Rent..................................81
22.2 No Waiver......................................................81
22.3 Remedies Cumulative............................................81
22.4 Severability...................................................82
22.5 Acceptance of Surrender........................................82
22.6 No Merger of Title.............................................82
22.7 Conveyance by Landlord.........................................82
22.8 Quiet Enjoyment................................................83
22.9 Memorandum of Lease............................................83
22.10 Notices.......................................................83
22.11 Construction; Nonrecourse.....................................85
22.12 Counterparts; Headings........................................86
22.13 Applicable Law, Etc...........................................86
22.14 Right to Make Agreement.......................................87
22.15 Nonliability of Trustees......................................87
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EXHIBITS
A - Allocation of Minimum Rent
B-1-53 - The Land
<PAGE>
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is entered into as of this 30th day of
April, 1999, by and among HOSPITALITY PROPERTIES TRUST ("HPT") and HPTCY
PROPERTIES TRUST ("HPTCY" and, together with HPT, "Landlord"), each a Maryland
real estate investment trust, as landlord, and HMH HPT COURTYARD LLC, a Delaware
limited liability company, as tenant ("Tenant").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to (i) the 21 leases, dated March 24, 1995 (as
amended, the "Original Leases"), between HPT, as successor in interest to
Hospitality Properties, Inc. and Tenant, successor by merger to HMH HPT
Courtyard, Inc., (ii) the 16 leases dated August 22, 1995 (as amended, the
"Second Closing Leases"), between HPT and Tenant, and (iii) the 16 leases some
dated March 22, 1996 and some dated April 4, 1996 (as amended, "Third Closing
Leases" and, together with the Original Leases and the Second Closing Leases,
the "Initial Leases") between HPTCY, successor in interest to HPTCY Corporation.
Landlord leased certain properties to Tenant and Tenant leased certain
properties from Landlord, all subject to and upon the terms and conditions set
forth in the Initial Leases; and
WHEREAS, Landlord and Tenant wish to amend certain terms of the Initial
Leases and consolidate the Initial Leases into a single master lease agreement,
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
consolidate, amend and restate the Initial Leases as follows:
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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 Agreements.
1.2 "Additional Rent" shall have the meaning given such term in Section
3.1.2(a).
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).
<PAGE>
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1.5 "Agreement" shall mean this Master Lease Agreement, including
Exhibits A and B 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, pesticides,
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, with respect to any Leased Property, all
compensation, sums or other value awarded, paid or received by virtue of a total
or partial Condemnation of such Leased Property (after deduction of all
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 Hotel Sales" shall mean the aggregate Total Hotel Sales for
the Collective Leased Properties for the Base Year; provided, however, that, in
the event that, with respect to any
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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
any Hotel or a change in the services provided at any Hotel (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 Hotel Sales shall be reduced as follows: (a) in
the event of the termination of this Agreement with respect to any Leased
Property, all Total Hotel Sales attributable to such Leased Property during the
Base Year shall be subtracted from Base Hotel Sales; (b) in the event of a
complete closing of any Hotel at any Leased Property, all Total Hotel Sales
attributable to such Hotel during the Base Year shall be subtracted from Base
Hotel Sales throughout the period of such closing; (c) in the event of a partial
closing of any Hotel affecting any number of guest rooms in such Hotel, Total
Hotel Sales 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 Total Hotel Sales
attributable to rooms no longer in service shall be subtracted from Base Hotel
Sales throughout the period of such closing; (d) in the event of a closing of a
restaurant at any Leased Property, all Total Hotel Sales attributable to such
restaurant during the Base Year shall be subtracted from Base Hotel Sales
throughout the period of such closing; and (e) in the event of any other change
in circumstances affecting any Hotel, Base Hotel Sales shall be equitably
adjusted in such manner as Landlord and Tenant shall reasonably agree.
1.9 "Base Year" shall mean the 1994 Fiscal Year for the Collective
Leased Properties identified as Group A and Group C on Exhibit A, and the 1995
Fiscal Year for the Collective Leased Properties identified as Group D on
Exhibit A.
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, with respect to any Leased
Property, any renovation, repair or improvement to such
<PAGE>
-5-
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 for such Leased Property.
1.12 "Capital Expenditure" shall mean any expenditure treated as
capital in nature in accordance with GAAP.
1.13 "Cash Management Agreement" shall mean that certain Cash
Management Agreement, dated as of the date hereof, by and among Landlord, Tenant
and CCMH Courtyard I LLC.
1.14 "Claim" shall have the meaning given such term in Article 8.
1.15 "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.
1.16 "Collective Leased Properties" shall have the meaning given such
term in Section 2.1.
1.17 "Commencement Date" shall mean, with respect to any Leased
Property, the date of the Initial Lease with respect to such Leased Property.
1.18 "Condemnation" shall mean, with respect to any Leased Property,
(a) the exercise of any governmental power with respect to such Leased Property,
whether by legal proceedings or otherwise, by a Condemnor of its power of
condemnation, (b) a voluntary sale or transfer of such 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 such 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 such Leased Property,
whether or not the same shall have actually been commenced.
1.19 "Condemnor" shall mean any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
<PAGE>
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1.20 "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.
1.21 "Date of Taking" shall mean, with respect to any Leased Property,
the date the Condemnor has the right to possession of such Leased Property, or
any portion thereof, in connection with a Condemnation.
1.22 "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.
1.23 "Distribution" shall mean (a) any declaration or payment of any
dividend (except dividends payable in equity interests in Tenant) on or in
respect of any equity interests in Tenant, (b) any purchase, redemption,
retirement or other acquisition of any equity interests in an Entity, (c) any
other distribution on or in respect of any equity interests in an Entity, or (d)
any return of capital to equity interest holders.
1.24 "Encumbrance" shall have the meaning given such term in Section
20.1.
1.25 "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.
1.26 "Environment" shall mean soil, surface waters, ground waters,
land, stream, sediments, surface or subsurface strata and ambient air.
<PAGE>
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1.27 "Environmental Obligation" shall have the meaning given such term
in Section 4.3.1.
1.28 "Environmental Notice" shall have the meaning given such term in
Section 4.3.1.
1.29 "Event of Default" shall have the meaning given such term in
Section 12.1.
1.30 "Excess Total Hotel Sales" shall mean, with respect to any fiscal
quarter of any Lease Year, or portion thereof, the amount of Total Hotel Sales
for such quarter, or portion thereof, in excess of Base Hotel Sales for the
equivalent period.
1.31 "Extended Terms" shall have the meaning given such term in Section
2.4.
1.32 "FF&E Reserve" shall have the meaning given such term in the
Management Agreements.
1.33 "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 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.
1.34 "Financials" shall mean, for any Fiscal Year or other accounting
period of Tenant, annual audited and quarterly unaudited financial statements of
Tenant prepared on a consolidated basis, including Tenant'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
<PAGE>
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preceding Fiscal Year, and prepared in accordance with GAAP throughout the
periods reflected.
1.35 "Fiscal Year" shall have the meaning given such term in the
Management Agreements.
1.36 "Fixed Term" shall have the meaning given such term in Section
2.3.
1.37 "Fixtures" shall have the meaning given such term in Section
2.1(d).
1.38 "GAAP" shall mean generally accepted accounting principles
consistently applied.
1.39 "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
Collective Leased Properties or any portion thereof or any Hotel operated
thereon.
1.40 "Ground Lease" shall mean, with respect to any Leased Property,
any ground lease affecting such Leased Property.
1.41 "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 ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. et seq.) and the
<PAGE>
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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 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 any Leased Property causes or
materially threatens to cause an unlawful nuisance upon such Leased
Property or to adjacent properties or poses or materially threatens to
pose a hazard to such 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.
1.42 "Host" shall mean Host Marriott, L.P., a Delaware limited
partnership.
1.43 "Hotel" shall mean, with respect to any Leased Property, the
Marriott Courtyard Hotel being operated on such Leased Property.
<PAGE>
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1.44 "Hotel Mortgage" shall mean, with respect to any Leased Property,
any Encumbrance placed upon such Leased Property in accordance with Article 20.
1.45 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage.
1.46 "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.
1.47 "Impositions" shall mean collectively, all taxes (including,
without limitation, all taxes imposed under the laws of any 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 to or are imposed upon Landlord, Tenant or the business conducted
upon the Collective Leased Properties), 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 Collective Leased
Properties or the business conducted thereon (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 any Leased
Property, (b) the Collective Leased Properties 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 any Leased Property or the leasing or use of the Collective
Leased Properties 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
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respect to the sale, exchange or other disposition by Landlord of any 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, assessment, 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 any agreement governing Landlord's conduct or operation or as a
result of the gross negligence or willful misconduct of Landlord.
1.48 "Incidental Documents" shall mean, collectively, the Membership
Pledge, the Subtenant Pledge, the Subtenant Note Pledge, the Pledge and Security
Agreement, the Sublease Consent Agreement and the Cash Management Agreement.
1.49 "Indebtedness" shall mean all obligations, contingent or
otherwise, which in accordance with GAAP should be reflected on the obligor's
balance sheet as liabilities.
1.50 "Initial Leases" shall have the meaning given such term in the
preambles to this Agreement.
<PAGE>
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1.51 "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 any of the Collective Leased
Properties.
1.52 "Interest Rate" shall mean ten percent (10%) per annum.
1.53 "Land" shall have the meaning given such term in Section 2.1(a).
1.54 "Landlord" shall have the meaning given such term in the preambles
to this Agreement.
1.55 "Landlord Liens" shall mean liens on or against the Collective
Leased Properties 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 any
Leased Property (other than any lessor under a Ground Lease), 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 any Leased Property (other than any lessor under a Ground Lease);
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.
1.56 "Lease Year" shall mean any Fiscal Year or portion thereof,
commencing with the 1995 Fiscal Year, during the Term.
1.57 "Leased Improvements" shall have the meaning given such term in
Section 2.1(b).
1.58 "Leased Intangible Property" shall mean, with respect to any
Leased Property, all hotel licensing agreements and other service contracts,
equipment leases, booking agreements and other
<PAGE>
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arrangements or agreements affecting the ownership, repair, maintenance,
management, leasing or operation of such Leased Property to which Landlord is a
party; all books, records and files relating to the leasing, maintenance,
management or operation of such 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 such Leased Property, and all other
transferable intangible property, miscellaneous rights, benefits and privileges
of any kind or character belonging to Landlord with respect to such Leased
Property.
1.59 "Leased Personal Property" shall have the meaning given such term
in Section 2.1(e).
1.60 "Leased Property" shall mean any one of the Collective Leased
Properties.
1.61 "Legal Requirements" shall mean, with respect to any Leased
Property, all federal, state, county, municipal and other governmental statutes,
laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions
affecting such 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 such Leased Property for its Permitted Use, and
(b) all covenants, agreements, restrictions and encumbrances contained in any
instruments at any time in force affecting such Leased Property, including those
which may (i) require material repairs, modifications or alterations in or to
such 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.
1.62 "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
<PAGE>
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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.
1.63 "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.
1.64 "Management Agreements" shall mean collectively, with respect to
the Collective Leased Properties, or individually, with respect to any Leased
Property, the Management Agreement, between HMH HPT Courtyard, Inc. and the
Manager, for such Leased Property, together with all amendments, modifications
and supplements thereto.
1.65 "Manager" shall mean Courtyard Management Corporation, a Delaware
corporation.
1.66 "Membership Pledge" shall mean the Membership Interest Pledge and
Security Agreement, dated the date hereof, made by Host for the benefit of
Landlord.
1.67 "Minimum Rent" shall mean the annual amount of Fifty Million Six
Hundred Forty-Six Thousand Three Hundred Seventy-Nine and no/100 Dollars
($50,646,379) as allocated per Accounting Period, as adjusted from time to time
pursuant to Section 3.1.1, which amount is allocated among the Collective Leased
Properties as set forth on Exhibit A.
1.68 "Notice" shall mean a notice given in accordance with Section
22.10.
1.69 "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.
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1.70 "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.
1.71 "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.
1.72 "Permitted Encumbrances" shall mean, with respect to any Leased
Property, 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 in connection with Landlord's acquisition of such Leased Property,
plus any other such encumbrances as may have been consented to in writing by
Landlord from time to time.
1.73 "Permitted Liens" shall mean any Liens granted in accordance with
Section 21.9(a).
1.74 "Permitted Use" shall mean, with respect to any Leased Property,
any use of such Leased Property permitted pursuant to Section 4.1.1(a) or (b).
1.75 "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.
1.76 "Pledge and Security Agreement" shall mean, with respect to any
Leased Property, the Security Agreement made by Tenant for the benefit of
Landlord, as amended from time to time.
1.77 "Purchase Agreement" shall mean the Purchase-Sale and Option
Agreement, dated as of February 3, 1995, by and between Hospitality Properties
Trust and HMH Properties, Inc., as amended.
1.78 "Records" shall have the meaning given such term in Section 7.2.
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1.79 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent
and Additional Charges.
1.80 "Request Notice" shall have the meaning given such term in Section
16.1.
1.81 "Response Notice" shall mean the meaning given such term in
Section 16.1.
1.82 "SEC" shall mean the Securities and Exchange Commission.
1.83 "State" shall mean, with respect to any Leased Property, the state
or commonwealth or district in which such Leased Property is located.
1.84 "Sublease Consent Agreement" shall mean the Consent to Sublease
and Agreement, dated as of the date hereof, by and among Landlord, Tenant and
CCMH Courtyard I LLC.
1.85 "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.
1.86 "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).
1.87 "Subtenant Pledge" shall mean the Membership Interest Pledge and
Security Agreement, dated the date hereof made by Crestline Capital Corporation
for the benefit of Landlord.
1.88 "Subtenant Note Pledge" shall mean the Pledge and Security
Agreement Demand Note, dated the date hereof, made by CCMH Courtyard I LLC, for
the benefit of Landlord.
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1.89 "Successor Landlord" shall have the meaning given such term in
Section 20.2.
1.90 "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, (i) from the determination of total
assets: (a) goodwill, organizational expenses, research and development
expenses, 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; and (g) any items not included in clauses
(a) through (f) above that are treated as intangibles in conformity with GAAP,
and (ii) from the determination of total liabilities: deferred gain.
1.91 "Tenant" shall have the meaning given such term in the preambles
to this Agreement.
1.92 "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
Collective Leased Properties or used in Tenant's business at the Collective
Leased Properties 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.
1.93 "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.
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1.94 "Total Hotel Sales" shall mean, with respect to any Leased
Property, "Gross Revenues" as defined in the Management Agreement for such
Leased Property.
1.95 "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.
1.96 "Unsuitable for Its Permitted Use" shall mean, with respect to any
Hotel, a state or condition of such Hotel such that (a) following any damage or
destruction involving such Hotel, such 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 on which such Hotel is located following such
damage or destruction, or (b) as the result of a partial taking by Condemnation,
such Hotel cannot be operated, in the good faith judgment of Tenant or the
Manager on a commercially practicable basis for its Permitted Use.
1.97 "Work" shall have the meaning given such term in Section 10.2.4.
ARTICLE 2
COLLECTIVE LEASED PROPERTIES AND TERM
2.1 Collective Leased Properties. 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 "Collective Leased Properties"):
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(a) those certain tracts, pieces and parcels of land, as more
particularly described in Exhibit B-1-53, attached hereto and made a
part hereof (collectively, 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 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");
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(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 Collective Leased Properties. Tenant acknowledges
receipt and delivery of possession of the Collective Leased Properties and
Tenant accepts the Collective Leased Properties in their "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
Collective Leased Properties, 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 Collective Leased
Properties and the record title thereto or by an accurate survey thereof. TENANT
REPRESENTS THAT IT HAS INSPECTED THE COLLECTIVE LEASED PROPERTIES 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 COLLECTIVE LEASED PROPERTIES. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE COLLECTIVE
LEASED PROPERTIES 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 Collective Leased Properties.
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.
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2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term")
commenced on the Commencement Date and shall expire December 31, 2012.
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,
the Term shall be automatically extended for three (3) consecutive renewal terms
of twelve (12) 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).
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.
2.5 Ground Lease Extensions. Notwithstanding the foregoing, if Landlord
has the right, under the provisions of any Ground Lease, to elect to renew or
extend the term of such Ground Lease, Tenant shall so notify Landlord at least
one hundred eighty (180) days (but no more than one (1) year) prior to the
expiration of the period within which Landlord is obligated to notify the
landlord under such Ground Lease of its election to renew or extend the term of
such Ground Lease. Such notice from Tenant 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, and shall state whether
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Tenant approves or disapproves the renewal or extension of the term of such
Ground Lease.
If Tenant fails to disapprove the renewal or extension of the term of
such Ground Lease and Landlord renews or directs Tenant to renew the term of
such Ground Lease, the Term of this Agreement with respect to the applicable
Leased Property shall be deemed to be automatically extended to the later of:
(a) the expiration of the term of such Ground Lease, as renewed or extended; or
(ii) the date on which the Term of this Agreement would otherwise have expired
absent this sentence. If Tenant disapproves the renewal or extension of the term
of such Ground Lease, the Term of this Agreement with respect to the applicable
Leased Property shall be deemed to be automatically reduced to the earlier of:
(i) the expiration of the term of such Ground Lease, as renewed or extended; or
(ii) the date on which the Term of this Agreement would otherwise have expired
absent this sentence.
If Tenant disapproves the renewal of such Ground Lease at any time that
there remain unexercised options to extend the term of this Agreement for any of
the Extended Terms, the same shall constitute an election by Tenant not to
exercise its right to extend the term of this Agreement for such Extended Terms.
In the event of any termination of any Ground Lease, this Agreement
shall automatically terminate with respect to the applicable Leased Property.
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 by other means acceptable to Landlord in
its sole discretion.
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Rent for any partial Accounting Period shall be prorated on a per diem basis. So
long as the Cash Management Agreement remains in effect, Rent payments shall be
made in accordance with the terms thereof.
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 to any Leased Property pursuant to Sections
5.1.2(b), 10.2.4 or 11.2, the Minimum Rent (and such Leased Property's
allocable share thereof) 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 fiscal quarter of each Lease Year or
portion thereof, Tenant shall pay an aggregate amount of additional
rent ("Additional Rent") with respect to such period, in an amount, not
less than zero, equal to five percent (5%) of Excess Total Hotel Sales
for such period.
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(b) Quarterly Payments. Payments of Additional Rent for each
fiscal quarter of each Lease Year shall be calculated and paid 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
Agreements) delivered pursuant to Section 5.03 of the Management
Agreements shall be delivered to Landlord upon receipt by Tenant and
each quarterly payment of Additional Rent shall be due and payable and
shall be delivered to Landlord with the payment of the Minimum Rent
next due after receipt of such Accounting Period Statements, 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, Tenant shall deliver to Landlord an
Officer's Certificate setting forth the Total Hotel Sales and the
calculation of Additional Rent for the Collective Leased Properties for
each fiscal quarter of such preceding Lease Year, together with an
audit of Tenant conducted by Arthur Andersen LLP, or another firm of
independent certified public accountants proposed by Tenant and
approved by Landlord (which approval shall not be unreasonably withheld
or delayed).
If Additional Rent due as shown in the Officer's Certificate
exceeds the amounts 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
Additional Rent due 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
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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 Total Hotel
Sales 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 Total Hotel Sales 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 Total
Hotel Sales 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
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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 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
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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 Collective Leased Properties 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 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.
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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 Collective Leased Properties.
(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, ground rents and other sums payable under any Ground Lease
and all amounts payable under or with respect to the Management
Agreements (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
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to those Additional Charges which are payable directly to Landlord) shall not be
paid within ten (10) days after its due 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
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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 Collective Leased Properties 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 Collective Leased
Properties, 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 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 Collective Leased Properties 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)
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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.
ARTICLE 4
USE OF THE COLLECTIVE LEASED PROPERTIES, ETC.
4.1 Permitted Use.
4.1.1 Permitted Use.
(a) Except as otherwise provided in the Management Agreements,
Tenant shall, at all times during the Term and at any other time that
Tenant shall be in possession of the Collective Leased Properties,
continuously use and operate, and cause the Manager to use and operate,
each of the Collective Leased Properties as a Marriott Courtyard hotel
and any uses incidental thereto. Subject to Section 16.3, Tenant shall
not use (and shall direct the Manager not to use) any 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
any Leased Property and no acts shall be done thereon which will cause
the cancellation of any insurance policy covering such Leased Property
or any part thereof (unless another adequate policy is available) or
which would constitute a default under any Ground Lease affecting such
Leased Property, nor shall Tenant sell or otherwise provide or permit
to be kept, used or sold in or about any Leased Property any article
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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
Agreements, 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
any 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 any
Leased Property as a Marriott Courtyard 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 such 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, all approvals necessary to use and operate, for
its Permitted Use, each of the Collective Leased Properties and the Hotels
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 any 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 any Leased Property, or in any 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 Collective Leased Properties, 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
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such, or of implied dedication of any Leased Property or any portion thereof.
4.2 Compliance with Legal/Insurance Requirements, Etc. Except as
otherwise provided in the Management Agreements, 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 Collective Leased Properties and with the terms and
conditions of any Ground Lease affecting any Leased Property, (ii) perform all
of Landlord's obligations as tenant under any Ground Lease and (iii) procure,
maintain and comply with all appropriate licenses, and other authorizations and
agreements required for any use of each of the Collective Leased Properties and
Tenant's Personal Property, if any, then being made, and for the proper
erection, installation, operation and maintenance of each of the Collective
Leased Properties 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 any Leased Property, Tenant shall not
(and shall direct the Manager not to) store, spill upon, dispose of or transfer
to or from any 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 any Leased Property, Tenant shall maintain (and shall direct
the Manager to maintain) each 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 any
Leased Property, (b) transmit to Landlord a copy of any Community Right to Know
report which is required to be filed by Tenant or the Manager with respect to
any 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
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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 official, court or
agency of competent jurisdiction relating to the use or maintenance or requiring
the removal, treatment, containment 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 any 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 such Leased Property and (iii) to use good
faith efforts to eliminate any further release or threat of release of Hazardous
Substances on or about such 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
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during the Term (or any other time Tenant shall be possession of any Leased
Property) in, upon or under the soil or ground water of the Collective Leased
Properties or any properties surrounding the Collective Leased Properties 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 such
presence prior to the expiration or sooner termination of the Term and the
surrender of the Collective Leased Properties to Landlord in accordance with the
terms of this Agreement of Hazardous Substances in, upon or under the soil or
ground water of any of the Collective Leased Properties 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.
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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 Collective Leased Properties 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 any Leased Property or Tenant's Personal Property, if any, 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 any
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
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Manager to fund, into the FF&E Reserve a cash amount equal to not less
than five percent (5%) of Total Hotel Sales from the Collective Leased
Properties 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 Collective Leased Properties in accordance
with this Agreement and the Management Agreements. Provided that Tenant
shall comply with the provisions of this paragraph (b) and any similar
provisions of the Management Agreements, any additional funds required
for repairs, maintenance, renovations and replacements to and at the
Collective Leased Properties 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 Collective Leased Properties, or to make
any repairs, replacements, alterations, restorations or renewals of any
nature or description to the Collective Leased Properties, 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 the
Collective Leased Properties 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, any of the Management Agreements require
that funds be disbursed for repairs, maintenance, renovations or
replacements at or to any Leased Property (including, but not limited
to, pursuant to Section 8.01 and 8.03 of the Management Agreements),
or, pursuant to the terms of this Agreement (including, without
limitation, Section 4.3), Tenant is required to make any expenditures
in
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connection with any repair, maintenance renovation with respect to any
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 Collective Leased Properties, or any part thereof,
are hereby charged with notice that liens on the Collective Leased Properties 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 Collective Leased Properties
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 Collective
Leased Properties or any part thereof nor to subject Landlord's estate in the
Collective Leased Properties or any part thereof to liability under any
Mechanic's Lien Law of any State in any way,
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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, on or 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 Collective Leased Properties 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 with respect to the
applicable Leased Property and the assumption of management or operation of the
applicable Hotel by Landlord or its designee.
5.3 Yield Up. Upon the expiration or sooner termination of this
Agreement, Tenant shall vacate and surrender each Leased Property to Landlord in
substantially the same condition in which such 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 each of the Hotels as then operated.
Consistent with the terms of the Management Agreements, if requested by
Landlord, Tenant will direct the Manager to continue to manage any Hotel
designated by Landlord after the expiration of the Term and for up to one
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hundred twenty (120) days, on such reasonable terms (which shall include an
agreement to reimburse the Manager for its reasonable out-of-pocket costs and
expenses, and reasonable administrative costs), as Landlord shall reasonably
request.
5.4 Management Agreements. 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 Agreements, 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
Agreements. Tenant shall not amend or modify any of the Management Agreements
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 Agreements, permit
any action under any of the Management Agreements, which might have a material
adverse effect on Landlord, without the prior written consent of Landlord.
Except as provided in the Management Agreements, Tenant shall not agree to any
change in the Manager, to any change in the Management Agreements, terminate the
Management Agreements or permit the Manager to assign the Management Agreements
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 Agreements (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 at any Leased
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Property 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
such 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 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 at any Leased Property which would tie in or connect any Leased
Improvement with any other improvements on property adjacent to such 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 any 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
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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 Collective Leased Properties or Tenant's leasehold interest therein or
any attachment, 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 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 Collective Leased Properties at any time when a Default or an
Event of Default has occurred and is continuing.
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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 any 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 such Leased Property (Landlord agreeing that any such
mortgage or deed of trust shall permit Tenant and the 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 such Leased Property,
(c) no part of such 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
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entitled to any refund of any Claims and such charges and penalties 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 Collective
Leased Properties, keep (or direct the Manager to keep) each 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 with respect to
each Leased Property:
(a) "All-risk" property insurance, including insurance against
loss or damage by fire, vandalism and malicious mischief, explosion of
steam boilers, pressure vessels or other similar apparatus, now or
hereafter installed in the Hotel located at such 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) (except
that the foregoing shall not be construed to require Tenant to maintain
earthquake insurance if the same is unavailable on commercially
reasonable terms, provided Tenant gives Landlord prior Notice thereof);
(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
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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 (except that the
foregoing shall not be construed to require Tenant to maintain
earthquake insurance if the same is unavailable on commercially
reasonable terms, provided Tenant gives Landlord prior Notice thereof);
(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 such 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 such 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.
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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 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 determination 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 any 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
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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 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 to each Leased Property will not be reduced or
diminished from that which would exist under a separate policy for each Leased
Property 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.
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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 Collective Leased Properties 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
Collective Leased Properties or Tenant's Personal Property 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 Collective Leased
Properties 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
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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 any 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 any 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 such 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
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.
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10.2.1 Damage or Destruction of Leased Property. If, during
the Term, any 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 with respect to such Leased Property, whereupon, this
Agreement shall terminate with respect to such Leased Property, the Minimum Rent
shall be reduced by the amount thereof allocable to such Leased Property, 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, any
Leased Property shall be totally or partially destroyed but the Hotel thereon is
not rendered Unsuitable for Its Permitted Use, Tenant shall, subject to Section
10.2.3, promptly restore such Hotel as provided in Section 10.2.4.
10.2.3 Insufficient Insurance Proceeds. (a) If the cost of the
repair or restoration of the applicable 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 with respect to the applicable Leased Property by Notice to the
other, whereupon, this Agreement shall terminate with respect to such Leased
Property as provided in
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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 deductible to
Landlord at the time and in the manner herein provided for payment of the
applicable proceeds to Landlord.
(b) Notwithstanding the provisions of Section 10.2.3(a), if Tenant
repairs damage or destruction of any Leased Property located in California
resulting from an earthquake, whether such damage or destruction be Material
Earthquake Damage (as defined in Section 10.3(b)) or otherwise, and the cost of
the repair or restoration exceeds the amount of insurance proceeds (if any)
received by Landlord and Tenant pursuant to Article 9(a), (c), (d) or, if
applicable, (e), Landlord shall, at the request of Tenant, provide funding for
such repairs or restoration, and the Minimum Rent shall be adjusted as provided
in Section 3.1.1(b).
10.2.4 Disbursement of Proceeds. In the event Tenant is
required to restore any 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 such Leased Property (hereinafter called
the "Work"), so as to restore such Leased Property in compliance with all Legal
Requirements and so that such 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
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certificates, (v) unconditional lien waivers of general contractors, 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 any 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. (a) Notwithstanding any provisions of
Section 10.1 or 10.2 to the contrary, if damage to or destruction of any Leased
Property occurs during the last twelve (12) months of the 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 the end of such
Extended Term, the provisions of Section 10.2.1 shall apply as if such Leased
Property had been totally or partially destroyed and the Hotel thereon rendered
Unsuitable for its Permitted Use.
(b) Notwithstanding any provisions of Section 10.1 or 10.2 to the
contrary, if (x) Material Earthquake Damage (as defined below) to any Leased
Property located in California occurs and (y) Tenant was not required to
maintain earthquake insurance pursuant to Section 9.1, Tenant shall have the
right, by the giving of Notice thereof to Landlord within sixty (60) days after
the date of earthquake, to terminate this Agreement with respect to such Leased
Property; if Tenant shall so elect to terminate this Agreement with respect to
such Leased Property then, subject to the next sentence of this paragraph, this
Agreement shall terminate with respect to such Leased Property as of the date of
earthquake. Tenant shall, as a condition precedent to the effectiveness of such
termination, pay to Landlord an amount equal to the Minimum Rent allocable to
such Leased Property
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payable for the balance of the Term (without giving effect to such termination),
which payment may be made, at Tenant's election, by application thereto of the
Retained Funds (as defined in the Purchase Agreement); provided, however, that
in no event shall Tenant be required to pay to Landlord pursuant to this Section
10.3(b) with respect to Collective Leased Properties located in California an
aggregate amount in excess of Seventeen Million One Hundred Twenty Thousand
Dollars ($17,120,000).
For purposes of this Section 10.3(b), "Material Earthquake Damage"
shall mean damage or destruction of a Leased Property resulting from earthquake,
the repair or restoration of which will cost in excess of an amount equal to (x)
One Million Five Hundred Thousand Dollars ($1,500,000) plus (y) One Million Five
Hundred Thousand Dollars ($1,500,000) multiplied by a fraction, the denominator
of which shall be the Index for the nearest month prior to March 22, 1996 and
the numerator of which shall be the Index for the nearest month prior to the
date of such earthquake.
For purposes of this Section 10.3(b),"Index" shall mean the Consumer
Price Index for Urban Wage Earners and Clerical Workers, All Cities, All Items,
1982-1984 = 100. The Index is presently published by the Bureau of Labor
Statistics of the United States Department of Labor. In the event that the
publication of the Index ceases, Material Earthquake Damage shall be computed on
the basis of whatever index published at that time is most nearly comparable, as
reasonably determined by Landlord.
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
any 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 such Leased Property.
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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 Collective Leased
Properties (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 Collective Leased Properties 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 any of the Collective
Leased Properties.
ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc. If either (i) the whole of any Leased
Property shall be taken by Condemnation or (ii) a Condemnation of less than the
whole of any Leased Property renders such Leased Property Unsuitable for Its
Permitted Use, this Agreement shall terminate with respect to such Leased
Property, the Minimum Rent shall be reduced by the amount allocable thereto and
Tenant and Landlord shall seek the Award for their interests in such Leased
Property as provided in Section 11.5.
11.2 Partial Condemnation. In the event of a Condemnation of less than
the whole of any Leased Property such that such 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
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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
such 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 with respect to such Leased Property 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 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
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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 applicable
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 any Leased Property. The provisions
of this Article 11 shall be considered an express agreement governing any
Condemnation involving any 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 any 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 applicable 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.
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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 any Leased Property, loss of business
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
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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 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 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 any 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 such 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 or the
Purchase Agreement, or in any document, certificate or agreement
delivered in connection
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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 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 commence a foreclosure action in
connection with said mortgage; or
(l) should the estate or interest of Tenant in the Collective
Leased Properties 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
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(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
Agreements) by Tenant as "Owner" under any Management Agreement occur
and be continuing beyond the expiration of any applicable cure period
under such Management Agreement; or
(n) should Tenant at any time cease to be a direct or indirect
Subsidiary of Host; or
(o) should Tenant amend any provision of its charter documents
with respect to purposes, management, transfers of interests,
separateness requirements, or any provision which requires or provides
for the consent of the independent member;
then, and in any such event, Landlord, in addition to all other remedies
available to it, may terminate this Agreement with respect to any or all of the
Collective Leased Properties by giving Notice thereof to Tenant and upon the
expiration of the time, if any, fixed in such Notice, this Agreement shall
terminate with respect to those of the Collective Leased Properties designated
in such notice and all rights of Tenant under this Agreement with respect
thereto 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, including, without limitation, the remedy described in
California Civil Code Section 1951.4, if applicable.
Upon the occurrence of an Event of Default, subject to the rights of
the Manager under the Management Agreements, Landlord may, in addition to any
other remedies provided herein, enter upon the Collective Leased Properties 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 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
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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 with
respect to any or all of the Collective Leased Properties pursuant to Section
12.1, (b) the repossession of any of the Collective Leased Properties or any
portion thereof, (c) the failure of Landlord to re-let any Leased Property or
any portion thereof, nor (d) the reletting of all or any of portion of any
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 applicable 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 such 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 such 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 Leased Property.
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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 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 Agreements, (a) relet any 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 any 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 any Leased Property,
or, in the event that any Leased Property is relet, for failure to collect the
rent under such reletting.
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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 any 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.
Notwithstanding the foregoing, in the case of any termination of this
Agreement with respect to any Leased Property located in California, Tenant
shall forthwith pay to Landlord:
(i) The worth at the time of award of any unpaid Rent which has
been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss
Tenant proves reasonably could have been avoided; plus
(iii) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such rental loss that Tenant
proves reasonably could be avoided; and
(iv) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
its obligations under this Agreement with respect to such
Leased Property or which in the ordinary course would be
likely to result therefrom.
As used in subsections (i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the maximum rate allowable by law. As
used in subsection (iii) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED WITH RESPECT TO
ANY OR ALL OF THE COLLECTIVE LEASED PROPERTIES
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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 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, NEITHER THE INITIAL
RETAINED FUNDS NOR THE OPTION RETAINED FUNDS (AS SUCH TERMS ARE DEFINED IN THE
PURCHASE AGREEMENT) SHALL 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 any applicable 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 Collective Leased Properties
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.
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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 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 Collective Leased Properties
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 any Ground Lease, the Management Agreements or
any other agreement affecting the Collective Leased Properties 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
Collective Leased Properties, 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
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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 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
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Agreement or sublease (which term shall be deemed to include the granting of
concessions, licenses and the like), all or any part of any of the Collective
Leased Properties 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 any of the Collective Leased Properties by anyone other than
Tenant and the Manager, or any of the Collective Leased Properties to be offered
or advertised for assignment or subletting. For purposes of this Section 16.1,
assignment and/or transfer 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 or
other transfer of this Agreement by Tenant provided that (i) the Manager shall
have granted its consent to such transfer and the Management Agreements shall
remain in full force and effect, (ii) such assignee shall, in Landlord's
reasonable determination, have sufficient financial resources and liquidity to
fulfill Tenant's obligations under this Agreement and shall be a, so-called,
"bankruptcy remote" Entity, and (iii) 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 or otherwise transfer this Agreement as provided in this paragraph,
Tenant shall give Landlord Notice thereof (the "Request Notice"), which Request
Notice shall identify the proposed transferee and the terms and conditions of
the assignment or other transfer 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
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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 transferee.
If this Agreement is assigned or otherwise transferred or if any of the
Collective Leased Properties 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 Collective Leased Properties entered into on or after the date hereof
shall be consistent with any applicable terms and conditions of the Management
Agreements 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 in whole or in part of this
Agreement or reentry or dispossession of Tenant by Landlord under this
Agreement, Landlord may, at its option, terminate such 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
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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 Collective Leased Properties 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 occupying any portion of the Collective
Leased Properties; 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 any 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.
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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.
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 Agreements), sublease space at the
Collective Leased Properties 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 at any Leased
Property, 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 or otherwise enter into any agreement with respect to any
Leased Property on any basis such that the rental or other fees 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
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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 Collective Leased Properties or
the leasehold estate created hereby.
17.2 Financial Statements. Tenant shall furnish the following
statements to Landlord:
(a) within forty-five (45) days after each of the first three
quarters of any Fiscal Year, the most recent Consolidated Financials
and 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 and 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
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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.
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
any of the Collective Leased Properties 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 each of the Hotels 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
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operating the Hotels 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 Agreements.
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 Collective Leased Properties
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 Collective Leased Properties 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
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 any 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
applicable Management
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Agreements. 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 any 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.
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
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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 Collective Leased
Properties 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 any 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 any 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 (other than the lessor under any
Ground Lease) 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 Retained Funds (as such term is defined in the
<PAGE>
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Purchase Agreement) in accordance with the terms of the Purchase Agreement and
this Agreement, including Article 15, if and to the extent that the 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 Collective Leased Properties, 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 Notices. 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 any 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 such 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 Collective Leased Properties. Landlord shall not,
without the consent of Tenant, transfer the Collective Leased Properties, 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
Agreements; (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
<PAGE>
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subsidiaries, affiliates and partnerships, or (y) holding a mortgage or
mortgages secured by one or more hotels. Landlord may transfer the Collective
Leased Properties, or any interest therein, to any other Person without the
consent of Tenant.
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 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
<PAGE>
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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, 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
<PAGE>
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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.
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; it being expressly understood and agreed that the
sum of the Initial Retained Funds (as defined in the Purchase Agreement) and the
Option 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.
<PAGE>
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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 beneficial interests)
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 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.
<PAGE>
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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>
-82-
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 any of the Collective Leased Properties 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 Collective Leased Properties.
22.7 Conveyance by Landlord. If Landlord or any successor owner of all
or any portion of the Collective Leased Properties shall convey all or any
portion of the Collective Leased Properties in accordance with the terms hereof
other than as security for a debt, and the grantee or transferee of such of the
Collective Leased Properties 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 Collective Leased Properties that were so
conveyed by Landlord or such successor owner, 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.
<PAGE>
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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 Collective Leased Properties 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 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).
<PAGE>
-84-
(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:
c/o Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Attn: Mr. John G. Murray
[Telecopier No. (617) 969-5730]
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attn: Jennifer B. Clark, Esq.
[Telecopier No. (617) 338-2880]
if to Tenant to:
c/o HMH HPT Courtyard LLC
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Chief Operating Officer
[Telecopier No. (301) 380-6338]
<PAGE>
-85-
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: General Counsel
[Telecopier No. (301)380-3588]
(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 Collective Leased Properties 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
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 Agreements. Except as otherwise expressly provided with respect to
the Retained Funds (as such term is defined in the Purchase Agreement), nothing
<PAGE>
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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) 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 of
Maryland 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 of Maryland; or (vii) any combination of the foregoing.
Notwithstanding the foregoing, the laws of the State in which any Leased
Property is located shall apply to the perfection and priority of liens upon and
the disposition of such Leased Property.
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
<PAGE>
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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.
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 Nonliability of Trustees. THE DECLARATION OF TRUST ESTABLISHING
EACH ENTITY COMPRISING LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS
THERETO (EACH A "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS
AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY
PROPERTIES TRUST" or "HPTCY PROPERTIES TRUST" (AS APPLICABLE) REFERS TO THE
TRUSTEES UNDER THE APPLICABLE DECLARATION 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.
<PAGE>
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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: /s/ Thomas M. O'Brien
Its Treasurer
HPTCY PROPERTIES TRUST
By: /s/ Thomas M. O'Brien
Its (Vice) President
TENANT:
HMH HPT COURTYARD LLC
By: /s/
Its (Vice) President
<TABLE>
<CAPTION>
Exhibit 12.1
Hospitality Properties Trust
Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratio amounts)
For the Period
For the February 7, 1995
Year Ended (inception) to
December 31, December 31,
------------------------------------------------------- ----------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary
Item $111,929 $87,982 $59,153 $51,664 $11,349
Fixed Charges 37,352 21,751 15,534 5,646 5,063
--------- --------- --------- --------- ----------
Adjusted Earnings $149,281 $109,733 $74,687 $57,310 $16,412
========= ========= ========= ========= ==========
Fixed Charges:
Interest on indebtedness and
amortization of deferred
finance costs $37,352 $21,751 $15,534 $5,646 $5,063
Total Fixed Charges $37,352 $21,751 $15,534 $5,646 $5,063
========= ========= ========= ========= ==========
Ratio of Earnings to Fixed
Charges 4.00x 5.04x 4.81x 10.15x 3.24x
========= ========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Exhibit 12.2
Hospitality Properties Trust
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
(in thousands, except ratio amounts)
For the Period
For the February 7, 1995
Year Ended (inception) to
December 31, December 31,
------------------------------------------------------- -----------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary
Item $111,924 $87,982 $59,153 $51,664 $11,349
Fixed Charges 37,352 21,751 15,534 5,646 5,063
--------- --------- --------- --------- ----------
Adjusted Earnings $149,281 $109,733 $74,687 $57,310 $16,412
========= ========= ========= ========= ==========
Fixed Charges and Preferred
Dividends:
Interest on indebtedness and
amortization of deferred
finance costs $37,352 $21,751 $15,534 $5,646 $5,063
Preferred dividends 5,106 -- -- -- --
--------- --------- --------- --------- ----------
Total Combined Fixed Charges
And Preferred Dividends $42,458 $21,751 $15,534 $5,646 $5,063
========= ========= ========= ========= ==========
Ratio of Earnings to Combined
Fixed Charges and Preferred
Dividends 3.52x 5.04x 4.81x 10.15x 3.24x
========= ========= ========= ========= ==========
</TABLE>
Exhibit 21.1
HOSPITALITY PROPERTIES TRUST
SUBSIDIARIES OF THE REGISTRANT
HPT CW Properties Trust (Maryland)
HPT CW II Properties Trust (Maryland)
HPTCY Properties Trust (Maryland)
HPT HSD Properties Trust (Maryland)
HPTMI Properties Trust (Maryland)
HPTMI II Properties Trust (Maryland)
HPTMI III Properties Trust (Maryland)
HPTRI Properties Trust (Maryland)
HPTSHC Properties Trust (Maryland)
HPT Suite Properties Trust (Maryland)
HPTSY Properties Trust (Maryland)
HPTWN Properties Trust (Maryland)
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports on Hospitality Properties Trust, CCMH Courtyard I
LLC and HMH HPT Courtyard LLC in this Form 10-K, into the Company's previously
filed Registration Statement File No. 333-43573.
ARTHUR ANDERSEN LLP
Vienna, Virginia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 73,554
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,270,630
<DEPRECIATION> 187,631
<TOTAL-ASSETS> 2,194,852
<CURRENT-LIABILITIES> 14,115
<BONDS> 414,780
0
72,207
<COMMON> 564
<OTHER-SE> 1,446,944
<TOTAL-LIABILITY-AND-EQUITY> 2,194,852
<SALES> 0
<TOTAL-REVENUES> 237,218
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 87,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,352
<INCOME-PRETAX> 111,929
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,823
<EPS-BASIC> 2.03
<EPS-DILUTED> 2.03
</TABLE>
