-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PXXQ0NODrNw2r4yT3VVeCfdjIynmhK8whxNYjRVJAEh1CWaHh2gngHwFCgn2lwPT Iys31MYfhC27K6TtwsCe7Q== 0001047469-99-020403.txt : 19990517 0001047469-99-020403.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020403 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYKIN LODGING CO CENTRAL INDEX KEY: 0001015859 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341824586 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11975 FILM NUMBER: 99621997 BUSINESS ADDRESS: STREET 1: GUILDHALL BLDG 45 W PROSPECT AVE STREET 2: SUITE 1500 CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2164301200 MAIL ADDRESS: STREET 1: GUILDHALL BLDG 45 W PROSPECT AVE STREET 2: SUITE 1500 CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: BOYKIN LODGING TRUST INC DATE OF NAME CHANGE: 19960604 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 Commission file number 001-11975 BOYKIN LODGING COMPANY (Exact Name of Registrant as Specified in Its Charter) Ohio 34-1824586 - ------------------------------- ----------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Guildhall Building, Suite 1500, 45 W. Prospect Avenue Cleveland, Ohio 44115 - --------------------------------------------------------- -------------- (Address of Principal Executive Office) (Zip Code) (216) 430-1200 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports 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 ----- ----- The number of common shares, without par value, outstanding as of May 14, 1999: 17,061,638 PART I ITEM 1. FINANCIAL STATEMENTS BOYKIN LODGING COMPANY INDEX TO FINANCIAL STATEMENTS BOYKIN LODGING COMPANY: Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998................................................3 Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998 (unaudited)............................4 Consolidated Statement of Shareholders' Equity for the Three Months Ended March 31, 1999 (unaudited).....................................5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited)............................6 Notes to Consolidated Financial Statements................................7 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES: Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998...............................................13 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998 (unaudited)...........................14 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited)...........................15 Notes to Consolidated Financial Statements...............................16
BOYKIN LODGING COMPANY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND DECEMBER 31, 1998 (DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited) March 31, December 31, 1999 1998 ----------- ------------ ASSETS Investment in hotel properties, net $ 594,614 $ 595,132 Cash and cash equivalents 890 5,643 Rent receivable from lessees: Related party lessees 5,039 4,748 Third party lessees 1,119 547 Deferred expenses, net 2,985 3,159 Restricted cash 3,177 4,330 Other assets 1,248 1,503 --------- --------- $ 609,072 $ 615,062 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings against credit facility $ 158,000 $ 156,000 Term note payable 130,000 130,000 Accounts payable and accrued expenses 6,736 6,521 Dividends/distributions payable 8,626 8,618 Due to lessees: Related party lessees 770 2,971 Third party lessees 874 1,775 Minority interest in joint ventures 11,001 11,251 Minority interest in operating partnership 11,269 11,710 Shareholders' equity: Preferred shares, without par value; 10,000,000 shares Authorized; no shares issued and outstanding -- -- Common shares, without par value; 40,000,000 shares Authorized; 17,061,638 and 17,044,361 shares outstanding March 31, 1999 and December 31, 1998, respectively, -- -- Additional paid-in capital 308,229 307,512 Retained deficit (26,433) (21,296) --------- --------- Total shareholders' equity 281,796 286,216 --------- --------- $ 609,072 $ 615,062 --------- --------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 3 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
1999 1998 ---- ---- Revenues: Lease revenue from related party $ 15,621 $ 8,647 Other lease revenue 3,773 2,213 Interest income 68 54 -------- -------- 19,462 10,914 -------- -------- Expenses: Real estate related depreciation and amortization 7,140 3,220 Real estate and personal property taxes, insurance and ground rent 2,597 1,524 General and administrative 1,427 799 Interest expense 4,979 1,168 Amortization of deferred financing costs 159 130 -------- -------- 16,302 6,841 -------- -------- Income before minority interests 3,160 4,073 Minority interest in joint ventures (112) (44) Minority interest in operating partnership (166) (380) -------- -------- Net income applicable to common shares $ 2,882 $ 3,649 -------- -------- -------- -------- Earnings per share: Basic $ 0.17 $ 0.32 Diluted $ 0.17 $ 0.32 Weighted average number of common shares outstanding: Basic 17,047 11,342 Diluted 17,047 11,447
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
Additional Common Paid-In Retained Shares Capital Deficit Total ---------- --------- --------- --------- Balance, December 31, 1998 17,044,361 $ 307,512 $(21,296) $ 286,216 Issuance of common shares 17,277 217 -- 217 Issuance of share warrant -- 500 -- 500 Dividends declared -- -- (8,019) (8,019) Net income -- 2,882 2,882 ---------- --------- ---------- --------- Balance, March 31, 1999 17,061,638 $ 308,229 $ (26,433) $ 281,796 ---------- --------- ---------- --------- ---------- --------- ---------- ---------
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, AMOUNTS IN THOUSANDS)
1999 1998 -------- -------- Cash flows from operating activities: Net income $ 2,882 $ 3,649 Adjustments to reconcile net income to net cash flow provided by operating activities- Depreciation and amortization 7,299 3,350 Minority interests 278 424 Changes in assets and liabilities- Rent receivable (863) (669) Restricted cash 1,153 -- Other assets 180 (489) Accounts payable and accrued expenses 432 (473) Due to lessees (3,102) 1,108 ------- -------- Net cash flow provided by operating activities 8,259 6,900 ------- -------- Cash flows from investing activities: Acquisitions of hotel properties -- (37,075) Improvements and additions to hotel properties (6,532) (7,437) ------- -------- Net cash flow used for investing activities (6,532) (44,512) ------- -------- Cash flows from financing activities: Payment of dividends and distributions (8,618) (4,893) Borrowings against credit facility 2,000 36,200 Repayment of borrowings against credit facility -- (96,750) Net proceeds from issuance of common shares -- 105,134 Proceeds from issuance of share warrant 500 -- Distributions to joint venture minority interest partners, net (362) (139) Cash payments for redemption of certain limited partnership interests -- (967) ------- -------- Net cash flow (used for) provided by financing activities (6,480) 38,585 ------- -------- Net change in cash and cash equivalents (4,753) 973 Cash and cash equivalents, beginning of period 5,643 1,855 ------- -------- Cash and cash equivalents, end of period $ 890 $ 2,828 ------- -------- ------- --------
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 BOYKIN LODGING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1. BACKGROUND: Boykin Lodging Company is a real estate investment trust that owns hotels throughout the United States and leases its properties to established hotel operators. Boykin's principal source of revenue is lease payments from lessees pursuant to percentage lease agreements. Percentage lease revenue is based upon the room, food and beverage and other revenues of Boykin's hotels. The lessees' ability to make payments to Boykin Lodging pursuant to the percentage leases is dependent primarily upon the operations of the hotels. INITIAL PUBLIC OFFERING AND MAJOR EVENTS SINCE THE IPO In November 1996, Boykin completed its initial public offering ("IPO"), issuing a total of 9,516,250 common shares, including exercise of the underwriters' over-allotment option. In conjunction with its IPO, Boykin Lodging contributed approximately $133,898 to Boykin Hotel Properties, L.P., an Ohio limited partnership (the "Partnership"), in exchange for an approximate 84.5% equity interest as the sole general partner of the Partnership and also loaned $40,000 to the Partnership in exchange for an intercompany convertible note. The Partnership then acquired nine hotel properties and leased them to Boykin Management Company Limited Liability Company ("BMC"). BMC is owned by Robert W. Boykin, Chairman, President and Chief Executive Officer of Boykin Lodging Company (53.8%) and his brother, John E. Boykin (46.2%). The Partnership acquired eight additional hotel properties in 1997 using remaining proceeds from the IPO and borrowings under Boykin's credit facility. On February 24, 1998, Boykin completed a follow-on public equity offering, issuing additional 4,500,000 common shares. The net proceeds of approximately $106,313 were contributed to the Partnership, increasing Boykin Lodging Company's ownership percentage therein to 90.3%. The proceeds were used by the Partnership to pay down existing indebtedness under the credit facility, purchase limited partnership units from two unaffiliated limited partners, fund the acquisitions of two hotels purchased in March 1998 and for general corporate purposes. On May 22, 1998 Boykin completed its merger with Red Lion Inns Limited Partnership, in which Boykin Lodging acquired Red Lion Inns Operating L.P. ("OLP"), which owns a portfolio of ten DoubleTree-licensed hotels. In the transaction, Boykin issued 3,109,606 million common shares and paid approximately $35,305 in cash to the Red Lion limited partners and general partner. The total consideration value, including assumed liabilities of approximately $155,710 and common shares issued valued at $80,333, was $271,348. The common shares issued in the merger were valued at $25.83 per share, the five-day average trading price of Boykin's shares before the merger announcement. The issuance of Boykin's common shares in the merger increased Boykin Lodging's ownership percentage in the Partnership to 92.2%. As part of Boykin's acquisitions in 1997 and 1998, Boykin established new strategic alliances with four hotel operators and purchased five hotels with them through joint venture structures. The following table sets forth the joint venture agreements established in 1997 and 1998: 7
Boykin Lessee/JV Lessee/JV Ownership Ownership Date of Hotel Name of Joint Venture Partner Percentage Percentage Hotel Owned Under Joint Venture Purchase - --------------------- --------- ----------- ---------- ------------------------------- ------------- BoyStar Ventures, L.P. MeriStar 91% 9% Holiday Inn Minneapolis West July 1997 Shawan Road Hotel L.P. Davidson 91% 9% Marriott's Hunt Valley Inn July 1997 Boykin San Diego LLC Outrigger 91% 9% Hampton Inn San Diego Airport/Sea World November 1997 Boykin Kansas City LLC MeriStar 80% 20% DoubleTree Kansas City November 1997 RadBoy Mt. Laurel LLC Radisson 85% 15% Radisson Hotel Mt. Laurel June 1998
As of March 31, 1999 Boykin owned 31 hotels containing a total of 8,689 guest rooms located in 16 different states. BASIS OF PRESENTATION Boykin Lodging exercises unilateral control over the Partnership. Therefore, the separate financial statements of Boykin Lodging, the Partnership, OLP, and the joint ventures discussed above are consolidated. All significant intercompany transactions and balances have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Boykin's annual report on Form 10-K for the year ended December 31, 1998. 2. JOINT VENTURE WITH AEW: On February 1, 1999, Boykin formed of a joint venture with AEW Partners III, L.P. ("AEW"), an investment partnership managed by AEW Capital Management, L.P., a Boston-based real estate investment firm. AEW will provide $50,000 of equity capital for the joint venture, and Boykin will provide approximately $17,000 and serve as the operating member of the joint venture. Boykin and AEW plan to use the joint venture to take advantage of acquisition opportunities in the lodging industry. The joint venture agreement contains provisions for AEW and Boykin to double their respective capital commitments under certain circumstances. In addition, as part of the transaction, Boykin will receive incentive returns based on the performance of acquired assets as well as other compensation as a result of the joint venture's activities. 8 After the end of the two-year investment period, AEW has the option to convert its capital invested in the joint venture into Boykin convertible preferred shares. Pursuant to the venture agreements, AEW also purchased a warrant for $500. The warrant gives AEW the right to buy up to $20,000 of Boykin's preferred or common shares (at Boykin's election) for $16.48 a share. The warrant is exercisable after the two-year investment period, and expires one year after it becomes exercisable. The amount of the warrant will be reduced and eliminated under the terms of the agreement on a dollar for dollar basis as the last $20,000 of AEW's $50,000 of capital is invested. If issued, the preferred shares would be convertible into common shares at $16.48 per common share and have a minimum cumulative annual dividend equivalent to $1.88 per common share, Boykin's current common share dividend. 3. NET INCOME PER SHARE AND PARTNERSHIP UNIT: Boykin Lodging's basic and diluted earnings per share for three months ended March 31, 1999 under SFAS No. 128, "Earnings per Share" are as follows:
1999 1998 ---- ---- Basic earnings per common share $0.17 $0.32 Diluted earnings per common share $0.17 $0.32
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share adjusts the weighted average shares outstanding for the effect of all dilutive securities. At March 31, 1999 and 1998, a total of 1,291,000 limited partnership units were issued and outstanding. The basic and diluted weighted average number of common shares and limited partnership units outstanding for the three months ended March 31, 1999 was 18,338,000. For the three months ended March 31, 1998 the basic and diluted weighted average number of common shares and limited partnership units outstanding was 12,658,000 and 12,763,000, respectively. 4. CREDIT FACILITY: Boykin has an unsecured credit facility with a group of banks which, effective April 1, 1999, enables Boykin to borrow up to $200,000, subject to borrowing base and loan-to-value limitations, at a rate of interest that fluctuates at LIBOR plus 1.40% to 1.75% (6.6% at March 31, 1999), as defined. Boykin is required to pay a .25% fee on the unused portion of the credit facility. The credit facility expires in June 2000, with an additional one-year extension at Boykin's option. As of March 31, 1999 and December 31, 1998, outstanding borrowings against the credit facility were $158,000 and $156,000, respectively. 9 The credit facility requires Boykin, among other things, to maintain a minimum net worth, a coverage ratio of EBITDA to debt service, and a coverage ratio of EBITDA to debt service and fixed charges. Further, Boykin is required to maintain the franchise agreement at each hotel and to maintain its REIT status. Boykin was in compliance with its covenants at March 31, 1999 and December 31, 1998. 5. TERM NOTE PAYABLE: On May 22, 1998, OLP entered into a $130,000 term loan agreement. The loan expires in June 2023 and may be prepaid without penalty or defeasance after May 21, 2008. The loan bears interest at a fixed rate of 6.9% for ten years, and at a new fixed rate to be determined thereafter. The loan requires interest-only payments for the first two years, with principal repayments commencing in the third loan year based on a 25-year amortization schedule. The loan is secured by ten DoubleTree hotels. Under covenants in the loan agreement, assets of OLP are not available to pay the creditors of any other Boykin entity, except to the extent of permitted cash distributions from OLP to Boykin. Likewise, the assets of other entities are not available to pay the creditors of OLP. The loan agreement also requires OLP to hold funds in escrow for the payment of capital expenditures, insurance and real estate taxes. The term note also requires OLP to maintain certain financial covenants. OLP was in compliance with these covenants at March 31, 1999 and December 31, 1998. 6. PERCENTAGE LEASE AGREEMENTS: The percentage leases have noncancelable remaining terms ranging from two to ten years, subject to earlier termination on the occurrence of certain contingencies, as defined. The rent due under each percentage lease is the greater of minimum rent, as defined, or percentage rent. Percentage rent applicable to room and other hotel revenue varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified threshold amounts. Both the minimum rent and the revenue thresholds used in computing percentage rents are subject to annual adjustments based on increases in the United States Consumer Price Index ("CPI"). Percentage rent applicable to food and beverage revenues is calculated by multiplying fixed percentages by the total amounts of such revenues. Percentage Lease revenue for the three months ended March 31, 1999 and 1998 was 10 $19,394 and $10,860, respectively, of which approximately $4,180 and $2,302, respectively, was in excess of minimum rent. Boykin Lodging recognizes lease revenue for interim and annual reporting purposes on an accrual basis pursuant to the terms of the respective percentage leases. Future minimum rentals (ignoring future CPI increases) to be received by Boykin from BMC and from other lessees pursuant to the percentage leases for each of the years in the period 1999 to 2003 and in total thereafter are as follows:
Related Party Other Lessees Lessees Totals ------------- --------- ----------- Remainder of 1999 $ 36,945 $ 6,807 $ 43,752 2000 49,261 9,076 58,337 2001 42,960 9,076 52,036 2002 36,055 7,677 43,732 2003 11,439 5,884 17,323 Thereafter 26,409 23,067 49,476 --------- -------- --------- $ 203,069 $ 61,587 $ 264,656
7. RELATED PARTY TRANSACTIONS: The Chairman, President and Chief Executive Officer of Boykin Lodging is the majority shareholder of BMC. BMC and Westboy LLC, a subsidiary of BMC, were a significant source of Boykin's percentage lease revenue through March 31, 1999. At March 31, 1999 and December 31, 1998, Boykin had rent receivable of $5,039 and $4,748, respectively, due from related party lessees. Boykin Lodging paid Spectrum Design Services $287 for design services through March 31, 1999. Of this total, $120 was for design services, $126 represented purchasing services and $41 was reimbursement of expenses incurred while performing services for the hotels during 1999. At March 31, 1999 and December 31, 1998, Boykin had a payable to related party lessees of $770 and $2,971, respectively, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Partnership and OLP. 8. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES: During the three-month periods ended March 31, 1999 and 1998, noncash financing transactions consisted of $8,626 and $7,207, respectively, of dividends and Partnership distributions which were declared but not paid as of March 31, 1999 and 1998, respectively. 11 Interest paid during the three-month periods ended March 31, 1999 and 1998 was $4,998 and $1,598, respectively. In the first quarter of 1999, Boykin issued 17,277 common shares, valued at $217 under Boykin's Long-Term Incentive Plan. 9. PRO FORMA FINANCIAL INFORMATION: The pro forma financial information set forth below for the first quarter of 1998 is presented as if the following significant transactions had been consummated as of January 1, 1998: - the share offering of 4,500,000 common shares in February 1998; - the issuance of 3,109,606 common shares in May 1998 related to the Red Lion merger; - the acquisitions of properties by Boykin in 1998; and - Boykin's common share repurchase of 114,500 shares in 1998. The pro forma financial information is not necessarily indicative of what the actual results of operations of Boykin would have been assuming these transactions had been consummated as of January 1, 1998, nor does it purport to represent the results of operations for future periods.
Three Months Ended March 31, 1998 -------------- Revenues: Lease revenue $ 18,791 Interest income 39 -------- Expenses: 18,830 Real estate related depreciation and amortization 6,516 Real estate and personal property taxes, insurance and ground rent 2,400 General and administrative 799 Interest expense 4,676 Amortization of deferred financing costs 168 -------- 14,559 Net income before minority interest 4,271 Minority interest 453 -------- Net income $ 3,818 -------- -------- Net income per share Basic $ .22 Diluted $ .22
12 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS)
(Unaudited) March 31, December 31, ASSETS 1999 1998 - ------ ----------- ------------ Cash and cash equivalents $ 19,101 $ 12,973 Accounts receivable: Trade, net of allowance for doubtful accounts of $130 and $166 at March 31, 1999 and December 31, 1998, respectively 9,051 8,097 Related party lessors 770 2,971 Other 244 178 Inventories 2,568 2,060 Property and equipment, net 411 434 Investment in Boykin Lodging Company 241 248 Prepaid expenses and other assets 2,532 2,383 -------- -------- Total assets $ 34,918 $ 29,344 -------- -------- -------- -------- LIABILITIES AND MEMBERS' CAPITAL Rent payable to related party lessors $ 5,039 $ 4,748 Accounts payable: Trade 3,409 3,114 Advance deposits 1,605 774 Bank overdraft liability 4,980 4,806 Accrued expenses: Accrued payroll 1,560 633 Accrued vacation 2,610 2,250 Accrued sales, use and occupancy taxes 2,067 1,856 Accrued management fee 5,077 4,044 Other accrued liabilities 5,463 3,080 -------- -------- Total liabilities 31,810 25,305 -------- -------- Members' capital: Capital contributed 3,000 3,000 Retained earnings 358 1,282 Accumulated other comprehensive loss (250) (243) -------- -------- Total members' capital 3,108 4,039 -------- -------- Total liabilities and members' capital $ 34,918 $ 29,344 -------- -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 13 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, AMOUNTS IN THOUSANDS)
1999 1998 ---- ---- Revenues: Room revenue $ 34,751 $ 32,518 Food and beverage revenue 17,266 15,928 Other hotel revenue 3,328 2,989 Other revenue 525 755 -------- -------- Total revenues 55,870 52,190 -------- -------- Expenses: Departmental expenses of hotels: Rooms 8,733 8,001 Food and beverage 12,717 12,161 Other 1,849 1,563 Cost of goods sold of non-hotel operations 15 251 Percentage lease expense 15,621 14,734 General and administrative 6,204 5,937 Advertising and promotion 3,040 2,631 Utilities 3,050 2,520 Franchisor royalties and other charges 1,726 1,683 Repairs and maintenance 1,869 2,015 Depreciation and amortization 30 22 Management fee expense 1,769 1,787 Other expense 171 16 -------- -------- Total expenses 56,794 53,321 -------- -------- Net loss $ (924) $ (1,131) -------- -------- -------- -------- Comprehensive loss $ (931) $ (1,131) -------- -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these statements. 14 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED, AMOUNTS IN THOUSANDS)
1999 1998 -------- -------- Cash flows from operating activities: Net loss $ (924) $ (1,131) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 30 22 Changes in assets and liabilities: Accounts receivable 1,181 (9,894) Inventories (508) (1,404) Prepaid expenses and other assets (149) (1,418) Rent payable 291 1,591 Accounts payable 1,300 1,799 Other accrued liabilities 4,914 9,270 -------- -------- Net cash provided by (used for) operating activities 6,135 (1,165) -------- -------- Cash flows from investing activities: Property additions (7) (75) -------- -------- Net cash used for investing activities (7) (75) -------- -------- Cash flows from financing activities -- -- -------- -------- Net cash used for financing activities -- -- -------- -------- Net increase in cash and cash equivalents 6,128 (1,240) Cash and cash equivalents, beginning of period 12,973 6,862 -------- -------- Cash and cash equivalents, end of period $ 19,101 $ 5,622 -------- -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these statements. 15 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (DOLLAR AMOUNTS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS: Boykin Management Company Limited Liability Company and its subsidiaries (collectively, "BMC") - lease and operate full and limited service hotels located throughout the United States pursuant to long-term percentage leases; - manage full and limited service hotels located throughout the United States pursuant to management agreements; - provide national purchasing services to hotels; and - provide interior design services to hotels and other businesses. 2. ORGANIZATION: BMC commenced operations on November 4, 1996 as an Ohio limited liability company. BMC is indirectly owned by Robert W. Boykin (53.8%) and John E. Boykin (46.2%). Robert W. Boykin is the Chairman, President and Chief Executive Officer of Boykin Lodging Company. Pursuant to formation transactions related to the November 4, 1996 initial public offering of Boykin Lodging, Boykin Management Company ("former BMC") and Bopa Design Company (doing business as Spectrum Services), wholly owned subsidiaries of The Boykin Company ("TBC"), were merged into subsidiaries of BMC. In addition, Purchasing Concepts, Inc. ("PCI") contributed its assets to a subsidiary of BMC and that subsidiary assumed PCI's liabilities. TBC and PCI are related through common ownership. BMC and its subsidiaries are the successors to the businesses of former BMC, Spectrum Services and PCI. As BMC, former BMC, Spectrum Services and PCI were related through common ownership, there were no purchase accounting adjustments to the historical carrying values of the assets and liabilities of former BMC, Spectrum Services and PCI upon merger into or contribution to the subsidiaries of BMC 16 3. BASIS OF PRESENTATION: The separate financial statements of BMC's subsidiaries have been presented on a consolidated basis with BMC. All significant intercompany transactions and balances have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to BMC's consolidated financial statements and footnotes thereto included in Boykin Lodging's annual report on Form 10-K for the year ended December 31, 1998. 4. PERCENTAGE LEASE AGREEMENTS: BMC LEASES ON 15 HOTELS BMC leases 15 hotels (the "BMC Hotels") from the Partnership pursuant to long-term percentage leases. The BMC Hotels are located in Cleveland, Ohio (2); Columbus, Ohio; Buffalo, New York; Berkeley, California; Raleigh, North Carolina; Charlotte, North Carolina (2); High Point, North Carolina; Knoxville, Tennessee; Ft. Myers, Florida; Melbourne, Florida (2); Daytona Beach, Florida; and French Lick, Indiana. The percentage leases have noncancellable remaining terms ranging from two to nine years, subject to earlier termination on the occurrence of certain contingencies, as defined. BMC is required to pay the higher of minimum rent, as defined, or percentage rent. Percentage rent applicable to room and other hotel revenue varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified threshold amounts. Percentage rent related to food and beverage revenues and other revenues, in some cases, is based on fixed percentages of such revenues. Both the threshold amounts used in computing percentage rent and minimum rent on room and other hotel revenues are subject to adjustments as of January 1 of each year based on increases in the United States Consumer Price Index. For both annual and interim reporting purposes, BMC recognizes percentage lease expense pursuant to the provisions of the related percentage lease agreements. Other than real estate and personal property taxes, casualty insurance, ground lease rental, and capital improvements, which are obligations of the Partnership, the percentage leases require BMC to pay all costs and expenses incurred in the operation of the BMC Hotels. 17 The Percentage leases require BMC to indemnify Boykin Lodging Company against all liabilities, costs and expenses incurred by, imposed on or asserted against the Partnership in the normal course of operating the BMC Hotels. WESTBOY LEASE ON TEN DOUBLETREE HOTELS Effective January 1, 1998, Westboy, LLC ("Westboy"), a wholly-owned subsidiary of BMC, entered into a long term lease agreement with Red Lion Inns Operating L.P. ("OLP") with terms similar to those described above. OLP was acquired by Boykin Lodging Company on May 22, 1998. The ten DoubleTree-licensed hotels (the "DoubleTree Hotels") leased by Westboy are located in California, Oregon (3), Washington (3), Colorado, Idaho and Nebraska. The hotels are managed by a subsidiary of Promus Hotel Corporation. BMC made an initial capital contribution to Westboy of $1,000, of which $900 was funded with a demand promissory note. Assets of Westboy are not available to pay the creditors of any other entity, except to the extent of permitted cash distributions from Westboy to BMC. Similarly, except to the extent of the unpaid promissory note, the assets of BMC are not available to pay the creditors of Westboy. Future minimum rent (ignoring CPI increases) to be paid by BMC and Westboy under their respective percentage lease agreements at March 31, 1999 for each of the years in the period 1999 to 2003 and in total thereafter is as follows: Remainder of 1999 $ 36,945 2000 49,261 2001 42,960 2002 36,055 2003 11,439 Thereafter 26,409 --------- $ 203,069
5. RELATED PARTY TRANSACTIONS: Percentage lease expense payable to the Partnership (including OLP in 1999) was $15,621 and $8,647 for the three months ended March 31, 1999 and 1998, respectively. At March 31, 1999 and December 31, 1998, BMC (including Westboy) had receivables from the Partnership (including OLP) of $770 and $2,971, respectively, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Partnership and OLP. At March 31, 1999 and December 31, 1998, BMC (including OLP) had payables to the Partnership (including OLP) of $5,039 and $4,748, respectively, for amounts due pursuant to the percentage leases. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND AND BUSINESS STRATEGIES Boykin Lodging Company, an Ohio corporation, is a real estate investment trust that owns hotels throughout the United States and leases its properties to established hotel operators. Our primary business strategies are: - acquiring upscale, full-service commercial and resort hotels that will increase our cash flow and are purchased at a discount to their replacement cost; - developing strategic alliances and relationships with both a network of high-quality hotel operators and franchisors of the hotel industry's premier upscale brands; and - maximizing revenue growth in our hotels through - - strong management performance from our lessee/operators; - selective renovation; - expansion and development; and - brand repositioning. BOYKIN'S FORMATION AND RECENT EVENTS On November 4, 1996, we completed our IPO issuing a total of 9.5 million common shares. In conjunction with our IPO, we contributed approximately $133.9 million to Boykin Hotel Properties, L.P., an Ohio limited partnership (the "Partnership"), in exchange for an approximate 84.5% equity interest as the sole general partner of the Partnership and we loaned $40 million to the Partnership in exchange for an intercompany convertible note. The Partnership then acquired nine hotel properties and another eight hotel properties in 1997 using remaining proceeds from the IPO and borrowings under our credit facility. We do all of our business through the Partnership. On February 24, 1998, we completed a follow-on public equity offering and issued an additional 4.5 million common shares. The net proceeds of approximately $106.3 million were contributed to the Partnership, increasing our ownership percentage therein to 90.3%. The proceeds were used by the Partnership to pay down existing indebtedness under the credit facility, purchase limited partnership units from two unaffiliated limited partners, fund the acquisitions of two hotels purchased in March 1998 and for general corporate purposes. 19 On May 22, 1998 we completed our merger with Red Lion Inns Limited Partnership, in which we acquired Red Lion Inns Operating L.P. ("OLP") which owns a portfolio of ten DoubleTree-licensed hotels. In the transaction, we issued 3.1 million common shares and paid approximately $35.3 million in cash to the Red Lion limited partners and general partner. The total consideration value, including assumed liabilities of approximately $155.7 million and common shares issued valued at $80.3 million, was $271.3 million. The issuance of our common shares in the merger had the impact of increasing our ownership percentage in the Partnership to 92.2%. We currently own 31 hotels containing a total of 8,689 guest rooms located in 16 different states. Our principal source of revenue is lease payments from lessees pursuant to percentage lease agreements. Percentage lease revenue is based upon the room, food and beverage and other revenues of our hotels. The lessees' ability to make payments to us pursuant to the percentage leases is dependent primarily upon the operations of the hotels. FIRST QUARTER HIGHLIGHTS AND OUTLOOK FOR THE REMAINDER OF 1999 Refer to the "Results of Operations" section below for discussion of our first quarter results compared to 1998 as well as the operational results of BMC. During the first quarter, we continued our renovation program, spending $6.5 million, or approximately ten percent of hotel sales. The majority of these capital expenditures went into four of our DoubleTree hotels, which underwent major guest room renovations. We plan on spending a total of approximately $25 million in 1999, which is approximately eight percent of our expected hotel revenues. The majority of this amount will be spent renovating six of our DoubleTree hotels, as part of a $20 million renovation program expected to be complete by mid-2000. We also plan on renovating guest rooms and public space at our Cleveland Marriott East, Holiday Inn Minneapolis West and Radisson Hotel Mt. Laurel. We believe it is important to keep our hotels in first-class condition in an effort to outperform the competition and to deliver superior REVPAR gains, and we are focusing our renovation activities on hotels in areas with the highest revenue potential. We also believe the long-term demand for rooms in most of our markets will continue to grow and therefore we expect to continue to implement our renovation plans aggressively. 20 On February 1, 1999, we formed a joint venture with AEW Partners III, L.P. ("AEW"), an investment partnership managed by AEW Capital Management, L.P., a Boston-based real estate investment firm that manages a portfolio of approximately $6 billion. This joint venture provides us with the ability to continue our acquisition and growth strategies with private capital at a time when public capital sources are limited, and when we expect to see attractive buying opportunities. AEW will provide $50 million of equity capital for the joint venture, and we will provide approximately $17 million and serve as the operating member of the joint venture. Combined with debt financing, the initial capital commitments would allow the joint venture to complete approximately $175 million of acquisitions over a 24-month period. The joint venture agreement also contains provisions for AEW and Boykin to double their respective capital commitments under certain circumstances, which could result in total acquisitions by the joint venture of approximately $350 million. In addition, as part of the transaction, we will receive incentive returns based on the performance of acquired assets as well as other compensation as a result of the joint venture's activities. Looking at the remainder of the year and beyond, we are optimistic about our portfolio's growth prospects. In spite of new hotels opening this year in certain of our markets, we anticipate a positive impact on our results of operations stemming from the hotels we renovated and repositioned in 1998 and those we are renovating in 1999. We continue to actively seek acquistions, but we are being selective in terms of yield and earnings criteria. We continue to actively market the sale of our four non-strategic DoubleTree hotels acquired last May, however, we have decided to pull our two hotels near Charlotte, North Carolina off the market as the offers we received were too low and these two hotels generate solid cash flows. We also continue to consider expansions at a few of our hotels as well as the development or sale of land parcels to maximize the value of our portfolio. 21 RESULTS OF OPERATIONS The following discusses our results of operations and those of BMC for the quarter ended March 31, 1999 compared to the same period in 1998. BOYKIN LODGING COMPANY Quarter ended March 31, 1999 compared to 1998 Our percentage lease revenue increased 78.6% to $19.4 million in 1999, from $10.9 million for the same period in 1998 because the number of hotels we owned increased from 19 to 31 at March 31, 1998 and 1999, respectively. Percentage lease revenue payable by BMC and Westboy represented $15.6 million, or 80.5% of total percentage lease revenue in the 1999 period, compared to $8.6 million, or 79.6% of total percentage lease revenue, in 1998. The increase in percentage lease revenue from BMC and Westboy is primarily attributable to the lease revenue from Westboy, which commenced upon completion of the Red Lion merger. Net income decreased to $2.9 million for the three months ended March 31, 1999, compared to $3.6 million in 1998. As a percent of total revenue, net income decreased to 14.8% in 1999 from 33.4% in 1998, primarily resulting from the following items: - an increase in real estate related depreciation and amortization from $3.2 million, or 29.5% of total revenues in 1998, to $7.1 million, or 36.7% in 1999; - an increase in interest expense to $5.0 million in 1999, or 25.6% of total revenues, compared to $1.2 million, or 10.7%, in 1998. The increase in the size of our hotel portfolio caused these increases. New debt associated with our 1998 acquisitions and the Red Lion merger increased our interest expense in 1999, despite lower average interest rates in 1999 compared to 1998. General and administrative expenses increased $.6 million to $1.4 million, or 7.3% of revenues, primarily due to increased payroll expense related to the increase in the size of our portfolio. Our funds from operations ("FFO") for the quarter ended March 31, 1999 was $10.1 million compared to $7.2 million in 1998. The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after comparable adjustments for our portion of these items related to unconsolidated entities and joint ventures. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with another indication of the ability of a company to incur and service debt, to make capital expenditures and to fund other cash needs. 22 We compute FFO in accordance with the NAREIT White Paper, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than us. FFO does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions. FFO may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following is a reconciliation between net income and FFO for the three months ended March 31, 1999 and 1998, respectively, (in thousands):
1999 1998 ---- ---- Net income $ 2,882 $ 3,649 Real estate related depreciation and amortization 7,140 3,220 Minority interest 278 424 FFO applicable to joint venture minority interest (199) (71) -------- ------- Funds from operations $ 10,101 $ 7,222 -------- ------- -------- -------
23 The following table illustrates key operating statistics of our portfolio for the three months ended March 31, 1999, regardless of ownership:
Three Months Ended March 31, ------------------ 1999 1998 (a) ---- -------- All hotels (31 hotels) Hotel revenues $ 68,461 $ 66,438 REVPAR $ 56.52 $ 55.43 Occupancy 61.4% 60.4% Average daily rate $ 92.07 $ 91.79 Initial Hotels (9 hotels) Hotel revenues $ 21,280 $ 21,214 REVPAR $ 67.43 $ 67.03 Occupancy 70.2% 70.2% Average daily rate $ 96.09 $ 95.50 DoubleTree Portfolio (10 hotels) Hotel revenues $ 25,527 $ 25,034 REVPAR $ 52.64 $ 52.58 Occupancy 62.9% 62.5% Average daily rate $ 83.69 $ 84.15 Acquired Hotels (12 hotels) (b) Hotel revenues $ 21,654 $ 20,190 REVPAR $ 52.05 $ 49.41 Occupancy 53.3% 51.0% Average daily rate $ 97.56 $ 96.93
(a) includes predecessors' results. (b) Represents the operating results of hotels acquired by Boykin since our IPO, other than the DoubleTree portfolio. BMC Quarter ended March 31, 1999 compared to 1998 For the quarter ended March 31, 1999, BMC's hotel revenues increased 7.6%, to $55.3 million, compared to $51.4 million for the same period in 1998. The increase was primarily because of the March 12, 1998 commencement of the percentage leases related to the Highpoint Radisson and Knoxville Hilton, from which BMC experienced a full quarter's results of operations in 1999. The increase was also due to increased revenues at Florida hotels and the DoubleTree portfolio in 1999 compared to 1998. 24 Percentage lease expense for the quarter ended March 31, 1999 increased 6.0%, to $15.6 million, compared to $14.7 million for the same period in 1998, primarily due to a full quarter in 1999 from the Highpoint and Knoxville hotels. Departmental and other hotel operating expenses, consisting primarily of rooms expenses, food and beverage costs, franchise fees, utilities, repairs and maintenance, management fees, and other general and administrative expenses of the hotels were $41.2 million in the quarter ended March 31, 1999 compared to $38.3 million for the same period in 1998. As a percent of hotel revenues, the departmental and other hotel operating expenses decreased slightly to 74.4% in 1999 from 74.5% in 1998, resulting in a slightly smaller net loss of $.9 million for the quarter ended March 31, 1999 compared to a net loss of $1.1 million in 1998. LIQUIDITY AND CAPITAL RESOURCES Our principal source of cash to meet our cash requirements, including distributions to shareholders, is our share of the Partnership's cash flow from the percentage leases. The lessees' obligations under the percentage leases are largely unsecured and the lessees' ability to make rent payments to the Partnership under the percentage leases, are substantially dependent on the lessees' ability to generate sufficient cash flow from the operation of the hotels. During 1997, 1998, and the first quarter of 1999, BMC realized net income (loss) of $1,681, $47, and ($924), respectively. The loss in the first quarter is consistent with the first quarter of 1998 and is due to the seasonality of BMC's business as 20 out of BMC's 25 hotels maintain higher occupancy rates in the second and third quarters. At March 31, 1999 BMC had total members' capital of $3.1 million, and total cash of $19.1 million. As of March 31, 1999, we had $.9 million of unrestricted cash and cash equivalents, $3.2 million of restricted cash for the payment of capital expenditures, real estate tax and insurance and we had outstanding borrowings totaling $158.0 million and $130.0 million against our credit facility and term note payable, respectively. In May 1999, the borrowings under our credit facility increased to $164.0 million, primarily to fund capital expenditures for significant renovations at four DoubleTree hotels. Effective April 1, 1999, we have a $200 million credit facility available, as limited under the terms of the credit agreement, to fund acquisitions of additional hotels, renovations and capital expenditures, and for our working capital needs. For information relating to the terms of our credit facility and our $130 million term note payable, please see Notes 4 and 5, respectively, of the notes to consolidated financial statements of Boykin Lodging Company included in this Form 10-Q. We may seek to negotiate additional credit facilities or issue debt instruments. Any debt incurred or issued by us may be secured or unsecured, long-term, medium-term or short-term, bear interest at a fixed or variable rate, and be subject to such other terms as the Board of Directors considers prudent. 25 In November 1997, we filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $300 million in securities over two years. Securities issued under this registration statement may be preferred shares, depository shares, common shares or any combination thereof, and may be issued at various times, depending on market conditions. Warrants to purchase these securities may also be issued. The terms of issuance of any securities covered by this registration statement would be determined at the time of their offering. The 4.5 million common shares sold in the February 28, 1998 offering were sold under this registration statement. We anticipate that funds generated from operations and our credit facility will enable us to meet our anticipated cash needs for the next year. Our percentage lease revenues and cash flow are dependent in large part upon the hotel revenues recognized by our lessees. There can be no assurance that those revenues will meet expected levels. The availability of borrowings under the credit facility is restrained by borrowing base and loan-to-value limits, as well as other financial performance covenants contained in the agreement. There can be no assurance that funds will be available in anticipated amounts from the credit facility. Additionally, no assurance can be given that we will make distributions in the future at the current rate, or at all. INFLATION Our revenues are from percentage leases, which can change based on changes in the revenues of our hotels. Therefore, we rely entirely on the performance of the hotels and the lessees' ability to increase revenues to keep pace with inflation. Operators of hotels in general, and our lessees, can change room rates quickly, but competitive pressures may limit the lessees' ability to raise rates to keep pace with inflation. Our general and administrative costs as well as real estate and personal property taxes, property and casualty insurance and ground rent are subject to inflation. YEAR 2000 COMPLIANCE - BOYKIN LODGING Many computer systems were originally designed to recognize calendar years by the last two digits in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish twenty-first century dates from twentieth century dates. As a result, computerized systems, which include information and non-information technology systems, and applications used by us, are being reviewed, evaluated and modified or replaced, if necessary, to ensure all such financial, information and operational systems are Year 2000 compliant. 26 STATE OF READINESS We are addressing the Year 2000 compliance issue by focusing on our corporate facility, which includes all of our administrative, non-hotel operating functions, and on our hotel properties. Corporate Facility: For our corporate facility, we are in the phase of assessing our hardware components and critical corporate business applications, all of which are expected to be modified or upgraded, as necessary, to ensure Year 2000 compliance by the end of the second quarter of 1999. Hotel Properties: We are communicating with our lessees and other vendors with whom we do significant business to determine their readiness of Year 2000 compliance. For all of our hotels, we have gained an understanding of the process which our lessees have undertaken to address the risk assessment, validation, remediation and contingency plans related to Year 2000 compliance. These processes have included the following: - - completion of an inventory and assessment of all computerized systems, applications and hardware by internal personnel; - - prioritization of items representing critical business applications; and - - estimation of remediation costs. Most of our lessees are using internal personnel, who are determining the level of resources needed, necessary modifications or upgrades, remediation and contingency plans to become Year 2000 compliant. Our lessees have informed us that they have dedicated the tools and resources to address all Year 2000 issues in an effort to be Year 2000 compliant during the third quarter of 1999. There can be no assurance that the efforts related to the hotel properties will be sufficient to make these properties' computerized systems and applications Year 2000 compliant in a timely manner or that the allocated resources will be sufficient. A failure to become Year 2000 compliant could affect the integrity of the hotel property guest check-in, billing and accounting functions. Certain physical hotel property machinery and equipment could also fail, resulting in safety risks and customer dissatisfaction. We cannot predict at this time the most reasonably likely worst case scenario relating to Year 2000 issues. 27 Year 2000 Project Costs We estimate that total unexpended costs for the Year 2000 compliance review, evaluation, assessment and remediation efforts for the corporate assurance that actual costs will not exceed this amount. During 1998 and the first quarter of 1999, we spent approximately $2.3 million related to computerized systems and equipment which are Year 2000 compliant. The vast majority of our costs to remediate this issue are capital in nature and therefore do not affect our funds from operations. Contingency Plan We are in the process of developing our contingency plan for the corporate facility and hotel properties to provide for the most reasonably likely worst case scenarios regarding Year 2000 compliance. This contingency plan is expected to be completed in the third quarter of 1999. SEASONALITY Our hotels' operations historically have been seasonal. Twenty-six of our hotels maintain higher occupancy rates during the second and third quarters. The five hotels located in Florida experience their highest occupancy in the first quarter. This seasonality pattern can be expected to cause fluctuations in our quarterly lease revenue under the percentage leases. We anticipate that our cash flow from the percentage leases will be sufficient to enable us to continue to make quarterly distributions at the current rate for the next twelve months. To the extent that cash flow from operations is insufficient during any quarter because of temporary or seasonal fluctuations in percentage lease revenue, we expect to utilize cash on hand or borrowings to make those distributions. No assurance can be given that we will make distributions in the future at the current rate, or at all. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK In 1998 we entered into a $130 million term note payable which bears interest at a fixed rate of 6.9% for ten years, and a new fixed rate to be determined thereafter. The term note requires interest only payments for the first two years, with principal repayments commencing in the third loan year based on a 25-year amortization schedule. The term note expires in June 2023. Assuming a 10% increase in interest rates as of March 31, 1999, the fair market value of the term note payable would be approximately $126.1 million. In 1998, we also entered into a new unsecured credit facility with a group of banks, which, effective April 1, 1999 enables us to borrow up to $200 million, subject to borrowing base and loan-to-value limitations, at a rate of interest that fluctuates at LIBOR plus 1.40% to 1.75%. Due to changes in the U.S. and global economy, interest rates fluctuate regularly which creates risk that these rates may increase in the future, which would adversely impact our interest expense and cash flows. PART II ITEM 1. LEGAL PROCEEDINGS Our company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect our financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 1, 1999 in connection with the formation of the joint venture with AEW, Boykin, in a private transaction exempt from the registration requirement of the Securities Act of 1933 (the "Act") pursuant to Section 4(2) of the Act, (i) entered into a Stock Purchase Option Agreement with AEW pursuant to which AEW, after the end of the two-year investment period, will have the option to convert its capital invested in the joint venture into Boykin convertible preferred shares and (ii) sold AEW one warrant for $500,000. The grant of the option under the Stock Purchase Option Agreement was made for $10 and other good and valuable consideration. The Stock Purchase Option Agreement was entered as part of the larger joint venture arrangement with AEW. As a result, the consideration for the option can not be quantified. If issued pursuant to the Stock Purchase Option Agreement upon the conversion of AEW's capital invested in the joint venture the preferred shares will be convertible into common shares at $16.48 per common share and have a minimum cumulative annual dividend currently equivalent to $1.88 per common share, Boykin's current common share annual dividend. 29 The warrant gives AEW the right to buy up to $20 million of Boykin's preferred or common shares (at Boykin's option) for $16.48 per share. The warrant is exercisable after the two-year investment period, and expires one year after it becomes exercisable. The amount of the warrant will be reduced and eliminated on a dollar-for-dollar basis as the last $20 million of AEW's capital is invested under joint venture agreements. See Note 2 to the consolidated financial statements of Boykin Lodging Company included in this Form 10-Q for further information relating the terms of the Stock Purchase Option Agreement and the warrant. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 3.1* Amended and Restated Articles of Incorporation 3.2* Code of Regulations 4.1* Specimen Share Certificate 10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P. 10.2* Form of Registration Rights Agreement 10.3* Long-Term Incentive Plan 10.4* Directors' Deferred Compensation Plan 10.5* Employment Agreement between Boykin Lodging and Robert W. Boykin 10.6* Employment Agreement between Boykin Lodging and Raymond P. Heitland 10.7* Employment Agreement between Boykin Lodging and Mark L. Bishop 10.8* Form of Percentage Lease 10.9* Intercompany Convertible Note 10.10* Agreements with General Partners of the Contributed Partnerships 10.11* Form of Noncompetition Agreement 10.12* Alignment of Interests Agreement 10.13** Description of Employment Arrangement between Boykin Lodging and Paul A. O'Neil 10.14*** Description of Employment Arrangement between Boykin Lodging and Richard C. Conti 10.15**** Limited Liability Company Agreement of Boykin/AEW LLC dated as of February 1, 1999. 10.16 Stock Purchase Option Agreement by and among Boykin Lodging Company, Boykin Hotel Properties, L.P. and AEW Partners III, L.P. dated as of February 1, 1999. 31 10.17 Warrant to Purchase Class A Cumulative Preferred Stock, Series 1999-A of Boykin Lodging Company dated as of February 1, 1999. 10.18 Registration Rights Agreement by and among Boykin Lodging Company and AEW Partners III, L.P. dated as of February 1, 1999. 27 Financial Data Schedule
* Incorporated by reference from Amendment No. 3 to Boykin Lodging's Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form S-11") filed on October 24, 1996. Each of the above exhibits has the same exhibit number in the Form S-11. ** Incorporated by reference from Boykin Lodging's Form 10-Q for the quarter ended June 30, 1997. *** Incorporated by reference from Boykin Lodging's Form 10-Q for the quarter ended June 30, 1998. **** Certain portions of Exhibit 10.15 have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted portions have been filed separately with the Securities and Exchange Commission. The omitted portions of Exhibit 10.15 are marked with an Asterisk [*]. 32 (b) Reports on Form 8-K
Date Filed Items Reported Summary - ------------------------------ --------------------- ----------------------------------------- (1) March 3, 1999 (date of Item 5 (other events) Boykin announced the formation of a Report- February 1, 1999) joint venture with AEW Partners III, L.P.
33 FORWARD LOOKING STATEMENTS This Form 10-Q contains statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-Q and the documents incorporated by reference herein and include statements regarding the intent, belief or current expectations of Boykin Lodging, its directors or its officers with respect to: - - Leasing, management or performance of the hotels, - - Adequacy of reserves for renovation and refurbishment, - - Potential acquisitions and dispositions by Boykin, - - Boykin's financing plans, - - Boykin's policies regarding investments, acquisitions, dispositions, financings, conflicts of interest and other matters, and - - Trends affecting Boykin's or any hotel's financial condition or results of operations You are cautioned that any such forward-looking statement is not a guarantee of future performance and involves risks and uncertainties, and that actual results may differ materially from those in the forward-looking statement as a result of various factors. The information contained in this Form 10-Q and in the documents incorporated by reference herein identifies important factors that could cause such differences. With respect to any such forward-looking statement that includes a statement of its underlying assumptions or bases, we caution that, while we believe such assumptions or bases to be reasonable and have formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, we or our management express an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished. 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. /s/ Robert W. Boykin ------------------------- May 14, 1999 Robert W. Boykin Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Paul A. O'Neil ------------------------- May 14, 1999 Paul A. O'Neil Chief Financial Officer and Treasurer (Principal Accounting Officer) 34 EXHIBIT INDEX
Exhibits -------- 2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 3.1* Amended and Restated Articles of Incorporation 3.2* Code of Regulations 4.1* Specimen Share Certificate 10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P. 10.2* Form of Registration Rights Agreement 10.3* Long-Term Incentive Plan 10.4* Directors' Deferred Compensation Plan 10.5* Employment Agreement between Boykin Lodging and Robert W. Boykin 10.6* Employment Agreement between Boykin Lodging and Raymond P. Heitland 10.7* Employment Agreement between Boykin Lodging and Mark L. Bishop 10.8* Form of Percentage Lease 10.9* Intercompany Convertible Note 10.10* Agreements with General Partners of the Contributed Partnerships 10.11* Form of Noncompetition Agreement 10.12* Alignment of Interests Agreement 10.13** Description of Employment Arrangement between Boykin Lodging and Paul A. O'Neil 10.14*** Description of Employment Arrangement between Boykin Lodging and Richard C. Conti 10.15**** Limited Liability Company Agreement of Boykin/AEW LLC dated as of February 1, 1999. 35 10.16 Stock Purchase Option Agreement by and among Boykin Lodging Company, Boykin Hotel Properties, L.P. and AEW Partners III, L.P. dated as of February 1, 1999. 10.17 Warrant to Purchase Class A Cumulative Preferred Stock, Series 1999-A of Boykin Lodging Company dated as of February 1, 1999. 10.18 Registration Rights Agreement by and among Boykin Lodging Company and AEW Partners III, L.P. dated as of February 1, 1999. 27 Financial Data Schedule
* Incorporated by reference from Amendment No. 3 to Boykin Lodging's Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form S-11") filed on October 24, 1996. Each of the above exhibits has the same exhibit number in the Form S-11. ** Incorporated by reference from Boykin Lodging's Form 10-Q for the quarter ended June 30, 1997. *** Incorporated by reference from Boykin Lodging's Form 10-Q for the quarter ended June 30, 1998. **** Certain portions of Exhibit 10.15 have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted portions have been filed separately with the Securities and Exchange Commission. The omitted portions of Exhibit 10.15 are marked with an Asterisk [*]. 36 EX-10.15 2 EXHIBIT 10.15 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Certain portions of this Exhibit 10.15 have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934. The omitted portions have been filed separately with the Securities and Exchange Commission. The omitted portions of Exhibit 10.15 are marked with an asterisk [*]. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ LIMITED LIABILITY COMPANY AGREEMENT OF BOYKIN/AEW LLC A DELAWARE LIMITED LIABILITY COMPANY DATE: FEBRUARY 1, 1999 TABLE OF CONTENTS
Page ---- ARTICLE I -- GENERAL PROVISIONS............................................ 1 Section 1.1 ORGANIZATION........................................... 1 Section 1.2 BUSINESS OF THE COMPANY................................ 1 Section 1.3 PRINCIPAL PLACE OF BUSINESS............................ 2 Section 1.4 QUALIFICATION IN OTHER JURISDICTIONS................... 2 Section 1.5 TERM................................................... 2 ARTICLE II -- DEFINITIONS.................................................. 2 Section 2.1 DEFINITIONS............................................ 2 ARTICLE III -- CAPITAL CONTRIBUTIONS....................................... 12 Section 3.1 INITIAL CAPITAL........................................ 13 Section 3.2 CONTRIBUTIONS TO FUND PRESERVATION COSTS............... 13 Section 3.3 FORM OF CONTRIBUTIONS.................................. 14 Section 3.4 NO RIGHT TO INTEREST OR RETURN OF CAPITAL.............. 14 Section 3.5 NO THIRD PARTY RIGHTS.................................. 14 Section 3.6 LIMITATIONS............................................ 14 Section 3.7 EXPANSION CAPITAL...................................... 14 Section 3.8 FAILURE TO CONTRIBUTE CAPITAL.......................... 15 Section 3.9 CREDIT ENHANCEMENT..................................... 16 Section 3.10 FAILURE TO CONTRIBUTE EXPANSION CAPITAL................ 17 ARTICLE IV -- CAPITAL ACCOUNTS, ALLOCATIONS OF INCOME AND LOSS............. 17 Section 4.1 CAPITAL ACCOUNTS....................................... 17 Section 4.2 ALLOCATION OF NET INCOME............................... 18 Section 4.3 ALLOCATION OF NET LOSS................................. 18 Section 4.4 LOSS LIMITATION........................................ 18 Section 4.5 ALLOCATIONS TO MATCH CARRY DISTRIBUTIONS............... 19 Section 4.6 MINIMUM GAIN CHARGEBACKS AND NON-RECOURSE DEDUCTIONS... 19 Section 4.6.1 COMPANY MINIMUM GAIN........................... 19 Section 4.6.2 NONRECOURSE DEDUCTIONS......................... 19 Section 4.6.3 PARTNER NONRECOURSE DEBT....................... 20 Section 4.7 QUALIFIED INCOME OFFSET................................ 20 Section 4.8 CURATIVE ALLOCATIONS................................... 20 Section 4.9 SPECIAL INCOME ALLOCATION.............................. 20 Section 4.10 CODE SECTION 704(B) AND 514(C)(9)(E) ALLOCATIONS....... 21 Section 4.11 DISTRIBUTIONS OF NONRECOURSE LIABILITY PROCEEDS........ 21 Section 4.12 ALLOCATION OF DEBT..................................... 21 Section 4.13 OTHER ALLOCATION PROVISIONS............................ 21 Section 4.14 NO DEFICIT RESTORATION BY MEMBERS...................... 21 ARTICLE V -- DISTRIBUTIONS................................................. 22
(ii)
Page ---- Section 5.1 MAINTENANCE OF RESERVES............................. 22 Section 5.1.1 RESERVES -- GENERAL............................ 22 Section 5.1.2 PROHIBITED DISTRIBUTIONS....................... 22 Section 5.2 DISTRIBUTIONS OF CASH FLOW............................. 22 Section 5.3 DISTRIBUTIONS OF CAPITAL PROCEEDS...................... 23 Section 5.4 DISTRIBUTIONS UPON LIQUIDATION......................... 23 ARTICLE VI -- POWERS AND DUTIES............................................ 23 Section 6.1 BOARD OF MEMBERS....................................... 23 Section 6.1.1 ESTABLISHMENT OF BOARD OF MEMBERS.............. 23 Section 6.1.2 MEETINGS AND ACTION OF THE BOARD OF MEMBERS.... 24 Section 6.1.3 SPECIFIC APPROVAL RIGHTS OF BOARD OF MEMBERS....................................... 24 Section 6.1.4 APPROVAL BY MEMBERS IN LIEU OF BOARD APPROVAL; PROJECT REPRESENTATIVES............. 28 Section 6.2 ADDITIONAL RIGHTS OF THE CLASS A MEMBER................ 28 Section 6.3 OPERATING MEMBER....................................... 29 Section 6.3.1 AUTHORITY OF THE OPERATING MEMBER.............. 30 Section 6.3.2 EMPLOYEES...................................... 32 Section 6.3.3 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS...... 32 Section 6.3.4 FEES........................................... 33 Section 6.4 OTHER BUSINESS ACTIVITIES OF THE MEMBERS............... 33 Section 6.4.1 OPERATING MEMBER; FIRST OPPORTUNITY............ 33 Section 6.4.2 GENERAL PROVISIONS............................. 34 Section 6.4.3 RELATED PARTY TRANSACTIONS..................... 34 Section 6.4.4 COMPETING INVESTMENTS; RESTRICTED AREA......... 34 Section 6.4.5 LEASES......................................... 36 Section 6.5 LIMITATION OF LIABILITY................................ 37 Section 6.5.1 EXCULPATORY PROVISIONS......................... 37 Section 6.5.2 INDEMNIFICATION................................ 37 Section 6.5.3 MODIFICATION OF LIABILITY...................... 37 Section 6.5.4 INSURANCE...................................... 38 Section 6.6 CLASS A MEMBER'S RIGHT TO BECOME THE MANAGING MEMBER... 38 ARTICLE VII -- LIABILITIES OF MEMBERS...................................... 38 ARTICLE VIII -- TRANSFER OF COMPANY INTEREST............................... 38 Section 8.1 TRANSFER BY THE MEMBERS................................ 38 Section 8.1.1 GENERAL RESTRICTIONS........................... 38 Section 8.1.2 INDIRECT TRANSFERS............................. 39 Section 8.1.3 PERMITTED TRANSFERS............................ 39 Section 8.1.4 CONDITIONS TO SUBSTITUTIONS.................... 39 Section 8.2 RIGHT OF FIRST OFFER................................... 39 Section 8.2.1 FIRST OFFER.................................... 39 Section 8.2.2 TARGET ASSET DEPOSIT; FINANCING COMMITMENT..... 40
(iii)
Page ---- Section 8.2.3 CONDITIONS..................................... 41 Section 8.2.4 ADJUSTMENTS AND CLOSING COSTS.................. 42 Section 8.2.5 INTENTIONALLY DELETED.......................... 42 Section 8.2.6 CLOSING........................................ 42 Section 8.2.7 RESPONDING MEMBER'S FAILURE TO CLOSE........... 43 Section 8.2.8 BROKERAGE...................................... 43 Section 8.2.9 SALE TO THIRD PARTY............................ 44 Section 8.2.10 CLASS A MEMBER AS INITIATING MEMBER............ 44 Section 8.2.11 INTERRELATIONSHIP OF BUY-SELL.................. 46 Section 8.3 MEMBERS................................................ 46 Section 8.3.1 TERMINATING EVENT.............................. 46 Section 8.3.2 WITHDRAWAL BY MEMBERS.......................... 47 Section 8.4 BUY/SELL............................................... 47 Section 8.4.1 BUY/SELL OFFERING NOTICE....................... 47 Section 8.4.2 VERIFICATION NOTICE............................ 47 Section 8.4.3 RESPONSIVE NOTICE.............................. 47 Section 8.4.4 BUY/SELL DEPOSIT............................... 48 Section 8.4.5 CLOSING PROCESS................................ 48 Section 8.4.6 INTENTIONALLY DELETED.......................... 50 Section 8.4.7 FAILURE TO CLOSE............................... 50 Section 8.5 EFFECT UPON TRANSFEREES................................ 50 Section 8.6 QUALIFIED ORGANIZATIONS................................ 50 ARTICLE IX -- OPERATING MEMBER'S OBLIGATIONS FOR REPORTING, RECORDS AND ACCOUNTING MATTERS......................................... 51 Section 9.1 FISCAL YEAR............................................ 51 Section 9.2 BANK ACCOUNTS.......................................... 51 Section 9.3 MAINTENANCE OF RECORDS................................. 52 Section 9.4 CERTAIN RECORDS........................................ 53 Section 9.5 REQUIRED REPORTS....................................... 54 Section 9.5.1 PORTFOLIO BUSINESS PLAN........................ 54 Section 9.5.2 ASSET BUSINESS PLANS........................... 54 Section 9.5.3 ANNUAL BUDGETS...... .......................... 55 Section 9.5.4 MONTHLY REPORTS..... .......................... 57 Section 9.5.5 ANNUAL REPORTS...... .......................... 57 Section 9.5.6 TAX RETURNS......... .......................... 57 Section 9.5.7 GENERAL REQUIREMENTS........................... 58 Section 9.5.8 SUPPORTING DOCUMENTATION....................... 58 Section 9.5.9 FAILURE TO APPROVE; BUDGET IMPASSE............. 58 Section 9.6 QUARTERLY PRESENTATIONS................................ 59 Section 9.7 OTHER DISCLOSURES...................................... 59 Section 9.8 CLASS A MEMBER AS TAX MATTERS PARTNER.................. 59
(iv)
Page ---- Section 9.9 TAXATION AS A PARTNERSHIP.............................. 59 Section 9.10 COSTS PAYABLE FROM MASTER AND PROPERTY ACCOUNTS........ 59 Section 9.11 YEAR 2000 ISSUES....................................... 59 ARTICLE X- ACQUISITION AND DEVELOPMENT OF PROPERTIES....................... 60 Section 10.1 EXCLUSIVE OBLIGATION................................... 60 Section 10.2 INVESTMENT PERIOD...................................... 60 Section 10.3 PROPOSED ACQUISITIONS.................................. 61 Section 10.3.1 PRELIMINARY APPROVAL PACKAGE................... 61 Section 10.3.2 DUE DILIGENCE AND REVIEW....................... 63 Section 10.3.3 PURCHASE AND SALE.............................. 63 Section 10.3.4 DISAPPROVAL; FAILURE TO PROCEED................ 65 Section 10.3.5 COSTS AND EXPENSES............................. 65 ARTICLE XI -- DISSOLUTION AND EVENTS OF DEFAULT............................ 65 Section 11.1 DISSOLUTION............................................ 65 Section 11.2 EVENTS OF DEFAULT...................................... 65 Section 11.2.1 BREACH OF OBLIGATIONS.......................... 65 Section 11.2.2 FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.................................... 66 Section 11.2.3 PROHIBITED TRANSFER............................ 66 Section 11.3 REMEDIES............................................... 66 ARTICLE 12 -- MISCELLANEOUS................................................ 66 Section 12.1 NOTICES................................................ 66 Section 12.2 AMENDMENTS............................................. 67 Section 12.3 INTERPRETATION......................................... 68 Section 12.4 COUNTERPARTS........................................... 68 Section 12.5 ERISA, UBTI AND REIT MATTERS........................... 68 Section 12.5.1 ERISA.......................................... 68 Section 12.5.2 UBTI MATTERS................................... 68 Section 12.5.3 REIT MATTERS................................... 69 Section 12.5.4 DEALER PROPERTY................................ 74 Section 12.5.5 OBLIGATION OF OPERATING MEMBER TO AVOID PROVISIONS OF SECTION 12.5.3.................. 74 Section 12.6 NO PARTITION........................................... 75 Section 12.7 ATTORNEYS'FEES......................................... 75 Section 12.8 SEVERABILITY........................................... 75 Section 12.9 BINDING ON SUCCESSORS.................................. 75 Section 12.10 CONFIDENTIALITY........................................ 75 Section 12.11 REPRESENTATIONS AND WARRANTIES OF EACH MEMBER.......... 75 Section 12.12 BROKERAGE COMMISSIONS.................................. 76 Section 12.13 TIME IS OF THE ESSENCE................................. 76
(v) EXHIBITS Exhibit A - Operating Member and Class A Member's Proportionate Share/ Members' Contribution of Initial Capital/Initial Capital Accounts Exhibit B - Calculation of Total Return Exhibit C - Investment Guidelines Exhibit D - Form of Promissory Note Exhibit E - Form of Funding Notice Exhibit F - Insurance Requirements Exhibit F-1 - Company Insurance Limits Requirements Exhibit G-1 - Investment Management Fees Exhibit G-2 - Reimbursable Expenses Exhibit H - Reporting Requirements Exhibit H-1 - Form of Portfolio Business Plan and Budgets Exhibit H-2 - Form of Asset Business Plan and Budgets Exhibit H-3 - Form of Monthly Reports Exhibit I - Competing Activity Exclusions Exhibit J - Preliminary Information and Final Approval Package Exhibit K - Representations and Warranties Exhibit L - Intentionally Omitted Exhibit M - Refinancing Parameters Exhibit N - Forced Sale Notice Exhibit O - Approved Tenants (vi) LIMITED LIABILITY COMPANY AGREEMENT OF BOYKIN/AEW LLC, a Delaware limited liability company This Limited Liability Company Agreement is made as of the 1ST day of February, 1999, by and between AEW PARTNERS III, L.P., a Delaware limited partnership with a principal place of business at the address set forth in EXHIBIT A, (the "Class A Member") and BOYKIN HOTEL PROPERTIES, L.P., an Ohio limited partnership, with a principal place of business at the address set forth in EXHIBIT A (the "Operating Member"). The Class A Member and the Operating Member, together with any such additional parties as and when admitted to the Company (as defined below) as members shall be individually a "Member" and collectively, the "Members." WHEREAS, Boykin/AEW LLC (the "Company" or the "LLC") has been formed as a limited liability company under the Delaware Limited Liability Company Act, 6 Del. c. Sec. 18-101, ET seq. (as amended from time to time, the "Act") as of January 29,1999; and WHEREAS, the Members wish to set out fully their respective rights, obligations and duties regarding the Company and its assets and liabilities; NOW, THEREFORE, in consideration of the mutual covenants expressed herein, the parties hereby agree as follows: ARTICLE I - - GENERAL PROVISIONS Section 1.1 ORGANIZATION. The Company has been formed by the filing on January 29, 1999 of its Certificate of Formation with the Delaware Secretary of State pursuant to the Act. The original Certificate of Formation states that the registered agent and registered office of the Company in Delaware are The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. Subject to the limitations set forth in this Agreement, the Certificate of Formation may be restated or amended by the Operating Member as an "authorized person" within the meaning of the Act or pursuant to Section 6.3 of this Agreement. The Certificate of Formation as so amended from time to time, is referred to herein as the "LLC Certificate." The Operating Member shall deliver a copy of the LLC Certificate and any amendments thereto to any Member who so requests. Section 1.2 BUSINESS OF THE COMPANY. The business of the Company shall be, directly or indirectly (e.g., through limited liability companies, partnerships and joint ventures), to invest in, own, acquire, develop, improve, lease, sell, asset manage and otherwise deal with Lodging Facilities. In connection with the foregoing, it is contemplated that the assets of the Company shall be primarily invested in real estate which is owned, directly or indirectly, by the Company and with respect to which the Company has the right to substantially participate in asset management and development. The Company shall, from time to time, directly or indirectly through Subsidiary Companies, acquire real estate and personal property and interests therein, obtain licenses, enter into operating agreements, and improve, finance or refinance such property for the benefit of the Company and engage in any and all activities necessary, appropriate or useful in furtherance of any of the foregoing. Subject to the terms and conditions of this Agreement, the Company may directly or indirectly be a partner or member of any partnership, limited liability company or joint venture engaged in any business enterprise or any aspect of any business enterprise which it has the power to conduct on its own. Section 1.3 PRINCIPAL PLACE OF BUSINESS. The principal office and place of business of the Company shall initially be c/o Boykin Lodging Company, Guildhall Building, 45 West Prospect Avenue, Suite 1500, Cleveland, Ohio 44115-1027. The Operating Member may change the principal office or place of business of the Company at any time provided such principal office or place of business is located within the continental United States and is the same principal office or place of business as the Operating Member and may cause the Company to establish other offices or places of business in various jurisdictions and appoint agents for service of process in such jurisdictions. Section 1.4 QUALIFICATION IN OTHER JURISDICTIONS. The Operating Member shall cause the Company to be qualified or registered under applicable laws of every jurisdiction in which the Company transacts business and shall be authorized to execute, deliver and file any certificates and documents necessary to effect such qualification or registration. Section 1.5 TERM. The term of the Company commenced as of the date of the filing of the LLC Certificate in the office of the Secretary of State of the State of Delaware and shall continue until December 31, 2010 unless earlier dissolved pursuant to the provisions of this Agreement. ARTICLE II-- DEFINITIONS Section 2.1 DEFINITIONS. The following terms shall have the meanings indicated or referred to below, inclusive of their singular and plural forms except where the context requires otherwise. "Accountants" shall mean the Approved firm of independent certified public accountants from time to time engaged by the Company for purposes of reviewing or auditing the Company's financial statements or other information furnished by the Operating Member with respect to the Properties and performing such other duties as are imposed on the accountants by this Agreement. The Approved Accountants initially designated by the Board shall be either The E&Y Kenneth Leventhal Real Estate Group or Arthur Andersen LLP. "Acquisition/Redevelopment Budget" shall have the meaning set forth in Exhibit J-1. 2 "Acquisition/Redevelopment Costs" shall mean those Third Party costs and expenses of the Company or any Subsidiary Company, reasonably determined by the Operating Member to be necessary in connection with the acquisition or redevelopment of a proposed acquisition as identified by the Operating Member and Approved pursuant to Article X, including, without limitation, deposits, option payments, the acquisition purchase price, costs of entity formation, costs of financing, title insurance, escrow, survey, legal, engineering, architectural, environmental, appraisal and other consultant fees or expenses, accounting fees, franchise costs and market studies, renovation and repair costs, brokerage fees, including any fees owed Chadwick, Saylor and other fees approved in an Acquisition/Redevelopment Budget, in each case related to the acquisition of a Property or a proposed acquisition, and any and all other Approved out-of-pocket Third Party expenses incurred or anticipated to be incurred by the Company or any Subsidiary Company (or incurred by the Operating Member and to be reimbursed by the Company or a Subsidiary Company pursuant to Section 10.3.5) in connection with such acquisition or potential acquisition, redevelopment or substantial addition or renovation. Acquisition/Redevelopment Costs shall also include all amounts identified by the Operating Member and Approved in the applicable Acquisition/Redevelopment Budget for such proposed acquisition at the time of acquisition as being reasonably necessary to fund all costs of redevelopment, construction, renovation programs or other identifiable capital or tenant improvements, reserves, or operating deficits. "Act" shall have the meaning set forth in the introductory statement. "AEW Board Members" shall have the meaning set forth in Section 6.1. "Adjusted Capital Account" shall have the meaning set forth in Section 4.4. "Annual Budgets" shall have the meaning set forth in Section 9.5.3. "Approve", "Approved", or "Approval" shall refer to a proposed decision, action, report, budget, election, or any other matter that has received either (a) the approval by a Majority Vote of the Board of Members or (b) the written approval by both Members as described in Section 6.1.4 (subject, however, to the express provisions of Sections 6.2, 6.4.5, 6.6 and any other provision of this Agreement pursuant to which Approval for certain actions may result from the unilateral action of the Class A Member). "Approved Budgets" shall mean, as the case may be, each or any of the Annual Budget, Acquisition/Redevelopment Budget, Construction Budget or Pursuit Cost Budget, as Approved pursuant to the terms of this Agreement. "Approved Schedule of Accounts" shall mean the chart of accounts proposed by the Operating Member as Approved. "Asset Business Plan" shall have the meaning set forth in Section 9.5.2. 3 "Authorized Financing" shall mean any financing by the Company or by a Subsidiary Company with an institutional lender, to the extent such financing has specifically been Approved. "Binding Purchase Agreement" means any bona fide purchase and sale agreement between the Company or any Subsidiary Company as buyer and a Third Party as seller for the purchase of a Proposed Investment with respect to which any due diligence period under the agreement has expired without the purchase agreement being terminated and the deposit thereunder is generally nonrefundable. "BLC" means Boykin Lodging Company, an Ohio corporation, and its successors. "BLC Subsidiary" means any corporations, partnerships, limited partnerships, joint ventures and limited liability companies which are directly or indirectly and wholly or majority owned by BLC, including, unless the context requires otherwise, the Operating Member. "Board" or "Board of Members" shall have the meaning set forth in Section 6.1. "Business Day" means any day excluding a Saturday, Sunday and any other day during which there is no trading on the New York Stock Exchange. "Calendar Quarter" means each period of three calendar months commencing on a January 1, April 1, July 1, or October 1. "Capital Contribution Cap" means the maximum amount of Initial Capital required to be contributed by each respective Member pursuant to Section 3.1. The Capital Contribution Cap for each Member shall initially be as follows: (i) with respect to the Class A Member: Fifty Million Dollars ($50,000,000), and (ii) with respect to the Operating Member: Sixteen Million Six Hundred Sixty Six Thousand Six Hundred Sixty Seven and 67/00 Dollars ($16,666,666.67). The Capital Contribution Cap shall be subject to any Approved increase or any increase effected pursuant to the provisions of Article III. Such Approval may be in the form of an Approved increase to the maximum amounts set forth herein or by virtue of Approval of an Approved Budget or of Pursuit Costs, Acquisition/Redevelopment Costs, Cash Flow Deficits or other cash expenditures which result in the increase of the maximum amounts set forth herein. "Capital Proceeds" means the Gross Receipts of the Company in connection with a Capital Transaction or resulting from a Capital Transaction (and, if in connection with the liquidation of the Company, any other property available for distribution) following deduction of the following, to the extent paid out of such proceeds: (i) any reasonable expenses incurred in connection with the transaction giving rise to such proceeds or paid out of such proceeds (including fees, costs and expenses such as points, loan fees, rate lock fees, interest rate protections, brokerage fees and all legal fees and expenses), (ii) any amounts set aside for the establishment or replenishment of reasonable reserves as permitted under this Agreement and (iii) payment of any indebtedness. Any balance in a reserve set aside pursuant to clause (ii) 4 above remaining after the payment of sums necessary to satisfy the purpose for which such reserve was created subsequently released from such reserve shall be deemed Capital Proceeds. "Capital Stock" means, with respect to any Person, any and all shares, interests, participation rights in or other equivalents (however designated) of such Person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Capital Transaction" means the sale, financing, refinancing, total or partial destruction, condemnation or other recapitalization or disposition of one or more Properties or any substantial asset of the Company or any Subsidiary Company. "Cash Flow" shall mean, for any period, THE EXCESS, IF ANY, OF (a) the aggregate, consolidated sum of the Gross Receipts during such period of any kind and description but EXCLUDING (x) Gross Receipts received in connection with a Capital Transaction and (y) Contributions, OVER (b) the sum of the following cash expenditures paid or reserves made or established by the Company or any Subsidiary Company during such period (other than cash expenditures paid from Gross Receipts in connection with a Capital Transaction or included in the calculation of Capital Proceeds or cash expenditures paid from Contributions): (i) all cash expenditures for Acquisition/Redevelopment Costs and for operating expenses including, without limitation, all operating expenses related to the ownership of the Properties such as real estate taxes, expenses of insurance, maintenance, repair, management and leasing, (ii) debt service payments made on any Authorized Financing, (iii) cash expenditures for capital improvements and other expenses of a capital nature with respect to any Property, (iv) additions to reserves pursuant to Section 5.1 as may be Approved from time to time, and (v) any contributions, loans or other payments made by the Company to or for the benefit of any Subsidiary Company. Cash Flow shall be calculated to avoid double counting of payments to and from reserves. In no event shall any deduction be made for non-cash expenses such as depreciation, amortization or the like. It is the intention of the parties that all available cash held by any Subsidiary Company be distributed to the Company so that the available cash from all Properties will be consolidated and result in Gross Receipts to the Company. Cash expenditures made by a Subsidiary Company will be excluded from the calculation of Cash Flow unless paid directly by the Company. No item of income or expense included in the calculation of Capital Proceeds shall be included in the calculation of Cash Flow. "Cash Flow Deficits" shall mean, for any period, those sums necessary to fund actual or reasonably foreseeable operating deficits of the Company. "Change in Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of BLC): (i) if any "person" or "group" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner," directly or indirectly, of more than 50% of the total voting power of the Capital Stock of BLC (treating as "beneficially owned" all shares of Capital Stock of BLC that such "person" or "group" may receive upon exchange of units of limited partnership interest 5 in the Operating Member held by such "person" or "group"); (ii) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of BLC in one transaction or a series of transactions to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group of related persons for purposes of Section 13(d) of the Exchange Act (a "Group of Persons"); (iii) BLC consolidates with or merges with or into another Person or any Person consolidates with, or merges with or into, BLC (in each case, whether or not in compliance with the terms of this Agreement), in any such event pursuant to a transaction in which immediately after the consummation thereof the stockholders of BLC immediately prior to the consummation of the transaction shall cease to have the power, directly or indirectly (including by way of a general partnership interest), to vote or direct the voting of securities having in the aggregate at least a majority of the ordinary voting power for the election of the directors of BLC or its successor; or (iv) the adoption of any plan of liquidation or dissolution of BLC. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of the Operating Member (or any other BLC Subsidiary, BLC's interest in which constitutes all or substantially all of the assets of BLC), shall be deemed to be the transfer of all or substantially all of the assets of BLC. "Class A Member" means AEW Partners III, L.P. or any permitted successor or assign. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committed Contributions" means, at any given time, (a) with respect to any Property and/ or (b) with respect to any Proposed Investment under a Binding Purchase Agreement, the sum of all unfunded contributions which the Members have agreed to advance to the Company as Contributions for Acquisition/Redevelopment Costs in an Approved Acquisition/Redevelopment Budget. "Company" has the meaning set forth in the introductory statement. "Competing Investment" shall mean (a) any Lodging Facility in the Restricted Area which directly competes with a Property as determined either by agreement of the Operating Member and the Class A Member or absent any agreement, at the request of either Member, by the Market Expert or (b) twenty percent (20%) or more of the beneficial interests in any Entity which directly or indirectly owns any such Lodging Facility in the Restricted Area. "Construction Budget" shall have the meaning set forth in Section 9.5.3(c). "Contributions" means the aggregate of each Member's cash and non-cash capital contributions made to the Company pursuant to Article III. Contributions shall not include any Default Loans made by a Member under Section 3.8(a) or Section 3.10 or Committed Contributions. "Credit Enhancement" shall have the meaning set forth in Section 3.9. 6 "Default Amount" shall have the meaning set forth in Section 3.8. "Defaulting Member" shall have the meaning set forth in Section 3.8. "Default Loan" shall have the meaning set forth in Section 3.8(a). "Default Rate" means fifteen percent per annum (15%), compounded monthly. "Entity" means any general partnership, limited partnership, corporation, limited liability company, limited liability partnership, joint venture, trust, business trust, cooperative or association or other comparable business entity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder. "Event of Default" shall have the meaning set forth in Section 11.2. "Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations of the United States Securities and Exchange Commission or any other federal agency at the time administering the Exchange Act promulgated thereunder, as from time to time amended. "Excluded Costs" shall have the meaning set forth in EXHIBIT G-2. "Expansion Capital" shall have the meaning set forth in Section 3.7(b). "Final Approval Package" shall have the meaning set forth in Section 10.3.2. "Funding Notice" means a written notice from either Member to the other Member, substantially in the form attached as EXHIBIT E, requesting each Member to fund or make Contributions pursuant to Article III. "Governmental Requirements" shall mean collectively any federal, state or municipal law, ordinance, regulation, order, permit or approval applicable to the ownership, development, servicing, use, operation or marketing of any Property. "Gross Receipts" shall mean all cash receipts of the Company, including distributions received by the Company from any Subsidiary Company from any source whatsoever, but calculated to avoid any double-counting of cash receipts of a Subsidiary Company and distributions from a Subsidiary Company to the Company with respect to those cash receipts or payments to and from reserves. Tenant security deposits shall be excluded from the calculation of Gross Receipts unless and until such time as the Company or the respective Subsidiary Company is entitled to apply such amounts toward tenant obligations. 7 "Immediate Family" means with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, but not other members of the individual's extended family. "Initial Capital" shall mean the Contributions required to be made by the Members pursuant to Section 3.1. "Indemnified Party" shall have the meaning set forth in Section 6.5. "Interest Rate" shall mean an annual rate of interest equal to the annual rate of interest announced by BankBoston, N.A. (or any successor entity) at its main office as its so called "base rate" plus two percentage (2%) points. "Insurance Requirements"- shall mean the property and liability insurance coverages and requirements set forth in EXHIBIT F attached hereto, as the same may be amended from time to time with the prior written consent of all of the Members. "Investment Guidelines" shall mean the investment guidelines to be followed by the Company in its search for Properties, which are attached hereto and made a part hereof as EXHIBIT C as such guidelines may be amended from time to time by mutual agreement of all of the Members. "Investment Period" shall have the meaning set forth in Section 10.2. "Key Personnel" shall mean the following officers of the Company (and any Approved successors to such officers): Robert W. Boykin. "Lease" shall mean an Approved lease between the Company or any Subsidiary Company as landlord and either an Operating Member Related Party or a Third Party as tenant demising all or substantially all of a Property. Each Lease shall have an initial term of at least five (5) years. "Legal Successor" shall mean the legal representative, heir, successor or assign of any Person who is legally incompetent or has died. "Lodging Facility" or "Lodging Facilities" shall mean any hotel, motel, inn or full service commercial and resort hotel property or other lodging facility or other entity which, directly or indirectly, owns or operates any such facility and any land, amenities and personal property related to or used in connection with any such facility and any land acquired for the purpose of the development of any such facility. "Majority Vote" shall have the meaning set forth in Section 6.1.2. 8 "Market Expert" shall mean a nationally recognized hotel consulting group designated by the Board as the determiner of whether a Lodging Facility is a Competing Investment. Until a different designation is made by the Board, the Market Expert shall be Pricewaterhouse Coopers LLP. "Master Account" shall have the meaning set forth in Section 9.2(a). "Members" shall have the meaning set forth in the introductory statement. "Monthly Statement" shall have the meaning set forth in Section 9.5.4. "Mortgage Loan" shall mean any loan secured in whole or in part by a Property. "Nondiscretionary Expense" shall have the meaning set forth in Section 9.5.3(b). "Operating Member" means Boykin Hotel Properties, L.P., an Ohio limited partnership or any permitted successor or assign. "Operating Member Related Party" means the Operating Member and any Related Party of the Operating Member. In any event, any Key Personnel, BLC, Boykin Management Company Limited Liability Company and any Related Party of any of the foregoing shall be deemed an Operating Member Related Party. Notwithstanding the foregoing, the Class A Member acknowledges that (i) neither William Boykin nor John E. Boykin is an Operating Member Related Party and (ii) Boykin Management Company Limited Liability Company shall no longer be deemed an Operating Member Related Party if Robert W. Boykin and any Related Party or Immediate Family of Robert W. Boykin collectively own less than twenty five percent (25%) of the beneficial interest in Boykin Management Company Limited Liability Company and the Class A Member receives notice of such ownership change from the Operating Member. "Person" means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so permits. "Portfolio Business Plan" shall have the meaning set forth in Section 9.5.1. "Portfolio Expenses" shall mean, as of the date of determination, an amount equal to (a) all reasonable costs and expenses incurred by the Company from time to time directly in connection with its operations and activities conducted pursuant to this Agreement, to the extent that any such costs and expenses are not specifically attributable to the acquisition, development, ownership, operation or disposition of any one Property. Portfolio Expenses shall include, for example and without limitation, all costs and expenses in connection with investigation, due diligence and deposits with respect to Proposed Investments which are not acquired by the Company, (b) all costs of the Accountants and other Third Parties in connection with maintenance of the books and records of the Company (to the extent not properly allocable to a specific Property), and (c) all filing fees and other Third Party expenses incurred in connection 9 with maintenance of the existence of the Company as an entity. Portfolio Expenses shall be reasonable in light of industry standards and shall be calculated to avoid the double-counting of costs and expenses between specific Property-related expenses and Portfolio Expenses. "Preliminary Information" shall have the meaning set forth Section 10.3.1. "Preservation Capital" shall have the meaning set forth in Section 3.2. "Preservation Costs" shall have the meaning set forth Section 3.2. "Project Representative" shall have the meaning set forth in Section 6.1.4. "Property" shall mean, at any time, any Lodging Facility or other real property owned directly or indirectly in whole or in part by the Company, including all land and other real and personal property owned by the Company or a Subsidiary Company and used in connection with the ownership or operation thereof. "Property Account" shall have the meaning set forth in Section 9.2. "Proportionate Share" shall mean, unless and until there has been a transfer of an interest in the Company or an admission of a new Member, with respect to the Class A Member, seventy five percent (75%), and with respect to the Operating Member, twenty five percent (25%), as set forth on EXHIBIT A, subject at all times to recalculation in accordance with the provisions of Section 3.8 or as otherwise provided in accordance with the terms of this Agreement. "Proposed Investment" shall mean any Lodging Facility or other real estate proposed by the Operating Member (whether or not referred to the Operating Member by the Class A Member) to be acquired, leased or developed directly by the Company or through a Subsidiary Company pursuant to Article X and with respect to which the Operating Member has submitted a Preliminary Approval Package under Section 10.3.1. "Purchase and Sale Agreement" shall have the meaning set forth in Section 10.3.3. "Pursuit Cost Budget" shall mean, from time to time, the Approved budget for Pursuit Costs with respect to Proposed Investments with a maximum limit on an asset and portfolio basis. As of the date of this Agreement, the Pursuit Cost Budget does not permit the expenditure of more than $25,000 in the aggregate of Pursuit Costs for any one Proposed Investment or more than $100,000 in the aggregate of Pursuit Costs for all Proposed Investments at any one time, such limits to be calculated and recalculated from time to time in accordance with Sections 10.3.1(c) and 10.3.5. "Pursuit Costs" shall mean costs and expenses of the Company of the type described in the definition of Acquisition/Redevelopment Costs associated with pursuing investment opportunities, including Proposed Investments, pursuant to the then approved Pursuit Cost 10 Budget and which have not been Approved in an Acquisition/Redevelopment Budget or otherwise. In no event shall Pursuit Costs include any Excluded Costs. "Qualified Organization" shall have the meaning set forth in Section 514(c)(9)(C) of the Code or in any successor provision of similar import. "Related Party" shall mean with respect to any Person, (i) any Person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person, or (ii) any Person who is a member of the Immediate Family of such Person, or (iii) any Person in which such Person or one or more members of the Immediate Family of such Person has a twenty-five percent (25%) or more beneficial interest or as to which such Person serves as a trustee or general partner or in a similar fiduciary capacity. A Person shall be deemed to control a Person if it and/or any member of the Immediate Family of such Person owns, directly or indirectly, at least twenty-five percent (25%) of the ownership interest in such Person or otherwise has the power to direct the management, operations or business of such Person. The term "beneficial owner" is to be determined in accordance with Rule 13d-3 promulgated by the SEC under the Securities Exchange Act of 1934. "REIT" means a real estate investment trust under the provisions of Sections 856-860 of the Code. "REIT Gross Income" shall have the meaning set forth in Section 12.5.3 hereof. "REIT Tax Provisions" means Parts II and III of Subchapter M of Chapter I of Subtitle A of the Code, as now enacted or hereafter amended, and other provisions of the Code referred to or incorporated in, or referring to or incorporating any other provisions of, said Parts II and III, or similar provisions or successor statutes, and applicable regulations under and rulings with respect to the aforesaid provisions of the Code. "Requested Amount" means with respect to each of the Members, such Member's Proportionate Share of any capital requested by a Member pursuant to a Funding Notice under Article III. "Restricted Area" shall have the meaning set forth in Section 6.4.4 hereof. "Safety Costs" shall have the meaning set forth in Section 3.2 hereof. "Special Managing Member" shall have the meaning set forth in Section 8.2.10 hereof. "Subsidiary Company" or "Subsidiary Companies" shall mean, at any time, the Entity or Entities that directly own one or more Properties and which are, in turn, directly or indirectly majority or wholly-owned and controlled by the Company in accordance with this Agreement. "Target Asset" shall have the meaning set forth in Section 8.2.1 hereof. 11 "Target Asset Closing Date" shall have the meaning set forth in Section 8.2.6. "Target Market" means the United States of America. "Terminating Event" means any of the following: (a) FOR A NATURAL PERSON: death; any disabling mental or physical condition which prevents such person from carrying on business activities and which continues for an uninterrupted period of more than six months; entry of an order adjudicating such person incompetent by a court of competent jurisdiction; appointment of a conservator; or execution of a certificate diagnosing such person's incompetency by each of such person's physician and two additional independent consulting physicians, each licensed to practice medicine in the state of such person's residence. (b) FOR AN ENTITY OTHER THAN A NATURAL PERSON: filing of a certificate of dissolution or its equivalent for any corporation; dissolution of a partnership; termination of a trust; distribution of a trust estate's entire interest in the Company; or the dissolution, termination or bankruptcy of any other entity that is a Member, whether voluntary or involuntary; provided that a tax termination of an Entity shall not alone be a Terminating Event. (c) FOR ANY MEMBER: withdrawal, resignation or Transfer in contravention of this Agreement; or filing with respect to such Member for relief under Title 11 of the United States Code or similar debtor protection laws or an assignment for the benefit of creditors, which would include an involuntary filing not dismissed within ninety (90) days. "Third Party" means any Person who is not a Member, or a Related Party of any Member. "Total Return" shall have the meaning set forth on EXHIBIT B attached hereto. "Transfer" shall have the meaning set forth in Section 8.1.1. "Treasury Regulations" means the Income Tax Regulations and Procedure and Administration Regulations promulgated under the Code, as amended from time to time. "Uncontributed Expansion Amount" shall have the meaning set forth in Section 3.10 hereof. 12 ARTICLE III-- CAPITAL CONTRIBUTIONS Section 3.1 INITIAL CAPITAL. The Members shall be obligated to make Contributions of Initial Capital to the Company in an aggregate amount equal to each Member's respective Capital Contribution Cap to fund Pursuit Costs, Acquisition/Redevelopment Costs, Cash Flow Deficits or other cash expenditures which have been Approved in an Approved Budget or otherwise. All contributions of Initial Capital by the Members shall be made in proportion to the Members' Proportionate Share. If capital is needed to fund such costs, either Member may issue a Funding Notice substantially in the form attached hereto as EXHIBIT E setting forth the amount of Initial Capital being requested. Within thirty (30) days after receipt of a duly issued Funding Notice, each Member shall advance to the Company as a Contribution of Initial Capital, such Member's Requested Amount, up to such Member's Capital Contribution Cap. In any event, as of the date of expiration of the Investment Period, each Member shall be required to advance to the Company as Initial Capital, such Member's Proportionate Share of all Committed Contributions, determined and calculated as of such date. Section 3.2 CONTRIBUTIONS TO FUND PRESERVATION COSTS. Subject to the limitations set forth herein, if at any time after the sum of all Contributions made by the Members and all Committed Contributions is equal to or greater than the Members' aggregate Capital Contribution Cap then in effect, either Member reasonably determines (after taking into account any existing cash reserves of the Company) that the Company requires additional capital to fund the payment of (x) regularly scheduled debt service obligations, real estate taxes, utility costs and/or insurance premiums (all such costs, collectively "Preservation Costs") and/or (y) other costs and expenses reasonably necessary to prevent imminent harm to the safety and welfare of the employees or guests at a Property ("Safety Costs"), either Member shall have the right to issue a Funding Notice substantially in the form attached hereto as EXHIBIT E setting forth each Member's Requested Amount. Within thirty (30) days after receipt of a duly issued Funding Notice, each Member shall advance to the Company such Member's Requested Amount unless a Buy/Sell Offering Notice has been issued in which case, once it has been determined which Member will be the Seller, the Seller shall not be obligated to fund such Requested Amount and Buyer's only right with respect to the failure of Seller to fund such Requested Amount shall be the right to make a Default Loan to a Seller pursuant to Section 3.8(a). Any funds advanced by the Members to the Company pursuant to this Section 3.2 for Preservation Costs or Safety Costs shall be referred to as "Preservation Capital" and shall constitute additional Contributions to the Company. All contributions by the Members pursuant to this Section 3.2 shall be made in proportion to the Members' Proportionate Shares. Notwithstanding the above, if at any time the Operating Member issues a Funding Notice under this Section 3.2 which requires the Class A Member to fund Preservation Costs for a Property under this Section 3.2 (taking into account any prior Contributions of Preservation Costs for such Property under this Section 3.2 funded by the Class A Member) in excess of five percent (5%) of the sum of the Contributions and Committed Contributions made by the Class A Member with respect to the acquisition and initial development or renovation of such Property, the Class A Member by written notice to the Operating Member (the "Declination Notice"), which notice must be given within fifteen (15) days after the date of receipt of the applicable Funding Notice, may elect to decline to make such 13 Contribution and in such event, neither Member shall be obligated or have the right to make a Contribution to fund such Preservation Costs. In addition, if at any time a Member issues a Funding Notice under this Section 3.2 which requires the Members to fund Preservation Capital (taking into account any prior Contributions of Preservation Capital) in excess of five percent (5%) of the sum of the Contributions and Committed Contributions (other than Contributions of Preservation Capital) made by the Members, neither Member shall be obligated or have the right to make a Contribution to fund such Preservation Capital. Section 3.3 FORM OF CONTRIBUTIONS. Unless otherwise Approved, all Contributions shall be paid in cash. Section 3.4 NO RIGHT TO INTEREST OR RETURN OF CAPITAL. Except as specifically provided for herein, no Member shall be entitled to any return of or interest on Contributions to the Company. Section 3.5 NO THIRD PARTY RIGHTS. Any obligations or rights of the Company or the Members to make or require any Contribution under this Article III shall not result in the grant of any rights to or confer any benefits upon any Person who is not a Member. Section 3.6 LIMITATIONS. Except as set forth in this Article III, no Member shall be entitled or required to make any Contribution to the Company. No Member shall have any liability for the repayment of the Contribution of any other Member (other than as set forth in Section 3.8), and each Member shall look only to the assets of the Company for return of its Contributions. Section 3.7 EXPANSION CAPITAL. (a) If (i) at any time prior to the first anniversary of the date of this Agreement, the sum of all Contributions made by the Members and all Committed Contributions equal $64,666,666.67 or more or (ii) on the first anniversary of the date of this Agreement, the sum of all Contributions made by the Members and all Committed Contributions equal $26,666,666.67 or more, the Operating Member shall promptly send a written notification of such fact to the Class A Member, which notice shall contain a specific reference to this Section 3.7. Within 60 days after the receipt of such written notice from the Operating Member with respect to the satisfaction of either of the conditions set forth in (i) or (ii) above or upon the determination by the Class A Member that either of the conditions set forth in (i) or (ii) above has been satisfied, the Class A Member shall have the right, at its option, to notify the Operating Member in writing (such notice, the "Cap Increase Notice") that the Class A Member is prepared to increase its Capital Contribution Cap. The Cap Increase Notice shall set forth the amount by which the Class A Member proposes the aggregate Capital Contribution Caps of the Members shall be increased, which amount shall not be less than $33,333,333.33 nor more than $66,666,666.67. The Operating Member shall, within thirty (30) days following the giving of any such Cap Increase Notice, give written notice to the Class A Member of the Operating Member's election either (i) approving the increase in the aggregate Capital Contribution Cap proposed by the Class A Member, in which event the Capital Contribution Cap for each Member shall be increased by its Proportionate Share of such aggregate increase, or (ii) 14 disapproving such increase, in which event the Capital Contribution Caps of the Members shall not be increased. The Operating Member's failure to give notice within the aforesaid thirty (30) day period shall be deemed to be the Operating Member's election not to approve the increase in the Capital Contribution Caps as set forth in the Cap Increase Notice. (b) If at any time during the Investment Period, the Operating Member offers a Lodging Facility to the Company as a proposed acquisition under Article X and such proposed acquisition is approved by the Class A Member or the AEW Board Members, then notwithstanding the fact that Approval of the proposed acquisition, taking into account all Contributions of Initial Capital made by the Members and all Committed Contributions then in effect, would result in the Capital Contribution Cap of each Member being exceeded, the Operating Member shall be deemed to have approved such acquisition and an increase in its Capital Contribution Cap in an amount necessary to fund its Proportionate Share of all Pursuit Costs and Acquisition/Redevelopment Costs in connection with such proposed acquisition, in any event, all subject to the rights of the Class A Member pursuant to Article X. In no event shall the aggregate increases in the Capital Contribution Caps pursuant to this Section 3.7(b) exceed $33,333,333.33. Any Capital advanced or required to be advanced under this Article III as a result of the increase in the Capital Contribution Cap under Section 3.7 (a) or (b) shall be referred to as "Expansion Capital". Section 3.8 FAILURE TO CONTRIBUTE CAPITAL. Subject to the provisions of Section 3.10, if any Member fails to make a Contribution required under this Article III by the date such Contribution is due and such failure continues for ten (10) days after written notice from any Member who has not failed to make its Contribution (any such failing Member shall be a "Defaulting Member" and the amount of the failed contribution shall be the "Default Amount"), then, in addition to its other rights and remedies set forth herein, or otherwise provided by law, the nondefaulting Member shall have one or more of the following remedies: (a) to advance to the Company on behalf of, and as a loan to the Defaulting Member, an amount equal to the Default Amount to be evidenced by a promissory note in substantially the form attached hereto as EXHIBIT D (each such loan, a "Default Loan"). The Capital Account of the Defaulting Member shall be credited with the amount of such Contribution and such amount shall constitute a debt owed by the Defaulting Member to the nondefaulting Member. Any Default Loan shall bear interest at the Default Rate (but in no event in excess of the highest rate permitted by applicable law) and shall be payable from any distributions due the Defaulting Member hereunder, but shall in all events be payable in full by the Defaulting Member on or before the earlier of (i) December 31, 2010 and (ii) the transfer of the entire interest of a Member in the Company to the other Member. Interest on a Default Loan to the extent unpaid shall accrue and compound monthly. A Default Loan shall be prepayable, in whole or in part, at any time or from time to time without penalty. Any such Default Loans shall be secured solely by the Defaulting Member's interest in the Company, including, without limitation, such Defaulting Member's rights to distributions under Article V. Except as expressly provided herein, Default Loans, with interest as aforesaid, shall otherwise be 15 without recourse to any other assets of the Defaulting Member. The Defaulting Member hereby grants a security interest in its interest in the Company to the nondefaulting Member and the Defaulting Member hereby irrevocably appoints the nondefaulting Member, and any of its respective officers, as its attorney-in-fact coupled with an interest with full power to prepare and execute any documents, instruments and agreements, including, but not limited to, any note evidencing the Default Loan and such Uniform Commercial Code Financing Statements, continuation statements, and other security instruments as may be appropriate to perfect and continue its security interest in favor of the nondefaulting Member. Any Contributions contributed by the nondefaulting Member on behalf of a Defaulting Member shall be deemed to be made by the Defaulting Member except as otherwise expressly provided herein. All distributions to the Defaulting Member hereunder shall be applied first to payment of any interest due under any Default Loan and then to principal until all amounts due thereunder are paid in full. While any Default Loan is outstanding, the Company shall be obligated to pay directly to the nondefaulting Member, until all Default Loans have been paid in full, the amount of (x) any distributions payable to the Defaulting Member, and (y) any proceeds of a sale that would otherwise be payable to the Defaulting Member resulting from the sale of a Target Asset as contemplated by Section 8.2 or from the sale of the Defaulting Member's interest in the Company as contemplated by Section 8.4; or (b) to advance to the Company as an additional Contribution the Default Amount whereupon the Proportionate Shares of the Members shall be recalculated as provided in this subparagraph (b). After the exercise of a Member's rights under this subparagraph (b), each Member's Proportionate Share shall equal a fraction (expressed as a percentage), the numerator of which shall equal the aggregate sum of all Contributions made by the Member under this Agreement and the denominator of which shall equal the aggregate sum of all Contributions made by all Members under this Agreement; or (c) in lieu of the remedies set forth in subparagraphs (a) or (b) above, to revoke the Funding Notice for both Members, whereupon any unmatched Contributions paid by the nondefaulting Member pursuant to such Funding Notice shall be returned, with interest computed at the Interest Rate, in which event the nondefaulting Member shall reconsider the needs of the Company for additional capital and may issue any Funding Notice following such reconsideration. Section 3.9 CREDIT ENHANCEMENT. Either Member may, on a case by case basis, but subject to obtaining Approval, elect to provide credit enhancement for Authorized Financing for one or more Properties in the form of guaranties, indemnifications, pledges of collateral or letters of credit to the provider of the Authorized Financing (a "Lender"), in each case to secure certain obligations of the Company or any Subsidiary Company (any such credit enhancement shall be collectively, "Credit Enhancement"). Any request for Approval made by a Member may include proposed fees to be charged to the Company by such Member in connection with providing such Credit Enhancement. The provision of any such Credit Enhancement shall not be deemed a 16 Contribution unless and until any funds payable under any guaranty are paid, or with respect to collateral, such collateral is applied or with respect to a letter of credit, such letter of credit is drawn upon, but shall be deemed a Contribution upon and after such payment, application or draw (but only to the extent funds are paid, collateral applied or a letter of credit is drawn upon). If any Member is required to make payments under any Credit Enhancement or any Credit Enhancement supplied by a Member is drawn or applied by any Lender against the obligation of the Company or any Subsidiary Company other than in proportion to the Proportionate Shares of all of the Members, or if the Members shall incur reasonable costs in providing such Credit Enhancement that are disproportionate to the Members' Proportionate Shares, then the Member who has proportionally paid or funded less Credit Enhancement or has had proportionally less of its Credit Enhancement so applied (or who has incurred proportionally fewer costs in providing Credit Enhancement) shall promptly reimburse the other Member in an amount which shall result in each Member having its Proportionate Share of the Credit Enhancement applied (or having incurred its Proportionate Share of Credit Enhancement costs) and the Contributions deemed made by the Members shall reflect any such payment. If any Member fails to promptly reimburse the other Member, the non-failing Member shall have the right to cause the Company to reimburse both Members for all costs and expenses reasonably incurred by the Members in connection with such Credit Enhancement (and such non-failing Member shall have the unilateral right to issue a Funding Notice in such amount) and the Members agree that such reimbursement shall be made prior to any distributions to the Members under Article V. Section 3.10 FAILURE TO CONTRIBUTE EXPANSION CAPITAL. If the Operating Member fails to contribute its Requested Amount of Expansion Capital after the issuance of a Cap Increase Notice (the portion of its Requested Amount which the Operating Member fails to contribute shall be the "Uncontributed Expansion Amount"), then, notwithstanding the provisions of Section 3.8, if the Operating Member notifies the Class A Member within ten (10) days after a receipt of a Funding Notice for such Expansion Capital that it does not intend to fund its Requested Amount and such notice sets forth the Uncontributed Expansion Amount, then such failure shall not be deemed a default of the Operating Member under this Agreement or an Event of Default hereunder, but the Class A Member shall have the specific right to the remedies set forth in Section 3.8(a) or 3.8(c). Any loan made by the Class A Member pursuant its rights under Section 3.8(a) as a result of the application of this Section shall be deemed a "Default Loan" for all purposes of this Agreement. ARTICLE IV-- CAPITAL ACCOUNTS, ALLOCATIONS OF INCOME AND LOSS Section 4.1 CAPITAL ACCOUNTS. A separate capital account (each a "Capital Account") shall be maintained for each Member in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv), and this Section 4.1 shall be interpreted and applied in a manner consistent therewith. Whenever the Company would be permitted to adjust the Capital Accounts of the Members pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(F) to reflect revaluations of Company property, the Company may so adjust the Capital Accounts of the Members. In the event that the Capital Accounts of the Members are adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(F) to reflect revaluations of Company property, 17 (i) the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(G) for allocations of depreciation, depletion, amortization and gain or loss, as computed for book purposes, with respect to such property, (ii) the Members' distributive shares of depreciation, depletion, amortization and gain or loss, as computed for tax purposes, with respect to such property shall be determined so as to take account of the variation between the adjusted tax basis and book value of such property in the same manner as under Code Section 704(c), and (iii) the amount of upward and/or downward adjustments to the book value of the Company property shall be treated as income, gain, deduction and/or loss for purposes of applying the allocation provisions of this Article IV. In the event that Code Section 704(c) applies to Company property, the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(G) for allocations of depreciation, depletion, amortization and gain and loss, as computed for book purposes, with respect to such property. Section 4.2 ALLOCATION OF NET INCOME. Subject to Sections 4.5 through 4.9, net income for any fiscal year or portion thereof shall be allocated among the Members in the following order and priority: (a) First, to the Members until the aggregate allocations of net income to each Member pursuant to this Section 4.2(a) for all fiscal years or portions thereof are equal to the aggregate allocations of net loss to each Member pursuant to Section 4.4 for all fiscal years or portions thereof, in the reverse order of, and in proportion to, the prior allocations of net loss to the Members pursuant to Section 4.4; and (b) Thereafter, to the Members, pro rata in accordance with their Proportionate Shares. Section 4.3 ALLOCATION OF NET LOSS. Subject to Sections 4.4 through 4.9, net loss for any fiscal year or portion thereof shall be allocated among the Members in accordance with their Proportionate Shares. Section 4.4 LOSS LIMITATION. Net loss allocated pursuant to Section 4.3 shall not exceed the maximum amount of net loss that can be allocated without causing or increasing a deficit balance in a Member's Adjusted Capital Account. A Member's "Adjusted Capital Account" balance shall mean such Member's Capital Account balance increased by such Member's obligation to restore a deficit balance in its Capital Account, including any deemed obligation pursuant to the penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5), and decreased by the amounts described in Treasury Regulations Section 1.704-1(b)(2)(ii)(D)(4), (5), or (6). In the event that one but not both of the Members would have a deficit balance in its Adjusted Capital Account as a consequence of an allocation of net loss pursuant to Section 4.3 in excess of the amount, if any, permitted under the first sentence of this Section 4.4, the limitation set forth in this Section 4.4 shall be applied by allocating 100%of the remaining net loss to the other Member until the Adjusted Capital Account of such other Member is zero. 18 Section 4.5 ALLOCATIONS TO MATCH CARRY DISTRIBUTIONS. After giving effect to the special allocations set forth in Sections 4.6 through 4.8, the Operating Member shall be specially allocated 100% of the net income of the Company until the aggregate amount of net income (including any gross items of income or gain allocated under this Section 4.5) allocated to the Operating Member pursuant to this Section 4.5 in all fiscal years of the Company is equal to the aggregate amount of the Carry Distributions which the Operating Member has received. If the Company has insufficient net income to make the allocation required by the preceding sentence, the Company shall specially allocate gross items of income and gain to the Operating Member to the extent of any such shortfall. "Carry Distributions" means the portion of the distributions made (or deemed made pursuant to the following provisions of this Section 4.5) to the Operating Member pursuant to Sections 5.2(b), 5.2(c), 5.3(b) and 5.3(c) in amounts not in accordance with the Operating Member's Proportionate Share (e.g. 16 2/3% of all distributions under Sections 5.2(b) and 5.3(b)). For purposes of determining the amount of Carry Distributions, all distributions made, or which will be made, pursuant to Section 5.4 shall be treated as if made pursuant to each applicable paragraph of Section 5.3 to the extent of the amount that would have been made pursuant to each such paragraph if the aggregate amount distributed, or to be distributed, pursuant to Section 5.4 had been distributed pursuant to Section 5.3. In addition, for purposes of determining the amount of Carry Distributions, distributions shall only be taken into account if they are made prior to the date which is the earlier of (i) the date on which the Company files its federal income tax return with respect to the fiscal year for which the allocation pursuant to this Section 4.5 is being made, or (ii) the date prescribed by law for the filing of such return (not including extensions). Finally, the parties acknowledge that it is the intention of this Section 4.5 and Section 4.9 that, to the extent possible and subject to the other provisions of this Agreement, each Member will receive the same aggregate amount of net distributions under this Agreement that each Member would have received if this Agreement did not contain Section 5.4. Section 4.6 MINIMUM GAIN CHARGEBACKS AND NON-RECOURSE DEDUCTIONS. Section 4.6.1 COMPANY MINIMUM GAIN. Notwithstanding any other provisions of this Agreement, in the event there is a net decrease in Company Minimum Gain during a fiscal year, the Members shall be allocated items of income and gain in accordance with Treasury Regulations Section 1.704-2(f). For purposes of this Agreement, the term "Company Minimum Gain" shall mean "Partnership Minimum Gain" as set forth in Treasury Regulations Section 1.704-2(b)(2), and any Member's share of Company Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This Section 4.6.1 is intended to comply with the minimum gain charge-back requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted and applied in a manner consistent therewith. Section 4.6.2 NONRECOURSE DEDUCTIONS. Notwithstanding any other provision of this Agreement, non-recourse deductions shall be allocated to the Members, pari passu, in 19 proportion to their Proportionate Shares. "Non-recourse deductions" shall have the meaning set forth in Treasury Regulations Section 1.704-2(b)(1). Section 4.6.3 PARTNER NONRECOURSE DEBT. Notwithstanding any other provisions of this Agreement, to the extent required by Treasury Regulations Section 1.704-2(i), any items of income, gain, loss or deduction of the Company that are attributable to a nonrecourse debt of the Company that constitutes "partner nonrecourse debt" as defined in Treasury Regulations Section 1.704-2(b)(4) (including chargebacks of partner nonrecourse debt minimum gain) shall be allocated in accordance with the provisions of Treasury Regulations Section 1.704-2(i). This Section 4.6.3 is intended to satisfy the requirements of Treasury Regulations Section 1.704-2(i) (including the partner nonrecourse debt minimum gain chargeback requirements) and shall be interpreted and applied in a manner consistent therewith. Section 4.7 QUALIFIED INCOME OFFSET. Any Member who unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(D)(4), (5) or (6) that causes a deficit balance in its Capital Account (in excess of any deemed deficit restoration obligation pursuant to Treasury Regulations Sections 1.704-2(g)(1) and (i)(5), and adjusted as provided in Treasury Regulations Section 1.704-1(b)(2)(ii)(D)) shall be allocated items of income and gain in an amount and a manner sufficient to eliminate, to the extent required by the Treasury Regulations, such deficit balance as quickly as possible. This Section 4.7 is intended to comply with the alternate test for economic effect set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(D) and shall be interpreted and applied in a manner consistent therewith. Section 4.8 CURATIVE ALLOCATIONS. The allocations set forth in Sections 4.6 and 4.7 (the "Regulatory Allocations") are intended to comply with the requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding any other provisions of this Article IV (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account as provided for in the following two sentences. Income, gain, loss and deduction shall be reallocated to the extent that such reallocation causes the net aggregate amount of allocations of income, gain, deduction and loss to each Member to be equal to or more closely approximate the net aggregate amount of such items that would have been allocated to each such Member if the Regulatory Allocations had not occurred; PROVIDED, HOWEVER, that such reallocations shall be made only if and to the extent they are consistent with the requirements of Code Section 514(c)(9)(E) and Treasury Regulations Section 1.514(c)-2. This Section 4.8 shall be interpreted and applied in such a manner and to such extent as is reasonably necessary to eliminate, as quickly as possible but consistent with the requirements of Code Section 514(c)(9)(E), permanent economic distortions that would otherwise occur as a consequence of the Regulatory Allocations in the absence of this Section 4.8. Section 4.9 SPECIAL INCOME ALLOCATION. Notwithstanding any other provision of this Article IV (except Sections 4.6 through 4.8), in the year in which the Company liquidates (within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g)), items of gross income and gain shall be allocated to the Operating Member and items of gross loss and deduction shall be 20 allocated to the Class A Member to the extent necessary to cause the aggregate amount of net distributions under Article V with respect to each Member to be equal to or more closely approximate the aggregate net distributions that each such Member would have received pursuant to Article V if this Agreement did not contain Section 5.4; PROVIDED, HOWEVER, that gross items of loss and deduction shall not be allocated to the Class A Member pursuant to this Section 4.9 to the extent they would cause or increase a deficit balance in the Class A Member's Adjusted Capital Account; and PROVIDED FURTHER, that gross items of loss and deduction shall be allocated to the Operating Member pursuant to this Section 4.9 to the extent necessary to reflect the agreement of the parties that the Operating Member will bear the cost of certain transaction expenses pursuant to Section 6.4.1(a), the last sentence of Section 10.3.3(b) and certain lease termination expenses pursuant to Section 6.4.4, but only to the extent permitted by Treasury Regulations Sections 1.514(c)-2(f) or (g). Section 4.10 CODE SECTION 704(B) AND 514(C)(9)(E) ALLOCATIONS. The allocation provisions contained in this Article IV are intended to comply with Code Section 704(b) and the Treasury Regulations promulgated thereunder, and shall be interpreted and applied in a manner consistent therewith. Further, it is the intention of the Members that this Agreement provide for allocations to comply with the requirements of Code Section 514(c)(9)(E) and the Treasury Regulations promulgated thereunder, and the Members agree that any provision of this Article IV that is reasonably subject to different interpretations shall be interpreted in a manner that comports with the foregoing intention. Section 4.11 DISTRIBUTIONS OF NONRECOURSE LIABILITY PROCEEDS. If, during a fiscal year, the Company makes a distribution to any Member that is allocable to the proceeds of any nonrecourse liability of the Company that is allocable to an increase in Company Minimum Gain pursuant to Treasury Regulations Section 1.704-2(h), then the Company shall elect, to the extent permitted by Treasury Regulations Section 1.704-2(h)(3), to treat such distribution as a distribution that is not allocable to an increase in Company Minimum Gain. Section 4.12 ALLOCATION OF DEBT. For purposes of allocating excess nonrecourse liabilities among the Members pursuant to Treasury Regulations Section 1.752-3(a)(3), the Operating Member's interest in Company profits shall be 100% and the Class A Member's interest in profits shall be 0%. Section 4.13 OTHER ALLOCATION PROVISIONS. Any elections or other decisions relating to the allocations of Company items of income, gain, loss, deduction or credit shall be made by the Class A Member in any manner that reasonably reflects the purpose and intention of this Agreement. Section 4.14 NO DEFICIT RESTORATION BY MEMBERS. No Member shall be required to contribute capital to the Company to restore a deficit balance in its Capital Account upon liquidation or otherwise. 21 ARTICLE V-- DISTRIBUTIONS. Section 5.1 MAINTENANCE OF RESERVES. Section 5.1.1 RESERVES -- GENERAL. Subject to the reserve requirements set forth herein, the Operating Member shall cause all available cash held by each Subsidiary Company to be distributed to the Company. The Company shall maintain such Approved reserves at each Subsidiary Company or at the Company level as the Operating Member deems appropriate in light of customary industry standards and potential opportunities and obligations of the Company to meet the anticipated cash needs and obligations of the Properties and the Company, including, without limitation, any reasonably anticipated contingent liabilities of the Company. If the Members are unable to agree on required reserves for a particular Property, the Company (or Subsidiary Company) shall maintain reserves equal to four percent (4%) of the annual gross revenue generated by the particular Property. There shall be no distributions to the Members (other than in the event of dissolution and liquidation of the Company) during any period that the Company does not have reserves meeting Approved (or minimum) levels, until such reserves have been funded or replenished to those levels, as the case may be. Section 5.1.2 PROHIBITED DISTRIBUTIONS. Notwithstanding any provision of this Agreement to the contrary, the Company shall not make any distributions prohibited by the terms of the Act. Section 5.2 DISTRIBUTIONS OF CASH FLOW. Subject to the provisions of Sections 3.8, 3.10, 5.1 and 5.4, within thirty (30) days after the end of each Calendar Quarter, the Operating Member shall distribute Cash Flow with respect to such Calendar Quarter to the Members as follows: (a) First, one hundred percent (100%) to the Members, pari passu, in proportion to their Proportionate Shares, until the Class A Member has received distributions under this Article V which provide to the Class A Member a Total Return equal to [*] percent [*]; and (b) Second, eighty three and one-third percent (83-1/3%) to the Members, pari passu, in proportion to their Proportionate Shares and sixteen and two-thirds percent (16-2/3%) to the Operating Member until the Class A Member has received distributions under this Article V which provide to the Class A Member a Total Return equal to [*] percent [*]; and (c) Thereafter, the balance, sixty six and two-thirds percent (66-2/3%) to the Members, pari passu, in proportion to their Proportionate Shares and thirty three and one-third percent (33-1/3%) to the Operating Member. 22 Section 5.3 DISTRIBUTIONS OF CAPITAL PROCEEDS. Subject to the provisions of Sections 3.8, 3.10, 5.1 and 5.4, the Operating Member shall, promptly after a Capital Transaction, calculate the Capital Proceeds resulting therefrom, if any, and shall distribute the same to the Members as follows: (a) First, one hundred percent (100%) to the Members, pari passu, in proportion to their Proportionate Shares, until the Class A Member has received distributions under this Article V which provide to the Class A Member a Total Return equal to [*] percent [*]; and (b) Second, eighty three and one-third percent (83-1/3%) to the Members, pari passu, in proportion to their Proportionate Shares and sixteen and two-thirds percent (16-2/3%) to the Operating Member until the Class A Member has received distributions under this Article V which provide to the Class A Member a Total Return equal to [*] percent [*]; and (c) Thereafter, the balance, sixty six and two-thirds percent (66-2/3%) to the Members, pari passu, in proportion to their Proportionate Shares and thirty three and one-third percent (33-1/3%) to the Operating Member. Section 5.4 DISTRIBUTIONS UPON LIQUIDATION. In the event the Company (or a Member's interest therein) is "liquidated" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(G), then any distributions shall be made pursuant to this Section 5.4 to the Members (or such Member, as appropriate), in accordance with their (or its, as appropriate) positive Capital Account balances in compliance with Treasury Regulations Section 1.704-1(b)(2)(ii)(B)(2). ARTICLE VI-- POWERS AND DUTIES Section 6.1 BOARD OF MEMBERS. Section 6.1.1 ESTABLISHMENT OF BOARD OF MEMBERS. Subject to the rights of the Class A Member as set forth in this Agreement (including, without limitation, Section 6.1.3, Section 6.2, Section 6.4.5 and Section 6.6), the decision-making power of the Company shall be vested in a Board of Members, which shall consist of four (4) individuals (each a "Board Member") comprised as follows: (a) two (2) Board Members chosen by the Operating Member, initially consisting of Robert W. Boykin and Richard C. Conti (together with their permitted successors, the "Operating Member's Board Members"), and (b) two (2) Board Members chosen by the Class A Member (the "AEW Board Members"). Either Member may change the designation of the individual or individuals appointed by it to the Board of Members at any time by written notice to the Operating Member, except that the Operating Member shall not change the designation of Mr. Boykin as a Board Member without the prior consent of the Class A Member and such consent shall not be unreasonably withheld. The names and addresses of the 23 initial Board Members of the Company are set forth on EXHIBIT A attached hereto, and EXHIBIT A shall be amended from time to time by the Operating Member to reflect the resignation or removal of any Board Member or the appointment of new or additional Board Members pursuant to this Agreement. Section 6.1.2 MEETINGS AND ACTION OF THE BOARD OF MEMBERS. Except as otherwise set forth in this Agreement, all action to be taken by the Board of Members shall be taken at a meeting of the Board of Members by the affirmative vote (a "Majority Vote") of a majority in number of the Board Members, PROVIDED, however, that no combination of affirmative votes shall be deemed to qualify as a Majority Vote unless such combination of affirmative votes includes at least one (1) Operating Member Board Member and one (1) AEW Board Member. If action is to be taken at a duly called meeting of the Board of Members, notice of the time, date and place of meeting shall be given to each Board Member by the Operating Member or the Board Member(s) calling the meeting by personal delivery, telephone or fax sent to the address of each Board Member set forth on EXHIBIT A at least three (3) Business Days in advance of the meeting; PROVIDED, HOWEVER, no notice need be given to a Board Member who waives notice before or after the meeting or who attends the meeting without protesting at or before its commencement the inadequacy of notice to him or her. The Board Members may attend a meeting in person or by proxy, and they may also participate in the meeting by means of conference call or similar communications equipment that permits all Board Members to hear each other. A chairman selected by the Class A Member shall preside over all meetings of the Board of Members. Either Member may introduce meeting agenda items, all of which the Board of Members shall consider. The chairman shall determine the order of business and the procedures to be followed at each meeting of the Board of Members. Any action required or permitted to be taken at any meeting of the Board of Members may be taken without a meeting if one or more written consents to such action shall be signed by the requisite number of Board Members required for a Majority Vote. Such written consents shall be delivered to the Operating Member at the principal office of the Company and, unless otherwise specified, shall be effective on the date when the first consent is delivered. To the extent that this Agreement permits the Board to request materials, reports, information or clarifications, such request may be made by any individual Member of the Board without further action by the Board. Section 6.1.3 SPECIFIC APPROVAL RIGHTS OF BOARD OF MEMBERS. Notwithstanding any provision of this Agreement to the contrary, the Operating Member shall not, in the exercise of its general control and decision-making authority as more particularly described in Section 6.3, take, consent to or permit the Company or any Subsidiary Company to take any of the following actions (each, a "Major Decision"), without in each instance first obtaining Approval. In addition, except as expressly set forth in this Agreement to the contrary, the Class A Member shall not unilaterally cause a Major Decision to occur, without in each instance first obtaining Approval. The Major Decisions are as follows: (a) Acquire any Lodging Facility or other real or personal property or interest therein on behalf of the Company or any Subsidiary Company other than personal property in the ordinary course of business. Any Approval by the Board of the Final 24 Approval Package for the acquisition of a proposed acquisition pursuant to Article X shall be deemed Approval pursuant to this Section 6.1.3(a), subject to the provisions of Article X, including, without limitation, the provisions of Section 10.3 which provide the Members with the right to disapprove an acquisition as a result of diligence conditions or otherwise. (b) Execute or enter into any franchise agreement, management agreement, Lease or operating agreement with respect to any Property or Properties, unless with respect to an operating agreement only, such operating agreement is in the ordinary course of the business of the Company, is terminable on not less than thirty (30) days prior written notice for a penalty of not more than One Thousand Dollars ($1,000.00) and is for an expense which has been Approved in an Approved Budget. (c) Sell, convey, exchange, mortgage, or otherwise transfer or encumber or lease all of or any interest in any Property or any real or personal, tangible or intangible property, other than non-material transfers, financings or leases with respect to personal, tangible or intangible property in the ordinary course of business or leases of less than 3,000 square feet of leasable space with a term, including extension options, of not greater than five (5) years which are consistent with any current Approved Leasing Plan. (d) Execute or enter into, amend, modify or terminate any development agreement, construction contract or other agreement relating to the development, redevelopment or improvement of any Property or Properties; provided, however, without Approval, the Operating Member may enter into any such contract or agreement if the obligations under such contract or agreement are for less than $100,000 and the scope of the work to be completed under such contract or agreement has been Approved (whether by inclusion in an Approved Budget or otherwise) and may approve any single change order or series of related change orders causing a price adjustment of less than of Fifteen Thousand Dollars ($15,000) per item or related items or Twenty-Five Thousand Dollars ($25,000) in the aggregate under any such contract. (e) Execute or enter into any contract or agreement other than of the type described in (b) or (d) above or incur any obligation other than obligations which would not require Approval under (d) above, unless such agreement or obligation is in the ordinary course of the business of the Company and such agreement or obligation has been contemplated in an Approved Budget. (f) Borrow money, issue evidences of indebtedness or grant any mortgages or other encumbrances on or security interests in the assets of the Company or any Subsidiary Company, including without limitation, any financing or refinancing of any Property or any portion thereof, or modify, extend, renew, change or prepay in whole or in part any borrowing, financing or refinancing, or make any commitments to borrow funds or give any consideration to obtain a commitment for the loan of funds except as 25 expressly permitted under (c) above with respect to nonmaterial personal, tangible or intangible property. (g) Make a distribution of any Cash Flow or Capital Proceeds of the Company, which, in either case, is inconsistent with the current Approved Budgets, Portfolio Business Plan or Asset Business Plan, or otherwise in contravention of this Agreement. (h) Institute legal action or proceedings or otherwise bring or prosecute any claim available to the Company or any Subsidiary Company, or settle any claim against the Company or any Subsidiary Company or any other matter, in each case outside of the ordinary course of business of the Company or the Subsidiary Company; or settle any eminent domain taking. (i) Establish any amendment to any Portfolio Business Plan or Asset Business Plan, including, without limitation, the establishment of or amendment (whether or not material) to any Approved Budget. The content of any Portfolio Business Plan, Asset Business Plan, Annual Budget, Acquisition/Redevelopment Budget, Construction Budget or Pursuit Cost Budget, or any other budget or report to be generated by the Operating Member pursuant to this Agreement shall require Approval before any such plan, budget or report shall become operative or effective. The foregoing shall not be deemed to require separate Approval for a conforming amendment to an Approved expenditure, Approved plan, Approved Budget or Approved report where such amendment is clearly derived from an Approved expenditure, Approved plan, Approved Budget, or Approved report. (j) Modify any contract, agreement or lease or other arrangement, if such modification would require Approval as provided herein in the case of a new contract, agreement or lease or other arrangement. (k) Other than as already Approved in an Approved Budget, develop or approve on behalf of the Company any plans for the construction of any improvements or the making of any capital improvements or alterations in or to any Property or any portion thereof having a cost in excess of $100,000 or any material deviation in construction from Approved plans and specifications. (l) Alter the amount or nature of the Contributions. (m) Allow any Property to be owned and operated without a Lease. (n) Engage the Accountant or any other accountant or legal counsel for the Company or change or terminate any accountant or legal counsel unless (a) the Operating Member determines in its reasonable judgment that an adverse determination of any dispute is reasonably expected to result in exposure of less than $100,000 and (b) 26 the amount of professional fees incurred with respect to any individual matter will be less than $50,000. (o) Establish, increase, replenish or decrease the amount of reserves held by the Company or any Subsidiary Company, except in accordance with the applicable Approved Budget unless required by law or pursuant to the terms of any Authorized Financing. (p) Permit any Related Party of the Operating Member to engage in Competing Activities in violation of the provisions of Section 6.4 or Article X hereof. (q) Permit the Transfer of any Member's interest in the Company or admit any additional Members, except for Transfers permitted under Article VIII. (r) Dissolve the Company or any Subsidiary Company. (s) Effect a merger, conversion, consolidation or other reorganization of the Company or any Subsidiary Company or modify or amend this Agreement or the LLC Certificate. (t) Engage in any business not described in Section 1.2. (u) Discharge or replace Key Personnel. (v) Pay any fees, compensation or expense reimbursement to the Operating Member or any Operating Member Related Party or the Class A Member or any Related Party of the Class A Member or enter into any transaction with any Operating Member Related Party or any Related Party of the Class A Member. (w) Intentionally deleted. (x) Modify the Insurance Requirements set forth in EXHIBIT F for the benefit of the Company. (y) Guaranty the payment of any money, or debt of another Person, or guaranty the performance of any other obligation of another Person. (z) Grant any general power of attorney or other unlimited authority to act on behalf or in the name of the Company. (aa) Agree to any material change to accounting and related matters material to the Company or the Members or any material changes to accounting practices or policies. 27 (b) Initiate or respond to any so called "buy/sell" or "forced sale" provision under any agreement (other than this Agreement) to which the Company or any Subsidiary Company is a party or commit on behalf of the Company to acquire any partnership or membership interest owned by a Third Party in any Subsidiary Company. (cc) File any voluntary petition for the Company or any Subsidiary Company under Title 11 of the United States Code, the Bankruptcy Act, or seek the protection of any other Federal or State bankruptcy or insolvency law or debtor relief statute. (dd) Make any other decision or take any other action which by any provision of this Agreement is required to be approved by the Board. (ee) Do any act in contravention of this Agreement. (ff) In any instance where the consent or approval of the Company or a Subsidiary Company is required under any Lease, the granting of such consent or approval with respect to any action which if undertaken by the Operating Member under this Agreement would require Approval. Section 6.1.4APPROVAL BY MEMBERS IN LIEU OF BOARD APPROVAL; PROJECT REPRESENTATIVES. Notwithstanding the foregoing provisions of this Section 6.1, the unanimous approval by the Members (any approval of any Member must be in writing) as to any matter or decision shall satisfy the requirement for Approval by the Board of Members for all purposes of this Agreement, and any such matter or decision receiving the unanimous approval of the Members shall be deemed "Approved." Each Member shall designate at least two (2) individuals to represent such Member as its "Project Representatives." The initial Project Representatives for each Member and their addresses are set forth on EXHIBIT A hereto, and each Member may by written notice to the other Member redesignate its Project Representatives. The written approval of a Project Representative as to any matter or decision shall be deemed to constitute the approval of the Member represented by such Project Representative. Section 6.2 ADDITIONAL RIGHTS OF THE CLASS A MEMBER. After the initial acquisition and financing of any Property, in the event that any financing, refinancing, or other recapitalization of such Property (a "Financing Proposal") is proposed by either Member for consideration by the Board and the Board of Members does not achieve a Majority Vote approving the terms of such Financing Proposal or such Financing Proposal is not otherwise Approved by the Members, then, notwithstanding the lack of a Majority Vote of the Board of Members or Approval of the Members and notwithstanding any provision or provisions of this Agreement to the contrary, the Class A Member shall have the right to unilaterally propose and approve on behalf of the Company any bona fide Financing Proposal from a Third Party satisfactory to the Class A Member within the financing parameters set forth on EXHIBIT M and such unilateral proposal and approval by the Class A Member shall constitute Approval within the terms of this Agreement. At the direction of the Class A Member, the Operating Member shall use all reasonable and 28 diligent efforts to cause the Company to enter into and consummate such Financing Proposal as so proposed and approved by the Class A Member. In addition to other rights reserved or granted to the Class A Member, the Class A Member and its agents and representatives shall have the right, at their sole cost and expense, at any time and from time to time, upon reasonable notice (which shall not be deemed to require notice of more than one (1) Business Day) and during normal business hours to: (i) inspect any or all of the Properties, proposed acquisitions or other assets of the Company in a manner which does not unduly interfere with the operation and/or development of the Properties; and (ii) review (x) the books and records required to be maintained under Article IX below, and (y) any information and reports relating to the management, operations, policies or strategies of any or all of the Properties or other assets of the Company. The Class A Member shall have the right to obtain, at the expense of the Company, an appraisal for any Property once every twelve months. Section 6.3 OPERATING MEMBER. Subject to the terms and conditions of this Agreement, the Operating Member shall have responsibility and authority for the day-to-day management and operation of the business and affairs of the Company in accordance with the Leases, the Approved Portfolio Business Plan, the Approved Asset Business Plans, the Approved Budgets and the other terms and conditions of this Agreement. The Operating Member accepts and agrees to perform the duties and undertake the responsibilities set forth for it in this Agreement and to exercise reasonable, diligent, and efficient business administration consistent with customary administration of business enterprises comparable to the Company having similarly sophisticated principals and investors. Except as otherwise set forth herein, the Operating Member shall act as the Company's representative with respect to all aspects of the acquisition, development and leasing of the Properties and other Company assets, shall perform the specified reporting functions, shall use diligent efforts to comply with and perform all obligations of the Company and the Subsidiary Companies under any agreements affecting them and, generally, shall execute and implement decisions and directions of the Board of Members with respect to the Properties and the activities contemplated in, and in each case consistent with, the Approved Portfolio Business Plan, Approved Asset Business Plans, the Approved Budgets and with any decision of the Board of Members, and shall, as requested by the Board, act as the Board's representative in connection with any proposed sale or financing transaction, providing required financial information or other documentation, dealing with brokers and potential sources of financing or purchasers and performing such additional duties as the Board may reasonably request. 29 In addition to the general responsibilities of the Operating Member set forth above, the Operating Member shall also use commercially reasonable efforts to provide all of the following services: (a) Collect all rents and other charges which may become due at any time from any tenant under any Lease and any other monies due the Company or any Subsidiary Company in connection with each such Property. All monies collected are to be deposited in the applicable Property Accounts. (b) Coordinate the bidding, awarding, and negotiation of contracts with, and coordinate activities among all applicable service providers such as architects, engineers, designers, brokers, consultants, attorneys and other professionals providing services to the Company or Subsidiary Company in connection with asset management, operation or redevelopment of any Property; (c) Coordinate the administration and payment of all construction costs, equipment costs, architectural and engineering costs, insurance costs and other hard and soft costs incurred in connection with capital improvement to or redevelopment of any Property; (d) Notify the Class A Member of any conditions which would cause any of the Properties to be in violation of any Mortgage Loan, and take Approved remedial action to cause the Properties to remain in compliance with all Mortgage Loans; (e) Maintain copies of all Leases; subject to the Class A Member's rights under Section 6.4.5, advise, administer, asset manage and oversee all leasing activities, leasing negotiations and other communications with present and proposed tenants under Leases and use commercially reasonable efforts to cause the Company or the applicable Subsidiary Company to be in compliance with the terms of all Leases; (f) Review bills for real estate taxes, improvements assessments and other like charges which are or may become liens against each Property and, subject to the terms of each Lease, as part of the Asset Business Plan recommend payment, appeal or application for abatement as in its reasonable judgment it shall determine; and assist the Company in the preparation and prosecution of any such appeal or application for abatement; and (g) Inspect or cause to be inspected each Property at least quarterly and promptly provide to Class A Member with an inspection report. Section 6.3.1 AUTHORITY OF THE OPERATING MEMBER. Subject to the other provisions of this Article VI and all other provisions of this Agreement calling for the Approval of the Board or of the Class A Member, or otherwise limiting the authority or powers of the Operating Member, the Operating Member shall have the decision-making authority and power 30 necessary for the day-to-day administration and operation of the business and affairs of the Company, including the power and authority to do the following on behalf of and at the Company's expense (except that the Operating Member shall have no authority to take any of the actions listed in Section 6.2 unless, and then only to the extent, such action has been Approved), in each case consistent with the Approved Portfolio Business Plan, Approved Asset Business Plans, the Approved Budgets and with any decision of the Board of Members: (a) Acquire real and personal property and interests in real and personal property on behalf of the Company. (b) Deal in and with the assets of the Company, including without limitation, selling, leasing, developing, constructing, improving, rehabilitating, maintaining, creating easements and conveying all or any part of any real or personal property of the Company. (c) Exercise the rights of the Company with respect to the Subsidiary Companies. (c) Enter into contracts for the construction, development, improvement, servicing, maintenance, repair and rehabilitation of the Properties. (e) Bring, defend, compromise, collect, pay, adjust, arbitrate or otherwise take any action and exercise any remedies with respect to any receivable held by or claim available to or against the Company. (f) Pay Company expenses incurred in the administration and operation of the business and affairs of the Company. (g) Borrow money and issue evidences of indebtedness and grant mortgages and other encumbrances on and security interests in assets of the Company for the benefit of the Company. (h) Appoint such agents of the Company as the Operating Member may deem appropriate and delegate to any of them such authority as the Operating Member may deem appropriate to carry out the business of the Company. (i) Employ, engage, hire or otherwise secure the services of such Persons as may be necessary or advisable for the proper operation of the Company, including without limitation, construction contractors, engineers, appraisers, attorneys, accountants, and real estate and loan brokers, upon such terms as the Operating Member may deem appropriate. (j) File any voluntary petition for the Company or any Subsidiary Company under Title 11 of the United States Code, the Bankruptcy Act, or seek 31 the protection of any other Federal or State bankruptcy or insolvency law or debtor relief statute. (k) Effect a merger, conversion, consolidation or other reorganization of the Company. (l) Prepare, execute, acknowledge and file, record, publish and deliver all instruments or documents necessary or convenient to effectuate any actions of the Company. (m) Take any other action permitted or required of the Operating Member under this Agreement or applicable law. Section 6.3.2 EMPLOYEES. All persons employed by the Operating Member in connection with the services to be rendered hereunder shall be Operating Member's employees, agents or independent contractors and shall not be the employees, agents or independent contractors of the Company. Operating Member shall be solely responsible for the salaries of its employees and any employee benefits, including, without limitation, wages, worker's compensation benefits, employment and social security taxes and fringe benefits, to which Operating Member's employees or agents may claim to be entitled. Operating Member shall indemnify and hold the Class A Member, any AEW Board Member, any Related Party of the Class A Member or any of their agents, officers, partners, members, employees, representatives, directors or shareholders from any loss, claim or damage resulting from the failure of the Operating Member to fully comply with all applicable laws and regulations having to do with worker's compensation, social security, unemployment insurance, hours of labor, wages, working conditions, and other employer-employee related subjects with respect to Operating Member's employees. Section 6.3.3 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. During the term of this Agreement, Operating Member shall be responsible for monitoring whether each Property is in compliance with all Governmental Requirements applicable thereto and that all applicable governmental and municipal licenses, permits, consents and approvals are in full force and effect and shall promptly notify the Class A Member of any known uncorrected material violation of any such Governmental Requirement. Section 6.3.4 FEES. Until the occurrence of an Event of Default or the Closing Date (as defined in Section 8.4.5), Operating Member shall receive fees hereunder (collectively, the "Fees") in amounts and upon the terms and conditions as set forth in EXHIBIT G-1 hereto and reimbursement of certain of its expenses (such reimbursable expenses, the "Reimbursable Expenses") of an amount that has been Approved upon the terms and conditions and subject to the exclusions as set forth in EXHIBIT G-2. In no event shall Operating Member be reimbursed for Excluded Costs as set forth in EXHIBIT G-2. Notwithstanding anything to the contrary contained herein, after the occurrence of an Event of Default and for as long as the Operating Member is a Member, the Operating Member shall be entitled to receive any acquisition fees set forth in 32 paragraph (b) of Exhibit G-1 with respect to any Proposed Investment submitted by the Operating Member to the Company under this Agreement. Section 6.4 OTHER BUSINESS ACTIVITIES OF THE MEMBERS. Section 6.4.1 OPERATING MEMBER; FIRST OPPORTUNITY. (a) During the Investment Period, the Operating Member shall not directly or indirectly through an Operating Member Related Party acquire, develop, rehabilitate or redevelop any Lodging Facility (other than the Lodging Facilities listed on EXHIBIT I which are owned by the Operating Member or an Operating Member Related Party as of the date hereof and which the Members acknowledge are exempt from the restriction set forth in this Section 6.4.1) without in good faith first offering such Lodging Facility to the Company pursuant to Article X. The Operating Member shall offer such Lodging Facility by delivering a complete set of Preliminary Information as described in Section 10.3.1. If the Class A Member or the Class A Member Board Members disapprove such acquisition, then the Operating Member or any Operating Member Related Party may, during the twelve (12) month period commencing upon the disapproval of such Lodging Facility by the Class A Member, but subject to the restrictions in Section 6.4.4, proceed to acquire a direct or indirect interest in such Lodging Facility, provided that the terms and conditions of acquiring such Lodging Facility are not more favorable to the Operating Member or such Operating Member Related Party in any material respect than the proposed terms and conditions presented to the Class A Member for approval. In addition, the Operating Member or such Operating Member Related Party shall reimburse the Company for all Pursuit Costs incurred by the Company with respect to such Lodging Facility. (b) Notwithstanding the provisions of Section 6.4.1(a) above, the Class A Member acknowledges that the Operating Member during the Investment Period may dispose of its interest in the DoubleTree Hotel Yakima, DoubleTree Hotel Eugene/Springfield, DoubleTree Hotel Spokane and DoubleTree Hotel Bellevue (each, a "Disposition Property") and is obligated to substitute one or more Lodging Facilities in connection therewith and in any event within six months of the date of such sale (each such substitute Lodging Facility, a "Substitute Property") and that the restrictions set forth in Section 6.4.1(a) shall not apply to any Substitute Property acquired by the Operating Member or Operating Member Related Party in connection therewith and in any event within six months of the date of disposition of any Disposition Properties. In addition, until such time as the Class A Member has made Contributions of at least $25,000,000, the Operating Member or Operating Member Related Party may acquire from a Third Party not more than one (1) Lodging Facility in connection with the disposition of a Lodging Facility owned by the Operating Member or Operating Member Related Party pursuant to a bona fide tax free exchange permitted pursuant to Section 1031 of the Code (a "1031 Exchange"). After the Class A Member has made Contributions of at least $25,000,000, the Operating Member or Operating Member 33 Related Party may engage in up to three additional 1031 Exchanges, provided that prior to each subsequent 1031 Exchange after the first 1031 Exchange permitted after the $25,000,000 threshold has been achieved, the Company has acquired an additional Lodging Facility. The restrictions set forth in Section 6.4.1(a) shall not apply to a 1031 Exchange permitted by this Section 6.4.1(b). The Operating Member shall notify the Class A Member of the identity of the Lodging Facility and the terms of any 1031 Exchange permitted hereunder prior to the date of commitment thereof. Section 6.4.2 GENERAL PROVISIONS. The Class A Member and its Related Parties shall not be obligated to present any investment opportunity to the Company, even if the opportunity is of a character consistent with the Company's other activities and interests. The Class A Member and any of its Related Parties may engage in or possess any interest, directly or indirectly, in any other business venture of any nature or description independently or with others, including but not limited to, the ownership, financing, leasing, operation, management, syndication, brokerage, or development of real property competitive with the Properties. Membership in the Company and the assumption by the Class A Member of any duties hereunder shall be without prejudice to such Class A Member's rights (or the rights of its Related Parties and other affiliates) to have such other interests and activities and to receive and enjoy profits or compensation therefrom, and neither the Company nor the other Members shall have any right by virtue of this Agreement in and to such ventures or the income or profits derived therefrom. If the Operating Member (i) lists a Lodging Facility on the "deal sheet" referenced in Section 10.3 which the Class A Member indicates in writing should not be pursued as a potential acquisition because the Class A Member does not anticipate Approving the acquisition of such Lodging Facility pursuant to Section 10.3; (ii) lists a Lodging Facility on the "deal sheet" referenced in Section 10.3 and submits a Preliminary Approval Package within thirty (30) days of being listed on a "deal sheet" and the Class A Member disapproves such acquisition pursuant to Article X or (iii) proposes a Proposed Investment pursuant to Article X which the Class A Member disapproves, the Class A Member agrees not to acquire an interest in such Lodging Facility during the next twelve month period following such disapproval, unless such interest is acquired directly or indirectly by Dolce/AEW, L.P., a Delaware limited partnership, to be used and operated as a conference center hotel. Section 6.4.3 RELATED PARTY TRANSACTIONS. No Member shall engage or pay any compensation to any Related Party of a Member for the provision of services to the Company unless (a) such party is fully qualified and experienced to provide the required services, (b) both the scope of services and the compensation payable to such Related Party for the services are consistent with then current market standards for arms-length transactions, (c) the Member discloses such engagement to the Board as a transaction with a Related Party of a Member and (d) such engagement or payment is Approved. Section 6.4.4 COMPETING INVESTMENTS; RESTRICTED AREA. The Operating Member shall not directly or indirectly through an Operating Member Related Party acquire, develop, rehabilitate or redevelop any Competing Investment unless expressly permitted pursuant to this Section 6.4.4. The "Restricted Area" shall mean the geographical area surrounding the Property 34 which if a Lodging Facility comparable to the applicable Property were located therein would be deemed a direct competitor of the Property. The parties acknowledge that the Restricted Area shall differ with respect to each Property based on the relevant competitive market, geographic area and type of property to be acquired by the Company. In connection with the approval of any proposed acquisition, the Members shall negotiate in good faith to define the Restricted Area for such acquisition. In the event that the Members are unable to agree on a Restricted Area for any proposed acquisition, the resolution shall be submitted to the Market Expert, whose determination of the Restricted Area shall be conclusive and binding on the Members. During the pendency of any determination of the definition of the Restricted Area for any proposed acquisition, the Operating Member shall not directly or indirectly through an Operating Member Related Party acquire, develop, rehabilitate or redevelop any Lodging Facility located within the area proposed by the Class A Member to be the Restricted Area. During the Investment Period, the Operating Member shall not, directly or indirectly through an Operating Member Related Party, acquire a Competing Investment or develop, rehabilitate or redevelop a Lodging Facility or other real property in a manner which causes such Lodging Facility or other real property to be a Competing Investment. Notwithstanding the foregoing, a Competing Investment may be acquired by the Operating Member or Operating Member Related Party during the Investment Period as part of a transaction involving the direct or indirect acquisition of three or more Lodging Facilities provided the Operating Member complies with the provisions of Section 6.4.1 with repect to offering the Lodging Facilities to the Company and the timing and terms of the acquisition of such Lodging Facilities by the Operating Member or an Operating Member Related Party. After the expiration of the Investment Period, the Operating Member or an Operating Member Related Party may acquire a Competing Investment or develop, rehabilitate or redevelop a Lodging Facility or other real property in a manner which causes such Lodging Facility or other real property to be a Competing Investment, provided, however, the Operating Member shall give the Class A Member prior notice of its intention to so acquire a Competing Investment or develop, rehabilitate or redevelop a Lodging Facility or other real property in a manner which would cause such Lodging Facility or real property to be a Competing Investment, which notice shall set forth all material details reasonably necessary for the Class A Member to assess the impact of such Competing Investment on any Property and prompt notice after the acquisition of the Competing Investment or the development, rehabilitation or redevelopment of the Lodging Facility or other real property to be a Competing Investment, whether during or after the Investment Period. The Class A Member shall have the right, by delivering written notice to the Operating Member within twelve (12) months after receipt of notice of the occurrence of the closing of the acquisition of the Competing Investment or the completion of development, rehabilitation or redevelopment of the Lodging Facility or other real property into a Competing Investment by the Operating Member or any Operating Member Related Party, to either (x) cause the Company to terminate the Lease with an Operating Member Related Party with respect to the Property which competes with the Competing Investment or (y) cause the Company to convey the Property which competes with the Competing Investment to the Operating Member or a designated Operating Member Related Party for a purchase price equal to the aggregate 35 Contributions made by the Members with respect to such Property without further adjustment or proration. If any termination fees are due to an Operating Member Related Party as a result of a termination of a Lease pursuant to this Section 6.4.4, such fees shall be the sole responsibility of the Operating Member. If the Class A Member elects to cause the Company to convey the Property which competes with the Competing Investment to the Operating Member or a designated Operating Member Related Party, the closing of the sale of such Property shall be on the date which is thirty (30) days after the Class A Member's election hereunder. Any Property conveyed by the Company pursuant to this Section 6.4.4 shall be conveyed to the Operating Member or the Operating Member Related Party subject to any and all easements, liens, restrictions, covenants and matters of record title and the Operating Member or Operating Member Related Party acquiring such Property shall acquire the Property subject to all liabilities with respect to such Property. The Operating Member shall use all commercially reasonable efforts to obtain for the benefit of the Company and the Class A Member releases from any and all monetary or other guaranties given by them with respect to such liabilities. If following the exercise of commercially reasonable efforts, the Operating Member is unable to obtain such releases, the Operating Member shall provide to the Company and the Class A Member indemnities reasonably satisfactory to each to address the contingent liability contained in the unreleased liabilities. Section 6.4.5 LEASES. (a) The Operating Member shall not enter into any Lease unless the form and substance thereof and the identity of the tenant have all been Approved. (b) The Operating Member acknowledges and agrees that the Class A Member shall have the sole and exclusive right and authority on behalf of the Company to take any action on the part of the Company with respect to a Lease with an Operating Member Related Party, including, without limitation (i) the right to modify, amend or terminate such Lease, (ii) the right to exercise any right or option on the part of the Company or to grant or withhold any material consent or approval contained therein, and (iii) the right to enforce any rights or remedies therein. Any Lease for a Property with an Operating Member Related Party shall contain the right of the Company to terminate such Lease without cause for an Approved termination fee. (c) In the event an Operating Member Related Party is in default under a Lease and the Class A Member desires to terminate such Lease and enter into a new Lease for the applicable Property, the Class A Member shall notify the Operating Member and the Members shall cooperate to identify an approved replacement tenant for a new Lease for the Property within thirty (30) days. If the Members are not able to agree on a replacement tenant, then, notwithstanding the lack of Approval and notwithstanding any provision or provisions of this Agreement to the contrary, the Class A Member shall have the right to unilaterally propose and approve on behalf of the Company of one of the entities listed on EXHIBIT O or any Affiliate thereof as a replacement tenant and to negotiate and cause the Company (or Subsidiary Company) to enter into a new lease substantially on the terms and conditions contained in the 36 form of Lease entered into with the Operating Member Related Party; provided that the Class A Member, in connection with its right to negotiate a Lease pursuant to this Section 6.4.5, shall have the right to unilaterally propose, negotiate and approve base rent, percentage rent and other economic terms in the Lease. (d) The Operating Member acknowledges and agrees that the Class A Member shall have the sole and exclusive right and authority on behalf of the Company to take any action on the part of the Company with respect to terminating a Lease due to the breach by a tenant (a "Defaulting Tenant") of a non-compete covenant or clause in such Lease if the breach is the result of the Defaulting Tenant's involvement with a Competing Investment owned or operated by the Operating Member or an Operating Member Related Party. Section 6.5 LIMITATION OF LIABILITY. Section 6.5.1 EXCULPATORY PROVISIONS. None of the Operating Member, the Class A Member, any Board Member, any Related Party of any Member or any Member's agents, officers, partners, members, employees, representatives, directors or shareholders (each such party, an "Indemnified Party") shall be liable, responsible or accountable in damages or otherwise to the Company or any Member for (i) any act performed in good faith within the scope of the authority conferred by this Agreement, (ii) any failure or refusal to perform any acts except those required by the terms of this Agreement, or (iii) any performance or omission to perform any acts in reliance on the advice of accountants or legal counsel for the Company; provided, however, that each Indemnified Party shall nevertheless be liable in all events for its own fraud, gross negligence or willful misconduct. Section 6.5.2 INDEMNIFICATION. To the fullest extent permitted by law, the Company shall indemnify and save harmless each Indemnified Party from any loss, cost, damage, fee (including without limitations, legal fees and costs) or expense incurred by reason of (i) such party's status as a Member or Board Member or the Related Party of a Member or such party's status as agent, officer, partner, member, employee, representative, director or shareholder of such Member (ii) any act performed in good faith within the scope of the authority conferred by this Agreement, (iii) any failure or refusal to perform any acts except those required by the terms of this Agreement or (iv) any performance or omission to perform any acts based upon reasonable good faith reliance on the advice of accountants or legal counsel for the Company, provided that no indemnification shall be given with respect to acts or omissions which constitute fraud, willful misconduct or gross negligence. Section 6.5.3 MODIFICATION OF LIABILITY. The Operating Member expressly agrees that with respect to any approval right granted to the Class A Member or any AEW Board Member or the exercise of the Right of First Offer pursuant to Section 8.2 or the Buy-Sell pursuant to Section 8.4 or rights under Section 6.4.4, the Class A Member and any such AEW Board Member shall have no fiduciary duty whatsoever to the Operating Member, and the Class A Member and any such AEW Board Member may grant such approval or refuse to grant such approval under this Agreement for the sole benefit of the Class A Member, as determined in its 37 sole discretion. Likewise, the Class A Member expressly agrees that with respect to any approval right granted to the Operating Member or any Operating Member Board Member or the exercise of the Right of First Offer pursuant to Section 8.2 or the Buy-Sell pursuant to Section 8.4, the Operating Member and any such Operating Member Board Member shall have no fiduciary duty whatsoever to the Class A Member, and the Operating Member and any such Operating Member Board Member may grant such approval or refuse to grant such approval under this Agreement for the sole benefit of the Operating Member, as determined in its sole discretion. Section 6.5.4 INSURANCE. The Operating Member shall, consistent with the Portfolio Business Plan, maintain, for the benefit and at the expense of the Company, such insurance in such amounts, with such carriers and providing such coverages as satisfy the Insurance Requirements. Section 6.6 CLASS A MEMBER'S RIGHT TO BECOME THE MANAGING MEMBER. Notwithstanding anything in this Agreement to the contrary, if there shall exist an Event of Default by the Operating Member hereunder or a default, beyond any applicable notice and cure periods by the Operating Member or any Operating Member Related Party under any Lease, contract or agreement between such party and the Company or any Subsidiary Company, then, in any such event, the Class A Member shall have the unilateral right, by written notice to the Operating Member given at any time thereafter to become the managing member of the Company and in such capacity, shall have the unilateral decision-making authority and power to replace the Key Personnel and to take all actions on behalf of and at the Company's expense permitted or required of a managing member of a Delaware limited liability company, including, without limitation, all Major Decisions, without the necessity for obtaining any consent or approval of the Operating Member, the Operating Member Board Members or the Board. Nothing in this Section 6.6 is intended to permit the Class A Member to unilaterally Approve any amendment to this Agreement or increase the obligations of the Operating Member under this Agreement beyond those contained herein or permit the Class A Member to act as the Operating Member's agent or representative. ARTICLE VII -- LIABILITIES OF MEMBERS No Member shall be liable for any debts, liabilities, contracts or other obligations of the Company nor shall any Member be required to lend funds to the Company. Except as otherwise specifically required by Article III or by applicable law, no Member shall be required to make any Contributions to the Company. ARTICLE VIII -- TRANSFER OF COMPANY INTEREST Section 8.1 TRANSFER BY THE MEMBERS. Section 8.1.1 GENERAL RESTRICTIONS. No Member shall sell, assign, transfer, mortgage, charge or otherwise encumber, or permit or suffer any Third Party to sell, assign, 38 transfer, mortgage, charge or otherwise encumber, or contract to do or permit any of the foregoing, directly or indirectly and whether voluntarily or by operation by law (collectively referred to as a "Transfer") any part or all of its interest or membership in the Company except as provided in this Article VIII. Any attempt to effect any of the foregoing prohibited actions shall be void and, in addition to other rights and remedies at law and in equity, the other Member or Members shall be entitled to injunctive relief enjoining the prohibited action. The Members expressly acknowledge that damages at law would be an inadequate remedy for a breach or threatened breach of the provisions concerning transfer set forth in this Agreement. The giving of consent or approval by the Member required under this Article VIII in any one or more instances shall not limit or waive the need for such consent or approval in any other or subsequent instances. Notwithstanding anything in this Article VIII or this Agreement to the contrary, no Member shall have the right to effect any Transfer of its interest in the Company if the Transfer, in the opinion of counsel to the Company, may constitute a violation of any state or federal securities laws or other applicable laws, rules or regulations. Section 8.1.2 INDIRECT TRANSFERS. For as long as BLC stock is listed and publicly traded on a nationally recognized stock exchange, for purposes of this Section 8.1, (i) the sale, exchange or transfer of stock in BLC and (ii) the sale, exchange or transfer of partner interests in the Operating Member shall not be deemed a Transfer subject to the restrictions of this Section, provided BLC remains the sole general partner of the Operating Member. The restrictions set forth in this Article VIII shall not be construed to limit or restrict in any way the (i) Operating Member's or the Special Managing Member's authority to sell the Company's assets as described and limited in Section 8.2, (ii) indirect transfers otherwise permitted under this Article VIII, (iii) transfers of the general partner interest in the Class A Member as a result of the removal of the general partner of the Class A Member by its limited partners or (iv) indirect transfers of interest by or in the Class A Member or its constituent partners or members, as the case may be. Section 8.1.3 PERMITTED TRANSFERS. Without any requirement for obtaining Approval, each Member shall have the right to Transfer all or a portion of its interest in the Company solely (a) if such Transfer is to an Entity which is owned or controlled by, is under common ownership and control with or owns and controls the original Member or as to the Class A Member only is to an Entity in which AEW Capital Management L.P. (including any successor thereto, including, without limitation, any successor by merger, consolidation or the sale of all or substantially all of the assets thereof) has the authority to direct the management, operations or business or (b) as to the Class A Member only, if the Transfer is (i) to banks, insurance companies, public or private pension or endowment funds or other institutional lenders or investors, or (ii) granting a security interest to any such institutional lender or investor as security for a loan to the Class A Member, or (iii) a transfer due to foreclosure or other realization on collateral under a security interest referred to in clause (ii). Section 8.1.4 CONDITIONS TO SUBSTITUTIONS. An assignee or transferee of a Member shall not be entitled to vote on Company matters and shall not have any other rights of a Member other than its right to distributions, unless and until the assignee is admitted as a 39 substituted Member. Thereafter, subject to the last sentence of this Section, such assignee shall have all rights and obligations of a Member hereunder. An assignee or transferee shall become a substituted Member when and if the assignee or transferee (a) pays all Company expenses incurred in connection with its substitution; (b) submits a duly executed instrument of assignment and assumption, in a form reasonably satisfactory to the non-assigning Member, specifying the membership interest assigned to it and setting forth the assigning Member's intention that the assignee succeed to such portion of the assigning Member's membership interest and acknowledging that the assignor or transferor remains liable for its obligations hereunder; and (c) executes a copy of this Agreement or an amendment to this Agreement. The admission of a substituted Member shall be effective as of the close of the day on which all of the conditions specified in this Section 8.1.4 have been satisfied. Section 8.2 RIGHT OF FIRST OFFER. Section 8.2.1 FIRST OFFER. At any time after the first anniversary of the date of this Agreement and provided the Buy/Sell procedure under Section 8.4 has not previously been initiated (unless there shall have been a default under such Buy/Sell procedure and the Buy/Sell is no longer in effect), if either Member wishes the Company or any Subsidiary Company to sell any Property or Properties (any such Property or Properties, collectively, the "Target Asset"), that Member (the "Initiating Member") shall deliver a written notice (a "First Offer Notice") to the other Member (the "Responding Member") stating a gross purchase price (the "Offered Price") at which the Initiating Member is prepared to have the Company (or the applicable Subsidiary Company or Companies) sell the Target Asset. If the Target Asset is at or after the time of the First Offer Notice under development or substantial renovation or rehabilitation, the Offered Price shall be deemed increased on a dollar for dollar basis by the amount of all costs incurred by the Company to fund such development, renovation and rehabilitation expenses during the period beginning on the date of the First Offer Notice and ending on the date of Target Asset Closing Date. The Responding Member may elect to purchase or to cause its nominee to purchase the Target Asset for the First Offer Price by (i) giving written notice thereof to the Initiating Member and (ii) depositing in escrow with the with the Company the Target Asset Deposit (hereinafter defined), each within thirty (30) days after receipt of the First Offer Notice (the "Response Period"); provided, however, the Response Period shall be reduced to fifteen (15) days in the event a First Offer Notice is given under Section 8.2.7 or in the event a subsequent First Offer Notice is given by the Initiating Member with respect to a Target Asset during the six (6) month period described in Section 8.2.9. If the Responding Member duly elects to purchase or to cause its nominee to purchase the Target Asset as set forth above, the Initiating Member and the Responding Member shall cause the Company to convey the Target Asset to the Responding Member or its nominee in accordance with the provisions of this Section 8.2. The failure of the Responding Member to give such a responsive notice and/or to deliver the Target Asset Deposit within the Response Period shall be deemed an election by the Responding Member not to purchase the Target Asset. During the Response Period, the Responding Member may also elect to issue its own First Offer Notice with respect to such Target Asset, (a "Subsequent First Offer Notice"), provided the gross purchase price contained in the Subsequent First Offer Notice is less than ninety-five percent (95%) of the gross purchase price contained in 40 the First Offer Notice and upon the issuance of such a Subsequent First Offer Notice, the previous First Offer Notice shall be deemed null and void and the Subsequent First Offer Notice shall be operative. A First Offer Notice may only be issued with respect to a Target Asset by the Responding Member within the Response Period as set forth above. After the Response Period, the Responding Member may not issue a First Offer Notice with respect to a Target Asset during the pendency of the Initiating Member's rights under Section 8.2.9 with respect to such Target Asset. Section 8.2.2 TARGET ASSET DEPOSIT; FINANCING COMMITMENT. The "Target Asset Deposit" shall be an amount equal to One Million Dollars ($1,000,000). The Target Asset Deposit shall be delivered to the Company in escrow together with the Responding Member's notice of election to purchase the Target Asset. Section 8.2.3 CONDITIONS. Each of the following (unless and except to the extent waived by the Responding Member) shall be a condition to the Responding Member's obligation to proceed with a purchase under this Section 8.2: (a) As of the Target Asset Closing Date, the Company shall have received no notice of any eminent domain proceeding or other governmental taking of all or any material portion of the Target Asset, and there shall have occurred no material casualty to the Target Asset, whether insured or uninsured, which has not been restored, in either case, and of which the Responding Member was unaware as of the making of its election to purchase the Target Asset; and (b) There shall be no suit, action or other proceeding pending on the Target Asset Closing Date before or by any court or governmental body seeking to restrain or prohibit, or material damages or other relief in connection with the sale of the Target Asset. For purposes of this Section 8.2.3, (i) a "material casualty" shall mean a casualty resulting in damage to any Property constituting part of the Target Asset requiring repairs (as estimated by an engineer reasonably acceptable to the Class A Member and the Operating Member) costing in excess of two hundred fifty thousand dollars ($250,000), and (ii) a "material portion" shall mean the taking by eminent domain of (A) an area of any Property constituting part of the Target Asset having a material adverse effect upon access to any Property constituting part of the Target Asset or parking at any Property constituting part of the Target Asset, (B) any portion of a building located at any Property constituting part of the Target Asset, or (C) any portion of any Property constituting part of the Target Asset having a material adverse impact upon the use of the Target Asset for its intended purposes or its continued compliance with applicable laws. If there shall occur a casualty or taking that is not "material," then there shall be no corresponding adjustment to the Purchase Price and the insurance proceeds for such casualty or the eminent domain award for such taking shall be assigned to the Responding Member on the Target Asset Closing Date. 41 Section 8.2.4 ADJUSTMENTS AND CLOSING COSTS. The following adjustments and prorations shall be made on any sale of the Target Asset to the Responding Member pursuant to this Section 8.2 (references to the Company shall be deemed to be made to the respective Subsidiary Company if the Target Asset is owned by a Subsidiary Company): (a) The Company shall pay the actual cost of all transfer taxes and documentary stamps and any prepayment fees due under any loans coming due, if any, as a result of such sale; (b) The Responding Member or its nominee shall pay all title fees, recording costs and if applicable, recording taxes, loan assumption fees, termination fees under any Leases and all fees and costs customarily paid by buyers of real property in the state or states where the Target Asset is located; (c) Each Member shall pay its own legal fees; (d) Taxes on the Target Asset shall be prorated between the Company and the Responding Member, according to the closing customs of the local real estate bar within which the Target Asset is located. In the event that real estate taxes are not ordinarily prorated between a buyer and seller on the basis of the taxes paid for the most recent fiscal year, with a subsequent re-proration promptly after issuance of the tax bill for the year of the closing ("Customary Adjustments"), then the Initiating Member shall clearly state in the First Offer Notice the basis upon which taxes will be adjusted for all Properties included in the Target Asset. Special assessment liens certified as of the closing shall be paid by the Company. Collected rents and other customary closing adjustments shall be adjusted to the date of closing in a customary manner, provided, however, that in all events all rental income from the Target Asset accruing prior to the Target Asset Closing Date shall remain the property of the Company. The Company shall be responsible for paying management fees, insurance, debt service and other operating costs through the Target Asset Closing Date. The Company shall either deliver to the Responding Member, or give the Responding Member a credit against the Purchase Price for the amount of any tenant security deposits and other prepaid rent with respect to the Target Asset. If any rent attributable to the period prior to the closing is collected after the closing, the Responding Member shall promptly remit to the Company the amounts so collected; and (e) If the Target Asset consists of all or substantially all of the Properties, then all Default Loans shall become due and payable on the Target Asset Closing Date and reconciled at the closing. Section 8.2.5 INTENTIONALLY DELETED. Section 8.2.6 CLOSING. The closing on any sale of the Target Asset to a Member pursuant to this Section 8.2 shall be held on the date sixty (60) days (or thirty (30) days in the 42 event Section 8.2.7 is applicable) following the date the Responding Member elects to purchase the Target Asset (or on the first Business Day thereafter if such date is not a Business Day) or on such earlier date as the Responding Member may specify on at least fifteen (15) days prior written notice to the Initiating Member (in either event, the "Target Asset Closing Date"). The closing shall be held at such location as the Responding Party may reasonably designate at least five (5) Business Days prior to the Target Asset Closing Date. The purchase price for the Target Asset (the "Purchase Price") shall be the Offered Price, subject to adjustment pursuant to Section 8.2.4, if applicable. At the closing, the Purchase Price shall be payable to the Company or applicable Subsidiary Company, by wire transfer of immediately available federal funds. The Target Asset shall be conveyed to the Responding Party or its nominee subject to then existing title encumbrances other than any Prohibited Mortgage. A "Prohibited Mortgage" is any mortgage or other lien securing the payment of money that is not a Permitted Mortgage. A "Permitted Mortgage" means any mortgage or other lien securing the payment of money if (i) either (A) the consent of the holder of such mortgage or lien is not required for the transfer of the Target Asset to the Responding Member or its nominee or (B) the consent of the holder of such mortgage or lien is required for the transfer of the Target Asset to the Responding Member or its nominee and such consent has been obtained, and (ii) if applicable, the Initiating Member has been released from any personal guaranties or indemnities or other undertakings granted with respect to such mortgage or lien or in connection with the Target Asset. The Responding Member may elect, by written notice given to the Initiating Member not later than thirty (30) days prior to the Target Asset Closing Date, to purchase the Target Asset subject to any then existing Permitted Mortgage. The Company shall apply such portion of the Purchase Price as is necessary to discharge any Prohibited Mortgage (or any Permitted Mortgage not being assumed). If the Target Asset is conveyed to the Responding Member subject to a Permitted Mortgage, the purchase price payable to the Company or the appropriate Subsidiary Company shall be reduced by the amount of principal and interest owing with respect to such Permitted Mortgage as of the Target Asset Closing Date. At the closing, the Target Asset Deposit shall be credited towards the Purchase Price and the Target Asset Deposit shall become the property of the Company. Section 8.2.7 RESPONDING MEMBER'S FAILURE TO CLOSE. In the event the sale of the Target Asset to the Responding Member fails to close on the Target Asset Closing Date, and such failure to close is a result of a default by the Responding Member, then in addition to any other rights the nondefaulting Member may have hereunder, (i) the Target Asset Deposit may be retained by the Company as liquidated damages, and (ii) the Initiating Member may elect to sell the Target Asset to a Third Party pursuant to Section 8.2.9. In addition, in the event the nondefaulting Member issues a new First Offer Notice with respect to such Target Asset during the twelve month period after the default by the Responding Member, the Response Period with respect to such First Offer Notice shall be fifteen (15) days and the closing of the disposition of the Target Asset to the Responding Member pursuant to Section 8.2.6 shall be held no later than the date thirty (30) days following the date the Responding Member elects to purchase the Target Asset (or on the first Business Day thereafter if such date is not a Business Day). Section 8.2.8 BROKERAGE. No brokerage fees or commissions shall be payable by the Company (or any Subsidiary Company) in connection with any purchase by a Member 43 pursuant to this Section 8.2; and each Member shall indemnify and hold harmless the Company and the other Member from and against any such claims made based upon the actions of such Member, including any fees and expenses in defending any such claims. Section 8.2.9 SALE TO THIRD PARTY. If the Responding Member elects not to purchase the Target Asset or is deemed not to have elected to purchase the Target Asset, or in the event of a sale under this Section 8.2.9 expressly permitted pursuant to Section 8.2.7, the Initiating Member may, without the further consent of the Responding Member or the Board Members designated by the Responding Member, cause the Company to sell the Target Asset to a Third Party on an all cash basis for an "adjusted gross purchase price" of not less than ninety five percent (95%) of the Offered Price originally proposed by the Initiating Member (subject to adjustment for development, renovation and rehabilitation costs as set forth in Section 8.2.1). In connection with a sale of the Target Asset to a Third Party pursuant to this Section 8.2.9, an agreement of sale must be entered into within six months following (i) in the case of an election not to purchase, the date of receipt by the Initiating Member of written notice from the Responding Member of such election; and (ii) in the case of a deemed election not to purchase, the end of the Response Period; and (iii) in the case of a sale to a Third Party pursuant to Section 8.2.7, the original Target Asset Closing Date and the closing must occur within 120 days after the execution of such written contract. For purposes of this Section 8.2.9, "adjusted gross purchase price" shall mean the gross purchase price for the Property to be paid by a Third Party purchaser (prior to calculation of prorations, prepayment fees, and the like) reduced only by any termination fees under the Lease of the Target Asset which the Company has agreed to assume as a result of such sale. For example, if the Offered Price for a Target Asset is $10,000,000, the gross purchase price for the sale of the Target Asset to a Third Party is $9,800,000 and in connection with the sale of the Target Asset to such Third Party, the Company has agreed to assume a termination fee under the Lease of the Target Asset on the Target Asset Closing Date equal to $250,000, the "adjusted gross purchase price" shall be $9,550,000, i.e. 95.5% of the Offered Price, then the Initiating Member may cause Company to sell the Target Asset without the further consent of the Responding Member. Alternatively, if the Company agrees to assume a lease termination fee of $400,000, the "adjusted gross purchase price" would be $9,400,000, i.e. 94% of the Offered Price, and the consent of the Responding Member to such sale would be required. If the Company fails to sell the Target Asset pursuant to the terms and conditions set forth above for any reason other than the willful act or omission of the Responding Member, neither Member shall be entitled to require the Company to sell the Target Asset without again complying with the provisions of this Section 8.2. Section 8.2.10 CLASS A MEMBER AS INITIATING MEMBER. If the Class A Member is the Initiating Member pursuant to Section 8.2.1, then, solely for the purpose of consummating the sale of the Target Asset in accordance with the provisions of Section 8.2.6, 8.2.7 or 8.2.9, the Class A Member shall have the right, upon five (5) days' written notice given to the Operating Member, to unilaterally propose and approve itself or a Person of its choosing to be the interim Managing Member of the Company (the "Special Managing Member") and upon such unilateral proposal and approval by the Class A Member and in the case of the designation of another Person to be the Special Managing Member, the assignment of some or all of the Class A 44 Member's membership interest to the Special Managing Member (which assignment shall be permitted hereunder without the approval of any Member, including the Operating Member), the Special Managing Member shall thereafter have the exclusive power and authority, at any time and from time to time, acting singly, without the further consent of any other Member, including the Operating Member, to sell and transfer (a "Disposition") the Target Asset in accordance with Sections 8.2.6, 8.2.7 or 8.2.9. The Operating Member shall fully cooperate with the Special Managing Member in the exercise of the rights conferred on the Special Managing Member hereunder and shall take all action reasonably requested by the Special Managing Member to consummate the sale of the Target Asset, including without limitation, confirming the power and authority granted to the Special Managing Member hereunder. The Operating Member shall not take any action which would prevent, interfere with or constrain in any way the exercise of the rights of the Special Managing Member to dispose of the Target Asset. In furtherance of the Special Managing Member's rights under this Section 8.2.10, the Special Managing Member shall have full power and authority to take all action necessary or incidental to effect the Disposition of the Target Asset, including, without limitation, engaging on behalf of the Company and at the Company's expense, one or more real estate brokers to market the Target Asset upon customary market terms and conditions (provided the terms of any such agreement may not bind the Company after the six month period described in Section 8.2.9 if the Company fails to enter a purchase and sale agreement within such period or fails to close on the Target Asset within the 120 day period described in Section 8.2.9), entering into contracts and agreements, oral or in writing, executing and delivering deeds and all of the other rights and powers granted to the Operating Member hereunder to accomplish the foregoing. The rights of the Special Managing Member with respect to the Disposition of the Target Asset shall be exclusive and the Operating Member shall not take any action inconsistent with the foregoing. The Operating Member shall cause the Company to take any action reasonably necessary to accomplish the foregoing, including, but not limited to, causing the Company to take all action necessary or appropriate to accomplish the Disposition of the Target Asset and any action necessary or appropriate to confirm the rights of the Special Managing Member hereunder. With respect only to the sale of a Target Asset pursuant to section 8.2, the Special Managing Member shall be entitled to the same rights and have all of the powers as the Operating Member hereunder, and shall, in connection with its actions as Special Managing Member, have the fiduciary obligations to the Company as are imposed upon the Operating Member hereunder. The Operating Member shall retain its other rights, obligations and powers with respect to the Company following the appointment of the Special Managing Member. If the Operating Member is the Initiating Member pursuant to Section 8.2.1, then, solely for the purpose of consummating the sale of the Target Asset in accordance with the provisions of Section 8.2.6, 8.2.7 or 8.2.9, the Operating Member shall have the same powers and authorities as the Special Managing Member would have had as described above and the Class A Member shall in good faith cooperate in all reasonable respects to effect the consummation of such sale, subject to the terms and conditions set forth herein. Nothing in this Section 8.2.10 is intended to modify the provisions of Section 6.4.3. 45 Section 8.2.11 INTERRELATIONSHIP OF BUY-SELL. (a) An Initiating Member under Section 8.2.1 shall have no right to give a Buy/Sell Offering Notice during the Response Period. The Responding Member under Section 8.2.1 may give a Buy/Sell Offering Notice during the Response Period, provided however that if the Target Asset as described in the First Offer Notice consists of all or substantially all of the Properties, then the Responding Member may give a Buy/Sell Offering Notice during the Response Period only if the Proposed Value indicated in the Buy/Sell Offering Notice is less than ninety percent (90%) of the Offered Price set forth in the First Offer Notice. (b) If the Responding Member validly issues a Buy/Sell Offering Notice during the Response Period, then the First Offer Notice shall be deemed null and void and the provisions of Section 8.4 shall control. (c) If (i) the Responding Member under Section 8.2.1 fails to elect to purchase the Target Asset during the Response Period and (ii) the Target Asset consists of more than seventy five percent (75%) of the number of the Properties, then the Responding Member shall have no right to give a Buy/Sell Notice during the period beginning on the date thirty (30) days after the end of the Response Period and ending on the termination of the six (6) month period described in Section 8.2.9. (d) If (i) the Responding Member duly elects to buy the Target Asset under Section 8.2.1, and (ii) during the period subsequent to such election but before acquisition of such Target Asset by the Responding Member either Member gives a Buy/Sell Offering Notice, then the Responding Member shall nonetheless have the right and be obligated to acquire the Property pursuant to this Section 8.2, but the Proposed Value in the Buy/Sell Offer Notice shall take into account the value of the Target Asset. (e) if any Property or Target Asset is under a binding agreement for sale with a Third Party at the time of the issuance of a Buy/Sell Offering Notice, the Members agree to sell such Property or Target Asset pursuant to the terms of such agreement, but the Proposed Value in the Buy/Sell Offer Notice shall take into account the value of the Target Asset. Section 8.3 MEMBERS Section 8.3.1 TERMINATING EVENT. Upon the occurrence of a Terminating Event with respect to a Member, the Legal Successor of the Member shall continue to possess the Member's interest in Company distributions, but shall possess no rights of approval or decision otherwise attendant to such interest. 46 Section 8.3.2 WITHDRAWAL BY MEMBERS. Notwithstanding any provision of the Act to the contrary, no Member may resign, withdraw or withdraw capital from the Company, except pursuant to a right expressly set forth herein. Section 8.4 BUY/SELL. Section 8.4.1 BUY/SELL OFFERING NOTICE. Subject to Section 8.2.11, the operation of this Section 8.4 may be triggered upon written notice (the "Buy/Sell Offering Notice") by either Member given at any time after the earlier of (x) the date eighteen (18) months after the date of this Agreement and (y) the occurrence of a Change in Control, in each case provided that there is no Event of Default with respect to the Member initiating such notice and the provisions of this Section 8.4 are not then in effect with respect to a prior Buy/Sell Offering Notice. Notwithstanding the foregoing, the Operating Member may issue a Buy/Sell Offering Notice within ten (10) Business Days of its receipt of a notice from the Class A Member that the Class A Member is exercising its right to become the managing member of the Company pursuant to Section 6.6. The Member duly triggering such right shall be the "Initiating Member" and the other Member shall be the "Responding Member" for the purposes of this Section 8.4. The Buy/Sell Offering Notice shall set forth an amount determined by the Initiating Member as the basis for the calculations required under Section 8.4.3 (the "Proposed Value"), and shall include a calculation of the Sale Price and the Buy Price, as calculated pursuant to Section 8.4.3. No Buy/Sell Offering Notice or responsive notice under this Section 8.4 may be rescinded without the written consent of each of the Members. Section 8.4.2 VERIFICATION NOTICE. Within twenty (20) days after the Buy/Sell Offering Notice is received, the Responding Member shall promptly and in good faith review the same and shall give written notice (the "Verification Notice") to the Initiating Member identifying errors in calculating the Buy Price and/or the Sell Price or such other matters as the Initiating Member may reasonably request in the Buy/Sell Offering Notice to be verified; provided that the Responding Member shall have no right or obligation to verify the accuracy of the Proposed Value. If the Responding Member gives a Verification Notice, which, if correct, would increase the Sale Price or reduce the Buy Price by more than three percent (3%) in either event, the Initiating Member shall have the right, within five (5) days after receipt of the Verification Notice, by written notice to the Responding Member, to withdraw the Buy/Sell Offering Notice, in which event the parties shall return to the STATUS QUO ANTE. Section 8.4.3 RESPONSIVE NOTICE. Unless the Buy/Sell Offering Notice is withdrawn as set forth above, within 30 days following the date of the Buy/Sell Offering Notice, the Responding Member shall deliver to the Initiating Member a responsive notice, without qualification or condition, electing either: (a) To sell to the Initiating Member the entirety of the Responding Member's interest in the Company at a price (the "Sale Price") equal to the amount of cash that would be distributed to the Responding Member under Section 5.4, if all of the assets of the Company were sold for cash in the amount of the Proposed Value taking 47 into account the allocations set forth in Article IV which would be required to be made as a result of such sale and the adjustments required to be made hereunder; OR (b) To purchase from the Initiating Member the entirety of the Initiating Member's interest in the Company at a price (the "Buy Price") equal to the amount of cash that would be distributed to the Initiating Member under Section 5.4 if all of the assets of the Company were sold for cash in the amount of the Proposed Value taking into account the allocations set forth in Article IV which would be required to be made as a result of such sale and the adjustments required to be made hereunder. The failure of the Responding Member to give such a responsive notice (without qualification or condition) within the required time period shall be deemed notice of an election to sell its entire interest under clause (a) above. The date as of which the Responding Member shall have given notice of its election (or be deemed to have made an election) shall be the "Buy/Sell Election Date." In calculating the amount which would be distributed to the applicable Member under either (a) or (b) above, the parties shall assume that the sum of $50,000 (or such lesser amount as is then known to be sufficient for such purposes) shall be deemed set aside for liquidation costs and reserves, and all Company indebtedness shall be deemed to be retired as of the Closing Date. If any Company indebtedness becomes due as a result of the closing under this Section 8.4 or at the time of closing any indebtedness of the Company is prepaid (any such indebtedness shall be collectively "Accelerated Debt"), then Company indebtedness shall include all prepayment penalties due on Accelerated Debt as of the date of closing. Otherwise prepayment penalties on Company indebtedness shall not be taken into account. Section 8.4.4 BUY/SELL DEPOSIT. The Member bound to purchase pursuant to the election referenced in Section 8.4.3 (the "Purchaser," and the other Member shall be the "Seller") shall be required to make an earnest money deposit (the "Buy/Sell Deposit") in an amount equal to One Million Dollars ($1,000,000). The Buy/Sell Deposit shall be delivered in escrow within five (5) Business Days following the Buy/Sell Election Date, in immediately available funds, to a national title insurance company reasonably acceptable to Seller, who shall perform the services of escrow agent. The Buy/Sell Deposit shall be nonrefundable to the Purchaser (except in the event of a material default of the Seller in performing its closing obligations pursuant to Section 8.4.5). Section 8.4.5 CLOSING PROCESS. The Purchaser shall fix a closing date (the "Closing Date") not later than sixty (60) days following the Buy/Sell Election Date by notifying the Seller in writing of the Closing Date not less than ten (10) days prior thereto. The closing shall take place on the Closing Date at the principal office of the Company or such other location as the Purchaser shall reasonably designate at least five (5) Business Days prior to the Closing Date. The purchase price for the Seller's interest shall be paid in immediately available funds and the Seller shall convey good and marketable title to its membership interest in the Company to Purchaser or its designee free and clear of all liens and encumbrances. Each Member agrees to 48 cooperate and to take all actions and execute all documents reasonably necessary or appropriate to reflect the purchase of the Seller's interest by the Purchaser. The Operating Member shall in good faith prepare a balance sheet for the Company as of the date of determination of the Closing Date showing all items of adjustment described below and such adjustments shall be made as of the Closing Date. At the closing, the following adjustments shall be made to Proposed Value as set forth in the Buy/Sell Offering Notice in order to complete the final calculation of the applicable purchase price due Seller: (a) There shall also be added to the Proposed Value (i) the amount of cash and cash equivalents then held by the Company or any Subsidiary Company (ii) the amount of any cash receivables of the Company and other tangible liquid assets which are customarily the subject of adjustment between buyers and sellers of Lodging Facilities (iii) the aggregate of all Contributions made by the Members during the period (the "Closing Period") commencing on the date of the Buy/Sell Offering Notice and ending on the Closing Date and (iv) if any Property is acquired by the Company or any Subsidiary Company during the Closing Period, the gross purchase price of such Property; and (b) There shall be subtracted from the Proposed Value (i) the amount of any accounts payable and other liabilities of the Company which are customarily the subject of adjustment between buyers and sellers of Lodging Facilities and (ii) if any Property is sold by the Company or any Subsidiary Company during the Closing Period, the gross sale price of such Property. The cost of any title insurance policy endorsements desired by the Purchaser shall be paid by the Purchaser. All other costs shall be borne by the party who customarily bears such costs. Any risk of casualty, condemnation or loss prior to the Closing Date shall be borne by Purchaser, who shall succeed to all rights to insurance proceeds or condemnation awards (and any such casualty or condemnation proceeds received by the Company after the date of the Buy/Sell Notice shall not be taken into account in the adjustment of the Proposed Value set forth above). In no event shall Purchaser be required to repay or to cause the Company to repay any indebtedness of the Company at such closing. Notwithstanding anything to the contrary contained in this Section 8.4, it shall be a condition precedent to Seller's obligation to close on the Closing Date that Purchaser obtains for the benefit of Seller releases from any and all monetary or other guaranties (including, without limitation, hazardous substances indemnities and the like) ("Guaranties") given by Seller to Third Party lenders. If following the exercise of commercially reasonable efforts the Purchaser is unable to obtain releases from all Guaranties, then the Purchaser shall provide to the Seller indemnities reasonably satisfactory to Seller to address the contingent liability contained in the unreleased Guaranties. All adjustments to Proposed Value shall be made on the basis of good faith estimates of the Members using currently available information, and final adjustment shall be made promptly after precise figures are determined or available, and in any event within thirty (30) days after the Closing Date. In addition, on the Closing Date or on any other date when a Member is transferring its entire interest in the Company to the other Member or a Related Party of the other Member, all Default Loans made 49 by the Purchaser on the Seller's behalf shall be repaid in full from the sale proceeds otherwise payable to the Seller and all Default Loans made by the Seller on the Purchaser's behalf shall be repaid in full by adding the amount thereof to the sale proceeds otherwise due the Seller. Section 8.4.6 INTENTIONALLY DELETED. Section 8.4.7 FAILURE TO CLOSE. If the Purchaser fails to perform its obligations under this Section 8.4 (following such failure, the "Defaulting Purchaser"), the Seller, in addition to its other rights hereunder, is entitled to retain the Deposit, and shall have the additional right to purchase the interest of the Defaulting Purchaser for a price equal to ninety percent (90%) of the amount the Defaulting Purchaser would have received pursuant to Section 8.4.2 had it been the Seller rather than the Purchaser, and subject to the same adjustments as set forth herein, upon written notice to the Purchaser given within thirty (30) days after the originally scheduled Closing Date. If the Seller elects to purchase the interest of the Defaulting Purchaser, Seller shall deposit the Buy/Sell Deposit in escrow within five (5) business days following its notice to elect to purchase the interest of the Defaulting Purchaser, the closing of such purchase shall take place in accordance with the provisions hereof, except that the Closing Date shall be not later than ninety (90) days following the date on which the notice electing such purchase is given. If the Seller shall fail to perform its obligations under this Section 8.4, the Purchaser shall have all rights and remedies available to it hereunder or at law or equity, including, without limitation, the right to seek specific performance. The Defaulting Purchaser shall lose the right to give a Buy/Sell Offering Notice for a period of twelve months after the date such Defaulting Purchaser failed to perform its obligations under this Section 8.4. Section 8.5 EFFECT UPON TRANSFEREES. Following any Transfer of the interest or membership of any Member effective under this Agreement, the provisions of this Article VIII shall be binding upon such transferee Member. Any transferee of such interest who is admitted as a successor Member shall enjoy fully the benefits and be subject to the burdens of such provisions. Section 8.6 QUALIFIED ORGANIZATIONS. The Operating Member hereby represents and covenants that it is not and will not become (for so long as it is a Member in the Company) a Qualified Organization and, further, that so long as the Operating Member is classified as a partnership for federal income tax purposes, no equity interest in the Operating Member will be held directly, or indirectly through one or more entities taxed as partnerships or disregarded for federal income tax purposes, by a Qualified Organization. In addition to the restrictions on transfer set forth in this Article VIII, the Operating Member further represents and covenants that it will not transfer or assign or permit the transfer or assignment of all or any portion of its interest as a Member, or of any direct or indirect interest in itself (other than pursuant to this Agreement or any instrument entered into pursuant to this Agreement), that would result in the direct or indirect or beneficial ownership by a Qualified Organization of any interest in the Company held or formerly held by or through such Member; PROVIDED, HOWEVER, that a Qualified Organization may own an indirect interest in the Company through a taxable corporation or a REIT. If the Operating Member or any of the holders of interests in the Operating Member fails 50 to comply with the requirements of this Section 8.6, or breach any of the representations and covenants made in connection therewith, and such failure or breach causes or contributes to the failure of the Company to comply with the requirements of Code Section 514(c)(9)(E) and the Treasury Regulations promulgated thereunder, said Operating Member or holder shall be liable to the Company, to the Class A Member and to any direct or indirect investors in the Class A Member for any damages resulting directly or indirectly therefrom, including but not limited to any unrelated business income tax incurred by the Class A Member (and its constituent partners) with respect to its investment in the Company. ARTICLE IX -- OPERATING MEMBER'S OBLIGATIONS FOR REPORTING, RECORDS AND ACCOUNTING MATTERS Section 9.1 FISCAL YEAR. Except as provided by the Code, the fiscal year and the taxable year of the Company shall be the calendar year. Section 9.2 BANK ACCOUNTS. (a) The Operating Member shall deposit or cause each Subsidiary Company to deposit all cash balances derived from rents or occupancy payments or otherwise arising from ownership of a Property, in one or more bank accounts established in the name of the Company or the applicable Subsidiary Company by the Operating Member (each a "Property Account"). Each such Property Account shall be in the name of the Company or the applicable Subsidiary Company. In no event shall any Property Account be co-mingled with any accounts of any other party. The Property Account shall be deposited in such depository institution under such arrangements as the Operating Member may determine. Any investment of funds shall be made in the name of the Company or the applicable Subsidiary Company and shall be consistent with investment guidelines stated in the Approved Portfolio Business Plan (as hereinafter defined). At the request of the Class A Member, the Operating Member shall cause all such funds received to be transferred into a master account of the Company (the "Master Account"), subject to sufficient funds being reserved in any Property Account to pay for all contemplated expenses of the corresponding Property. (b) In connection with the development, construction or reconstruction of a Project, the Operating Member shall establish a separate interest-bearing bank account (each a "Development Account") for the Project in the name of the Company. To the extent that a Project is funded by a Mortgage Loan, any disbursements requested by the Company shall be deposited directly in the applicable Development Account. Any Contributions made in accordance with Section 3.1 for a Project shall also be deposited in the applicable Development Account. In no event shall a Development Account be commingled with any account of the Operating Member. The Operating Member shall not change any depository institution or depository arrangement without the approval of the Board, which approval shall not be unreasonably withheld or delayed. 51 (c) Through the use of signature cards, authorized representatives of the Class A Member shall have access to all Property Accounts and the Master Accounts and the contents thereof. The Class A Member agrees not to draw against any Property Account and Master Account until there is an Event of Default with respect to the Operating Member, shall only draw upon any Property Account and Master Account in accordance with the terms of this Agreement and shall promptly give the Operating Member notice if it draws upon any Property Account or Master Account. Upon an Event of Default with respect to the Operating Member, the Operating Member's authority to draw against any Master Account may be suspended or terminated by the Class A Member, in which event the Class A Member and the Operating Member shall establish an alternative method of paying obligations of the Company. (d) The Operating Member shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the Company and each Subsidiary Company. The funds of the Company and of any Subsidiary Company shall not be commingled with the funds of any other Person and the Operating Member shall not employ such funds in any manner except for the benefit of the Company or the Subsidiary Company. Section 9.3 MAINTENANCE OF RECORDS. (a) The Operating Member shall maintain and develop on a current basis a uniform system of accounts and document filing system with respect to the Company, each Subsidiary Company and each Property. All such records shall be maintained at a principal office of the Company. (b) The Operating Member shall maintain files related to the Properties in a good and orderly fashion, all such files being the sole property of the Company or the applicable Subsidiary Company, including, but not limited to, the following to the extent the same are delivered to the Operating Member upon acquisition of the applicable Properties or delivered to or generated by the Operating Member during the term of this Agreement, to wit: (i) Occupancy files, including executed leases, or residency agreements and amendments thereto, correspondence, and current rent roll; (ii) Maintenance and repair files; (iii) Accounting books and records and supporting documentation; (iv) Construction files, competitive bid records, including site plans, construction drawings, as-built drawings, plans, construction specifications, 52 capital improvements schedules and information, construction contracts, architects agreements, engineering contracts and subcontracts; (v) Operation files, including HVAC maintenance schedules, warranties, and operation manuals; (vi) Service contracts, including cleaning, maintenance, landscaping, snow removal, trash removal, etc.; (vii) Permits, licenses and certifications from governmental authorities; (viii) Copies of insurance policies or certificates; and (ix) Such other Property information as the Class A Member reasonably requests from time to time. (c) The Class A Member may, at its expense, from time to time audit such of the books, records and internal systems and procedures of the Operating Member as may be necessary or appropriate to ascertain the appropriateness and reasonableness of the allocations and internal audit procedures of the Operating Member as they relate to the Company or any Subsidiary Company. Section 9.4 CERTAIN RECORDS. The Operating Member shall cause the Company to keep a complete set of books of account which fully and accurately reflect all transactions of the Company and each Subsidiary Company. The Operating Member shall keep at the principal office of the Company a current list of the full name and last known business or residence address of each Member and each Board Member, a copy of the LLC Certificate and all certificates of amendment to any of them, together with executed copies of any powers of attorney pursuant to which any of the certificates or any amendments have been executed, copies of the Company's federal, state and local income tax or information returns and reports, if any, for the six most recent taxable years, copies of this Agreement and any amendments thereto, copies of any and all financial statements of the Company for the six most recent fiscal years, and the books and records of the Company as they relate to the internal affairs of the Company for at least the current and past four fiscal years, if any, including calculations of capital accounts and Total Returns and, for purposes of satisfying the request of an appraiser, a true copy of business records relevant to the amount, cost and value of all property owned, claimed, possessed or controlled by the Company. All of the Company's books of account shall be maintained in accordance with generally accepted accounting principles (including, but not limited to being prepared in accordance with the Uniform System of Accounting for Hotels) consistently applied. The Operating Member shall perform all such tasks, as applicable, with respect to the Subsidiary Companies in the same fashion as for the Company. Each Member has the right, upon reasonable request, to inspect and copy during normal business hours any of the Company's books and records. 53 Section 9.5 REQUIRED REPORTS. The Operating Member shall promptly deliver to the Class A Member, at the Company's expense, a copy of this Agreement as in effect from time to time, and any amendments thereto and, upon request, shall so deliver any additional documents or information required by the Act or reasonably requested by a Member. The Operating Member shall furnish or arrange to be furnished to the Board reports prepared for the Company in accordance with the reporting requirements set forth in EXHIBIT H. Section 9.5.1 PORTFOLIO BUSINESS PLAN. On or before thirty days after the date of this Agreement with respect to calendar year 1999 and on or before December 1 of each subsequent calendar year during the term hereof, the Operating Member shall prepare and submit to the Class A Member, a proposed portfolio business and management plan, together with the Pursuit Cost Budget. The Operating Member shall meet with the Class A Member to discuss the proposed portfolio business plan, shall furnish promptly any additional information or explanations requested by the Class A Member and shall modify any proposed portfolio business plan as agreed between the Members. Such portfolio plan, or any modified version thereof, when approved in writing by the Class A Member, shall be referred to as the "Portfolio Business Plan." The Portfolio Business Plan shall be in the form and contain such information as is required by the terms of EXHIBIT H-1. The Portfolio Business Plan shall be supplemented or modified as necessary from time to time, at least quarterly but also within thirty (30) days after the acquisition or sale or financing of a Property. With respect to each Property, the Operating Member shall use all commercially reasonable efforts to implement the Portfolio Business Plan. Any material changes to or material deviations from the Portfolio Business Plan shall require Approval. Section 9.5.2 ASSET BUSINESS PLANS. (a) As part of the materials submitted to the Board prior to the Board's final approval of the closing of the acquisition and/or development of any Property pursuant to Article X below and on or before December 1st of each year during the term hereof for the calendar year beginning on the next following January 1st, the Operating Member shall prepare and submit to the Board an asset business plan for such Property in accordance with the requirements set forth on EXHIBIT H-2. Each such plan, or any modified version thereof, when approved in writing by the Board, shall be referred to as an "Asset Business Plan." The Board shall either approve in writing each Asset Business Plan or provide comments to the Operating Member either orally or in writing or both. The Operating Member shall meet with the Board to discuss the proposed Asset Business Plan, and shall furnish promptly any additional information or explanations requested by the Board and shall modify any proposed asset business plan in accordance with the Board's comments or directions. To the extent necessary, the Operating Member shall be required to submit to the Board an updated Asset Business Plan with respect to any such Property no more frequently than quarterly during each year of the term hereof, but in any event, within thirty (30) days after any Authorized Financing on any Property. 54 (b) The Operating Member shall use all commercially reasonable efforts to implement and comply with the approved Asset Business Plan. Unless and until a current Asset Business Plan is Approved, however, the Operating Member shall comply with the requirements of Section 9.5.9. Any material changes to or material deviations from the Asset Business Plan shall require Approval. In addition to complying with the foregoing requirements, the Operating Member shall prepare and propose for Approval such revisions and updates to the Asset Business Plan as may either be requested from time to time by the Board, Class A Member or as the Operating Member may otherwise deem appropriate. Section 9.5.3 ANNUAL BUDGETS. (a) As part of each Asset Business Plan, the Operating Member shall prepare and submit to the Board for the Board's approval each year a detailed budget for each Property in the form and containing the information as is required by the terms of EXHIBIT H-2 or in the alternative deliver to the Board budgets prepared by tenants under the Leases which satisfy the requirements of EXHIBIT H-2. The Operating Member shall review proposed budgets prepared by tenants under Leases and shall forward such proposed budgets when received for the Class A Member's review and in any event prior to December 1 of each year. The Members shall thereafter work together to review the budgets and coordinate discussions with each tenant under a Lease to finalize such budgets. (b) The Operating Member shall use all commercially reasonable efforts to avoid (or cause a tenant under a Lease to avoid) causing the actual costs of operation and management of any Property to exceed the applicable Approved Budget either in total or in any one accounting category. The Operating Member shall secure prior Approval before expending, obligating the Company for or approving any expenditure in connection with the operation and management of any Property that would result in a budget line item or category being exceeded by at least the greater of: (a) $15,000, or (b) ten percent (10%) or more in that category of the applicable Approved Budget, PROVIDED, HOWEVER, that where emergency action is necessary to prevent imminent risk to health and safety, imminent property damage, or imminent imposition of criminal or civil sanctions against the Company or any Member, the Operating Member may make, or cause to be made, expenditures not contemplated by the Approved Budget IF (A) any expenditure made without the Board's consent is, in the Operating Member's good faith judgment, reasonable under the circumstances and (B) the Operating Member endeavors diligently and in good faith (1) to notify the Class A Member of any such emergency and (2) obtain verbal approval for any required expenditure. Notwithstanding the above, the Operating Member may make or cause to be made an expenditure in excess of the corresponding amount in the Approved Budget which is (a) paid for real estate taxes, utility costs, insurance premiums or other like nondiscretionary expenses and over which the Operating Member has no reasonable control (each a "Nondiscretionary Expense"), or (b) incurred pursuant to and in accordance with any contract or agreement 55 theretofore entered into by or on behalf of the Company that is either permitted hereunder or otherwise Approved. Except as specifically provided herein, all expenses must be charged to the proper accounting category as specified in the Approved Schedule of Accounts and no expense may be classified or reclassified for the purpose of avoiding an excess in the annual budgeted amount of any accounting category. (c) In the case of any Property involving renovation or construction, the Operating Member shall prepare a construction budget based on the projected construction costs of the applicable project (when approved in writing by the Board, the "CONSTRUCTION BUDGET"), including, without limitation all so-called "hard" and "soft" costs and other capital requirements. The Construction Budget shall include the estimated timing and amount of all projected construction expenses and shall be accompanied by a construction and development status report containing a cost-savings analysis, a description of any change-orders and a summary of any deviations of the proposed construction budget from the then existing Construction Budget and original Construction Budget. The Operating Member shall update such Construction Budget for each such project as needed from time to time, for Approval. (d) The Operating Member shall use all commercially reasonable efforts to avoid (or cause tenant under a Lease to avoid) causing the actual costs of development and construction of any such construction project to exceed the Approved Construction Budget, either in total or any one accounting category. The Operating Member shall notify the Board in each instance that the Operating Member moves funds from the "contingency" line item of the Approved Construction Budget to any other line item in any Approved Construction Budget. The Class A Member acknowledges that it will not object to contingency line items which are less than five percent (5%) of the aggregate costs contained in an Approved Construction Budget. In addition, the Operating Member shall obtain Approval in advance of authorizing the General Contractor to incur costs that the General Contractor proposes to be charged to the line item of the Approved Construction Budget which would exceed the greater of Twenty Five Thousand Dollars ($25,000) in any one instance, or (ii) five percent of the amount of the "contingency" line item of the Approved Construction Budget. The Operating Member shall obtain Approval before expending, obligating the Company for or approving any expenditure in connection with the construction and development of any Property in excess of amounts provided for in the applicable Approved Construction Budget. Any material change in materials, systems or quality of components shall be promptly explained to the Board by the Operating Member as part of the Operating Member's monthly reporting pursuant to Section 9.5.4 below. (e) The Operating Member shall further prepare and propose for Approval, from time to time, but no more often than quarterly, such additional revisions to the Approved Budgets as may reasonably be required to reflect changes in costs or expenditures in redevelopment and management of the Properties. 56 Section 9.5.4 MONTHLY REPORTS. The Operating Member shall prepare monthly reports ("Monthly Statements") of all transactions occurring during such month to be furnished to the Board with respect to each Property AND a report for all Properties on a consolidated and consolidating basis, in each case within twenty (20) days after the end of each calendar month during the term of this Agreement. The Monthly Statement shall be designed so as to clearly and efficiently communicate to the Board relevant information compiled on an asset by asset basis, and on a consolidated, overall portfolio basis. The general requirements for all Monthly Statements and other financial reports are set forth in EXHIBIT H-3 attached hereto. Section 9.5.5 ANNUAL REPORTS. Within sixty (60) days after the end of each calendar year during the term of this Agreement (and within sixty (60) days after the date of termination of this Agreement, if such termination does not occur on and as of the last day of a calendar year), the Operating Member shall, if so requested by the Class A Member, arrange for and furnish to the Class A Member annual audited financial statements for such (full or partial) calendar year accurately reflecting the financial condition and the results of operation of each Property individually and of all of the Properties on a consolidated and consolidating basis (the "Audited Annual Report"), all prepared and certified by the Accountants in accordance with generally accepted accounting principles, consistently applied, and the applicable provisions of this Agreement. If the Accountants are unable to prepare and deliver to the Class A Member the Audited Annual Reports within sixty (60) days following the end of the respective calendar year, then, within such sixty (60) day period, (i) the Operating Member shall deliver to the Class A Member the unaudited financial statements of the Company for such (full or partial) calendar year, and (ii) the Accountants shall provide a written statement to the Class A Member stating that, based upon their review of the financial statements delivered pursuant to clause (i) and to the best of their knowledge and belief, the Audited Annual Report when delivered will not indicate any adverse changes from the financial statements delivered pursuant to clause (i). In any event, the Operating Member shall cause the Audited Annual Report to be delivered to the Class A Member not later than ninety (90) days following the end of the respective calendar year. The Audited Annual Report shall be accompanied by a compliance letter prepared by the Accountants or other party agreed upon by the Operating Member and the Class A Member indicating that the Operating Member is in compliance with its reporting requirements under this Agreement. The Class A Member shall have the unilateral right to appoint, on behalf of the Company, the Accountants to perform such audit. Section 9.5.6 TAX RETURNS. The Operating Member shall prepare or cause to be prepared drafts of all tax returns required of the Company. The Operating Member shall submit drafts of all tax returns (including all schedules and exhibits thereto and upon request, copies of all supporting workpapers), together with a request to the Board for its consent at least thirty (30) days prior to the required filing date thereof. The Operating Member shall file or cause to be filed all such tax returns required of the Company once Approved. Any decisions regarding or affecting the reporting or characterization for tax purposes of items of Company income, gain, loss or deduction including, but not limited to, whether to make any available election pursuant to the Code and the regulations which will materially affect the taxation of the Class A Member or any of its constituent partners shall require Approval. The Class A Member shall have the 57 unilateral right to appoint, on behalf of the Company, the Accountants to perform the annual tax audit. Section 9.5.7 GENERAL REQUIREMENTS. The Class A Member may from time to time, reasonably modify, supplement or amend the reporting requirements of this Agreement in its reasonable discretion, and the Operating Member shall supply such additional information as the Class A Member may reasonably request, provided that the Company shall reimburse the Operating Member for its costs incurred in connection with any material increase in reporting requirements. In addition, the following general requirements shall apply to all financial reports required under this Agreement: all such reports shall be prepared typed or computer-generated on forms reasonably acceptable to the Class A Member and shall include all detail required by the Approved Schedule of Accounts; the Operating Member shall use commercially reasonable efforts to maintain electronically, in format reasonably acceptable to the Class A Member, all financial and operating information, in order to enable the Class A Member to maintain its core data base and shall cooperate with the Class A Member to make such data available to the Class A Member in a manner mutually acceptable to the parties hereto; all statements and reports shall be prepared on an accrual basis in accordance with generally accepted accounting principles, except as otherwise required hereunder; and all such reports shall be certified as true and correct to the best knowledge of the Operating Member. Each financial report shall include comparisons of actual results for the period to previously forecasted results in the Final Approval Package and the Asset Business Plans, each on a consolidated and a consolidating basis. The Operating Member shall cooperate with the Class A Member's accountants in the preparation of the Class A Member's annual financial statements and with the institution and maintenance of an on-line, accounting system mutually acceptable to the parties hereto. Section 9.5.8 SUPPORTING DOCUMENTATION. As additional support to required reporting information under this Agreement, the Operating Member, at the Class A Member's reasonable request shall provide (or cause tenants under Leases to provide) copies of (a) detailed cash receipts and disbursement records, (b) general ledger listing and journal entries, (c) copies of invoices for capital expenditures and nonrecurring items, (d) summaries of adjusting journal entries, (e) copies of all paid bills and (f) such other supporting documentation as the Class A Member may reasonably require. Section 9.5.9 FAILURE TO APPROVE; BUDGET IMPASSE. In the event Approval is not obtained with respect to any proposed Portfolio Business Plan, Asset Business Plan, Annual Budget or Construction Budget prior to the intended period for such plan or budget, then a "Budget Impasse" shall be deemed to exist, until such time as such plan or budget is Approved. During any Budget Impasse, the Operating Member shall operate and cause to be operated the Company, each Subsidiary Company and each Property in accordance with the most recently Approved Budget, except that the Operating Member may make or cause to be made any expenditure not contemplated by the Approved Budget which is (a) a Nondiscretionary Expense or (b) incurred pursuant to and in accordance with any contract or agreement that was entered into prior to the commencement of such Budget Impasse by or on behalf of the Company (to the 58 extent such contract or agreement was Approved pursuant to an Approved Budget or following review by the Class A Member). Section 9.6 QUARTERLY PRESENTATIONS. Not less than once each calendar quarter the Operating Member shall make a presentation to the Board detailing the status of each Property and performance of the Operating Member's duties hereunder at such locations as may from time to time be designated by the Board. Section 9.7 OTHER DISCLOSURES. The Operating Member shall keep the Class A Member informed of any material fact, information, projection, litigation, employee relations or other matter of which the Operating Member has knowledge which could reasonably be expected to have a material impact on the operations or financial position of any Property or the Company. The Operating Member shall provide any and all material information relating to the Property or the management or operation thereof as the Class A Member may reasonably request from time to time. Section 9.8 CLASS A MEMBER AS TAX MATTERS PARTNER. The Class A Member is designated the tax matters partner of the Company as provided in Section 6231(a)(7) of the Code and corresponding provisions of applicable state law. This designation is effective only for the purpose of activities performed pursuant to the Code, corresponding provisions of applicable state law and under this Agreement. The Class A Member shall inform the Members of any material decisions or actions taken by the Class A Member as the tax matters partner. The Company may, subject to Approval, make an election pursuant to Section 754 of the Code and the regulations thereunder (and a corresponding election under the applicable sections of state and local law). Section 9.9 TAXATION AS A PARTNERSHIP. It is the intent of the Company and its Members that the Company be treated as a partnership for income tax purposes, and the terms of this Agreement shall be construed so as to accomplish that goal, and the Members will use their best efforts to cause the Company to be so treated. Section 9.10 COSTS PAYABLE FROM MASTER AND PROPERTY ACCOUNTS. With respect to each Property, the Operating Member shall, to the extent of available funds, pay directly from the applicable Property Account, all Approved costs incurred in connection with the acquisition, development, redevelopment, management, servicing and disposition of the applicable Property. Pre-acquisition expenses associated with any Proposed Investment which the Company is contemplating purchasing or developing pursuant to this Agreement shall be paid directly from the Master Account to the extent such expenses are within the Portfolio Business Plan or have been approved by the Board under this Agreement. Section 9.11 YEAR 2000 ISSUES. The Operating Member shall use all commercially reasonable efforts to assure that all tenants under Leases comply with the so called "Year 2000" covenants set forth in the Leases. 59 ARTICLE X - ACQUISITION AND DEVELOPMENT OF PROPERTIES Section 10.1 EXCLUSIVE OBLIGATION. During the Investment Period, the Operating Member shall use all commercially reasonable efforts to locate and propose investment opportunities with respect to Lodging Facilities within the Target Market which satisfy the Investment Guidelines. If approved by the Board, any proposed acquisition (or any direct or indirect ownership interest therein) shall be acquired by the Company at a cost and in accordance with the provisions of this Agreement and the appropriate form of purchase and sale agreement. Section 10.2 INVESTMENT PERIOD. The Operating Member shall be obligated to use all commercially reasonable efforts to seek, identify and offer Lodging Facilities which satisfy the Investment Guidelines for potential acquisition to the Company for a period (the "Investment Period") commencing on the date hereof and expiring upon the earlier of: (a) the date on which the sum of Initial Capital contributed by each Member plus the amount of Committed Contributions then in effect equals or exceeds the sum of each Member's respective Capital Contributions Cap then in effect); (b) the date two (2) years after the date of this Agreement or (c) the date of the sale or assignment of fifty one percent (51%) or more of the Class A Member's interest in the Company to an institutional lender or investor described in Section 8.1.3(b) which is not otherwise an Entity described in Section 8.1.3(a). The Investment Period unless terminated under (c) above shall automatically be extended in the event that the Class A Member gives a Cap Increase Notice pursuant to Section 3.7(a). In such event, the Investment Period shall be extended until the earlier of (i) the date on which the sum of Initial Capital contributed by each Member plus the amount of Committed Contributions then in effect equal the sum of each Member's respective Capital Contributions Cap then in effect (as increased) if the Operating Member elects (or is deemed to have elected) to increase the Capital Contribution Cap pursuant to Section 3.7; (ii) the date twelve (12) months after the date that the Operating Member notifies the Class A Member in writing that it disapproves an increase in the Capital Contribution Cap pursuant to Section 3.7(a); (iii) the date of the sale or assignment of fifty one percent (51%) or more of the Class A Member's interest in the Company to an institutional lender or investor described in Section 8.1.3(b) which is not otherwise an Entity described in Section 8.1.3(a); (iv) the date thirty six (36) months after the date of this Agreement or (v) the date the Class A Member gives the Operating Member notice that it is terminating the Investment Period. Notwithstanding the above, if as of the first anniversary of the date of this Agreement, the sum of Initial Capital contributed by each Member plus the amount of Committed Contributions then in effect equals less than $26,666,667, the Operating Member may elect within the thirty (30) day period following the first anniversary of this Agreement to notify the Class A Member that it is terminating the Investment Period, in which event the Investment Period shall terminate as of the date of that election. In addition, if the Operating Member has approved an increase in the Capital Contribution Caps of the Members pursuant to Section 3.7(a) and as of the first anniversary of the date of receipt by the Class A Member of the notice from the Operating Member acknowledging such approval, the sum of Expansion Capital contributed by the Members and the amount of Committed Contributions then in effect to advance capital that would be classified as Expansion Capital is less than forty percent (40%) of the Expansion 60 Capital approved by the Operating Member, the Operating Member may elect within the thirty (30) day period following such first anniversary to notify the Class A Member that it is terminating the Investment Period in which event the Investment Period shall terminate as of the date of that election, provided such termination date shall never be earlier than the date twenty four (24) months after the date of this Agreement. Each Member's Proportionate Share of any Committed Contributions outstanding as of the expiration of the Investment Period shall be deemed contributed as of the date of the expiration of the Investment Period and shall be contributed by each Member within ten (10) days after the termination of the Investment Period. Section 10.3 PROPOSED ACQUISITIONS. In connection with the obligations of the Operating Member under this Article, the Operating Member shall furnish to the Class A Member, not less frequently than once per month, an updated "deal list," in such detail as the Class A Member may reasonably require, identifying all potential acquisitions and assessing the likelihood of completion thereof. Each "deal list" shall have three boxes next to each listed Lodging Facility enabling the Class A Member to indicate whether such Lodging Facility (i) should continue to be pursued as a potential acquisition by the Company; (ii) should not be pursued as a potential acquisition because the Class A Member does not anticipate approving the acquisition of such Lodging Facility pursuant to Section 10.3, or (iii) should not be pursued as a potential acquisition because the Class A Member is already contemplating pursuing the acquisition of such Lodging Facility without offering such opportunity to the Company. The Class A Member shall use diligent efforts to respond to each "deal list" within ten (10) days of receipt. Section 10.3.1 PRELIMINARY APPROVAL PACKAGE. (a) When the Operating Member identifies a Lodging Facility which the Operating Member intends to recommend for purchase consideration by the Company, the Operating Member shall prepare and submit to the Class A Member a package of information in such form as the Class A Member may from time to time reasonably approve, with respect to such Lodging Facility, which shall include, but not be limited to, the information set forth in EXHIBIT J-1 (collectively, the "Preliminary Information"). (b) To the extent that the Operating Member recommends that the Company execute a letter of intent, the Operating Member shall endeavor to cause the same to follow substantially a form of the letter of intent approved by the Class A Member incorporated into the Portfolio Business Plan upon such approval. Any letter of intent shall be in the name of the Company or an appropriate Subsidiary Company. Although not required as a part of the Preliminary Information, the Operating Member shall also deliver with the Preliminary Information such portions of the Final Approval Package as are then available to the Operating Member. The Operating Member may also seek Approval, prior to receiving conditional approval of the Preliminary Information, to enter into a Purchase and Sale Agreement on behalf of the Company or a Subsidiary Company for such proposed acquisition if the Operating Member reasonably determines that prompt execution of a Purchase and Sale Agreement is necessary in order 61 to obtain the right to acquire the proposed acquisition, PROVIDED, however, that any such Purchase and Sale Agreement entered into by the Operating Member shall explicitly state that, prior to the expiration of the due diligence period therein provided, the Company must affirmatively give notice to the seller that the necessary Approval of all diligence related materials has been granted as required by Section 10.3.2(b), and that without such affirmative notice all deposits shall be returned to the Company and such Purchase and Sale Agreement shall thereupon terminate. (c) Any conditional approval by the Class A Member of the Preliminary Information under this Section 10.3.1 shall mean that expenses incurred by the Operating Member on behalf of the Company or a Subsidiary Company (or by the Operating Member and reimbursed by the Company pursuant to Section 10.3.5) with respect to such proposed acquisition shall thereafter be deemed Acquisition/Redevelopment Costs pursuant to the Acquisition/Redevelopment Budget and shall no longer be expenses under the Pursuit Cost Budget. (d) The Class A Member shall, promptly on receipt of the Preliminary Information with respect to any proposed acquisition review the same and, by notice to the Operating Member, either give conditional approval to the proposed acquisition by the Company or a Subsidiary Company and authorize the execution of the letter of intent by the Company, if applicable, or indicate that the Class A Member shall not approve the proposed acquisition by the Company. Any such conditional approval shall constitute authorization to the Operating Member (i) to incur on behalf of the Company additional expenses in connection with the proposed acquisition (subject, however, to the right of the Class A Member, in connection with giving any such conditional approval, to place more specific limitations on such expenditures), (ii) to proceed with due diligence with respect to such proposed acquisition and (iii) when and as the Operating Member deems appropriate, to negotiate a purchase and sale agreement on behalf of the Company with respect to such proposed acquisition as hereinafter further provided. (e) The Class A Member shall endeavor to notify the Operating Member of its conditional approval or its disapproval with respect to any proposed acquisition within five (5) Business Days following the date upon which the Class A Member receives all the Preliminary Information with respect to such proposed acquisition. If the Class A Member fails to respond within such five (5) Business Day period, the Operating Member may issue a written notice (the "Approval Notice") to the Class A Member which notice shall state on the envelope and on the first page of the notice in capital letters the following "FAILURE TO RESPOND TO THIS NOTICE WITHIN TEN (10) DAYS WILL RESULT IN THE LOSS OF SIGNIFICANT RIGHTS". Such written notice shall also expressly refer to this Agreement and to this Section 10.3.1(e). If the Class A Member fails to respond within ten (10) days after receipt of the Approval Notice, the Class A Member shall be deemed to have given conditional approval of such proposed acquisition. 62 Section 10.3.2 DUE DILIGENCE AND REVIEW. (a) In the event that, having received the Preliminary Information for a proposed acquisition, the Class A Member gives notice to the Operating Member of the Class A Member's conditional approval with respect to such proposed acquisition by the Company, such notice shall constitute authorization to the Operating Member to prepare, obtain and submit to the Class A Member, to the extent reasonably obtainable and consistent with the Class A Member's approval authorization, in such form as the Class A Member may from time to time approve, a package including a preliminary budget projection of income and expense for the period following substantial completion of a proposed acquisition until such proposed acquisition is expected to reach stabilization and for the first twelve (12) months following the date on which the proposed acquisition achieves stabilization, together with the information set forth in EXHIBIT J-2 (the "Final Approval Package") within the limits of expenditures therefor authorized by the Class A Member. (b) The Class A Member shall within 10 days after receipt of all material items required to be included in the Final Approval Package, give notice to the Operating Member whether the Class A Member desires to approve the acquisition by the Company of such proposed acquisition. If the Class A Member shall give notice to the Operating Member of its intention to give approval for the Company to proceed with acquisition of such proposed acquisition, the Company shall proceed to execution of a Purchase and Sale Agreement (hereinafter defined) in accordance with Section 10.3.3 below. If the Class A Member has not given written notice of its approval or disapproval of the Final Approval Package within the aforementioned ten (10) day period, the Operating Member may give to the Class A Member a "Second Approval Notice" which Second Approval Notice shall state on the envelope and on the first page of the Second Approval Notice in capital letters the following: "FAILURE TO RESPOND TO THIS NOTICE WITHIN TEN (10) DAYS WILL RESULT IN A LOSS OF SIGNIFICANT RIGHTS". Such written notice shall also expressly refer to this Agreement and this Section 10.3.2 (b). If the Class A Member fails to respond within ten (10) days after receipt of the Second Approval Notice, the Class A Member shall be deemed to have disapproved such proposed acquisition. Section 10.3.3 PURCHASE AND SALE. (a) At such time, during the period commencing with the Class A Member's conditional approval of the proposed acquisition by the Company pursuant to Section 10.3.1, as the Operating Member shall reasonably deem appropriate, the Operating Member shall use commercially reasonable efforts to negotiate a purchase and sale agreement in the name of the Company for such proposed acquisition, it being understood (i) that any such purchase and sale agreement (each a "Purchase and Sale Agreement") shall be substantially in a form approved by the Class A Member and incorporated by and upon such approval into the Portfolio Business Plan, (ii) that the final 63 form of such Purchase and Sale Agreement, including the amount of any deposit, the purchase price and all other terms and conditions therein, must be reviewed by and be acceptable, in both form and substance, to the Class A Member and (iii) that, when requested by the Operating Member following the Class A Member's approval of the applicable Final Approval Package, the Company shall enter into such Purchase and Sale Agreement (or accept an assignment thereof as herein provided) and provide all necessary deposits. No Purchase and Sale Agreement shall provide the Seller, upon the default of the Company of its obligations thereunder, with a (i) a remedy of specific performance against the Company or (ii) have any liquidated damages in excess of the deposit made therein. (b) Following the execution by the Company of any such Purchase and Sale Agreement, the Operating Member shall carry out all remaining required due diligence and documentation required hereunder in order to consummate the acquisition of such proposed acquisition by the Company in accordance with the terms of such Purchase and Sale Agreement and shall deliver copies of all inspection reports, site studies, environmental reports and the like received or commissioned by the Operating Member to be delivered to the Class A Member. The Operating Member shall expressly notify the Class A Member of any matter that becomes known to it which would have a material adverse impact on the value of such proposed acquisition. Prior to waiver or approval of the inspection/due diligence conditions set forth in the Purchase and Sale Agreement, however, the Operating Member shall further prepare and submit to the Class A Member for the Class A Member's review and approval a revised and updated Acquisition/Redevelopment Budget, the proposed Asset Business Plan for such proposed acquisition and a detailed status report on the due diligence review and investigations conducted by the Operating Member and legal counsel. Any determination as to the satisfaction of any closing condition or other requirement to closing under any Purchase and Sale Agreement shall be made by the Members; any Member shall at all times have the right to disapprove the purchase of any proposed acquisition and, as applicable, to forfeit any deposit thereunder, which forfeiture shall be at the Company's cost and expense, provided that in the event such forfeiture was solely at the request of the Class A Member, all money, including, without limitation, any deposit, paid with respect to such proposed acquisition that was paid by the Company with the Class A Member's approval or otherwise in accordance with the provisions hereof shall be reimbursed by the Class A Member to the Company unless the forfeiture of the deposit thereunder is solely the result of the Class A Member obtaining knowledge with respect to a proposed acquisition which was required to be included, but was not included, in the Preliminary Information or the Final Approval Package. In the event such forfeiture was solely at the request of the Operating Member, all money, including, without limitation, any deposit, paid with respect to such proposed acquisition that was paid by the Company with the Operating Member's approval or otherwise in accordance with the provisions hereof shall be reimbursed by the Operating Member to the Company. 64 Section 10.3.4 DISAPPROVAL; FAILURE TO PROCEED. In the event that the Class A Member disapproves the purchase of such proposed acquisition for any reason pursuant to this Section 10.3, the Operating Member (or an Operating Member Related Party) may acquire the applicable proposed acquisition without the participation of the Class A Member therein, but only subject to the conditions set forth in Section 6.4.4. Section 10.3.5 COSTS AND EXPENSES. Until the Class A Member shall have given its conditional approval of acquisition by the Company of a proposed acquisition in accordance with Section 10.3.1, the Company shall reimburse or advance, any costs or expenses incurred by the Operating Member in connection with the investigation or acquisition of any such proposed acquisition to the extent consistent with the Pursuit Cost Budget (or to the extent otherwise Approved), PROVIDED that all such costs and expenses to be reimbursed or advanced shall be or have been incurred, or any action giving rise to such obligation of indemnification occurs, prior to the first date upon which the Operating Member receives notice that the Class A Member has failed to Approve the purchase of the proposed acquisition and are not otherwise the subject of any limitation on permitted expenditures set forth in any notice from the Class A Member with respect to a proposed acquisition. From and after the receipt by the Operating Member of a conditional approval notice pursuant to Section 10.3.1, such costs and expenses shall no longer be deemed Pursuit Costs but shall be deemed Acquisition/Redevelopment Costs, and the Company shall be obligated to pay for out-of-pocket costs and expenses incurred and paid in connection with the proposed acquisition or development of such proposed acquisition; provided such reimbursable costs and expenses are reasonable in amount and do not exceed the sums budgeted therefor under the then current Approved Acquisition/Redevelopment Budget. ARTICLE XI -- DISSOLUTION AND EVENTS OF DEFAULT Section 11.1 DISSOLUTION. Dissolution of the Company shall be effective on the day of the event giving rise to the dissolution. The Company shall not terminate until the assets of the Company have been distributed as provided herein and a certificate of cancellation of the Company has been filed with the Secretary of State of Delaware. In the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs, including a sale of the assets of the Company in an orderly manner and the assets of the Company shall be applied in the manner and in the priority set forth in this Agreement. Section 11.2 EVENTS OF DEFAULT. There will be an "Event of Default" under this Agreement if any one or more of the following events or circumstances shall transpire or exist and shall not be cured within any applicable period of notice and grace specified below: Section 11.2.1 BREACH OF OBLIGATIONS. If either Member is in breach of any material obligation under this Agreement and such breach is not corrected within fifteen (15) days after written notice thereof from the other Member, provided, however, if such breach is not able to be corrected within fifteen (15) days and the defaulting Member is diligently prosecuting cure, the curing Member shall have an additional time period to cure, which in no event shall be 65 longer than sixty (60) days after receipt of the default notice; provided that if such breach is willful, flagrant and material and not susceptible of cure, then no notice or grace period shall be required. Section 11.2.2 FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. If either Member shall commit an act involving fraud, willful misconduct or gross negligence with respect to any matter relating to the Company. Section 11.2.3 PROHIBITED TRANSFER. Any Transfer by either Member in violation of the provisions of Article VIII. Section 11.3 REMEDIES. Upon an Event of Default by either Member, the other Member shall have, in addition to any other rights set forth herein, all of its rights at law and in equity and upon the occurrence of an Event of Default by the Operating Member, no Fees or Reimbursable Expenses shall be earned or paid to the Operating Member pursuant to Section 6.3.4 other than acquisition fees set forth in paragraph (b) of EXHIBIT G-1. ARTICLE 12 -- MISCELLANEOUS Section 12.1 NOTICES. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement (collectively, "notices") shall be deemed adequately given if in writing and the same shall be delivered either in hand 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 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. 66 (c) All such notices shall be addressed: If to the Company, the Class A Member, or the AEW Board Members, to: c/o AEW Capital Management, L.P. 225 Franklin Street Boston, Massachusetts 02110 Attn: J. Grant Monahon, Esq. Telecopier No. (617) 261-9555 with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 Attn: Michael H. Glazer, P.C. Telecopier No. (617) 227-8591 If to the Operating Member, to: Boykin Lodging Company Guildhall Building 45 West Prospect Avenue, Suite 1500 Cleveland, OH 44115-1027 Attn: Robert W. Boykin, Chief Executive Officer Telecopier No. with a copy to: Baker & Hostetler, LLP 3200 National City Center 1900 E. 9th Street Cleveland, Ohio 44114-3485 Attn: Robert A. Weible, Esq. Telecopier No. (216) 696-0740 (d) By notice given as herein provided, the parties hereto and their respective successors 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. Section 12.2 AMENDMENTS. This Agreement may be amended only with the written approval of all Members. 67 Section 12.3 INTERPRETATION. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law. The parties agree that any dispute arising in connection with this Agreement shall be resolved in the Chancery Court in the State of Delaware, and each party hereby submits to the jurisdiction of that court. EACH PARTY HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE BETWEEN ANY OF THE PARTIES TO THIS AGREEMENT ARISING OUT OF THIS AGREEMENT OR THE RIGHTS OR OBLIGATIONS OF THE PARTIES HEREUNDER. The table of contents and titles of the Articles and Sections in this Agreement are for convenience only and shall not be considered in construing this Agreement. Pronouns used with reference to the Members shall be construed to refer to the feminine, neuter, singular and plural as the identity of the individual or entity referred to may require. This Agreement, together with the documents and agreements being executed on the date hereof, constitutes the entire agreement among the Members and the Operating Member and supersedes any prior written or oral agreements with respect to the subject matter of this Agreement. No provision of this Agreement (including, without limitation, any obligation of any Member to make Contributions) shall be interpreted as bestowing any rights whatsoever upon any third party. A cross-reference to another section shall be deemed to be to such section of this Agreement, unless explicitly stated otherwise. Section 12.4 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original. Section 12.5 ERISA, UBTI AND REIT MATTERS. Section 12.5.1 ERISA. The Operating Member acknowledges that it has been advised that the Class A Member desires the Company to conduct its business in such manner as to enable the Company to qualify as a "real estate operating company," under Department of Labor Regulation Section 2510.3-101 and the Members agree that each Member shall be entitled to exercise any vote, consent, election, or other right under this Agreement with a view to causing the Company to so conduct its business. Notwithstanding anything to the contrary contained in Section 3.1 or otherwise in this Agreement, the Class A Member shall have the right to require, prior to making its initial Contribution, an opinion of counsel to the Company in form and substance reasonably acceptable to the Class A Member that the Company is a "real estate operating company" under Department of Labor Regulation Section 2510.3-101. The "annual valuation period" of the Company is hereby specified as the 90-day period commencing on each December 31 following the "initial valuation date," as such terms are defined in said regulation. The Class A Member shall be entitled to request and, if such a request is made, receive an opinion of counsel to the Company in form and substance and from counsel all reasonably acceptable to the Class A Member as to the then current status of the Company as being or not being a "real estate operating company" under said regulation, provided that the Class A Member shall not make more than one such request with respect to each annual valuation period. Section 12.5.2 UBTI MATTERS. The Operating Member acknowledges that it has been advised that certain indirect investors in the Class A Member are Qualified Organizations 68 which are not generally required to pay federal income tax on interest, certain real property rents and certain other types of income and agrees that the business and affairs of the Company will be managed with a view to minimizing the amount of income of the Company that will constitute unrelated business taxable income ("UBTI") to a Qualified Organization under Section 511 ET SEQ. of the Code. The Operating Member agrees that the Class A Member shall be entitled to exercise any consent, election or other right under this Agreement with a view to avoiding any UBTI to the Class A Member or any of its members and without regard to whether conducting the business of the Company in such manner will maximize either pre-tax or after-tax profit of the Company to a Member who is not such a Qualified Organization. Without the prior written consent of the Class A Member which specifically refers to the requirement of a consent under this Section 12.5.2, the Company shall not (i) obtain financing from any seller to the Company of any property or any individual or entity who bears a relationship described in Code Sections 267(b) or 707(b) to any such seller, (ii) lease any property to any seller or to any individual or entity who bears a relationship described in Code Sections 267(b) or 707(b) to any such seller, (iii) obtain any financing where the amount of the indebtedness or any other amount payable with respect to the financing, or the time for making any payment, is dependent upon any revenue, income or profits derived from any property, (iv) incur any indebtedness which would otherwise be treated as "acquisition indebtedness" under Code Section 514(c), (v) incur any indebtedness which would constitute "partner nonrecourse debt" as defined in Treasury Regulations ss.1.704-2(b)(4), (vi) enter into any lease which provides for contingent rental payments unless based upon the tenant's gross receipts, (vii) enter into any lease or other arrangement pursuant to which it receives rents from personal property or payment for the performance of services which would constitute UBTI, (viii) invest or hold, directly or through one or more entities, any interest in any partnership (or any entity treated as a partnership for federal income tax purposes) if at any time it does not comply with Code Section 514(c)(9)(E) and the Treasury Regulations thereunder or (ix) otherwise engage in any transactions which would result in UBTI for the Class A Member or any of the holders of direct or indirect equity interests in the Class A Member. Section 12.5.3 REIT MATTERS. (a) The Members agree that the business and affairs of the Company will be managed in a manner that will neither jeopardize the REIT status of any Member or direct or indirect owner of any Member, nor result in the imposition of any taxes or penalties under the REIT Tax Provisions on any such Person. Any provision of this Agreement that might otherwise jeopardize a Member's REIT status under the Code (or the REIT status of a direct or indirect owner of a Member) or cause the imposition of such tax or penalty (other than the provisions of this Section 12.5.3 and other Sections of this Agreement expressly referenced by the provisions of this Section 12.5.3) shall be (i) void and of no effect, or (ii) reformed, as necessary, to avoid such Person's loss of REIT status or the imposition of such tax or penalty. (b) Without limiting the foregoing paragraph (a), the Members agree as follows: 69 (i) For each taxable year, the Company shall be managed so that the gross income of the Company allocable to the Operating Member (for purposes of the income tests set forth in Section 856(c)(2) and (3) of the Code, and excluding gross income from "prohibited transactions" as defined in Section 857(b)(6)(B)) (such allocation of gross income, the "REIT Gross Income") that fails to qualify as one of the following shall not exceed twenty-five percent (25%) of the Operating Member's aggregate REIT Gross Income: (a) "rents from real property" within the meaning of Section 856(d) of the Code (determined with respect to the Company as if the Company were a REIT for federal income tax purposes, subject to the modifications set forth below), (b) interest on obligations secured by mortgages on real property or on interests in real property, (c) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) which is not described in Section 1221(1) of the Code, (d) dividends or other distributions on, and gain from the sale or other disposition of transferable shares in qualifying REITs, or (e) amounts described in Sections 856(c)(3)(E) through 856(c)(3)(I) of the Code. (ii) For each taxable year, the Company shall be managed so that the Operating Member's REIT Gross Income that fails to qualify as one of the following shall not exceed five percent (5%) of the Operating Member's aggregate REIT Gross Income: (a) the items of income described in paragraph (i) hereof (other than those described in Section 856(c)(3)(I) of the Code), (b) gain realized from the sale or other disposition of stock or securities which are not property described in Section 1221(1) of the Code, (c) interest, (d) dividends, or (e) income derived from payments to the Company on interest rate swap or cap agreements, options, futures contracts, forward rate agreement or other similar financial instruments entered into to reduce the interest rate risks with respect to any indebtedness incurred or to be incurred to acquire or carry real estate assets, or gain from the sale or other disposition of such an investment. (iii) As of the end of the last day of each quarter of each of the Company's taxable years, not more than twenty-five percent (25%) of the total assets of the Company allocable (for purposes of the seventy-five percent (75%) asset test set forth in Section 856(c)(4) of the Code) to the Operating Member will fail to qualify as one of the following: (a) real estate assets within the meaning of Section 856(c)(5) of the Code, (b) cash and cash items (including receivables which arise in the ordinary course of the Company's operations, but not including receivables purchased from another person), or (c) Government securities. (iv) The Company will not own, directly or indirectly, more than ten percent (10%) of the voting securities (as defined for purposes of Section 856(c)(4)(B) of the Code) of any issuer that is treated as a corporation for federal income tax purposes. (v) The Company will not hold, directly or indirectly, any (a) stock in trade or other property of a kind which would properly be includable in inventory at hand at the close of a taxable year or (b) property held primarily for sale to customers in the 70 ordinary course of a trade or business, unless the disposition of such property is expected to result in the recognition of no more than DE MINIMIS gains by the Company. (vi) The Company will not hold, directly or indirectly (as determined for purposes of Section 860E of the Code) any REMIC residual interests. (vii) The activities of the Company will be conducted in accordance with the Agreement, and the Company will not be properly classifiable as a corporation for federal income tax purposes. The Company shall not elect to be taxed as a corporation for federal income tax purposes or otherwise take or omit to take any action that reasonably could be expected to cause the Company to be a corporation, or to be treated as an association taxable as a corporation, for federal income tax purposes. (viii) The Company will, as and when requested, make available to the Operating Member a list of all entities that the Company (and any entity that is treated as a partnership or disregarded entity for federal tax purposes in which the Company holds, or is treated as holding, an interest) uses to provide services to tenants or with respect to the properties in which the Company owns a direct or indirect interest the Company is treating as an "independent contractor" (within the meaning of Section 856(d)(3) of the Code and Treasury Regulation Section 1.856-4(b)(5)(iii)) for purposes of determining compliance with the covenants set forth in clauses (i) and (ii) above. At least ten (10) days prior to entering into any contract or other arrangement with a party whose status as an independent contractor with respect to the Operating Member could affect the characterization of amounts received or accrued, directly or indirectly, by the Company as "rents from real property" when allocated to the Operating Member, the Company shall provide the Operating Member with written notice of the identity of such party. The Company shall not, directly or indirectly, enter into any contract or other arrangement that involves or would require treating as an "independent contractor" for these purposes any person identified by the Operating Member in a written notice to the Company; provided that any such restriction shall be solely for the purpose of maintaining the REIT status of the general partner of the Operating Member. If such contracts or other arrangements are already in place at the time that written notice is provided by the Operating Member, then the Company shall take all commercially reasonable steps to terminate such contracts or other arrangements. (ix) The Company shall use commercially reasonable efforts to make distributions to its Partners in accordance with Article V, in amounts large enough such that the Operating Member will receive an amount sufficient to permit the Operating Member (assuming hypothetically that it were a REIT and that its interests in the Company constituted its only asset) to satisfy the distribution requirements for REIT status and to avoid the imposition of any taxes under Section 857 or 4981 of the Code with respect to the taxable year of the Company to which the Operating Member's request relates. (x) Without the prior written consent of the Operating Member, the Company will not, directly or indirectly, acquire securities issued by, or otherwise enter into any arrangement which will cause the Company directly or indirectly to 71 derive income from any person identified by the Operating Member on a written notice provided to the Company prior to the acquisition of such securities or the entering into of such arrangement; provided that any such restriction shall be solely for the purpose of maintaining the REIT status of the general partner of the Operating Member. (c) For purposes of the covenants in this Section 12.5.3, the assets and gross income of the Company will be determined as if the Company were a REIT. Thus, the Company will be deemed to own its proportionate share (determined in accordance with Treasury Regulations ss. 1.856-8(g)) of each of the assets of each entity that is treated as a partnership or disregarded entity for federal tax purposes in which the Company holds, or is treated as holding, an interest and will be deemed to derive directly the income of such entities attributable to such share. Notwithstanding the foregoing, the determination of compliance with these covenants shall be made by reference to the general partner of the Operating Member as the REIT, and the Company will not be treated as a REIT (i) for purposes of determining whether a subsidiary of the Company is a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code, (ii) for purposes of determining whether amounts received from a tenant of the Company would be "related party rent" as described in Section 856(d)(2)(B) of the Code (except that no tenant shall be considered a "related party tenant" for such purposes if the Company does not own, directly or indirectly, any interest in that tenant unless the Operating Member has notified the Company in writing that such tenant would be considered to be a "related party tenant" as to the Operating Member or the REIT), and (iii) for purposes of determining whether an entity or person that provides services to tenants of the Company meets the definition of an "independent contractor," as set forth in Section 856(d)(3) of the Code and Treasury Regulation Section 1.856-4(b)(5)(iii). (d) So long as the provisions of this Section 12.5.3 remain in effect, the Company shall deliver to the Operating Member, at such times as may be requested by the Operating Member upon reasonable notice to the Company, a certificate, or certificates signed by an authorized person to the effect that the Company has complied with the covenants set forth in this Section 12.5.3 through the date of such certificate or certificates and that such person anticipates that the Company will continue to comply with such covenants. Such certificate or certificates also will contain such other certifications, in a form and substance reasonably satisfactory to the Operating Member, as the Operating Member shall reasonably request, that relate to matters involving the Company that reasonably could be anticipated to bear upon the general partner of the Operating Member's status as a REIT. In addition, the Company shall cooperate (including, without limitation, by providing information and documents relating to the income and assets of the Company) with the Operating Member, even if the Operating Member at such time no longer holds an interest in the Company, in addressing issues raised by any taxing authority in any audit or similar proceeding relating to the Operating Member or any of its affiliates that relate to or arise out of the Operating Member's investment in the Company. (e) This Section 12.5.3 is for the exclusive benefit of the Operating Member and its general partner, their direct and indirect owners and subsidiaries, and any 72 successor or assign of all or substantially all of the assets of the Operating Member or its general partner (in which case references herein to the Operating Member or its general partner shall be treated as references to such successors or assignees), provided that such succession or assignment is otherwise permitted by the terms of this Agreement. The provisions of this Section 12.5.3 may be waived by the Operating Member in its sole discretion. (f) For purposes of this Section 12.5.3 and certifications made by the Company hereunder, the Company will not treat as "rent from real property" any of the following: (i) rent attributable to personal property, except where the personal property is leased under, or in connection with, the rental of real property where the average of the adjusted bases of the personal property at the beginning and at the end of the taxable year does not exceed fifteen percent (15%) of the average of the aggregate adjusted bases of the real property and the personal property leased under such lease at the beginning and at the end of such taxable year within the meaning of Section 856(d)(1) of the Code; (ii) any rent received or accrued, directly or indirectly, where the determination of the amount of rent depends on the income or profits of any person from the property, except where rent is based on a fixed percentage or percentages of receipts or sales within the meaning of Section 856(d)(2)(A) of the Code; and (iii) any rent (or any other consideration under a lease) received or accrued, directly or indirectly, from any person in which the Operating Member or its general partner owns, directly or indirectly, (a) in the case of a corporation, ten percent (10%) or more of the total combined voting power of all classes of stock entitled to vote, or ten percent (10%) or more of the total number of shares of all classes of stock, or (b) in the case of an entity other than a corporation, an interest of ten percent (10%) or more in the assets or net profits of such entity. For purposes of this paragraph, ownership will be determined by taking into account the constructive ownership rules of Section 318(a) of the Code (as modified by Section 856(d)(5) of the Code). (g) For purposes of this Section 12.5.3 and certifications made by the Company hereunder, the Company will not treat as "interest" any interest received or accrued, directly or indirectly, where the determination of the amount of interest depends on the income or profits of any person, except where interest is based on a fixed percentage or percentages of receipts or sales within the meaning of Section 856(f)(1)(A) of the Code. (h) The foregoing provisions of this Section 12.5.3 shall be subject to the following restrictions: (i) Any reformations to this Agreement, or voiding of its provisions, under paragraph (a) above shall be the minimum changes necessary to accomplish 73 the intent of this Section 12.5.3. If the provisions of this Agreement are reformed or voided, the parties shall negotiate in good faith to provide replacement provisions that have no material adverse effect on the interest of the Class A Member in the Company, and replicate, as closely as possible in conformance with this Section 12.5.3, the intended after-tax economic consequences to the parties, including without limitation the compliance of the terms of this Agreement with the present requirements of Sections 4.10 and 4.12. (ii) The Company shall in no event make distributions to the Members in an order and priority less favorable to the Class A Member than the order and priority set forth in Sections 5.2 through 5.4. Further, the Company shall be obliged to make distributions in the amounts contemplated by Section 12.5.3(b)(ix) only upon the written request of the Operating Member, accompanied by a certificate signed by an officer of BLC as general partner of the Operating Member stating that BLC and the Operating Member have made all commercially reasonable efforts to obtain sufficient funds from other sources. The Company shall not be required to borrow funds to fulfill any obligation to make distributions to the Operating Member without the prior written consent of all Members. (iii) So long as the Class A Member complies with the provisions of Section 12.5.4, this Section 12.5.3 shall not restrict or impair the Class A Member's rights to cause the sale of a Target Asset under Section 8.2, nor shall this Section 12.5.3 restrict or impair the Class A Member's rights under Section 8.4. Section 12.5.4 DEALER PROPERTY. In the event that either Member exercises its right under Section 8.2 to require the sale of any of the Company's properties within four years of the date on which the Company acquired such property or first put the property into service, the Initiating Member shall provide a certification to the Responding Member in substantially the form attached as EXHIBIT N hereto. Section 12.5.5 OBLIGATION OF OPERATING MEMBER TO AVOID PROVISIONS OF SECTION 12.5.3. The Operating Member shall use commercially reasonable efforts to conduct its own affairs, and cause any Operating Member Related Party to conduct its own affairs, so that the provisions of 12.5.3(a) will not come into effect. Section 12.6 NO PARTITION. Except as set forth in Section 8.2, no Member nor any Legal Successor of a Member shall have the right to partition the Company or any Property or any part thereof or interest therein, or to file a complaint or institute any proceeding at law or in equity to partition the Company or any Property or any part thereof or interest therein. Each Member, for such Member and such Member's Legal Successor, hereby waives any such rights. The Members intend that, during the term of this Agreement, the rights of the Members and their 74 successors in interest, as among themselves, shall be governed solely by the terms of this Agreement and by the Act. Section 12.7 ATTORNEYS' FEES. If any Member seeks to enforce such Member's rights under this Agreement by legal proceedings or otherwise the non-prevailing party shall be responsible for all costs and expenses in connection therewith, including without limitation, reasonable attorneys' fees and witness fees. Section 12.8 SEVERABILITY. If any provision of this Agreement is determined to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, to achieve the intent of the parties. In any event, all other provisions shall be deemed valid and enforceable to the greatest possible extent. Section 12.9 BINDING ON SUCCESSORS. Subject to the provisions of Article VIII, the rights and obligations of the Members under this Agreement shall inure to the benefit of and bind their respective heirs, successors and assigns. Section 12.10 CONFIDENTIALITY. Both parties hereto agrees to maintain the confidentiality of the terms and conditions of this Agreement and to maintain the confidentiality of (a) any information provided by one party to the other, and (b) all information contained in any facility books, records, computer discs and similar materials containing facility information, invoices and other documents received or maintained by the Company pursuant to this Agreement, other than information that is available from public sources. No public announcement of any development with respect to the Company shall be made without the consent of each of the Members. Either party may, however, disclose any of such information to its agents, directors, officers, employees, advisors, attorneys, Affiliates or representatives who require such information for the purpose of performing or assisting in the performance of its obligations or services hereunder, and to investors or lenders or proposed investors or lenders, provided that in all such cases such parties shall be informed of the confidential nature of such information. Either party hereto may also disclose any such information (x) to the extent required by law or court order provided that such party shall have first, to the extent reasonably practicable, advised the other of the requirement to disclose such information and shall have afforded the other an opportunity to dispute such requirement and seek relief therefrom by legal process, (y) in connection with any suit, action, arbitration or other proceedings between the parties hereto or their respective Related Parties, or (z) to the extent required in connection with the preparation or filing of any tax returns or other filings required by any applicable law. Section 12.11 REPRESENTATIONS AND WARRANTIES OF EACH MEMBER. As an inducement to each Member to enter into this Agreement, in addition to the representations and warranties contained in this Agreement, the parties make the additional representations and warranties contained in EXHIBIT K attached hereto and made a part hereof. 75 Section 12.12 BROKERAGE COMMISSIONS. The parties hereto represent and warrant to each other that, other than Chadwick, Saylor (the "Broker"), they have not dealt with any brokers, consultants or other third parties in the negotiation of this Agreement and the transactions contemplated herein. The parties further agree to indemnify, defend and hold each other harmless from and against any liability, claim, damage, cost or expense (including, without limitation, reasonable attorneys' fees) arising out of or in connection with the claims for commissions or any other fees due in connection with this Agreement and the transaction contemplated herein arising from such Member's actions. Notwithstanding the foregoing, in connection with any Contribution by the Class A Member, the Company shall pay a fee to the Broker equal to [*] percent [*] of the amount of such Contribution (or reimburse the Operating Member for any fees previously advanced by the Operating Member to the Broker). In no event shall the Company be responsible for payment or reimbursement of fees in excess of [*] percent [*] of the amount of such Contribution. Section 12.13 TIME IS OF THE ESSENCE. Time is of the essence with respect to all time or notice deadlines set forth herein, however, this provision shall not affect the rights of any defaulting party hereunder to cure such default within the time periods (if any) explicitly set forth herein, if and as so permitted pursuant to the terms of this Agreement. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 76 IN WITNESS WHEREOF, each of the Members has executed this Agreement as of the date first written above. CLASS A MEMBER: AEW PARTNERS III, L.P., a Delaware limited partnership By: AEW III, L.L.C., a Delaware limited liability company, its general partner By: AEW Partners III, Inc., its managing member By: /s/ James J. Finnegan -------------------------------------- Name: James J. Finnegan Title: Vice President OPERATING MEMBER: BOYKIN HOTEL PROPERTIES, L.P. By: BOYKIN LODGING COMPANY, its general partner By: /s/ Paul A. O'Neil ------------------------------------------- Name: Paul A. O'Neil Title: Chief Financial Officer and Treasurer 77
- ---------------------------------------------------------------------------------------------------------- EXHIBIT A - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- MEMBERS ADDRESS Proportionate Share - ---------------------------------------------------------------------------------------------------------- Class A Member AEW Partners III, L.P., a c/o AEW Capital Management, L.P. 75% Delaware limited partnership 225 Franklin Street Boston, MA 02110 - ---------------------------------------------------------------------------------------------------------- Operating Member Boykin Hotel Properties, L.P. Guildhall Building 25% 45 West Prospect Avenue, Suite 1500 Cleveland, OH 44115-1027 - ----------------------------------------------------------------------------------------------------------
NAMES AND ADDRESSES OF INITIAL BOARD MEMBERS OPERATING MEMBER BOARD MEMBERS Robert Boykin All c/o the Operating Member Richard Conti AEW BOARD MEMBERS All c/o the Class A Member Henry G. Vickers, Jr. Marc L. Davidson A-1 IDENTIFICATION OF PROJECT REPRESENTATIVES OPERATING MEMBER PROJECT REPRESENTATIVES Michael Murphy Richard Conti AEW PROJECT REPRESENTATIVES Henry G. Vickers, Jr. Marc L. Davidson A-2 EXHIBIT B CALCULATION OF TOTAL RETURN The calculation of Total Return with respect to the Class A Member (with respect to this EXHIBIT B, the Class A Member shall include any permitted successor or assign of the Class A Member's membership interest under this Agreement shall be made as of a given time as follows: (a) Determine the date and amount of all Contributions made by the Class A Member to the Company; and (b) Determine the date and amount of all distributions paid to the Class A Member pursuant to Article V. The Class A Member's Total Return shall equal the discount rate (the "Applicable Rate") which causes (i) the present value of the contributions made by the Class A Member under (a) above to equal (ii) the present value of the distributions paid to the Class A Member under (b) above. The present value of (a) and (b) shall each be determined as of the date of the first Contribution made by the Class A Member to the Company and discounting such contributions or distributions, as the case may be, on a monthly convention basis. In no event shall any funds advanced by the Class A Member as a Default Loan or any funds received by the Class A Member in payment thereof be included in the calculation of Total Return. Under the terms of Section 3.9 of the LLC Agreement, the Class A Member may elect to provide Credit Enhancement in connection with certain Authorized Financing of the Company. For the purpose of calculating the Total Return of the Class A Member under this Agreement, if the Class A Member (or any affiliate of the Class A Member) provides such Credit Enhancement, then all out of pocket costs and expenses incurred by the Class A Member (or affiliate of the Class A Member) in connection with such Credit Enhancement (including any legal expenses incurred in connection therewith and any costs of renewal) shall be deemed a Contribution made by the Class A Member to the Company on the date such cost or costs are incurred and if the Credit Enhancement or any portion thereof shall be drawn or applied (e.g. funds are paid by the Class A Member under a guaranty or there is a draw under a letter of credit given by or for the benefit of the Class A Member), the amount of any such payment or draw or amount applied shall be deemed an additional Contribution made by the Class A Member to the Company on the date that the Credit Enhancement was first issued or made. For purposes of calculating Total Return with respect to the Class A Member, all legal expenses paid by the Class A Member in connection with the formation of the Company or in connection with a default of the Operating Member's obligations under this Agreement or the B-1 default of the Operating Member or any Operating Member Related Party under any Approved Related Party Agreement shall be deemed Contributions. B-2 EXHIBIT C INVESTMENT GUIDELINES [*] C-1 EXHIBIT D FORM OF PROMISSORY NOTE $ -------------- -------- --, ---- WHEREAS, Boykin Hotel Properties, L.P. ("Operating Member") and AEW Partners III, L.P. ("Class A Member") entered into that certain Limited Liability Company Agreement (the "LLC Agreement"), dated as of February _, 1999, of Boykin/AEW LLC (the "Company"); WHEREAS, the Class A Member and the Operating Member are required pursuant to the LLC Agreement to make certain contributions of capital to the Company, as more specifically set forth in the LLC Agreement; WHEREAS, the [Operating Member/Class A Member] has failed to make a contribution required to be made pursuant to Article III of the Company Agreement; WHEREAS, the [Class A Member/Operating Member] has agreed to lend to the [Operating Member/Class A Member] as Borrower (defined below) a total of __________________________ Dollars ($___________), to be contributed on behalf of the [Operating Member/Class A Member] to the Company; NOW THEREFORE, FOR VALUE RECEIVED, [Boykin Hotel Properties, L.P., with an address of Guildhall Building 45 West Prospect Avenue, Suite 1500, Cleveland, Ohio 44115-1027/AEW Partners III, L.P., a Delaware limited partnership with an address of c/o AEW Capital Management, L.P., 225 Franklin Street, Boston, MA 02110] (the "Borrower"), promise(s) to pay to the order of [Class A Member/Operating Member] (together with any successor holder or holders of this Note, the "Lender") at its office at [c/o AEW Capital Management, L.P., 225 Franklin Street, Boston, Massachusetts 02110/ Guildhall Building, 45 West Prospect Avenue, Suite 1500, Cleveland, Ohio 44115-1027] or such other place as Lender may designate, the principal sum of ________________________ Dollars ($________), or so much thereof as shall be advanced hereunder, together with interest thereon, as hereinafter set forth. Interest on the principal balance of this Note from time to time outstanding shall accrue from the date hereof at an annual rate which shall equal the "Interest Rate" (defined below). Subject to Borrower's right to defer payments of interest as provided below, interest shall be payable on the unpaid principal balance from time to time outstanding, on a monthly basis in arrears on the first day of each month (the "Interest Payment Date") beginning with the first day of _______________. Interest shall be computed on the basis of a three hundred D-1 and sixty (360)-day year and shall be paid for the actual number of days on which principal is outstanding. "Interest Rate" means the lesser of (i) fifteen percent (15%) per annum, compounded monthly, or (ii) the highest lawful rate per annum, compounded monthly. Borrower may defer payments of interest to the extent that a payment of interest due on an Interest Payment Date exceeds the amount of distributions to Borrower from the Company during the calendar month immediately preceding said Interest Payment Date (such excess, known hereinafter as the "Deferred Interest"). Deferred Interest shall accrue interest at the Interest Rate, compounded monthly (such Deferred Interest together with the interest thereon shall be referred to as "Interest Accruals"). To the extent that distributions to Borrower from the Company, including any return of capital to Borrower by the Company, for any month prior to an Interest Payment Date exceed the amount due on said Interest Payment Date, then Borrower shall pay such excess to Lender to the extent of and to reduce: first, any late charges or other costs or expenses due hereunder, second, Interest Accruals then outstanding, third, interest then due, and fourth, the outstanding principal balance of this Note. The entire outstanding principal balance of this Note, together with any interest, Interest Accruals and other charges as may be due hereunder, shall be paid on the earlier of: (i)______________,_____, (ii) the dissolution of the Company, (iii) the sale of all of the Properties owned by the Company, (iv) the sale of all or substantially all of the Borrower's membership interest in the Company or (v) the occurrence of an Event of Default (hereinafter defined) hereunder (the earlier of such dates, the "Maturity Date"). In the event that any payment required hereunder is not paid within five (5) days after the date it is due (such five day period, the "Grace Period;" which failure to pay within the Grace Period shall constitute an "Event of Default" hereunder), Lender shall have the right, in addition to any other rights hereunder, upon written demand to Borrower, to collect a late charge as compensation for increased costs of administering such late payment. Such late charge shall be in an amount equal to four percent (4%) of the amount of any payment amount remaining unpaid after the expiration of the Grace Period, which sum Borrower agrees to pay upon demand; provided, however, that said late charge shall not be Lender's sole remedy for Borrower's default hereunder. In the event that any payment due hereunder is not paid prior to the expiration of the Grace Period, Lender at its option may declare immediately due and payable the entire outstanding balance of principal and interest, together with all other charges to which Lender may be entitled. D-2 The outstanding principal amount due hereunder may be prepaid in whole or in part, together with any interest or Interest Accruals then outstanding, without penalty or premium, upon five (5) days prior written notice to Lender Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to be delivered on the earlier of (i) the date received, or (ii) the date of delivery, refusal, or non-delivery indicated on the return receipt, if deposited in a United States Postal Service depository, postage prepaid, sent registered or certified mail, return receipt requested, addressed to the party to receive the same at the address of such party set forth at the beginning of this Note, or at such other address as may be designated in a notice delivered or mailed as herein provided. Borrower agrees to pay all charges (including reasonable attorney's fees) of Lender in connection with the collection and/or enforcement of this Note or in protecting or preserving the security for this Note, whether or not suit is brought against Borrower. The failure of Lender at any time to exercise any option or right hereunder shall not constitute a waiver of Lender's right to exercise such option or right at any other time. Borrower and all endorsers and guarantors of this Note hereby jointly and severally waive presentment, demand, notice, protest and all other suretyship defenses generally and agree that (i) any renewal, extension or postponement of the time of payment or any other indulgence, or (ii) any substitution, exchange or release of collateral or the addition or release of any person or entity primarily or secondarily liable, may be effected without notice to Borrower or any endorser or guarantor of Borrower's obligations, and without releasing Borrower or such endorser or guarantor from any liability hereunder. D-3 This Note shall be governed by, construed, and enforced in accordance with the laws of The State of Delaware. If any provision of this Note is held to be invalid or unenforceable by a court of competent jurisdiction, the other provisions of this Note shall remain in full force and effect. If the payment of any interest due hereunder would subject Lender to any penalty under applicable law, then the payments due hereunder shall be automatically reduced to what they would be at the highest rate authorized under applicable law. This Note is secured only by Borrower's membership interests in the Company, including any return of capital to Borrower upon liquidation of the Company and is otherwise without recourse to Borrower or any member or partner therein. This Note shall have the effect of an instrument under seal. Witness: Borrower: - ----------------------------------- --------------------------------------- D-4 EXHIBIT E FORM OF FUNDING NOTICE $ ------------- Re: FUNDING OF CAPITAL TO BOYKIN/AEW, LLC Gentlemen: Reference is hereby made to the Limited Liability Company Agreement of Boykin/AEW LLC, dated as of February __, 1999, (the "Operating Agreement"). Capitalized terms not otherwise defined shall have the meaning ascribed to them in the Operating Agreement. Pursuant to Article III of the Operating Agreement, you are advised, as the ______________ Member of the Company, that the ________ Member has determined that Capital is required to fund [Acquisition/Redevelopment Costs/ Cash Flow Deficits/Pursuit Costs/Preservation Capital] in the aggregate amount of $_________. Each Member is hereby requested to contribute, in the form of cash or cash equivalents, fund in the amount of its Proportionate Share (as set forth below) of such required Capital within [INSERT APPROPRIATE TIME PERIOD WHICH SHALL NOT BE LESS THAN AS SET FORTH IN ARTICLE III] of the date of this notice. [add description of reason for capital contribution]
Contributions Percentage Interest ------------- ------------------- AEW Partners III, L.P. $ __% Boykin Hotel Properties, L.P. $ __% TOTAL 100%
E-1 BOYKIN HOTEL PROPERTIES, L.P. By: Boykin Lodging Company, its general partner By: ___________________________ Name: Title: [or] AEW PARTNERS III, L.P., a Delaware limited partnership By: AEW III, L.L.C., a Delaware limited liability company, its general partner By: AEW Partners III, Inc., its managing member By: ___________________ Name: Title: E-2 EXHIBIT F INSURANCE REQUIREMENTS A. INSURANCE. The Class A Member shall arrange, in consultation with the Operating Member, for all property and liability insurance with respect to each Property naming the Company and any Subsidiary Company, as applicable, as insured and having Approved coverages consistent with comparable facilities in the area. The Company's Insurance Limits Requirements are set forth on EXHIBIT F-1, which Exhibit may be amended or replaced from time to time as Approved. Insurers must have an A.M. Best's rating of A-VII or higher. The cost of premiums for such insurance shall be allocated as an operating expense of each Property payable from the applicable Property Account or otherwise payable by the Company if not paid by a tenant under a Lease. At the Class A Member's election, any such insurance may be blanketed with other insurance carried by the Company (so long as the required coverages are not diminished), in which case a pro rata share of the premiums, as reasonably determined by the Class A Member, shall be chargeable to the applicable Property or Properties as an operating expense. All such insurance maintained by the Company shall be primary and not contributing with respect to the coverages maintained pursuant to this Agreement. The Class A Member shall furnish the Operating Member with evidence of the coverages and limits then in effect, upon request. B. INSURANCE CLAIMS. Subject to the provisions of the Leases, the Company or the Company's insurer shall have the right, at its option (chargeable as an operating expense of the applicable Property), to conduct the defense of any claim, demand or suit arising out of the ownership, operation, development or management of the Properties. The foregoing is not intended to affect the general requirements of this Agreement with respect to the operation, maintenance and management of the Properties or with respect to any indemnities by either party hereunder. The Operating Member and the Class A Member shall aid and cooperate in every reasonable way with respect to such insurance and any claim or loss thereunder. The Operating Member shall notify the Class A Member promptly upon receiving notice of any casualty, loss, injury, claim or threatened claim, condition or other event which the Operating Member believes may result in a claim under any insurance policy maintained hereunder. C. OPERATING MEMBER'S INSURANCE. Except as expressly set forth herein or in an Approved Annual Business Plan or Approved Annual Budget, the Operating Member shall maintain at its own expense, the following minimum insurance coverages and limits: (i) Worker's compensation as required by law; (ii) Employer's Liability in jurisdictions where employer's liability insurance is required by law -- $100,000 each accident; $100,000 disease -- each employee; $500,000 disease -- policy limit (or, if higher, such minimum limits as may be required to satisfy umbrella liability insurance requirements); F-1 (iii) Commercial General Liability Insurance: bodily injury and property damage with limits of at least $1,000,000 each occurrence and $2,000,000 in the aggregate; and Excess Liability Coverage of at least $5,000,000; (iv) Automobile Liability -- As to any vehicle owned, non-owned or hired by the Operating Member, $1,000,000 covering losses due to the insured's liability for bodily injury to others or to the property or others; as to Medical Expenses -- $5,000 per person per accident; and (v) Comprehensive crime insurance (including Employee Dishonesty) with limits and terms reasonably acceptable to the Class A Member or a fidelity bond reasonably acceptable to the Class A Member. The premium for all insurance required to be maintained by the Operating Member under this Paragraph shall be at the Operating Member's own expense. The minimum A.M. Best's rating of each insurer shall be A-/VII. The Operating Member shall furnish the Class A Member with certificates evidencing the aforesaid coverages, which shall include provisions to the effect that the Class A Member shall be given at least 30 days' prior written notice of cancellation of or any material change in any of the aforesaid policies. The Class A Member shall be named as an additional insured with respect to the Operating Member's excess liability policies and as a loss payee with respect to the coverage described in clause (v). D. PAYMENTS AND CERTIFICATES. Unless otherwise directed by the Class A Member, Operating Member shall pay or cause to be paid as they become due all premiums for the insurance required hereunder. Not later than 30 days if commercially available (but in no event fewer than 10 days) prior to the expiration of each such policy, the Class A Member shall deliver to the Operating Member a certificate of insurance and copies of the insurance policies evidencing the insurance required to be provided for a period of not less than one year and evidence of payment (upon payment by the Operating Member for and on behalf of the Company); said certificates shall obligate the insurer to give the Operating Member not less than 30 days prior written notice of the cancellation or material amendment of any insurance required to be carried under this Agreement. The Operating Member shall pay or cause to be paid insurance premiums as to each Property out of the applicable Property Account, to the extent funds are available therefor, provided that the Operating Member shall not refrain from paying any such insurance premium or causing the same to be paid when due, nor otherwise permit insurance coverage to lapse as to any Property to be insured hereunder, unless specifically authorized by the Approved Asset Business Plan or as otherwise Approved. E. COMPLIANCE WITH POLICIES. The Operating Member shall use commercially reasonable efforts to cause the Company to comply with: (i) all of the provisions of each such insurance policy affecting each Property and (ii) all of the requirements of the insurers thereunder applicable to the Company or, in the case of each such Property, to improvements F-2 located on each such Property or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of any of the improvements located on each such Property. The Operating Member, upon its knowledge of same, shall notify the Class A Member of any condition which would cause said Property to be in violation of any insurance requirements with respect to said Property. The foregoing shall not be construed to require the Company to make any structural changes or improvements to any Property or to expend any funds not provided in the Approved Budgets. F. CONTRACTORS' AND SUBCONTRACTORS' INSURANCE. The Operating Member shall cause all material service contracts and all construction contracts with respect to the Properties (including any Related Party Agreements) to require the contracting party thereunder to maintain insurance coverage, at such party's expense, with such limits and complying in all other respects with the relevant insurance requirements set forth in Exhibit F-2 and the Lease for such Property. The Operating Member shall obtain and keep on file a certificate of insurance for each service contract and major subcontract which shows that each such party is so insured. The Operating Member shall not waive or permit to be waived any such requirements without the Class A Member's prior written consent. The Operating Member shall obtain from each party to a service contract indemnification and hold harmless provisions in favor of the Company and each of the Members in accordance with industry standards. G. WAIVER OF SUBROGATION. The Members agree that with respect to any hazard, liability, casualty or other loss or claim which is covered by insurance then carried (or required to be carried pursuant to the provisions herein) by either Member, (a) the party carrying such insurance and suffering such loss releases the other party of and from any and all claims with respect to such loss; and (b) their respective insurance companies shall have no right of subrogation against the other party or their respective agents, contractors, employees, licensees or invitees on account thereof. F-3 EXHIBIT F-1 COMPANY INSURANCE LIMITS REQUIREMENTS INSURANCE. The Class A Member shall keep the Properties insured, or cause tenants under Leases to keep the Properties insured, at all times throughout the term of this Agreement with policies of insurance of the type set forth below: (a) PROPERTY INSURANCE. Property insurance on an "All Risk" basis, including, without limitation, flood and earthquake insurance, with a full replacement cost endorsement and an agreed amount endorsement (including builder's risk during any period or periods of time that construction or remodeling is being performed on any Properties), in an amount equal to 100% of the full replacement cost of all improvements (excluding only the reasonable value of footings and foundations) and the Company's contents therein, determined to the reasonable satisfaction of the Class A Member. Deductibles shall not exceed $10,000, except $50,000 for Flood and Earthquake (5% of values for California assets). (b) BOILER INSURANCE. Policies of insurance against loss or damage arising from incidents relating to the air conditioning and/or heating system, electrical systems, fly-wheels, steam pipes, steam turbines, steam engines, steam boilers, other pressure vessels, high pressure piping and machinery, if any, installed in the buildings and improvements, for an amount reasonably satisfactory to the Class A Member. (c) LIABILITY INSURANCE. Policies of commercial general liability insurance on an occurrence basis against claims for bodily injury and property damage with limits of liability of at least $1,000,000 per occurrence and $2,000,000 in the aggregate per location, with contractual liability coverages. (d) UMBRELLA LIABILITY INSURANCE. Umbrella liability insurance with limits of liability of at least $50,000,000 each occurrence and $50,000,000 aggregate. (e) BUSINESS INTERRUPTION AND/OR LOSS OF RENTAL VALUE INSURANCE. Business interruption and/or loss of rental insurance for a period of twelve months in an amount determined to the reasonable satisfaction of the Class A Member by completion on an annual basis of a hotel business interruption worksheet. (f) FLOOD INSURANCE. If any Property is located in an area designated by any governmental agency as an area of special flood hazard, federal flood insurance will be required. (g) WORKERS' COMPENSATION. Workers' Compensation Insurance required by the laws where each Property is located, if the Company has employees. F-1-1 (h) EMPLOYERS LIABILITY. $500,000 each occurrence; $500,000 each employee-disease; and $500,000 policy limit-disease, if the Company has employees. (i) AUTOMOBILE LIABILITY. If there is any vehicle owned, leased, or hired by the Company, coverage of $1,000,000 covering losses due to the insured's liability for bodily injury to others or to the property of others and, as to medical expenses, $5,000 per person per accident. (j) COMPREHENSIVE CRIME. If the Company or any Subsidiary Company has employees, comprehensive crime insurance (including Employee Dishonesty) with limits and terms reasonably acceptable to the Class A Member or a fidelity bond reasonably acceptable to the Class A Member. (k) LIQUOR LIABILITY INSURANCE. Liquor Liability insurance with limits of $5,000,000 each common cause and $5,000,000 in the aggregate; Garagekeepers Legal Liability insurance with limits of $1,000,000 for collision coverage and $1,000,000 for other-than-collision coverage, if the hotel offers valet parking or otherwise takes custody of guests' vehicles; Innkeepers Legal Liability and Safe Deposit Box Liability insurance with a $50,000 limit. (l) ADDITIONAL INSURANCE. Insurance with respect to such other insurable risks relating to the Properties, the Subsidiary Companies or the Company in such amounts and containing such terms and conditions as the Class A Member may reasonably require from time to time. Such insurance may be issued as blanket insurance. All such insurance policies shall be written on such terms, in such form and for such periods and amounts as the Class A Member shall from time to time reasonably designate or approve, shall be primary and without right of contribution from other insurance which may be available, shall waive any right of set off, counterclaim or subrogation, shall provide that with respect to the Class A Member, the insurance shall not be invalidated by any action or inaction by the Operating Member, and shall provide that they shall not be canceled or amended without at least thirty (30) days' prior written notice to both the Class A Member and the Operating Member. The Company, or Subsidiary Company if applicable, shall be the Named Insured and the Class A Member and the Operating Member (and the Company if applicable) shall be Additional Named Insureds on all policies. F-1-2 EXHIBIT F-2 (CONSTRUCTION CONTRACTS) INSURANCE AND INDEMNIFICATION INDEMNIFICATION The Contractor agrees to indemnify and hold the Owner harmless from all claims for bodily injury and property damage that may arise from the Contractor's operations under this Agreement. CONTRACTOR'S LIABILITY INSURANCE The Contractor shall purchase and maintain such insurance as will protect it from the claims set forth below which may arise out of or result from the Contractor's operations under this Agreement whether such operations be completed by Contractor or by any Subcontractor or by any person directly or indirectly employed by Contractor or any Subcontractor, or by any person for whose acts Contractor or any Subcontractor may be liable: 1. Claims under workers' compensation, disability benefit and other similar employee benefit acts which are applicable to the Work to be performed. 2. Claims for damages because of bodily injury, occupational sickness or disease, or death of employees under any applicable employer's liability law. 3. Claims for damages because of bodily injury, or death of any person other than Contractor's employees. 4. Claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by the Contractor or (b) by any other person. 5. Claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use therefrom. 6. Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motor vehicle. The Contractor's Commercial General Liability Insurance shall include premises/operations (including explosion, collapse and underground coverage), elevators, independent contractors, completed operations, and blanket contractual liability on all written contracts, all including broad form property damage coverage. The Contractor's Commercial General, Automobile, Employers and Umbrella Liability Insurance shall be written for not less than limits of liability as follows: a. Commercial General Liability BODILY INJURY AND PROPERTY DAMAGE AS REQUIRED BY EXHIBIT F-2 Page 1 of 3 b. Comprehensive Automobile Liability BODILY INJURY AND PROPERTY DAMAGE $1,000,000 EACH PERSON $1,000,000 EACH OCCURRENCE c. Employers Liability EACH ACCIDENT $500,000 DISEASE - POLICY LIMIT $500,000 DISEASE - EACH EMPLOYEE $500,000 d. Umbrella Liability BODILY INJURY AND PROPERTY DAMAGE AS REQUIRED BY EXHIBIT F-2 (EXCESS OF COVERAGES a, b & c ABOVE) All Subcontractors shall carry the same coverages and limits as specified above, unless different limits are specifically negotiated with Owner. The foregoing policies shall contain a provision that coverages afforded under the policies will not be canceled or not renewed until at least sixty (60) days' prior written notice has been given to the Owner. Certificates of Insurance showing such coverages to be in force shall be filed with the Owner prior to the commencement of the Work and prior to each renewal. Coverage for Completed Operations must be maintained for three years following completion of the work and certificates evidencing this coverage must be provided to the Owner. The minimum A.M. Best's rating of each insurer shall be A-/VII. The Owner shall be named as an Additional Insured under Contractor's Commercial General and Umbrella Liability Insurance policies. OWNER'S LIABILITY INSURANCE The Owner shall be responsible for purchasing and maintaining his own liability insurance and, at its option, may purchase and maintain such insurance as will protect it against claims which may arise from operations under this Agreement. INSURANCE TO PROTECT PROJECT The Owner shall purchase and maintain property insurance upon the entire Project for the full replacement cost at the time of any loss. This insurance shall be on an "All Risks" basis, with Flood and Earthquake coverage provided at the option of the Owner. Contractor's responsibilities include: - - insuring all materials, on an All Risks basis for the full replacement cost, in transit and until delivered to the project site; - - insuring all tools and equipment used in the installation process; - - assuming costs within the deductible(s) if a property loss is caused by the Contractor's failure to take reasonable steps to prevent the loss; - - protecting the site to prevent both natural and man-caused (i.e. arson, theft, vandalism) Page 2 of 3 losses. PROPERTY INSURANCE LOSS ADJUSTMENT Any insured loss shall be adjusted with the Owner and made payable to the Owner, subject to any applicable mortgagee clause. Page 3 of 3 EXHIBIT F-2 CONTRACTOR AND SUBCONTRACTOR INSURANCE LIMIT REQUIREMENTS
DIVISION TRADE DESCRIPTION TRADE NUMBER FOR LIMITS REQUIRED (SEE ATTACHED) 1. Sitework Earthwork 3 Excavation 5 Grading 2 Paving 2 Piling/Caisson 3 Retention 4 2. Concrete Formwork 5 Precasts 5 Structural 5 3. Masonry Masonry 5 4. Metal And Structural Metal Deck 4 Misc. Metals 2 Structural Steel 5 5. Carpentry Millwork 2 Rough Carpentry 2 Wood Doors 2 6. Moisture Protection Caulking 3 Dampproofing 3 Roofing/Sheet Metal 5 Waterproofing 3 7. Doors, Windows Curtainwall 5 And Glass Glass, Glazing & Aluminum 3 Hardware 1 Hollow Metal Work 1 8. Finishes Acoustic 2 Ceramic & Quarry 2 Covering 2 Lathe, Plaster & Drywall 2 Resilient Floor 2 Paint & Vinyl Wall 2
Page 1 of 4
DIVISION TRADE DESCRIPTION TRADE NUMBER FOR LIMITS REQUIRED (SEE ATTACHED) 9. Specialties Access Flooring 1 Partitions 1 Toilet Accessories 1 10. Equipment Crane Operations 4 11. Furnishings Suppliers 1 12. Special Asbestos Abatement 5 Construction Blasting 5 13. Conveying Systems Elevators 5 Escalators 5 Conveyers 3 Dumbwaiters 3 14. Mechanical Fire Protection System 4 Plumbing 4 15. HVAC 5 16. Electrical Electrical 5 17. Demolition More Than 3 Stories 10 3 Stories Or Less 5 General Contractor Major Project 50 General Contractor Performing Following Work: 10
New construction Under 4 Stories and Less Than 150,000 Sq. Ft. Construction Contract Up to $15,000,000 Renovation Less Than 15% of Existing Structure Any unusual or specialized renovation or repair work undertaken by the General Contractor under this contract may require other limits of liability than those listed above. Owner will make any determination of revised liability limits in consultation with its risk management staff. Page 2 of 4 EXHIBIT F-2 (CONT'D) CONTRACTOR AND SUBCONTRACTOR INSURANCE LIMIT REQUIREMENTS The following are Limits of Liability required depending on the trade number of the Contractor: 1. $1,000,000 Each Occurrence $1,000,000 General Aggregate $1,000,000 Products & Completed Operations Aggregate 2. $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate 3. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $1,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $2,000,000 Umbrella Each Occurrence/Aggregate 4. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $2,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $3,000,000 Umbrella Each Occurrence/Aggregate 5. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $3,000,000 Umbrella Each Occurrence/Aggregate OR Page 3 of 4 EXHIBIT F-2 (CONT'D) $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $4,000,000 Umbrella Each Occurrence/Aggregate 10. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $8,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $9,000,000 Umbrella Each Occurrence/Aggregate 50. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $49,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $50,000,000 Umbrella Each Occurrence/Aggregate Page 4 of 4 EXHIBIT F-2 (SERVICE CONTRACTS) INSURANCE AND BOND COVERAGE. Contractor shall purchase and maintain insurance during the entire Term of the Contract for the benefit of the Contractor and Owner (as their interest may appear) with terms and coverages reasonably satisfactory to Owner, and with insurers having a minimum A.M. Best rating of A-/VII, and with such increases in limits as Owner may from time to time reasonably request, but initially Contractor shall maintain the following coverages in the following amounts: (i) Commercial General Liability Insurance naming Owner, and Owner's management, leasing and development agents as additional insureds, with coverage for premises/operations, personal and advertising injury, products/completed operations and contractual liability with limits of liability not less than those limits specified in Exhibit F-2. (ii) Auto Liability Insurance covering any owned, leased or borrowed vehicle used to fulfill this contract with a combined single limit of liability of $1,000,000. (iii) Workers' Compensation Insurance with statutory benefits and Employers Liability Insurance with the following amounts: Each Accident - $100,000; Disease - Policy Limit - $500,000; Disease - Each Employee - $100,000 (iv) Umbrella Liability insurance excess of coverages (i), (ii) and (iii) above with limits not less than those limits specified in Exhibit F-2. (v) Fidelity Bond covering all employees in the amount of $500,000 with Owner shown as loss payee as its interest may appear. Contractor shall, prior to the commencement of the Contract Term and on each anniversary of the Commencement Date and/or renewal date thereof, furnish to Owner certificate(s) evidencing such coverage, which certificate(s) shall state that such insurance coverage may not be changed or canceled without at least thirty (30) days prior written notice to Owner and Contractor. The insurance maintained by Contractor shall be deemed to be primary insurance and any insurance maintained by Owner shall be deemed secondary thereto. EXHIBIT "F-2" SERVICE CONTRACTOR INSURANCE LIMITS REQUIREMENTS
TYPE OF SERVICE NUMBER FOR LIMITS --------------- REQUIRED ----------------- Garbage Removal and Disposal including 2 dumpster maintained on premises. Telephone and T.V. Equipment and Master Wiring 10 (exterior) and Antennas Service 5 (interior) Snow Removal Service 2 Sprinkler System Service and Repair 3 Alarm Systems Service and Repair 3 Signage and Light Post Maintenance 2 Landscaping and Lawn Maintenance 1 Electrical Maintenance 1 Parking Surface Maintenance and Striping 1 Asbestos Abatement and Hazardous Material 5 Removal Overhead and Revolving Door Services 2 Interior & Exterior Cleaning and Janitorial 2 Fire Extinguishing in Restaurants 2 Elevator/Escalator Service & Maintenance 5 Window Washing and Swing Station Equipment 3 Services Security & Guard Services 2
TYPE OF SERVICE NUMBER FOR LIMITS --------------- REQUIRED ----------------- Special Events and Exhibition Call Risk Mg Heating, Ventilation and Air Conditioning 2 Service Plumbing Service 2 Metal Cleaners and Refinishers 3 Roofers 10 Office Equipment Service 1
EXHIBIT "F-2" (cont.) SERVICE CONTRACTOR INSURANCE LIMITS REQUIREMENTS The following are limits of liability required depending on the trade number of the Contractor: 1. $1,000,000 Each Occurrence $1,000,000 General Aggregate $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $1,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $2,000,000 Umbrella Each Occurrence/Aggregate 4. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $2,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $3,000,000 Umbrella Each Occurrence/Aggregate EXHIBIT "F-2" (cont.) SERVICE CONTRACTOR INSURANCE LIMITS REQUIREMENTS 5. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $3,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $4,000,000 Umbrella Each Occurrence/Aggregate 10. $2,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $8,000,000 Umbrella Each Occurrence/Aggregate OR $1,000,000 Each Occurrence $2,000,000 General Aggregate $2,000,000 Products & Completed Operations Aggregate $9,000,000 Umbrella Each Occurrence/Aggregate EXHIBIT G-1 FEES (a) BASE FEE. For each month period during the term of this Agreement, Operating Member shall be entitled to a base fee equal to the product of (i) the aggregate Contributions made by the Members to Company (calculated as of the end of the applicable month) and (ii) [*]. The base fee shall be payable quarterly in arrears on the last of March, June, September and December, beginning on March 31, 1999. The base fee shall be prorated for any month which consists of less than 30 days at the beginning or end of the term. Notwithstanding the above, during the first twelve (12) months of the term of this Agreement, the base fee shall not be less than [*] per month. (b) ACQUISITION FEE. At the time Company acquires any Lodging Facility during the term of this Agreement, Operating Member shall be entitled to an acquisition fee equal to [*] percent [*] of the gross purchase price paid by Company to the seller of such Lodging Facility. Such fee shall only be deemed earned if the Company acquires such Lodging Facility and not otherwise. Such fee shall be payable upon the acquisition of the Lodging Facility by Company. If the Company acquires an interest in an Entity which owns or acquires a Lodging Facility, the acquisition fee shall be prorated based on the Company's interest in the Entity. The Operating Member shall also be entitled to an acquisition fee equal to [*] percent [*] of the amount of Capital Expenditures (as hereinafter defined) Approved as part of an Acquisition/Redevelopment Budget and actually expended. Such fee shall be deemed earned upon the expenditure of such funds by the Company and shall be payable quarterly. (c) INCENTIVE FEE. In addition to the Base Fee, if for any full calendar year during the term of this Agreement, the Company has achieved a "Return on Costs" greater than [*], all as determined as set forth below, Operating Member shall be entitled to an incentive fee for such calendar year equal to the product of (i) the aggregate Contributions made by the Members to the Company (calculated as of the end of the applicable calendar year) times (ii) [*] percent [*]. In addition, if for any full calendar year during the term of this Agreement, the Company has achieved a "Return on Costs" greater than [*], all as determined as set forth below, Operating Member shall be entitled to an additional incentive fee for such calendar year equal to the product of (ii) the aggregate Contributions made by the Members to the Company (calculated as of the end of the applicable calendar year) times (ii) [*] percent [*]. Such amount or amounts shall be payable annually in arrears within fifteen (15) days after Return on Costs is calculated and verified for such calendar year. If the payment of the incentive fee causes Return on Costs to be less than [*] or [*], as the case may be, the incentive fee shall be reduced to an amount which will result in Return on Costs to equal [*] or [*], as the case may be. For purposes of this provision, "Return on Costs" shall be calculated in accordance with the following formula: Return on Costs= NOI/TC G-1-1 where, NOI equals the amount by which (i) the gross operating receipts of the Company and each Subsidiary Company for such calendar year (but excluding any gross receipts arising out of a Capital Transaction or any duplication of receipts between the Company and any Subsidiary Company) exceeds the sum of (ii) (a) the gross operating expenses of the Company and each Subsidiary Company for such calendar year, including without limitation, real estate taxes, insurance, utility costs and the fees and expenses payable to the Operating Member hereunder (excluding incentive fees), rental payments and the like (but excluding debt service payments, capital expenditures and other expenditures of a capital nature (such capital expenditures and expenses, "Capital Expenditures") and additions to reserves); and (b) an annual capital expense reserve equal to 4% of the amount of gross operating receipts set forth in (i) above (the "Annual Capital Expense Reserve"); and TC equals the sum of (i) all Acquisition/Redevelopment Costs of the Properties incurred by the Company and each Subsidiary Company, including, without limitation, all Capital Expenditures Approved as part of the Acquisition/Redevelopment Budget (such Capital Expenditures, the "Anticipated Capital Expenditures") and (ii) the amount, if any, by which the aggregate amount of all Capital Expenditures other than Anticipated Capital Expenditures (such Capital Expenditures, the "Unanticipated Capital Expenditures") exceed the aggregate reserves established by the Company and each Operating Company for all Unanticipated Capital Expenditures (such reserves shall be deemed to equal the cumulative total of the Annual Capital Expense Reserve from the inception of the Company through the end of the applicable calendar year). In calculating Return on Costs, appropriate adjustments shall be made to NOI and TC to reflect the purchase or sale of any Property during the applicable calendar year. G-1-2 EXHIBIT G-2 REIMBURSABLE EXPENSES The Operating Member will only be entitled to reimbursement of Third Party costs and expenses reasonably incurred if such expenses consist of Pursuit Costs or have otherwise been Approved in an Approved Budget as costs to be reimbursed to the Operating Member. In no event shall the Operating Member be entitled to any reimbursement for any Excluded Cost. The following expenses or costs ("Excluded Costs") incurred in connection with the services to be provided by Operating Member hereunder will be at the sole cost and expense of Operating Member and will not be reimbursed by the Company or any Subsidiary Company from the Property Account or otherwise: - - Costs incurred by Operating Member for salary and wages, payroll taxes, workmen's compensation, bonus compensation, incentive compensation, retirement plan payments, travel expenses and other benefits payable to Operating Member's employees; - - Costs incurred by Operating Member for in-house accounting and reporting systems, software or services, furnished by Operating Member under this Agreement, as distinguished from third party accounting and reporting costs (as for example, the annual auditing costs of accountants); - - Costs incurred by Operating Member for forms, papers, ledgers and other supplies, equipment, copying and telephone of any kind used in Operating Member's office at any location other than the Properties; - - Costs incurred by Operating Member for electronic data processing equipment, systems software or services, or any pro rata charge therefor; - - Costs incurred by Operating Member for political contributions; - - Costs incurred by Operating Member for advances made to employees and cost of travel by Operating Member's employees or agents other than reasonable and customary travel to and from the Properties in connection with the performance of Operating Member's services hereunder; - - Costs attributable to losses which are covered by the indemnity obligations of Operating Member; - - Costs incurred by Operating Member for comprehensive crime insurance or fidelity bonds purchased by Operating Member for its own account; - - Costs incurred by Operating Member for training and hiring expenses, including but not limited to employment and employment agency fees; G-2-1 - - Costs incurred by Operating Member for any insurance carried by Operating Member, whether or not required to be carried by Operating Member under this Agreement; - - Costs incurred by Operating Member for advertising expenses of Operating Member not related to marketing any Property for lease; - - Costs incurred by Operating Member for dues of Operating Member or any of its employees in professional organizations or for any of Operating Member's employees participating in industry conventions or meetings; G-2-2 EXHIBIT H PORTFOLIO BUSINESS PLAN The Portfolio Business Plan shall set forth the overall strategic plan for acquiring, asset managing, leasing, financing and disposing of the Properties, general guidelines for the development of individual Asset Business Plans, including, but not limited to the Company's general leasing and financial strategy, policies and procedures, forms of all required statements and reports, any proposed changes (unless previously approved by the Class A Member) to forms of any documents required to be approved by the Class A Member, the format of Asset Business Plans, the form, scope and content of all required budgets, financial projections taking into account the entire capital structure of the Company and such other matters pertaining to the ownership, leasing and asset management of the Properties and the performance of Operating Member's services hereunder as the Class A Member may reasonably specify. H-1 EXHIBIT H-2 ASSET BUSINESS PLANS AND ANNUAL BUDGETS I. ASSET BUSINESS PLANS. Each Asset Business Plan shall be prepared in accordance with the format specified in the Portfolio Business Plan or otherwise approved by the Class A Member, and shall set forth, without limitations and in addition to the budget information detailed in Section II below, the following: (i) in narrative form, a basic description of the Property and Operating Member's recommended course of action with respect to the Property (including, without limitation, any strategic or tactical actions relating to sale or disposition of the Property, and an explanation of the reasons underlying such recommendations; and (ii) as to each Property, a narrative report including details on Operating Member's planned activities, any proposed expansion, acquisition and renovation plans and strategy, the status of current and projected occupancy; a commentary on physical condition, including any deferred maintenance items; a summary of market conditions, comparables and such other summary market statistics as the Class A Member may reasonably request; a status report of all competitive projects known to Operating Member in the market area; and detailed plans for the renovation, repair and maintenance, leasing, asset management and marketing of each Property, including for this purpose any analysis of average daily room rates facility fees and projected occupancy and any proposed updates or revisions to any existing plans provided by tenants under Leases; and such other information as the Class A Member shall reasonably have requested. In addition, the Operating Member shall use commercially reasonable efforts to require any tenant under a Lease (a "Lessee") to provide the Operating Member with the following information for inclusion in the Asset Business Plan: (i) Lessee's reasonable estimate (on a monthly basis) of gross revenues, taxes and property insurance, and necessary reserves for the next calendar year, itemized in a reasonable manner consistent with the Uniform System of Accounts (the "Operating Budget"), together with the assumptions (in narrative form) utilized in preparing the Operating Budget; (ii) A budget of Lessee's recommended renewals, revisions, rebuilding, replacements, substitutions or improvements to the Property for the next calendar year which are of a capital nature under the Uniform System of Accounts (the "Capital Budget"), including Lessee's reasonable estimates for the cost of designs, plans and specifications, material, labor (including installation), storage, consultants, travel, overhead, sales tax and freight and a description of the extent of completion of any partially completed capital improvements included in a previously approved Capital Budget; H-2-1 (iii) A description of the general marketing strategy which Lessee intends to implement during the next calendar year to optimize both short and long-term profitability of the Property, together with a marketing plan that includes a positioning statement, competition analysis, group sales quotas, sales action plans, media schedule, public relations plan, travel schedule, pricing schedule, food and beverage strategies and segmentation analysis; (iv) Lessee's estimates of any amounts the Company (or Subsidiary Company) will be required to provide as working capital or to fund expenditures contemplated by the Capital Budget during the next calendar year; (v) A description of the current legal status of pending or threatened suits, actions, proceedings, inquiries, or investigations concerning the Property; (vi) Any other matter deemed appropriate by Lessee or reasonably requested by the Class A Member. II. ANNUAL BUDGETS. As part of each Asset Business Plan, Operating Member shall prepare and submit to the Class A Member for the Class A Member's approval each year a budget for each Property, projecting all revenues expected to be received with respect to such Property during the following one (1) calendar year, together with projected capital requirements, projected occupancy and average daily room rates, and projected expenses of the Company and Subsidiary Companies. The Class A Member acknowledges that certain information contained in the Annual Budget will be produced by tenants under Leases. The Operating Member shall use commercially reasonable efforts to obtain all of the foregoing information from such tenants and covenants to provide the Class A Member with copies of all materials prepared by such tenants which the Operating Member receives. Operating Member shall explain in reasonable detail any assumptions used in projecting all revenue and Company costs, including fees payable to Operating Member hereunder, real estate taxes, insurance and general and administrative costs and proposed capital expenditures, and a comparison of projected revenues and expenses against prior year actual (including an explanation of material deviations). In such budget, Operating Member may expressly correlate an income category with a corresponding expense category and expressly provide that if the actual income category exceeds the budget, the corresponding expense category in the budget shall be deemed increased by the same percentage as the actual income with respect to such income category exceeds the budgeted amount for such income category. For example, if in the budget, Operating Member provides for corresponding income and expense categories and in such budget the income category equals $100 and the corresponding expense category equals $50, if actual income with respect to such income category is $110, then the expense category will be deemed automatically increased by a corresponding percentage (in this example 10%) to $55. Such budgets shall be supplemented by a sales and marketing plan, a capital plan and such information as the Class A Member may reasonably request the H-2-2 Operating Member to produce, or obtain from tenants under Leases, from time to time. The format of such budgets shall be reasonably acceptable to the Class A Member. H-2-3 EXHIBIT H-3 MONTHLY REPORTS The Class A Member acknowledges that certain Property related information contained in the Monthly Reports will be provided by tenants under Leases for the purpose of monitoring gross revenues and the net worth of such tenants. The Operating Member shall use commercially reasonable efforts to obtain all of the foregoing information from such tenants and provide copies of all reports required hereunder to the Class A Member on-line or by computer diskette. The general requirements for all monthly statements and other financial reports are as follows: (i) The monthly statement and other reports required by the Class A Member will include other items as reasonably specified in the Asset Business Plan; and (ii) The monthly statement shall include, but not be limited to, the following materials relating to the Company's or Subsidiary Company's ownership of the Properties. (A) A transmittal letter which highlights key financial matters relating to the Company and the Subsidiary Company, including comments on the performance of each Property and the status of any mortgage loan then in default; (B) A balance sheet as of month end, prepared on an accrual basis, showing current month and prior month balances with the change from prior month, an accrual basis statement of income and expense and a cash flow statement reconciling from net income to net cash flow on a monthly and year-to-date basis in each case on an individual and consolidated basis. All expenses shall be included in such statements, regardless of the source of payment. (C) Intentionally Deleted (D) A status report on the status of all capital improvements, including analysis of expenditures to date, costs to complete and expected completion date; (E) A current detailed summary of leases, if any, (including, to the extent such information is not provided elsewhere, vacancies, lease expirations, security deposits, a calculation of lease commissions, status of collection efforts and legal proceedings and other information specified by owner) in a format reasonably acceptable to Owner; (F) A so-called "booking or pace report" with respect to future rooms and banquet revenues; H-3-1 (G) Three-month cash flow forecasts, with an explanation of variances from both budget and previous projections set forth in the Final Approval Package; (H) Intentionally Deleted (I) An itemized list of costs paid or reimbursed, together with the source of payment, and an accounts payable listing; (K) A budget versus actual variance report for the Company, the Subsidiary Companies and gross revenues from the Properties for the then current month and cumulatively year-to-date, showing variances from the Approved Budgets. Any income statement or cash flow statement line item which indicates a variance of more than the greater of: (a) $10,000, or (b) five percent (5%) in any one budget line item or accounting category for the then current month or the cumulative year-to-date total must be explained in detail satisfactory to the Class A Member. (L) A calculation of all fees which are due and payable; (M) A status report on all pending acquisitions of any Proposed Property or any mortgage loan being sought by the Operating Member in such form as is reasonably specified by the Class A Member. (N) A status report of pending litigation and collective bargaining negotiations, if any; (O) a market segmentation analysis; and (P) a competitive market analysis from Smith Travel Research. H-3-2 EXHIBIT I COMPETING ACTIVITIES See attached I-1 Exhibit to Section 6.4.1 of LLC Agreement LIST OF HOTELS OWNED BY BOYKIN
# PROPERTY NAME - LOCATION ROOMS 1 Hampton Inn - Charlotte (Lake Norman), NC 117 2 Holiday Inn - Charlotte (Lake Norman), NC 119 3 Marriott Hotel - Buffalo, NY 356 4 Marriott Hotel - Cleveland (Airport), OH 375 5 Marriott Hotel - Columbus, OH 300 6 Marriott Hotel - Cleveland (Beachwood), OH 403 7 Quality Suites - Melbourne, FL 208 8 Radisson Hotel - Berkeley, CA 373 9 Radisson Hotel - Ft. Meyers, FL 157 10 Radisson Resort - Daytona, FL 206 11 Hilton Hotel - Melbourne, FL 118 12 Holiday Inn - Raleigh (Crabtree), NC 176 13 French Lick Springs Resort - French Lick, IN 485 14 Marriott Hotel - Hunt Valley, MD 392 15 Holiday Inn - Minneapolis, MN 196 16 Doubletree Hotel - Kansas City, MO 388 17 Hampton Inn - San Diego, CA 199 18 Radisson Hotel - Highpoint, NC 251 19 Hilton Hotel - Knoxville, TN 317 20 Pink Shell Resort - Ft. Meyers, FL 208 21 Doubletree Hotel - Bellevue, WA 208 22 Doubletree Hotel - Boise, ID 304 23 Doubletree Hotel - Colorado Springs, CO 299 24 Doubletree Hotel - Omaha, NE 413 25 Doubletree Hotel - Portland (Downtown), OR 235 26 Doubletree Hotel - Portland (Lloyd Ctr), OR 476 27 Doubletree Hotel - Sacramento, CA 448 28 Doubletree Hotel - Spokane, WA 237 29 Doubletree Hotel - Springfield, OR 234 30 Doubletree Hotel - Yakima Valley, WA 208 31 Radisson Hotel - Mt. Laurel, NJ 283
I-2 EXHIBIT J-1 INFORMATION IN PRELIMINARY AND FINAL APPROVAL PACKAGES Preliminary Package Information (i) a term sheet identifying and describing the Proposed Investment in general terms, including the ownership, location, occupancy status, number of units and overall condition thereof (or if raw land, the acreage and potential unit numbers, based on state and local land use laws) and containing such information with respect to the relevant market and the demographics thereof as the Class A Member may reasonably request; (ii) an outline of the contemplated acquisition and leasing strategy (I.E., the proposed deposit and closing schedule, leverage terms (as applicable), acquisition price, potential lessees and acquisition, development and permitting schedules and similar matters) and the development strategy (consistent with the Portfolio Business Plan) with respect to all Proposed Investments; (iii) a preliminary form of a budget ("Acquisition/ Redevelopment Budget") setting forth the estimated Acquisition/Redevelopment Costs and the timing and amount of all projected due diligence associated with all stages of the proposed acquisition and development including Operating Member's out of pocket travel costs, title review, appraisal costs, legal expenses, Phase I environmental work, engineering reports, an FF&E Survey and an ADA Survey; (iv) preliminary economic projections (current year and beyond) for the Proposed Investment; (v) a summary narrative description of the conformity of the Proposed Investment to the Portfolio Business Plan and the strategic objectives of the Company; and (vi) a summary memorandum describing all critical path items anticipated in connection with a Proposed Investment, including, without limitation, environmental reviews, approvals and orders of condition, if any, that will be required in connection with such Proposed Investment; all issues concerning zoning, governmental approvals, if any needed in connection with operation of the Proposed Investment, licensing, operational permits and the like. J-1-1 EXHIBIT J-2 FINAL PACKAGE INFORMATION As To Each Proposed Investment: (i) a site plan; (ii) floor plans (if an existing Property); (iii) property description including the following items: (1) Name and address of hotel (2) Year constructed and last renovated (3) Number of rooms and their square footage (4) Owner and current operator (5) Original developer, contractor and architect (6) Land area and parking (7) Typical room module (8) Number of singles, doubles, kings, suites and meeting rooms (9) Amenities (i.e., pool, tennis courts, lounges) (iv) market survey/comparables including the following items: (1) Aerial and property photographs and maps (2) Major employers (3) List of demand generators (4) List of competitors including: name, affiliation, number of rooms, quoted rates, and historic operations (where available and within immediate trade area) (5) Traffic counts on adjacent roads, if available (6) Demographics (site, neighborhood, city, SMSA) (7) Recent trends in hotel occupancies and rates (8) Proposed future competition (9) Proposed roadway changes (v) if applicable, any proposed amendment of the Restricted Area (vi) rent roll (if an existing Property); (vii) historical operating experience (when available) including the following items: J-2-1 (A) Occupancy year to date (B) Average daily rate year to date (C) Revpar year to date (D) Current operating statements (E) Operating statements year to date and prior operating statements (F) Current land value and replacement cost estimate (G) Real estate tax and utility verification (viii) lease and marketing strategy including detailed information on proposed lessees and Lease terms; (ix) financial projections (current year and for at least five (5) years beyond acquisition); (x) preliminary capital expenditure strategy (current year and for at least five (5) years beyond acquisition); (xi) a revised and updated Acquisition/Redevelopment Budget; (xii) any applicable refurbishment or improvement activities (if an existing Property); (xiii) a statement of asset replacement costs (if applicable); (xiv) existing loan documents (when and as available and applicable including summary of material terms); (xv) all other material agreements (E.G., easement agreements, PUD agreements, etc.), when and as available; (xvi) a property engineering inspection report, when appropriate; (xvii) a reasonably detailed report prepared by an environmental engineering firm describing any and all hazardous materials or buried materials located at the site of the Proposed Investment (including, without limitation, oil, mattresses, tires, asbestos and the like), and potential environmental issues and impacts that can be reasonably anticipated in connection with such Proposed Investment; (xviii) a list of exclusive use clauses and all other restrictions related to the Proposed Investment; (xix) if a leasehold, summary of the terms of the ground lease; J-2-2 (xx) a title insurance commitment for the Proposed Investment; (xxi) if raw land, an analysis of zoning and other land use requirements, and a schedule for obtaining necessary land use permits and approvals; (xxii) restaurant information, if applicable: (A) Name (B) Square footage and land area (C) Number of seats (D) Parking (E) Lease summary including: Base rent, percentage rent, operating history, term and credit As to All Properties: (xxiii) Financial projections of the Properties, including and excluding the Proposed Investment (current year and for at least five (5) years beyond acquisition) taking into account the Company's entire capital structure; and (xxiv) such other information as the Class A Member shall by notice have reasonably requested. Each item shall be (a) in form and substance and (b) where applicable, prepared by knowledgeable and reputable professionals, as is customary for such items in institutional real estate investment transactions. Unless otherwise requested by the Class A Member, the Operating Member shall provide the Class A Member with each item upon the Operating Member's receipt thereof. J-2-3 EXHIBIT K REPRESENTATIONS AND WARRANTIES 1. REPRESENTATIONS AND WARRANTIES OF THE CLASS A MEMBER. (a) The Class A Member is a limited partnership duly organized and validly existing under the laws of the State of Delaware, with full power and authority and legal right to be a Member of the Company and to carry on its business in the manner and in the locations in which such business has been and is now being conducted by it, to execute and deliver this Agreement and to perform its obligations hereunder. (b) No consent of any third party is required as a condition to the entering into of this Agreement by the Class A Member other than such consent as has been previously obtained. (c) The execution and delivery of this Agreement has been duly authorized and executed by the Class A Member and this Agreement constitutes the valid and binding obligation and agreement of the Class A Member, enforceable in accordance with its terms (subject to the effect of bankruptcy, insolvency or creditor's rights generally, and to limitations imposed by general principles of equity). (d) In addition, the general partner of the Class A Member is a limited partnership duly organized and validly existing under the laws of the State of Delaware, with full power and authority and legal right to carry on its business in the manner and in the locations in which such business has been and is now being conducted by it and to execute and deliver this Agreement as general partner of the Class A Member. (e) Neither the execution and delivery of this Agreement, nor compliance with the terms and provisions thereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Class A Member pursuant to the terms of, any indenture, mortgage, deed of trust, note, evidence of indebtedness, agreement or other instrument to which the Class A Member may be party or by which it or they or any of its properties or assets may be bound, or violate any provision of law, or any applicable order, writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency. (f) Except as in each instance previously disclosed to the Operating Member in writing, there are no judgments presently outstanding and unsatisfied against the Class A Member or any of its assets and neither the Class A Member nor any of its assets is involved in any litigation at law or in equity, or in any proceeding before any court, or by or before any governmental or administrative agency, which judgment, litigation or proceeding could reasonably be anticipated to have a material adverse effect on the Class A Member, the Company or the Properties, and no such material judgment, litigation or proceeding is, to the K-1 best of the Class A Member's knowledge, threatened against the Class A Member or any of its assets, and to the best of the Class A Member's knowledge, no investigation looking toward such a proceeding has begun or is contemplated. (g) No order, permission, consent, approval, license, authorization, registration or validation of, or filing with, or exemption by, any governmental agency, commission, board or public authority is required to authorize, or is required in connection with the execution, delivery and performance by the Class A Member of this Agreement or the taking of any action thereby contemplated, which has not been obtained, other than any such order, permission, consent, approval, license, authorization, registration or validation of, or filing with, or exemption by, any governmental agency, commission, board or public authority required in connection with the ownership or the development of the Properties or with the other operations of the Company. (h) To the best of the Class A Member's knowledge, all information, documents and materials provided by the Class A Member or any Related Party to the Operating Member, or the Operating Member's employees, agents or consultants, in connection with the formation of the Company are complete and accurate in all material respects. 2. REPRESENTATIONS AND WARRANTIES OF THE OPERATING MEMBER. (a) The Operating Member is a limited partnership duly organized and validly existing under the laws of the State of Ohio, with full power and authority and legal right to be a Member of the Company and to carry on its business in the manner and in the locations in which such business has been and is now being conducted by it, to execute and deliver this Agreement and to perform its obligations hereunder. (b) No consent of any third party is required as a condition to the entering into of this Agreement by the Operating Member other than such consent as has been previously obtained. (c) The execution and delivery of this Agreement has been duly authorized and executed by the Operating Member and this Agreement constitutes the valid and binding obligation and agreement of the Operating Member, enforceable in accordance with its terms (subject to the effect of bankruptcy, insolvency or creditor's rights generally, and to limitations imposed by general principals of equity). (d) Neither the execution and delivery of this Agreement, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Operating Member pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness, agreement or other instrument to which the Operating Member may be party or by which it or they or any of its properties or assets may be bound, or violate any provision of law, or any applicable order, K-2 writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency. (e) Except as in each instance previously disclosed to the Class A Member in writing, there are no judgments presently outstanding and unsatisfied against the Operating Member or any of its assets and neither the Operating Member nor any of its assets is involved in any litigation at law or in equity, or in any proceeding before any court, or by or before any governmental or administrative agency, which judgment, litigation or proceeding could reasonably be anticipated to have a material adverse effect on the Operating Member, the Company or the Properties and no such material judgment, litigation or proceeding is, to the best of the Operating Member's knowledge, threatened against the Operating Member or any of its facilities, and to the best of the Operating Member's knowledge, no investigation looking toward such a proceeding has begun or is contemplated. (f) No order, permission, consent, approval, license, authorization, registration or validation of, or filing with, or exemption by, any governmental agency, commission, board or public authority is required to authorize, or is required in connection with the execution, delivery and performance by the Operating Member of this Agreement or the taking of any action thereby contemplated, which has not been obtained, other than any such order, permission, consent, approval, license, authorization, registration or validation of, or filing with, or exemption by, any governmental agency, commission, board or public authority required in connection with the ownership or the development of the Properties or with the other operations of the Company. (g) To the best of the Operating Member's knowledge, all information, documents and materials provided by the Operating Member or any Related Party to the Class A Member, or the Class A Member's employees, agents or consultants, in connection with the formation of the Company are complete and accurate in all material respects. K-3 EXHIBIT L INTENTIONALLY OMITTED L-1 EXHIBIT M REFINANCING PARAMETERS 1. LOAN AMOUNT. Loan proceeds shall not exceed amount of debt being refinanced (including principal, accrued interest, penalties and fee). 2. INTEREST RATE. (a) If variable interest rate, loan shall be prepayable without penalty. (b) If fixed interest rate, loan shall be prepayable subject only to payment of yield maintenance premium in an amount not to exceed premiums then customarily required by institutional lenders. 3. TERM. If prepayment is subject to payment of yield maintenance premium, term of Loan shall be no longer than five years. 4. RECOURSE. Loan shall only be nonrecourse to the Company subject only to non-recourse carve-outs then customarily required by institutional lenders (e.g. filing of bankruptcy, misapplication of funds, fraud, waste, etc.). M-1 EXHIBIT N FORCED SALE NOTICE In connection with the undersigned Member's election, pursuant to Section 8.2 of the Agreement, to require the Company to sell a Target Asset, the Member hereby certifies that: (1) The Member approved the acquisition or construction of the Target Asset with the intent and expectation that the Company would hold the Target Asset for investment purposes, and not as stock in trade or for sale in the ordinary course of the Company's trade or business. (2) The Member is exercising its rights under Section 8.2 due to circumstances that were not in existence at the time [the Target Asset was first put into productive use by the Company]/[the Member gave such approval]. Member Name: By: Date: N-1 EXHIBIT O APPROVED TENANTS [*] 9. Other Lessees mutually agreed upon O-1 EX-10.16 3 EXHIBIT 10.16 - -------------------------------------------------------------------------------- STOCK PURCHASE OPTION AGREEMENT BY AND AMONG BOYKIN LODGING COMPANY, BOYKIN HOTEL PROPERTIES, L.P. AND AEW PARTNERS III, L.P. Dated as of February 1, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
PAGE ---- 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 20 OPTION TO PURCHASE PREFERRED STOCK IN EXCHANGE FOR JOINT VENTURE INTEREST. . .9 2.1 GRANT OF EXCHANGE OPTION . . . . . . . . . . . . . . . . . . . . . . . .9 2.2 VESTING OF EXCHANGE OPTION . . . . . . . . . . . . . . . . . . . . . . 10 2.3 DETERMINATION OF SHARES UNDERLYING EXCHANGE OPTION . . . . . . . . . . 10 2.4 RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK IN EXCHANGE OPTION . . . 10 2.5 PROCEDURE FOR EXERCISING THE EXCHANGE OPTION; CLOSING. . . . . . . . . 11 2.6 RIGHT OF FIRST OFFER AND BUY/SELL. . . . . . . . . . . . . . . . . . . 12 2.7 RIGHTS UPON A CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . 13 30 WARRANTS TO PURCHASE PREFERRED STOCK WITH UNINVESTED CAPITAL . . . . . . . . 14 3.1 ISSUANCE AND SALE OF INITIAL WARRANT . . . . . . . . . . . . . . . . . 14 3.2 EXPANSION CAPITAL WARRANT. . . . . . . . . . . . . . . . . . . . . . . 15 40 RIGHT TO SUBSTITUTE PREFERRED STOCK AS CURRENCY. . . . . . . . . . . . . . . 17 4.1 RIGHT OF PURCHASER TO REQUIRE PAYMENT IN PREFERRED STOCK . . . . . . . 17 4.2 RIGHT OF PURCHASER TO PURCHASE PREFERRED STOCK WITH THE RIGHT OF FIRST OFFER PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 20 4.3 RIGHT OF REIT TO MAKE PAYMENT IN PREFERRED STOCK OR REIT COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5. RIGHT TO RECEIVE PREFERRED STOCK IN CONNECTION WITH A PUT/SALE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.1 PUT/SALE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . 25 5.2 DETERMINATION OF NUMBER OF SHARES . . . . . . . . . . . . . . . . . . 25 5.3 RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK . . . . . . . . . . . . 26 5.4 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6. ADJUSTMENT TO OPTION EXERCISE PRICE, EXPANSION OPTION EXERCISE PRICE AND ADDITIONAL OPTION EXERCISE PRICE . . . . . . . . . . . . . . . . . . . . . . 27 6.1 ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (i) PAGE ---- 6.2 FURTHER ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.3 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. . . . . . 29 6.4 OTHER DILUTIVE EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . 30 6.5 WHEN ADJUSTMENTS SHALL BE MADE . . . . . . . . . . . . . . . . . . . . 30 6.6 WHEN ADJUSTMENT NOT REQUIRED . . . . . . . . . . . . . . . . . . . . . 30 6.7 WHEN ADJUSTMENTS CARRIED FORWARD . . . . . . . . . . . . . . . . . . . 31 6.8 NOTICE OF ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 31 7. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER AT A CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (ai REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 31 (bi PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (ci CLOSING CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . 32 (di OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . 32 (ei INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . 32 (fi LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . 32 (gi PROCEEDINGS AND DOCUMENTS. . . . . . . . . . . . . . . . . . . . 32 (hi REGISTRATION RIGHTS AGREEMENT. . . . . . . . . . . . . . . . . . 32 (ii MANAGEMENT RIGHTS LETTER . . . . . . . . . . . . . . . . . . . . 32 (ji TAX REPRESENTATION LETTER. . . . . . . . . . . . . . . . . . . . 33 (ki OWNERSHIP WAIVER LETTER. . . . . . . . . . . . . . . . . . . . . 33 (li RELATED MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 33 (mi NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. . . . . . . . . 33 (ni GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. . . . . . . 33 (ii) PAGE ---- (oi HSR ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (pi NEW YORK STOCK EXCHANGE LISTING. . . . . . . . . . . . . . . . . 34 (qi ADDITIONAL CERTIFICATES. . . . . . . . . . . . . . . . . . . . . 34 7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REIT AT THE CLOSING . . . . 34 (ai REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 34 (bi PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (ci CLOSING CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . 35 (di NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. . . . . . . . . 35 (ei GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. . . . . . . 35 (fi HSR ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 (gi PROCEEDINGS AND DOCUMENTS. . . . . . . . . . . . . . . . . . . . 35 7.3 INABILITY OF REIT TO SATISFY CONDITIONS PRECEDENT TO CLOSING . . . . . 35 8. REPRESENTATIONS AND WARRANTIES, COVENANTS, ETC. OF EACH OF THE REIT AND THE OPERATING PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . 36 8.1 ORGANIZATION AND QUALIFICATION; AUTHORITY. . . . . . . . . . . . . . . 36 8.2 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.3 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION . . . . . . 37 8.4 VALIDITY AND BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . 38 8.5 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.6 LITIGATION; DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.7 PUBLIC REPORTS; NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . 39 8.8 PRIVATE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.9 BROKER'S OR FINDER'S COMMISSIONS . . . . . . . . . . . . . . . . . . . 40 8.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY; U.S. ENTITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 (iii) PAGE ---- 8.11 ERISA REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.12 CREATION OF PREFERRED STOCK AND PREFERRED UNITS. . . . . . . . . . . . 41 8.13 OWNERSHIP LIMIT WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . 42 9. REPRESENTATIONS AND WARRANTIES, COVENANTS, ETC. OF THE PURCHASER . . . . . . 42 9.1 PURCHASE FOR INVESTMENT; SOURCE OF FUNDS . . . . . . . . . . . . . . . 42 9.2 VALIDITY AND BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . 42 9.3 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION . . . . . . 43 9.4 LITIGATION; DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . 43 10. ADDITIONAL COVENANTS OF THE REIT . . . . . . . . . . . . . . . . . . . . . . 43 10.1 DELIVERY OF INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 43 10.2 NO IMPAIRMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 10.3 RESERVATION OF SHARES OF PREFERRED STOCK AND REIT COMMON STOCK . . . . 44 10.4 COMPLIANCE WITH LAWS UPON ISSUANCE . . . . . . . . . . . . . . . . . . 45 10.5 HART-SCOTT-RODINO ACT COMPLIANCE . . . . . . . . . . . . . . . . . . . 45 10.6 PREFERRED STOCK OR REIT COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND NON-ASSESSABLE. . . . . . . . . . . . . . . . 45 10.7 TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 10.8 SHAREHOLDER RIGHTS PLAN. . . . . . . . . . . . . . . . . . . . . . . . 46 10.9 BUSINESS COMBINATION STATUTE, CONTROL SHARE STATUTE. . . . . . . . . . 46 10.10 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 46 11. RESTRICTIONS ON TRANSFER.. . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.1 RESTRICTIVE LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . 46 11.2 NOTICE OF TRANSFER; OPINIONS OF COUNSEL. . . . . . . . . . . . . . . . 47 11.3 NO RESTRICTIVE LEGENDS.. . . . . . . . . . . . . . . . . . . . . . . . 48 12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 12.1 INDEMNIFICATION; EXPENSES, ETC.. . . . . . . . . . . . . . . . . . . . 48 12.2 ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 12.3 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . 50 12.4 USE OF DEPOSITARY SHARES . . . . . . . . . . . . . . . . . . . . . . . 50 12.5 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 50 12.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY . . . . . . . 50 12.7 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 12.8 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.9 AMENDMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.10 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.11 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.12 DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.13 GENDER, NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.14 SATISFACTION REQUIREMENT . . . . . . . . . . . . . . . . . . . . . . . 52 12.15 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12.16 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 (iv) PAGE ---- 12.17 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 12.18 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . . . . . . . . 53
(v) (vi) EXHIBITS EXHIBIT A -- Form of Initial Warrant EXHIBIT B -- Form of Opinion of REIT Counsel EXHIBIT C -- Form of Registration Rights Agreement EXHIBIT D -- Form of Management Rights Letter EXHIBIT E -- Form of Tax Representation Letter EXHIBIT F -- Ownership Waiver Letter EXHIBIT G -- Certificate of Amendment to the Amended and Restated Articles of Incorporation relating to creation of Series A Cumulative Preferred Shares, Series 1999-A EXHIBIT H -- Amendment to Amended and Restated Agreement of Limited Partnership of Boykin Hotel Properties, L.P. SCHEDULES Boykin Disclosure Letter (vii) STOCK PURCHASE OPTION AGREEMENT STOCK PURCHASE OPTION AGREEMENT dated as of February 1, 1999 by and among Boykin Lodging Company, an Ohio corporation ( the "REIT"), Boykin Hotel Properties, L.P., an Ohio limited partnership (the "Operating Partnership"), and AEW Partners III, L.P., a Delaware limited partnership (the "Purchaser"). Unless otherwise defined, capitalized terms used in this Agreement are defined in Section 1; references to an "Exhibit" are, unless otherwise specified, to an Exhibit attached to this Agreement; references to a "Section" are, unless otherwise specified, to a section of this Agreement. WHEREAS, the Operating Partnership and the Purchaser have formed, and are the sole members of, Boykin/AEW LLC, a Delaware limited liability company (the "Joint Venture"); WHEREAS, concurrently herewith, the Operating Partnership and the Purchaser have entered into that certain Limited Liability Company Agreement of the Joint Venture (the "Joint Venture Agreement") for the purpose of setting forth their respective rights, obligations and duties regarding the Joint Venture; WHEREAS, the REIT's general partnership interest in the Operating Partnership constitutes substantially all of the REIT's assets and the REIT conducts substantially all of its business through the Operating Partnership; WHEREAS, the REIT desires to provide the Purchaser with certain options to purchase Capital Stock in the REIT and with the right to receive Capital Stock in the REIT in lieu of cash owed to it by the Operating Partnership pursuant to certain rights set forth in the Joint Venture Agreement; and WHEREAS, the Purchaser desires to grant the REIT and the Operating Partnership the right to substitute Capital Stock in the REIT for cash owed to the Purchaser by the Operating Partnership in certain circumstances. In consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the REIT, the Operating Partnership and the Purchaser hereby agree with each other as follows: 1. DEFINITIONS In addition to any terms defined elsewhere herein, as used in this Agreement, the following terms have the respective meanings set forth below: "Accountants" shall have the meaning ascribed thereto in the Joint Venture Agreement. "Additional Capital" means the aggregate amount (expressed in dollars) of all Contributions by the Purchaser to the Joint Venture of Preservation Capital and all Contributions by the Purchaser to the Joint Venture effected pursuant to Section 3.7(b) of the Joint Venture Agreement which exceed the sum of (i) $50,000,000 and, (ii) if the Operating Partnership has approved an increase in the Capital Contribution Cap under Section 3.7(a) of the Joint Venture Agreement, an amount equal to the Expansion Capital. "Additional Option Exercise Price" means the number (expressed in dollars per share) equal to the quotient determined by dividing (a) Additional Capital, by (b) the sum of the quotients determined by dividing (i) the amount of each Contribution of Additional Capital that has occurred by (ii) the amount (expressed in dollars per share) equal to 120% of the average last sale price per share of the REIT Common Stock on the NYSE over the thirty (30) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that such portion of Additional Capital was contributed to the Joint Venture. The Additional Option Exercise Price shall be subject to adjustment from time to time as provided in Section 6 hereof. In the event that the REIT Common Stock is no longer trading on the NYSE then the Additional Option Exercise Price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under common control with such first Person or any of its Subsidiaries, PROVIDED that, for purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by agreement or otherwise. "Aggregate Trading Value" has the meaning ascribed thereto in Section 6.2 hereof. "Agreement" means this Agreement, as amended, modified or supplemented from time to time, together with any exhibits, schedules, appendices or other attachments thereto. "Approvals" has the meaning ascribed thereto in Section 7.1(m) hereof. "Articles of Incorporation" means the Amended and Restated Articles of Incorporation of the REIT, as amended to date and presently in effect. "Buy/Sell" means the right set forth in Section 8.4 of the Joint Venture Agreement. "Capital Contribution Cap" has the meaning ascribed thereto in the Joint Venture Agreement. "Capital Proceeds" has the meaning ascribed thereto in the Joint Venture Agreement. 2 "Capital Stock" means, with respect to any Person, any and all shares, interests, participation rights in or other equivalents (however designated) of such Person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Cash Flow" shall have the meaning ascribed thereto in the Joint Venture Agreement. "Certificate of Amendment" means the Certificate of Amendment of the REIT's Articles of Incorporation relating to the creation of the Preferred Stock attached as EXHIBIT G hereto and filed with the Ohio Secretary of State on February 1, 1999. "Change in Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the REIT): (i) if any "person" or "group" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner," directly or indirectly, of more than 50% of the total voting power of the Capital Stock of the REIT (treating as "beneficially owned" all shares of Capital Stock of the REIT that such "person" or "group" may receive upon exchange of units of limited partnership interest in the Operating Partnership held by such "person" or "group"); (ii) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the REIT in one transaction or a series of transactions to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group of related persons for purposes of Section 13(d) of the Exchange Act (a "Group of Persons"); (iii) the REIT consolidates with or merges with or into another Person or any Person consolidates with, or merges with or into, the REIT (in each case, whether or not in compliance with the terms of this Agreement), in any such event pursuant to a transaction in which immediately after the consummation thereof the stockholders of the REIT immediately prior to the consummation of the transaction shall cease to have the power, directly or indirectly (including by way of a general partnership interest), to vote or direct the voting of securities having in the aggregate at least a majority of the ordinary voting power for the election of the directors of the REIT or its successor; or (iv) the adoption of any plan of liquidation or dissolution of the REIT. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of the Operating Partnership (or any other Subsidiary of the REIT, the REIT's interest in which constitutes all or substantially all of the assets of the REIT), shall be deemed to be the transfer of all or substantially all of the assets of the REIT. "Charter Documents" means, with respect to any Person, the certificates or articles of incorporation, by-laws, code of regulations, or other equivalent organizational documents, each as amended and/or restated to date and presently in effect for such Person. "Closing" shall have the meaning ascribed thereto in Section 7.1 hereof. "Commission" means the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Contributions" has the meaning ascribed thereto in the Joint Venture Agreement. 3 "Conversion Multiple" has the meaning ascribed thereto in the Certificate of Amendment, subject to adjustment as provided from time to time following the date hereof, as provided therein. "Depositary Agreement" means the Depositary Agreement dated February 1, 1999 between the REIT and National City Bank. "Depositary Share" means a fractional interest of one one-hundredth (1/100) of one share of Preferred Stock, as more fully described, and having the rights and privileges and being subject to the limitations set forth, in the Depositary Agreement. "Disclosure Letter" has the meaning ascribed thereto in Section 8 hereof. "ERISA" means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, as amended from time to time. "Exchange Act," means the Securities Exchange Act of 1934, and the rules and regulations of the Commission promulgated thereunder, as from time to time amended. "Exchange Option" has the meaning ascribed thereto in Section 2.1 hereof. "Expansion Capital" means the amount (expressed in dollars) equal to the Purchaser's share of any increase in the Capital Contribution Cap that has been approved by the Operating Partnership under Section 3.7(a) of the Joint Venture Agreement. "Expansion Capital Warrant" has the meaning ascribed thereto in Section 3.2(a) hereof. "Expansion Option Exercise Price" means the dollar amount equal to 120% of the average last sale price per share of the REIT Common Stock on the NYSE over the thirty (30) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that the Operating Partnership approved an increase in the Capital Contribution Cap pursuant to Section 3.7(a) of the Joint Venture Agreement, such price being subject to adjustment from time to time as provided in Section 6 hereof. In the event that the REIT Common Stock is no longer trading on the NYSE then the Expansion Option Exercise Price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. "Expansion Warrant Amount" has the meaning ascribed thereto in Section 3.2(c) hereof. "Expansion Warrant Exercise Price" has the meaning ascribed thereto in Section 3.2(c) hereof. 4 "General Partner's Certificate" means a certificate executed on behalf of the Operating Partnership or the Purchaser by their respective general partners. "Governmental Authority" means any governmental or quasi-governmental authority including, without limitation, any federal, state, territorial, county, municipal or other governmental or quasi-governmental agency, board, branch, bureau, commission, court, department or other instrumentality or political unit or subdivision, whether domestic or foreign. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as the same may be amended from time to time. "HSR Act Filing Request" has the meaning ascribed thereto in Section 10.5 hereof. "Illegal Transfer Notice" has the meaning ascribed thereto in Section 11.2 hereof. "Indemnified Party" means either a REIT Indemnified Party or a Purchaser Indemnified Party, as the context requires. "Indemnifying Party" has the meaning ascribed thereto in Section 12.1(c) hereof. "Initial Warrant" has the meaning ascribed thereto in Section 3.1 hereof. "Investment Period" has the meaning ascribed thereto in Section 10.2 of the Joint Venture Agreement. "Joint Venture" has the meaning ascribed thereto in the introduction hereof. "Joint Venture Agreement" has the meaning ascribed thereto in the introduction hereof. "License" or Licenses" has the meaning ascribed thereto in Section 8.2 hereof. "Lien" means any mortgage, lien (statutory or otherwise), charge, pledge, hypothecation, conditional sales agreement, adverse claim, title retention agreement or other security interest, encumbrance or other title defect in or on any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale, trust receipt or other title retention agreement with respect to any Property or asset of such Person. "Losses" has the meaning ascribed thereto in Section 12.1(a) hereof. "Management Rights Letter" mean the Management Rights Letter by and between the Purchaser and the REIT. "Material Adverse Effect" has the meaning ascribed thereto in Section 8.1(a) hereof. 5 "NYSE" means the New York Stock Exchange, Inc. "Officer's Certificate" means a certificate executed on behalf of the REIT by the President or Chief Executive Officer of the REIT. "Operating Partnership" has the meaning ascribed thereto in the introduction hereof and shall include the Operating Partnership's successors by merger, acquisition, reorganization or otherwise, subject to Section 12.2 hereof. "Option Exercise Price" means initially $16.48, subject to adjustment from time to time as provided in Section 6 hereof. "Partnership Documents" means partnership, limited partnership, limited liability company and operating agreements with respect to a Person, each as amended and restated to date and presently in effect, and certificates required to be filed in such Person's state of organization or formation. "Partnership Interests" means, with respect to any Person, any and all shares, units, interests, participation rights in or other equivalents of such person's interest in the Operating Partnership or any of the Operating Partnership's or the REIT's subsidiary partnerships, limited partnerships or limited liability companies. "Person" means any individual, corporation, limited or general partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Plan Assets Regulation" has the meaning ascribed thereto in Section 8.11 hereof. "Preferred Stock" means the Class A Cumulative Preferred Stock, Series 1999-A, without par value, of the REIT, the terms of which are set forth in the Certificate of Amendment. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchaser" has the meaning ascribed thereto in the introduction hereof and shall include the Purchaser's successors by assignment, transfer, merger, acquisition, reorganization or otherwise, subject to Section 12.2 hereof. "Purchaser's Counsel" means Goodwin, Procter & Hoar LLP or such other nationally-recognized counsel as may be selected by Purchaser in its discretion. "Purchaser Indemnified Party" or "Purchaser Indemnified Parties" has the meaning ascribed thereto in Section 12.1(a) hereof. 6 "Put/Sale Distribution" means any distribution of Capital Proceeds to the Purchaser from the Joint Venture arising out of the disposition of an asset pursuant to Section 6.4.4 of the Joint Venture Agreement. "Registration Rights Agreement" means the registration rights agreement by and between the REIT and the Purchaser in substantially the form attached as EXHIBIT C, as amended or supplemented from time to time in accordance with the terms thereof. "REIT" has the meaning ascribed thereto in the introduction hereof and shall include the REIT's successors by merger, acquisition, reorganization or otherwise, subject to Section 12.2 hereof. "REIT Common Stock" means the common stock, no par value, of the REIT. "REIT Counsel" means Baker and Hostetler LLP, or such other nationally-recognized counsel as may be selected by the REIT in its discretion. "REIT Indemnified Party" has the meaning ascribed thereto in Section 12.1(b) hereof. "Related Party" has the meaning ascribed thereto in the Joint Venture Agreement. "Restricted Security" has the meaning ascribed thereto in Section 11.2 hereof. "Return of Capital" means the amount, if any, by which (i) all distributions to the Purchaser by the Joint Venture of Capital Proceeds pursuant to Section 5.3 of the Joint Venture Agreement (other than Put/Sale Distributions), EXCEEDS (ii) the aggregate amount of all distributions of Cash Flow and Capital Proceeds (other than Put/Sale Distributions) necessary to provide the Purchaser with a cumulative annual return on (as opposed to "of") its aggregate Contributions of fifteen percent (15.0%) (determined as if compounded monthly); PROVIDED, HOWEVER, that in no event will the Purchaser be deemed to have received Return of Capital with respect to distributions of Capital Proceeds arising with respect to any particular Property greater than the Contribution made by the Purchaser with respect to such Property; PROVIDED FURTHER that in no event may Return of Capital be less than zero. "Return of Expansion Capital" means the amount, if any, by which (i) all distributions to the Purchaser by the Joint Venture of Capital Proceeds pursuant to Section 5.3 of the Joint Venture Agreement (other than Put/Sale Distributions) after such time as the Purchaser's Unrecouped Capital shall equal zero, EXCEEDS (ii) the aggregate amount of all distributions of Cash Flow and Capital Proceeds (other than Put/Sale Distributions) necessary to provide the Purchaser with a cumulative annual return on (as opposed to "of") its aggregate Contributions of fifteen percent (15.0%) (determined as if compounded monthly); PROVIDED, HOWEVER, that in no event will the Purchaser be deemed to have received Return of Expansion Capital with respect to distributions of Capital Proceeds arising with respect to any particular Property greater than the Contribution made by the Purchaser with respect to such Property; PROVIDED FURTHER that in no event may Return of Expansion Capital be less than zero. 7 "Return of Additional Capital" means the amount, if any, by which (i) all distributions to the Purchaser by the Joint Venture of Capital Proceeds pursuant to Section 5.3 of the Joint Venture Agreement (other than Put/Sale Distributions) after such time as both Unrecouped Capital and Unrecouped Expansion Capital shall equal zero, EXCEEDS (ii) the aggregate amount of all distributions of Cash Flow and Capital Proceeds (other than Put/Sale Distributions) necessary to provide the Purchaser with a cumulative annual return on (as opposed to "of") its aggregate Contributions of fifteen percent (15.0%) (determined as if compounded monthly); PROVIDED, HOWEVER, that in no event will the Purchaser be deemed to have received Return of Additional Capital with respect to distributions of Capital Proceeds arising with respect to any particular Property greater than the Contribution made by the Purchaser with respect to such Property; PROVIDED FURTHER that in no event may Return of Additional Capital be less than zero. "Right of First Offer" means the right set forth in Section 8.2 of the Joint Venture Agreement. "Right of First Offer Proceeds" means the amount of Capital Proceeds distributed to the Purchaser from the Joint Venture arising out of the consummation of a Right of First Offer in which the Target Asset consisted of all or substantially all of the properties then owned by the Joint Venture. "Rule 144" means Rule 144 as promulgated by the Commission under the Securities Act, and any successor rule or regulation thereto. "Rule 144A" means Rule 144A as promulgated by the Commission under the Securities Act, and any successor rule or regulation thereto. "SEC Filings" means official filings of the REIT filed with the Commission in accordance with the Securities Act and the Exchange Act with respect to events occurring, or periods ending on or after December 31, 1997. "Securities Act" means the Securities Act of 1933, and the rules and regulations of the Commission promulgated thereunder, as from time to time amended. "Senior Preferred Stock" has the meaning ascribed thereto in Section 8.12 hereof. "Subsidiary" and "Subsidiaries" means subsidiary corporations, partnerships, limited partnerships, joint ventures and limited liability companies which are directly or indirectly and wholly or majority owned by the REIT, including, unless the context requires otherwise, the Operating Partnership. "Target Asset" has the meaning ascribed thereto in the Joint Venture Agreement. "Transaction Documents" means, collectively, this Agreement, the Registration Rights Agreement, the Management Rights Letter, the Certificate of Amendment, the Depositary Agreement, the Tax Representation Letter, the Initial Warrant, the Expansion Capital Warrant, 8 the Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership attached as EXHIBIT H and any and all agreements, certificates, instruments and other documents contemplated hereby, thereby or executed and delivered in connection herewith or therewith. "Unrecouped Capital" means the aggregate amount of all Contributions made by the Purchaser to the Joint Venture LESS (i) any Expansion Capital that has been contributed, LESS (ii) any Additional Capital, LESS (iii) any Return of Capital, and LESS (iv) the amount of any Put/Sale Distribution arising out of the disposition of a Property originally purchased with Contributions other than Expansion Capital or Additional Capital; PROVIDED, HOWEVER, that in no event may Unrecouped Capital be less than zero. "Unrecouped Expansion Capital" means the aggregate amount of all Contributions made by the Purchaser to the Joint Venture LESS (i) $50,000,000, LESS (ii) any Additional Capital, LESS (iii) any Return of Expansion Capital, and LESS (iv) the amount of any Put/Sale Distribution arising out of the disposition of a Property originally purchased with Contributions of Expansion Capital; PROVIDED, HOWEVER, that in no event may Unrecouped Expansion Capital be less than zero. "Unrecouped Additional Capital" means the aggregate amount of all Additional Capital contributed by the Purchaser to the Joint Venture LESS (i) any Return of Additional Capital and LESS (ii) the amount of any Put/Sale Distribution arising out of the disposition of a Property originally purchased with Contributions of Additional Capital; PROVIDED, HOWEVER, that in no event may Unrecouped Additional Capital be less than zero. The definitions set forth above, including but not limited to "Unrecouped Capital," "Return of Capital," "Unrecouped Expansion Capital," "Return of Expansion Capital, "Unrecouped Additional Capital," and "Return of Additional Capital" are intended to grant certain rights relating to shares of Capital Stock in the REIT under the circumstances described in this Agreement and are not to be applied in any manner to (i) impact the book or tax capital account balances of the Operating Partnership or the Purchaser in the Joint Venture, or (ii) impact the distributions upon liquidation of the Joint Venture, which the parties agree shall be PARI PASSU in accordance with their positive capital account balances. 20 OPTION TO PURCHASE PREFERRED STOCK IN EXCHANGE FOR JOINT VENTURE INTEREST 2.1 GRANT OF EXCHANGE OPTION. The REIT, in consideration of Ten Dollars ($10.00) paid to it by the Purchaser and other good and valuable consideration, hereby grants to the Purchaser the option to purchase, subject to the provisions of this Agreement, that number of fully paid and nonassessable shares of Preferred Stock determined in accordance with Section 2.3 below in exchange for the entire amount of the limited liability company interests in the Joint Venture then held by the Purchaser (this option being hereinafter referred to as the "Exchange Option"). 9 2.2 VESTING OF EXCHANGE OPTION. Subject to Section 2.6(b) below, the Exchange Option may be exercised by the Purchaser: (a) at any time on or after the later to occur of either (i) the expiration or termination of the Investment Period, or (ii) the first anniversary of the date hereof; (b) following the initiation by the Operating Partnership of the Right of First Offer if the Target Asset offered thereby consists of 75% or more of the properties then owned by the Joint Venture (determined by number of properties) or the initiation by the Operating Partnership of the Buy/Sell; or (c) immediately preceding the consummation or occurrence of a Change in Control of the REIT. 2.3 DETERMINATION OF SHARES UNDERLYING EXCHANGE OPTION. Upon exercise of the Exchange Option, the Purchaser shall be entitled to receive that number of shares of Preferred Stock determined by DIVIDING (a) the sum of (x) the quotient obtained by dividing (i) Unrecouped Capital, by (ii) the Option Exercise Price AND (y) if the Operating Partnership has approved an increase in the Capital Contribution Cap under Section 3.7(a) of the Joint Venture Agreement, the quotient obtained by dividing (i) Unrecouped Expansion Capital, by (ii) the Expansion Option Exercise Price AND (z) if any Additional Capital has been contributed, the quotient obtained by dividing (i) Unrecouped Additional Capital, by (ii) the Additional Option Exercise Price, BY (b) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest one one-hundredth (1/100) of a share. 2.4 RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK IN EXCHANGE OPTION. In lieu of delivering shares of Preferred Stock upon exercise of the Exchange Option, the REIT may elect, at its sole option, to satisfy its obligations under the Exchange Option by delivering to the Purchaser either: (a) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 2.3 above to which the Purchaser would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (b) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Purchaser beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 2.4(a) above exceeds the number of shares of REIT Common Stock determined by clause (x) above BY (B) 10 the Conversion Multiple and, if necessary, rounding the resulting number of shares to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Agreement to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 2.4 if such election would cause the REIT to be unable to satisfy the conditions set forth in Section 7.1 hereof in a timely manner. 2.5 PROCEDURE FOR EXERCISING THE EXCHANGE OPTION; CLOSING. (a) In order to exercise the Exchange Option, the Purchaser shall deliver to the REIT a written notice of exercise, duly executed by the Purchaser, which notice shall (i) indicate that the Purchaser is exercising the Exchange Option and (ii) specify the number of shares of Preferred Stock to be issued pursuant to such exercise. Within ten (10) business days of receiving such notice of election, the REIT shall notify the Purchaser if it disagrees with the Purchaser's determination of the number of shares of Preferred Stock to be issued pursuant to the exercise of the Exchange Option and/or if it is electing to deliver any shares of REIT Common Stock in lieu of Preferred Stock, in which case, the REIT's notice shall specify the number of shares of REIT Common Stock and/or Preferred Stock to be issued pursuant to this Section. In the event that the parties disagree as to the correct number of shares of Preferred Stock and/or REIT Common Stock, as applicable, to be delivered pursuant to this Section 2, the parties agree to cooperate in good faith and use their respective best efforts to resolve the correct determination under Section 2.3 or Section 2.4 hereof, as applicable, as promptly as possible. If the parties cannot reach agreement by the sixteenth (16th) business day following the REIT's receipt of the notice of exercise, the determination will be referred to the Accountants (or such other Person unaffiliated with either party as the parties mutually agree) and the parties agree to be bound by such Person's determination. (b) Subject to the satisfaction of the conditions set forth in Section 7 hereof, the exercise of the Exchange Option shall be consummated at a Closing to be held at the offices of Purchaser's Counsel, or at such other place as may be mutually acceptable to the parties, on the later of the tenth (10th) business day following the REIT's receipt of the notice of exercise or the earliest date upon which all of the applicable conditions to Closing set forth in Section 7 hereof have been satisfied but in no event later than the sixtieth (60th) day following the REIT's receipt of the notice of exercise. At the Closing, the REIT will execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be sold and purchased in accordance with Section 2.3 or Section 2.4, as applicable, against delivery of the entire amount of limited liability company interests in the Joint Venture then held by the Purchaser. The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice of exercise and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice of exercise. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Purchaser (or any other Person designated as the registered holder) shall be 11 deemed to have become a holder of record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the Closing. The issuance of certificates for shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with such exercise and the related issuance of the shares of Preferred Stock and/or REIT Common Stock, as applicable. Unless otherwise provided in this Agreement, all other costs incurred in connection with the consummation of the exercise of the Exchange Option shall be borne by the party that actually incurred such costs. (c) In addition to the satisfaction of the conditions to Closing set forth in Section 7 hereof, the Operating Partnership, in its capacity as a member of the Joint Venture, agrees to (i) deliver to the Purchaser at or prior to the Closing contemplated in Section 2.5(b) above its consent, in writing, to the transfer of the Purchaser's limited liability company interests to the REIT pursuant to the exercise of the Exchange Option in accordance with Section 8.1 of the Joint Venture Agreement and to take all further action necessary to effectuate the transfer and the Purchaser's simultaneous withdrawal from the Joint Venture, and (ii) obtain for the benefit of the Purchaser releases from any and all monetary or other guaranties (including, without limitation, hazardous substances indemnities and the like) given by the Purchaser to third party lenders; PROVIDED, HOWEVER, that, if following the exercise of commercially reasonable efforts the Operating Partnership is unable to obtain releases from all such guaranties, then the Operating Partnership shall provide to the Purchaser indemnities reasonably satisfactory to the Purchaser to address the contingent liability contained in such unreleased guaranties. 2.6 RIGHT OF FIRST OFFER AND BUY/SELL. (a) In the event that the Purchaser has exercised the Exchange Option and, prior to such exercise, either member of the Joint Venture has duly initiated (i) the Right of First Offer (unless the non-initiating member has declined to purchase the Target Asset so offered, in which event Section 2.6(b) below shall apply), or (ii) the Buy/Sell, then such Right of First Offer or Buy/Sell, as applicable, shall be deemed terminated immediately upon the REIT's receipt of the Purchaser's notice of exercise relating to the Exchange Option and the parties shall take no further actions in connection with the procedures under the Joint Venture Agreement for effectuating such Right of First Offer or Buy/Sell, as applicable. The parties further agree not to initiate the Right of First Offer or the Buy/Sell subsequent to the Purchaser's exercise of the Exchange Option. (b) In the event that the Purchaser has exercised the Exchange Option and, prior to such exercise, either member of the Joint Venture has initiated the Right of First Offer and the non-initiating party has declined to purchase the Target Asset so offered, then the initiating party may continue its efforts to sell such Target Asset on the offered terms; PROVIDED, HOWEVER, that the parties shall prevent the Joint Venture from distributing any Capital Proceeds arising with respect to the sale of such Target Asset until the Purchaser's exercise of the Exchange Option has been consummated. Notwithstanding the foregoing, if (i) 12 the Purchaser is the initiating party under the Right of First Offer, (ii) the Target Asset consists of 75% or more of the properties then owned by the Joint Venture (determined by number of properties), and (iii) the Joint Venture has entered into a contract with a third party for the sale of such Target Asset, then the Purchaser may not exercise the Exchange Option until the earlier of the termination of the contract relating to the sale of the Target Asset or the consummation of the sale thereunder and the distribution of the Capital Proceeds therefrom. 2.7 RIGHTS UPON A CHANGE IN CONTROL. If, prior to the expiration or termination of the Investment Period, the REIT enters into an agreement that contemplates a Change in Control of the REIT or a Change in Control of the REIT otherwise occurs, then the Purchaser shall have the right to purchase up to that number of fully paid and nonassessable shares of Preferred Stock determined below for cash prior to the consummation or occurrence of such Change in Control. This right shall be in addition to, and not in limitation of, or otherwise dependent on, any other rights of the Purchaser under this Agreement. The Purchaser shall have the right to purchase up to that number of shares of Preferred Stock equal to the sum of (a) the quotient obtained by DIVIDING (i) the amount, if any, by which $30,000,000 exceeds the aggregate amount of all Contributions made by the Purchaser to the Joint Venture, BY (ii) the product of the Option Exercise Price multiplied by the Conversion Multiple, and (b) if the Operating Partnership has approved an increase in the Capital Contribution Cap under Section 3.7(a) of the Joint Venture Agreement, the quotient obtained by DIVIDING (i) the amount, if any, by which sixty percent (60%) of the Expansion Capital exceeds the aggregate amount of all Contributions of Expansion Capital made by the Purchaser to the Joint Venture, BY (ii) the product of the Expansion Option Exercise Price multiplied by the Conversion Multiple and, if necessary, rounding the resulting number of shares to the next highest one one-hundredth (1/100) of a share. The per share exercise price payable by the Purchaser in order to exercise this right shall be (x) with respect to the purchase of shares determined pursuant to clause (a) above, the Option Exercise Price multiplied by the Conversion Multiple and (y) with respect to the purchase of shares determined pursuant to clause (b) above, the Expansion Option Exercise Price multiplied by the Conversion Multiple. In connection with the right to purchase shares of Preferred Stock under this Section 2.7, the REIT shall have the same rights with respect to the delivering of REIT Common Stock or a combination of REIT Common Stock and Preferred Stock as set forth in Section 2.4. The REIT shall deliver to the Purchaser a notice of a proposed Change in Control promptly after the execution of a definitive agreement with respect to such Change in Control, or if there is no such definitive agreement, promptly after approval by the REIT's Board of Directors or other similar official corporate action but in no event less than ten (10) business days prior to the consummation or occurrence of such Change in Control. The Purchaser shall deliver notice of its intent to exercise this right within ten (10) business days following the receipt of such notice from the REIT. Any notice of the Purchaser's intent to exercise this right shall be deemed null and void AB INITIO in the event that the contemplated Change in Control is not consummated or does not otherwise occur or the final terms of such Change in Control materially differ from those set forth in the REIT's notice to the Purchaser. In the event that the terms of such Change in Control are materially amended or altered prior to the 13 consummation or occurrence thereof, the REIT shall provide notice to the Purchaser promptly following such amendment or alteration and the Purchaser may elect, within five (5) business days, to rescind its notice of election or to exercise its rights under this Section with respect to the Change in Control as so amended or altered. The procedures for consummating an exercise of this right shall otherwise be substantially similar to the procedures set forth in Sections 2.5 with respect to an exercise of the Exchange Option. Notwithstanding anything in this Agreement to the contrary, the Purchaser's ability to exercise this right shall terminate immediately following the consummation or occurrence of a Change in Control. 30 WARRANTS TO PURCHASE PREFERRED STOCK WITH UNINVESTED CAPITAL 3.1 ISSUANCE AND SALE OF INITIAL WARRANT. (a) The REIT has authorized the issuance and sale of a warrant to purchase 12,136 shares of Preferred Stock, subject to adjustment in accordance with the terms of such warrant (the "Initial Warrant"). The Initial Warrant shall be in the form attached hereto as EXHIBIT A. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties contained herein, the REIT agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the REIT, the Initial Warrant as of the date hereof for a purchase price of $500,000 payable in cash by wire transfer of immediately available funds. (b) Subject to the satisfaction of the conditions set forth in Section 7 hereof, the consummation of the purchase and sale of the Initial Warrant shall take place at the offices of Purchaser's Counsel concurrently with the execution of this Agreement. At such Closing, the REIT shall execute, or cause to be executed, and deliver, or cause to be delivered, to the Purchaser the Initial Warrant, dated as of the date hereof and registered in the Purchaser's name, against payment of the purchase price therefor. The Initial Warrant shall be deemed to be issued, and the Purchaser shall be deemed to have become a holder of record of such Initial Warrant for all purposes, as of the Closing contemplated in this Section 3.1(b). The issuance of the Initial Warrant shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with the issuance thereof. Unless otherwise provided in this Agreement, all other costs incurred in connection with the issuance and sale of the Initial Warrant shall be borne by the party that actually incurred such costs. (c) In addition to any other conditions to issuing Capital Stock of the REIT pursuant to an exercise of the Initial Warrant, the conditions set forth in Section 7.1 hereof shall be required to be satisfied prior to such issuance of Capital Stock so long as the Initial Warrant is held by, and exercised by, the Purchaser under this Agreement; it being understood that the provisions of this Agreement shall not apply to any exercise of the Initial Warrant by any transferee of all or a portion of the Initial Warrant unless such transferee is a permitted transferee of, and has succeeded to, the Purchaser's rights and obligations under this Agreement in accordance with Section 12.2 hereof. 14 3.2 EXPANSION CAPITAL WARRANT. (a) Subject to Section 3.2(b), the REIT has authorized the issuance and sale of a warrant to purchase an aggregate number of shares of Preferred Stock determined in accordance with Section 3.2(c) (the "Expansion Capital Warrant"). The Expansion Capital Warrant shall be substantially in the form attached hereto as EXHIBIT A, with such changes as are necessary to effectuate this Section 3.2 or as may agreed upon by the parties. Subject to Section 3.2(b) and the other terms and conditions of this Agreement and in reliance upon the representations and warranties contained herein, the REIT agrees to issue and sell to the Purchaser, and the Purchaser has the right to purchase from the REIT, the Expansion Capital Warrant at the closing date set forth in Section 3.2(e) for a purchase price payable in cash by wire transfer of immediately available funds. (b) Notwithstanding anything in this Agreement to the contrary, the REIT shall have no obligation to issue or sell, and the Purchaser shall have no right to purchase, the Expansion Capital Warrant until such time, if ever, as the Operating Partnership has approved a proposed increase in the Capital Contribution Cap pursuant to Section 3.7(a) of the Joint Venture Agreement. (c) The Expansion Capital Warrant will be exercisable at the Purchaser's option for that number of shares of Preferred Stock determined by DIVIDING (a) an amount (expressed in dollars) equal to forty percent (40%) of the Expansion Capital (the "Expansion Warrant Amount"), BY (b) the Expansion Option Exercise Price multiplied by the Conversion Multiple (the "Expansion Warrant Exercise Price"), and, if necessary, rounding the quotient to the next highest one one-hundredth (1/100) of a share. The per share exercise price payable by the Purchaser upon any exercise of the Expansion Capital Warrant shall be equal to the Expansion Warrant Exercise Price, subject to adjustment as provided in the Warrant. (d) The parties agree further that the Expansion Capital Warrant will provide for an adjustment to the number of shares of Preferred Stock underlying the Expansion Capital Warrant following Contributions of Expansion Capital prior to the expiration of the Investment Period, substantially similar to the adjustment provisions contained in Section 7.1 of the Initial Warrant. Following such adjustment, the maximum number of shares of Preferred Stock issuable pursuant to the Expansion Capital Warrant shall be determined by MULTIPLYING (a) the quotient obtained by dividing the Expansion Warrant Amount by the Expansion Warrant Exercise Price, BY (b) a fraction, (i) the numerator of which is the Expansion Warrant Amount less the amount, if any, by which all Contributions made by the Purchaser to the Joint Venture pursuant to Expansion Capital exceeds sixty percent (60%) of the Expansion Capital, and (ii) the denominator of which is the Expansion Warrant Amount. In addition, the Expansion Capital Warrant shall provide that the REIT shall pay to the Purchaser an adjustment rebate, similar to that provided for in Section 7.3 of the Initial Warrant, if, prior to the expiration of the Investment Period, the amount of all Contributions made by the Purchaser to the Joint Venture pursuant to Expansion Capital exceeds sixty percent (60%) of the Expansion Capital. 15 (e) Subject to the satisfaction of the conditions set forth in Section 7 hereof, the consummation of the purchase and sale of the Expansion Capital Warrant shall take place at the offices of Purchaser's Counsel on a date mutually agreed upon by the parties, but in no event later than the tenth (10th) business day following the Operating Partnership's approval of an increase in the Capital Contribution Cap in accordance with Section 3.7(a) of the Joint Venture Agreement. At such Closing, the REIT shall execute, or cause to be executed, and deliver, or cause to be delivered, to the Purchaser the Expansion Capital Warrant, dated as of the date of the Closing and registered in the Purchaser's name (or such other name as the Purchaser shall designate), against payment of the purchase price therefor. The purchase price for the Expansion Capital Warrant shall be $500,000; PROVIDED, HOWEVER, that the purchase price shall be reduced proportionately to the extent that the Expansion Warrant Amount is less than $20,000,000. The Expansion Capital Warrant shall be deemed to be issued, and the Purchaser (or any other person designated as the registered holder) shall be deemed to have become a holder of record of such Expansion Capital Warrant for all purposes, as of the Closing contemplated in this Section 3.2(e). The issuance of the Expansion Capital Warrant shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection the issuance thereof. Unless otherwise provided in this Agreement, all other costs incurred in connection with the issuance and sale of the Expansion Capital Warrant shall be borne by the party that actually incurred such costs. (f) In addition to any other conditions to issuing Capital Stock of the REIT pursuant to an exercise of the Expansion Capital Warrant, the conditions set forth in Section 7.1 hereof shall be required to be satisfied prior to such issuance of Capital Stock so long as the Expansion Capital Warrant is held by, and exercised by, the Purchaser under this Agreement; it being understood that the provisions of this Agreement shall not apply to any exercise of the Expansion Capital Warrant by any transferee of all or a portion of the Expansion Capital Warrant unless such transferee is a permitted transferee of, and has succeeded to, the Purchaser's rights and obligations under this Agreement in accordance with Section 12.2 hereof. 16 40 RIGHT TO SUBSTITUTE PREFERRED STOCK AS CURRENCY 4.1 RIGHT OF PURCHASER TO REQUIRE PAYMENT IN PREFERRED STOCK. In the event that, pursuant to the Buy/Sell or otherwise, the Operating Partnership at any time becomes the buyer of all or substantially all of the Purchaser's limited liability company interest in the Joint Venture, the Purchaser shall have the right, in its sole discretion, to require the REIT to assume the Operating Partnership's obligations as buyer and to receive the consideration due to the Purchaser in a combination of cash and Preferred Stock determined as follows. First, the Purchaser shall determine the portion of the purchase price ("P") to be received by it in cash ("C"). The REIT shall pay such amount C in cash in accordance with the terms of the Joint Venture Agreement. Second, the Purchaser shall calculate the remaining portion of the purchase price P ("PCP"). PCP shall equal the remainder of P MINUS C, subject to the limitation described in (a) below, if applicable. Third, the Purchaser shall determine the method of calculating the number of shares of Preferred Stock ("S") to be received by it with respect to the PCP. The Purchaser may, in its sole discretion, choose EITHER (a) or (b) below as the method to make such calculation. (a) The Purchaser may elect to receive a number of shares S determined by the following formula (and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share): S = (PCP DIVIDED BY Effective Exercise Price) DIVIDED BY Conversion Multiple For the purposes of this Section 4.1(a), "EFFECTIVE EXERCISE PRICE" means the amount (expressed in dollars) determined by the following formula: (Unrecouped Capital + Unrecouped Expansion Capital + Unrecouped Additional Capital) DIVIDED BY [(Unrecouped Capital DIVIDED BY Option Exercise Price) + (Unrecouped Expansion Capital DIVIDED BY Expansion Option Exercise Price) + (Unrecouped Additional Capital DIVIDED BY Additional Option Exercise Price)] Notwithstanding the foregoing, however, in the event the Purchaser elects the method set forth in this subsection (a) to calculate S, PCP may not exceed the aggregate amount (expressed in dollars) of the sum of (i) Unrecouped Capital, (ii) Unrecouped Expansion Capital and (iii) Unrecouped Additional Capital. The number of shares S to which the Purchaser is entitled pursuant to this Section 4.1(a) shall be determined immediately prior to the sale of all or substantially all of the Purchaser's limited liability company interests pursuant to the Buy/Sell or otherwise, without taking into account the effect of such sale on the calculation hereunder. 17 (b) The Purchaser may elect to receive a number of shares S determined by the following formula (and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share): S = (PCP DIVIDED BY Adjusted Stock Price) DIVIDED BY Conversion Multiple For the purposes of this Section 4.1(b), "ADJUSTED STOCK PRICE" means a dollar amount equal to 97% of the average last sale price per share of the REIT Common Stock on the NYSE over the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that the Purchaser delivers notice of its election to receive Preferred Stock (adjusted to take into account any splits, combinations, reclassifications, or other changes in the REIT's capitalization that occur during such period). In the event that the REIT Common Stock is no longer trading on the NYSE then the Adjusted Stock Price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. (c) In lieu of delivering shares of Preferred Stock upon the Purchaser's election under this Section 4.1, the REIT may elect, at its sole option, to satisfy its obligations under this Section 4.1 by delivering to the Purchaser either: (i) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 4.1(a) or (b), as applicable, to which the Purchaser would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (ii) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Purchaser beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 4.1(c)(i) above exceeds the number of shares of REIT Common Stock determined by clause (x) above BY (B) the Conversion Multiple and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Agreement to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 4.1(c) if such election would cause the REIT to be unable to satisfy the conditions set forth in Section 7.1 hereof in a timely manner. 18 (d) In order to receive Preferred Stock or REIT Common Stock, as applicable, under this Section 4.1, the Purchaser shall deliver to the REIT and the Operating Partnership a written notice of election, duly executed by the Purchaser, within ten (10) business days following the determination that the REIT or the Operating Partnership will be the purchaser of all or substantially all of the Purchaser's limited liability company interest in the Joint Venture under the Buy/Sell or otherwise. Such notice shall (i) indicate that it is exercising its rights under this Section 4.1 and (ii) specify the number of shares of Preferred Stock to be issued and the related calculation under Section 4.1(a) or (b), whichever is elected by the Purchaser in such notice. Within ten (10) business days of receiving such notice of election, the REIT shall notify the Purchaser if it disagrees with the Purchaser's determination of the number of shares of Preferred Stock to be issued pursuant to the exercise of the Purchaser's rights under this Section 4.1 and/or if it is electing to deliver any shares of REIT Common Stock in lieu of Preferred Stock, in which case, the REIT's notice shall specify the number of shares of REIT Common Stock and/or Preferred Stock to be issued pursuant to Section 4.1(c). In the event that the parties disagree as to the correct number of shares of Preferred Stock and/or REIT Common Stock, as applicable, to be delivered pursuant to this Section 4.1, the parties agree to cooperate in good faith and use their respective best efforts to resolve the appropriate determination under Section 4.1(a), (b) or (c) as applicable as promptly as possible. If the parties cannot reach agreement by the sixth (6th) business day following the REIT's receipt of the notice of election, the determination will be referred to the Accountants (or such other Person unaffiliated with either party as the parties mutually agree) and the parties agree to be bound by such Person's determination. (e) The shares of Preferred Stock and/or REIT Common Stock, as applicable, will be issued at the Closing to be held in accordance with the provisions of the Buy/Sell, or such other procedures as may be agreed upon by the parties; PROVIDED, HOWEVER, that, in addition to any conditions in the Joint Venture Agreement, the conditions set forth in Section 7 hereof shall be required to be satisfied prior to such Closing. At the Closing, the REIT will execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be sold and purchased in accordance with Section 4.1(a), (b) or (c), as applicable, against delivery of the consideration to be paid by the Purchaser pursuant to the terms of the Joint Venture Agreement. The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Purchaser (or any other person designated as the registered holder) shall be deemed to have become a holder of record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the Closing. The issuance of certificates for shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with such exercise and the related issuance of the shares of Preferred Stock and/or REIT Common Stock, as applicable. Unless otherwise provided in this Agreement or the Joint Venture Agreement, all other costs incurred 19 in connection with the issuance of the Preferred Stock and/or REIT Common Stock, as applicable, pursuant to this Section 4.1 shall be borne by the party that actually incurred such costs. 4.2 RIGHT OF PURCHASER TO PURCHASE PREFERRED STOCK WITH THE RIGHT OF FIRST OFFER PROCEEDS. In the event that, pursuant to the Right of First Offer, the Operating Partnership at any time becomes the buyer of all or substantially all of the properties then owned by the Joint Venture, the Purchaser shall have the right to elect to purchase from the REIT a number of shares of Preferred Stock (as determined below) for cash in accordance with the terms of this Section 4.2. The distribution of the Right of First Offer Proceeds and the consummation of such purchase of shares of Preferred Stock shall occur concurrently with the consummation of the sale of the Target Asset pursuant to the Right of First Offer held in accordance with the terms of the Joint Venture Agreement. Upon an election pursuant to this Section 4.2, the Purchaser shall first determine the portion of the Right of First Offer Proceeds that it desires to apply toward the purchase of shares of Preferred Stock ("PCP"), subject to the limitation described in (a) below, if applicable. The Purchaser shall be entitled to receive the remainder of the Right of First Offer Proceeds in accordance with the terms of the Joint Venture Agreement. Second, the Purchaser shall determine the method of calculating the number of shares of Preferred Stock ("S") to be received by it with respect to the PCP. The Purchaser may, in its sole discretion, choose EITHER (a) or (b) below as the method to make such calculation. (a) The Purchaser may elect to receive a number of shares S determined by the following formula (and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share): S = (PCP DIVIDED BY Effective Exercise Price) DIVIDED BY Conversion Multiple For the purposes of this Section 4.2(a), "EFFECTIVE EXERCISE PRICE" means the amount (expressed in dollars) determined by the following formula: (Unrecouped Capital + Unrecouped Expansion Capital + Unrecouped Additional Capital) DIVIDED BY [(Unrecouped Capital DIVIDED BY Option Exercise Price) + (Unrecouped Expansion Capital DIVIDED BY Expansion Option Exercise Price) + (Unrecouped Additional Capital DIVIDED BY Additional Option Exercise Price)] Notwithstanding the foregoing, however, in the event the Purchaser elects the method set forth in this subsection (a) to calculate S, PCP may not exceed the aggregate amount (expressed in dollars) of the sum of (i) Unrecouped Capital, (ii) Unrecouped Expansion Capital and (iii) Unrecouped Additional Capital. The number of shares S to which the Purchaser is entitled pursuant to this Section 4.2(a) shall be determined immediately prior to the distribution of the Right of First Offer Proceeds, without taking into account the effect of such distribution on the calculation hereunder. 20 (b) The Purchaser may elect to receive a number of shares S determined by the following formula (and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share): S = (PCP DIVIDED BY Adjusted Stock Price) DIVIDED BY Conversion Multiple For the purposes of this Section 4.2(b), "ADJUSTED STOCK PRICE" means a dollar amount equal to 97% of the average last sale price per share of the REIT Common Stock on the NYSE over the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that the Purchaser delivers notice of its election to receive Preferred Stock (adjusted to take into account any splits, combinations, reclassifications, or other changes in the REIT's capitalization that occur during such period). In the event that the REIT Common Stock is no longer trading on the NYSE then the Adjusted Stock Price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. (c) In lieu of delivering shares of Preferred Stock upon the Purchaser's election under this Section 4.2, the REIT may elect, at its sole option, to satisfy its obligations under this Section 4.2 by delivering to the Purchaser either: (i) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 4.2(a) or (b), as applicable, to which the Purchaser would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (ii) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Purchaser beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 4.2(c)(i) above exceeds the number of shares of REIT Common Stock determined by clause (x) above BY (B) the Conversion Multiple and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Agreement to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 4.2(c) if such election would cause the REIT to be unable to satisfy the conditions set forth in Section 7.1 hereof in a timely manner. 21 (d) In order to receive Preferred Stock and/or REIT Common Stock, as applicable, under this Section 4.2, the Purchaser shall deliver to the REIT and the Operating Partnership a written notice of election, duly executed by the Purchaser, within ten (10) business days following the determination that the Operating Partnerships will be the purchaser under the Right of First Offer of all or substantially all of the properties then owned by the Joint Venture. Such notice shall (i) indicate that it is exercising its rights under this Section 4.2 and (ii) specify the number of shares of Preferred Stock to be issued and the related calculation under Section 4.2(a) or (b), whichever is elected by the Purchaser in such notice. Within ten (10) business days of receiving such notice of election, the REIT shall notify the Purchaser if it disagrees with the Purchaser's determination of the number of shares of Preferred Stock to be issued pursuant to the exercise of the Purchaser's rights under this Section 4.2 and/or if it is electing to deliver any shares of REIT Common Stock in lieu of Preferred Stock, in which case, the REIT's notice shall specify the number of shares of REIT Common Stock and/or Preferred Stock to be issued pursuant to Section 4.2(c). In the event that the parties disagree as to the correct number of shares of Preferred Stock and/or REIT Common Stock, as applicable, to be delivered pursuant to this Section 4.2, the parties agree to cooperate in good faith and use their respective best efforts to resolve the appropriate determination under Section 4.2(a), (b) or (c) as applicable as promptly as possible. If the parties cannot reach agreement by the sixth (6th) business day following the REIT's receipt of the notice of election, the determination will be referred to the Accountants (or such other Person unaffiliated with either party as the parties mutually agree) and the parties agree to be bound by such Person's determination. (e) The shares of Preferred Stock and/or REIT Common Stock, as applicable, will be issued at the Closing to be held with respect to the consummation of the Right of First Offer; PROVIDED, HOWEVER, that, in addition to any conditions in the Joint Venture Agreement, the conditions set forth in Section 7 hereof shall be required to be satisfied prior to such Closing and the parties agree to cause the Joint Venture to distribute the Right of First Offer Proceeds concurrently with the consummation of the Right of First Offer. At the Closing, the REIT will execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be sold and purchased in accordance with Section 4.2(a), (b) or (c), as applicable, against delivery of the purchase price therefor. The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Purchaser (or any other person designated as the registered holder) shall be deemed to have become a holder of record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the Closing. The issuance of certificates for shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with such exercise and the related issuance of the shares of Preferred Stock and/or REIT Common Stock, as applicable. Unless otherwise provided in this Agreement or the Joint 22 Venture Agreement, all other costs incurred in connection with the issuance of the Preferred Stock and/or REIT Common Stock, as applicable, pursuant to this Section 4.2 shall be borne by the party that actually incurred such costs. 4.3 RIGHT OF REIT TO MAKE PAYMENT IN PREFERRED STOCK OR REIT COMMON STOCK. In the event that (i) the Purchaser initiated the Buy/Sell, (ii) the Operating Partnership becomes the buyer pursuant to such exercise of the Buy/Sell, and (iii) as of the date thereof, the REIT Common Stock is listed and publicly traded on a national stock exchange, the REIT shall have the right to assume the obligations of the Operating Partnership as buyer and to elect to pay that portion of the consideration payable to the Purchaser in cash after giving effect to any election under Section 4.1 ("Q") in a combination of cash and Preferred Stock determined as follows. First, the REIT shall determine the portion of the amount Q to be paid by it in cash ("C"). The REIT shall pay such amount C in cash in accordance with the terms of the Joint Venture Agreement. Second, the REIT shall calculate the remaining portion of the amount Q ("QCP"). QCP shall equal the remainder of Q MINUS C. Third, the REIT shall calculate the number of shares of Preferred Stock ("S") to be paid by it with respect to the QCP in accordance with Section 4.3(a) below. (a) The REIT will cause to be issued to the Purchaser a number of shares S determined by the following formula (and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share): S = (QCP DIVIDED BY Adjusted Stock Price) DIVIDED BY Conversion Multiple (b) For the purposes of this Section 4.3, "ADJUSTED STOCK PRICE" means a dollar amount equal to 90% of the average last sale price per share of the REIT Common Stock on the NYSE over the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that it is determined that the Operating Partnership will be the buyer pursuant to the Buy/Sell (adjusted to take into account any splits, combinations, reclassifications or other changes in the REIT's capitalization that occur during such period); PROVIDED, HOWEVER, that, if, prior to the Operating Partnership's delivery of the responsive notice contemplated in Section 8.4.3 of the Joint Venture Agreement, the REIT and/or the Operating Partnership publicly announces or publicly discloses the fact that the Purchaser has initiated the Buy/Sell, then, at Purchaser's election, the Adjusted Stock Price may be determined based on the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date of such public announcement. In the event that the REIT Common Stock is no longer trading on the NYSE then the Adjusted Stock Price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. (c) In lieu of delivering shares of Preferred Stock upon the Purchaser's election under this Section 4.3, the REIT may elect, at its sole option, to satisfy its obligations under this Section 4.3 by delivering to the Purchaser either: 23 (i) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 4.3(a) above to which the Purchaser would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (ii) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Purchaser beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 4.3(c)(i) above exceeds the number of shares of REIT Common Stock determined by clause (x) above BY (B) the Conversion Multiple and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Agreement to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 4.3(c) if such election would cause the REIT to be unable to satisfy the conditions set forth in Section 7.1 hereof in a timely manner. (d) In order to elect to make payment in Preferred Stock and/or REIT Common Stock under this Section 4.3, the REIT shall deliver to the Purchaser a written notice of election, duly executed by the REIT, within fifteen (15) business days following the earlier of the REIT's receipt of the Purchaser's written notice of election to receive all or a portion of the consideration due to it under Section 4.1 in Preferred Stock or the expiration of the time period in which the Purchaser may make such election under Section 4.1 hereof. Such notice shall (i) indicate that the REIT is exercising its rights under this Section 4.3, (ii) whether the REIT will be issuing Preferred Stock, REIT Common Stock or a combination thereof under this Section 4.3, and (iii) specify the number of shares of Preferred Stock and/or REIT Common Stock, as applicable, to be issued and the related calculation under Section 4.3(a) and/or (c), as applicable. Within two (2) business days of receiving such notice of election, the Purchaser shall notify the REIT if it disagrees with the REIT's determination of the number of shares of Preferred Stock and/or REIT Common Stock, as applicable, to be issued pursuant to the exercise of the REIT's rights under this Section 4.3 and the parties agree to cooperate in good faith and use their respective best efforts to resolve the appropriate determination under this Section 4.3 as promptly as possible. If the parties cannot reach agreement by the sixth (6th) business day following the Purchaser's receipt of the REIT's notice of election hereunder, the determination will be referred to the Accountants (or such other Person unaffiliated with either party as the parties mutually agree) and the parties agree to be bound by such Person's determination. 24 (e) The shares of Preferred Stock and/or REIT Common Stock, as applicable, will be issued at the Closing to be held in accordance with the provisions of the Buy/Sell; PROVIDED, HOWEVER, that, in addition to any conditions in the Joint Venture Agreement, the conditions set forth in Section 7 hereof shall be required to be satisfied prior to such Closing. At the Closing, the REIT will execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be sold and purchased in accordance with Section 4.3(a) and/or (c), as applicable, against delivery of the consideration to be paid by the Purchaser under the Joint Venture Agreement. The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Purchaser (or any other person designated as the registered holder) shall be deemed to have become a holder of record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the Closing. The issuance of certificates for shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with the issuance of the shares of Preferred Stock and/or REIT Common Stock, as applicable. Unless otherwise provided in this Agreement or the Joint Venture Agreement, all other costs incurred in connection with the issuance of the Preferred Stock and/or REIT Common Stock, as applicable, pursuant to this Section 4.3 shall be borne by the party that actually incurred such costs. 5. RIGHT TO RECEIVE PREFERRED STOCK IN CONNECTION WITH A PUT/SALE DISTRIBUTION 5.1 PUT/SALE DISTRIBUTION. Upon each occurrence of a Put/Sale Distribution, the Purchaser shall have the obligation to purchase from the REIT, and the REIT shall have the obligation to issue and sell to the Purchaser, that number of fully paid and nonassessable shares of Preferred Stock determined in accordance with Section 5.2 below in exchange for cash in an amount equal to the Put/Sale Distribution. 5.2 DETERMINATION OF NUMBER OF SHARES. Pursuant to Section 5.1 above, the Purchaser is entitled to receive, and the REIT is obligated to issue, that number of shares of Preferred Stock determined by DIVIDING (a) the quotient obtained by dividing (i) the applicable Put/Sale Distribution by (ii)(x) the Option Exercise Price, if the asset giving rise to the Put/Sale Distribution was originally purchased by the Joint Venture with Contributions other than Expansion Capital or Additional Capital, (y) the Expansion Option Exercise Price, if the asset giving rise to the Put/Sale Distribution was originally purchased by the Joint Venture with Contributions of Expansion Capital, or (z) the Additional Option Exercise Price if the asset giving rise to the Put/Sale Distribution was originally purchased with Contributions of Additional Capital BY (b) the Conversion Multiple, and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share. 25 5.3 RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK. In lieu of delivering shares of Preferred Stock under this Section 5 following a Put/Sale Distribution, the REIT may elect, at its sole option, to satisfy its obligations under this Section 5 by delivering to the Purchaser either: (a) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 5.2 above to which the Purchaser would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (b) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Purchaser beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 5.4(a) above exceeds the number of shares of REIT Common Stock determined in clause (x) above BY (B) the Conversion Multiple and, if necessary, rounding the resulting number to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Agreement to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 5 if such election would cause the REIT to be unable to satisfy the conditions set forth in Section 7.1 hereof in a timely manner. 5.4 CLOSING. Subject to the satisfaction of the conditions set forth in Section 7 hereof, the purchase and sale contemplated in Section 5.1 above shall be consummated at a Closing to be held at the offices of Purchaser's Counsel, or at such other place as may be mutually acceptable to the parties, on the later of the tenth (10th) business day following any Put/Sale Distribution or the earliest date upon which all of the applicable conditions to Closing have been satisfied but in no event later than the sixtieth (60th) day following such Put/Sale Distribution. Within five (5) business days following any Put/Sale Distribution, the REIT shall deliver to the Purchaser notice of its intent to issue Preferred Stock, REIT Common Stock or a combination thereof pursuant to Section 5.3 hereof. At the Closing, the REIT will execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be sold and purchased in accordance with Section 5.2 or 5.3, as applicable, against payment of the purchase price therefor. The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request and shall be registered in the name of the Purchaser or such other name as shall be designated by the Purchaser. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Purchaser (or any other Person designated as the registered holder) shall be 26 deemed to have become a holder or record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the Closing. The issuance of certificates for shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be made without charge to the Purchaser for any issuance tax in respect thereof or other cost incurred by the REIT or the Operating Partnership in connection with the issuance of the shares of Preferred Stock and/or REIT Common Stock, as applicable. Unless otherwise provided in the Agreement, all other costs incurred in connection with the issuance of Peferred Stock and/or REIT Common Stock, as applicable, shall be borne by the party that actually incurred such costs. 6. ADJUSTMENT TO OPTION EXERCISE PRICE, EXPANSION OPTION EXERCISE PRICE AND ADDITIONAL OPTION EXERCISE PRICE 6.1 ADJUSTMENTS. In the event that the REIT shall at any time: (a) issue additional shares of REIT Common Stock as a dividend or other distribution on outstanding shares of REIT Common Stock; (b) issue additional shares of REIT Common Stock pursuant to a reclassification of shares of REIT Common Stock; (c) subdivide the outstanding shares of REIT Common Stock into a greater number of shares of REIT Common Stock; or (d) combine the outstanding shares of REIT Common Stock into a smaller number of shares of REIT Common Stock; then in each such case (i) the Option Exercise Price shall, simultaneously with the happening of such dividend, subdivision or combination, be adjusted by multiplying the then effective Option Exercise Price by a fraction, the numerator of which shall be the number of shares of REIT Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of REIT Common Stock outstanding immediately after such event, (ii) the Expansion Option Exercise Price shall, simultaneously with the happening of such dividend, subdivision or combination, be adjusted by multiplying the then effective Expansion Option Exercise Price by a fraction, the numerator of which shall be the number of shares of REIT Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of REIT Common Stock outstanding immediately after such event, and (iii) the Additional Option Exercise Price shall, simultaneously with the happening of such dividend, subdivision or combination, be adjusted by multiplying the then effective Additional Option Exercise Price by a fraction, the numerator of which shall be the number of shares of REIT Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of REIT Common Stock outstanding immediately after such event. 27 6.2 FURTHER ADJUSTMENTS. In the event that the REIT shall at any time take a record of the holders of the REIT Common Stock for the purpose of entitling them to receive any dividend or other distribution (including without limitation any distribution by way of spin-off, reclassification, recapitalization or similar corporate rearrangement or otherwise) of: (a) cash (other than regular quarterly dividends payable out of earnings or earned surplus (plus depreciation and amortization) legally available for the payment of dividends under the laws of the jurisdiction of the REIT, and any special additional dividends made for the purposes of distributing 100% of the REIT's real estate investment trust taxable income); (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever; or (c) any securities convertible into, or warrants or other rights to subscribe for or purchase any evidence of its indebtedness, any shares of its capital stock or any other securities or property of any nature, whether or not the rights to exchange or convert thereunder are immediately exercisable; then in each such case (i) the Option Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then effective Option Exercise Price by a fraction, the numerator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event less the then fair market value of the cash or other assets, rights, warrants, evidence of indebtedness or other securities so distributed and the denominator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event, (ii) the Expansion Option Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then effective Expansion Option Exercise Price by a fraction, the numerator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event less the then fair market value of the cash or other assets, rights, warrants, evidence of indebtedness or other securities so distributed and the denominator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event, and (iii) the Additional Option Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then effective Additional Option Exercise Price by a fraction, the numerator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event less the then fair market value of the cash or other assets, rights, warrants, evidence of indebtedness or other securities so distributed and the denominator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event. The fair market value of the cash distributed will be equal to the amount of cash distributed and the fair market value of any other assets, rights, warrants, evidence of indebtedness or other securities distributed will be determined in good faith by the Board of Directors of the REIT. For the purposes of this Section 6.2, "Aggregate Trading Value" of the REIT Common Stock shall mean the product obtained by MULTIPLYING (A) the average of the last reported sale price per share of REIT Common Stock on the NYSE over the twenty-one (21) 28 days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the "ex" date with respect to the dividend or distribution requiring such computation (adjusted to take into account any splits, combinations, reclassifications, or other changes in the REIT's capitalization that occur during such period) BY (B) the total number of shares of REIT Common Stock then outstanding. In the event that the REIT Common Stock is no longer trading on the NYSE then the Aggregate Trading Value shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. The term "'ex' date," when used with respect to this Section 6.2, means the business day immediately following the date the REIT takes a record of the holders of the REIT Common Stock for the purpose of entitling them to receive the dividend or distribution set forth in this Section 6.2. In the event that, at any time, the REIT Common Stock is not then traded on an exchange or automated quotation system then "Aggregate Trading Value" shall be determined using the fair market value of a share of REIT Common Stock agreed upon in good faith by the parties. Notwithstanding anything in this Section 6.2 to the contrary, the occurrence of a distribution of rights to subscribe for or purchase shares of the REIT's Capital Stock in connection with the adoption of what is commonly referred to as a "shareholder rights plan" by the REIT ("Rights") shall be deemed not to be a distribution of securities, warrants or rights for the purposes of Section 6.2(c) or otherwise give rise to any adjustment of the Option Exercise Price, the Expansion Option Exercise Price or the Additional Option Exercise Price pursuant to this Section 6; PROVIDED, HOWEVER, that in lieu of any adjustment as a result of any such distribution, the REIT shall make sufficient provisions in the shareholder rights agreement to ensure that, in connection with the issuance of any shares of REIT Common Stock pursuant to this Agreement or upon conversion of the Preferred Stock, the Purchaser will be entitled to simultaneously receive Rights in the same amount and manner in which Rights would be received on any new issuance by the REIT at that time of an equal amount of REIT Common Stock. 6.3 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. In case the REIT after the date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the REIT and the REIT shall be the continuing or surviving Person but, in connection with such consolidation or merger, the REIT Common Stock and/or the Preferred Stock, shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (c) shall transfer directly or indirectly all or substantially all of its properties or assets to any other Person in one transaction or a series of transactions, or (d) shall effect a capital reorganization or reclassification of the REIT Common Stock and/or the Preferred Stock, then, and in the case of each such transaction, proper provision shall be made so that, upon such time, if ever, that the Purchaser would be entitled to receive shares of Preferred Stock and/or REIT Common Stock under the terms of this Agreement after the consummation of such transaction, the Purchaser shall be entitled to receive, in lieu of the Preferred Stock and/or REIT Common Stock issuable under the terms of this Agreement, the greatest amount of securities, cash or other property to which the Purchaser would actually have been entitled as a shareholder upon 29 such consummation if the Purchaser had received shares of Preferred Stock and/or REIT Common Stock pursuant to this Agreement immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 6; PROVIDED, HOWEVER, that if (i) a purchase, tender or exchange offer shall have been made to and accepted by more than fifty percent (50%) of the outstanding shares of REIT Common Stock prior to the consummation of a transaction described above and that transaction is consummated, (ii) such purchase, tender or exchange offer shall have been approved by the REIT's Board of Directors, and (iii) the purchaser so designates in a notice given to the REIT on or before the date immediately preceding the final deadline for acceptance of the terms of such purchase, tender or exchange offer, then the Purchaser shall be entitled to receive upon such exercise the greatest amount of securities, cash or other property to which the Purchaser would actually have been entitled as a shareholder if the Purchaser had exercised such rights prior to the expiration of such purchase, tender or exchange offer and accepted such offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in this Section 6. 6.4 OTHER DILUTIVE EVENTS. In case any event shall occur as to which the provisions of this Section 6 hereof are not strictly applicable but the failure to make any adjustment would not fairly protect the rights to receive Preferred Stock and/or REIT Common Stock contained in this Agreement in accordance with the essential intent and principles of such Section, then, in each such case, at the request of the Purchaser, the REIT shall appoint a firm of independent investment bankers of recognized national standing (which shall be completely independent of both the REIT and the Purchaser and shall be reasonably satisfactory to the Purchaser), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 6, necessary to preserve, without dilution, the rights to receive Preferred Stock and/or REIT Common Stock contained in this Agreement. Upon receipt of such opinion, the REIT will promptly mail a copy thereof to the Purchaser and shall make the adjustments described therein. 6.5 WHEN ADJUSTMENTS SHALL BE MADE. The adjustments required by this Section 6 shall be made whenever and as often as any specified event requiring an adjustment shall occur. An adjustment made pursuant to this paragraph shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a reclassification, subdivision or combination, shall become effective immediately as of the effective date thereof. All adjustments pursuant to this Section 6 affecting the number of shares of REIT Common Stock that the Purchaser may receive pursuant to the terms of this Agreement shall be made without duplication of the provisions for adjustment to the conversion rights of the Preferred Stock contained in the Certificate of Amendment attached as EXHIBIT G hereto with respect to the same transaction. 6.6 WHEN ADJUSTMENT NOT REQUIRED. If the REIT shall take a record of the holders of the shares of REIT Common Stock for the purpose of entitling them to receive a dividend or distribution of additional shares of REIT Common Stock or other cash or property 30 and shall, thereafter and before such distribution, legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 6.7 WHEN ADJUSTMENTS CARRIED FORWARD. No adjustment in the Option Exercise Price, the Expansion Option Exercise Price or the Additional Option Exercise Price in accordance with the provisions of this Section 6 need be made unless such adjustment would amount to a change of at least 1% therein; PROVIDED, HOWEVER, that the amount by which any adjustment is not made by reason of the provisions of this Section 6.7 shall be carried forward and taken into account in determining whether this Section 6.7 is applicable to any subsequent potential adjustment in the Option Exercise Price, the Expansion Option Exercise Price or the Additional Option Exercise Price. 6.8 NOTICE OF ADJUSTMENTS. Whenever any adjustment is to be made pursuant to this Section 6, the REIT shall prepare and deliver to the Purchaser a notice, executed by the Chief Financial Officer of the REIT, at least fifteen (15) days prior thereto, such notice to include in reasonable detail (i) the events precipitating the adjustment, (ii) the computation of any adjustments, and (iii) the Option Exercise Price, the Expansion Option Exercise Price and the Additional Option Exercise Price immediately before and immediately after the adjustment. 7. CONDITIONS TO CLOSING 7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER AT A CLOSING. The Purchaser's obligation to purchase and pay for the Initial Warrant, the Expansion Capital Warrant or shares of Preferred Stock and/or REIT Common Stock, as applicable, to be issued to it at any closing held for the purpose of consummating (i) the exercise of the Exchange Option, (ii) an exercise of the Initial Warrant or the Expansion Capital Warrant, (iii) a transfer pursuant to the Buy/Sell or otherwise with respect to which either party has made an election pursuant to Section 4.1 or 4.3 hereof, (iv) any purchase or sale in connection with a distribution of Right of First Offer Proceeds with respect to which the Purchaser has made an election pursuant to Section 4.2 hereof, or (v) any purchase or sale in connection with a Put/Sale Distribution pursuant to Section 5 hereof (each, a "Closing") is subject to the fulfillment prior to or at the Closing of the following conditions, any or all of which may be waived in writing at the option of the Purchaser: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the REIT and the Operating Partnership contained in Section 8 hereof shall be true and correct when made and at the time of the Closing, after giving effect to the sale of the Initial Warrant, Expansion Capital Warrant or the shares of Preferred Stock or REIT Common Stock, as applicable, to be issued and the other transactions contemplated to be consummated at the Closing by this Agreement and the other Transaction Documents, except that any representations and warranties that relate to a particular date or period shall be true and correct as of such date or period. 31 (b) PERFORMANCE. The REIT and the Operating Partnership shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing. (c) CLOSING CERTIFICATES. The REIT and the Operating Partnership shall have delivered to the Purchaser an Officer's Certificate or General Partner's Certificate, as applicable, each dated as of the Closing, certifying that the conditions specified in Sections 7.1(a) and (b) have been fulfilled. (d) OPINION OF COUNSEL. The Purchaser shall have received from REIT Counsel their favorable opinion substantially in the form set forth in EXHIBIT B, addressed to the Purchaser, dated as of the Closing and otherwise satisfactory in substance and form to the Purchaser. (e) INTENTIONALLY OMITTED. (f) LEGAL INVESTMENT. As of the date of the Closing, the Purchaser's purchase of the Initial Warrant, the Expansion Capital Warrant, or the shares of Preferred Stock and/or REIT Common Stock, as applicable, shall be permitted by the laws and regulations of the jurisdiction to which the Purchaser is subject (including, without limitation, Section 5 of the Securities Act) and shall not be enjoined (temporarily or permanently) under, prohibited by or contrary to any injunction, order or decree applicable to the Purchaser. (g) PROCEEDINGS AND DOCUMENTS. All corporate, partnership and other proceedings contemplated by this Agreement and the other Transaction Documents shall be satisfactory to the Purchaser and the Purchaser's Counsel, and the Purchaser and the Purchaser's Counsel shall have received all such counterpart originals or certified or other copies of such documents as the Purchaser or the Purchaser's Counsel may reasonably request. (h) REGISTRATION RIGHTS AGREEMENT. Simultaneously with the execution of this Agreement but in any event prior to the issuance and sale to the Purchaser of the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be purchased by the Purchaser at any Closing, the REIT and the Purchaser shall have duly entered into the Registration Rights Agreement in the form of EXHIBIT C, the Purchaser shall have received a fully-executed counterpart of the Registration Rights Agreement, such agreement shall be in full force and effect and no term or condition thereof shall have been amended, modified or waived. (i) MANAGEMENT RIGHTS LETTER. Simultaneously with or prior to the issuance and sale to the Purchaser of any shares of Preferred Stock or REIT Common Stock hereunder at the Closing, the REIT and the Purchaser shall have duly entered into the Management Rights Letter substantially in the form of EXHIBIT D, the Purchaser shall have received a fully-executed counterpart of the Management Rights Letter, such agreement shall 32 be in full force and effect and no term or condition thereof shall have been amended, modified or waived. (j) TAX REPRESENTATION LETTER. Simultaneously with or prior to the issuance and sale to the Purchaser of any shares of Preferred Stock and/or REIT Common Stock hereunder at the Closing, the REIT, the Operating Partnership and the Purchaser shall have duly entered into the Tax Representation Letter substantially in the form of EXHIBIT E, the Purchaser shall have received a fully-executed counterpart of the Tax Representation Letter, such agreement shall be in full force and effect and no term or condition thereof shall have been amended, modified or waived. (k) OWNERSHIP WAIVER LETTER. Simultaneously with, but in any event prior to, the issuance and sale to the Purchaser of any shares of Preferred Stock and/or REIT Common Stock hereunder at the Closing, the REIT shall have duly entered into the Ownership Waiver Letter substantially in the form of EXHIBIT F, the Purchaser shall have received a fully-executed counterpart of the Ownership Waiver Letter, such agreement shall be in full force and effect and no term or condition thereof shall have been amended, modified or waived. (l) RELATED MATTERS. As of the Closing, each of (i) the REIT's Charter Documents and (ii) the Operating Partnership's Partnership Documents shall not have been modified or amended since the date such documents were last delivered to the Purchaser by the REIT and Operating Partnership, which delivery may be made at any time prior to or at such Closing. (m) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation, order, rule, ruling or regulation shall have been enacted or made after the date hereof by or on behalf of any Governmental Authority, nor shall any decision of any court of competent jurisdiction within the United States have been rendered after the date hereof which, in the Purchaser's reasonable judgment, could materially and adversely affect the shares of Preferred Stock and/or REIT Common Stock to be issued, or the shares of REIT Common Stock issuable upon conversion of the Preferred Stock, or any part thereof as an investment. There shall be no action, suit, investigation or proceeding pending or threatened, against or affecting the Purchaser, any of its properties or rights, or any of its Affiliates, associates, officers or directors, before any Governmental Authority which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise affect the transactions contemplated by this Agreement and the other Transaction Documents, or (ii) questions the validity or legality of any such transactions or seeks to recover damages or to obtain other relief in connection with any such transactions, and there shall be no valid basis for any such action, proceeding or investigation. (n) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The REIT, the Operating Partnership and the Subsidiaries shall have duly applied for and obtained all approvals, orders, licenses, consents and other authorizations (collectively, the "Approvals") from each Governmental Authority, department or body, or pursuant to any agreement to which the REIT, the Operating Partnership and the Subsidiaries is a party or to 33 which it or any of its assets is subject, which may be required in connection with this Agreement and the other Transaction Documents. (o) HSR ACT. The waiting period (and any extension thereof) under the HSR Act applicable to the issuance of any shares of Preferred Stock and/or REIT Common Stock pursuant to this Agreement shall have expired or been terminated. (p) NEW YORK STOCK EXCHANGE LISTING. As of the Closing, the listing of REIT Common Stock on the NYSE shall not have been terminated, nor shall the REIT have been notified that such listing may be terminated or that a termination is contemplated. As of the Closing, the listing of those shares of REIT Common Stock to be issued, or into which the shares of Preferred Stock to issued will be convertible, shall have been approved by the NYSE. (q) ADDITIONAL CERTIFICATES. The Purchaser shall have received a certificate, dated as of the Closing, from each of the Secretary (or Assistant Secretary) of the REIT and the general partner of the Operating Partnership, (i) certifying as true, complete and correct their Charter Documents and Partnership Documents (as appropriate) and resolutions relating to the transactions contemplated hereby attached thereto, (ii) as to the absence of proceedings or other action for dissolution, liquidation or reorganization of any of the REIT, the Operating Partnership or the Subsidiaries, (iii) as to the incumbency and specimen signatures of officers who shall have executed instruments, agreements and other documents in connection with the transactions contemplated hereby, (iv) as to the effect that certain agreements, instruments and other documents are in the form approved in the resolutions referred to in clause (i) above, and (v) as to certain tax matters regarding each of the REIT and the Operating Partnership. 7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE REIT AT THE CLOSING. The REIT's obligation to issue the Initial Warrant, the Expansion Capital Warrant or shares of Preferred Stock and/or REIT Common Stock, as applicable, at any Closing is subject to the fulfillment prior to or at the Closing of the following conditions, any or all of which may be waived in writing at the option of the REIT: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser in Section 9 hereof shall be true and correct when made and, without regard to Section 9.4, at the time of the Closing, after giving effect to the purchase of the Initial Warrant, the Expansion Capital Warrant or the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be issued and the other transactions contemplated to be consummated at the Closing by this Agreement, except that any representations and warranties that relate to a particular date or period shall be true and correct as of such date or period. (b) PERFORMANCE. The Purchaser shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with prior to or at the Closing. 34 (c) CLOSING CERTIFICATE. The Purchaser shall have delivered to the REIT a General Partner's Certificate, dated as of the Closing, certifying that the conditions specified in Sections 7.2(a) and (b) have been fulfilled. (d) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation, order, rule, ruling or regulation shall have been enacted or made after the date hereof by or on behalf of any Governmental Authority, nor shall any decision of any court of competent jurisdiction within the United States have been rendered after the date hereof which, in the REIT's reasonable judgment, could materially and adversely affect the REIT as a result of the sale and issuance of the shares of Preferred Stock and/or REIT Common Stock to be issued, or the shares of REIT Common Stock issuable upon conversion of the Preferred Stock, or any part thereof. There shall be no action, suit, investigation or proceeding pending or threatened, against or affecting the REIT, any of its properties or rights, or any of its Affiliates, associates, officers or directors, before any Governmental Authority which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise affect the transactions contemplated by this Agreement, or (ii) questions the validity or legality of any such transactions or seeks to recover damages or to obtain other relief in connection with any such transactions, and there shall be no valid basis for any such action, proceeding or investigation. (e) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The Purchaser shall have duly applied for and obtained all Approvals, from each Governmental Authority, or pursuant to any agreement to which the Purchaser is a party or to which it or any of its assets is subject, which may be required in connection with this Agreement and the other Transaction Documents. (f) HSR ACT. The waiting period (and any extension thereof) under the HSR Act applicable to the issuance of any shares of Preferred Stock and/or REIT Common Stock pursuant to this Agreement shall have expired or been terminated. (g) PROCEEDINGS AND DOCUMENTS. All corporate, partnership and other proceedings contemplated by this Agreement and the other Transaction Documents shall be satisfactory to the REIT and the REIT Counsel, and the REIT and the REIT Counsel shall have received all such counterpart originals or certified or other copies of such documents as the REIT or the REIT Counsel may reasonably request. 7.3 INABILITY OF REIT TO SATISFY CONDITIONS PRECEDENT TO CLOSING. In the event that (a) the REIT fails to satisfy the conditions set forth in Section 7.1 hereof for any reason (i) within sixty (60) days following (x) the REIT's receipt of a notice of exercise under the Exchange Option, (y) the exercise of the Initial Warrant or the Expansion Capital Warrant by the Purchaser, or (z) the occurrence of any Put/Sale Distribution, or (ii) by the date scheduled for consummating a transfer pursuant to the Right of First Offer or the Buy/Sell or otherwise with respect to which either party has made an election under Section 4 hereof, and (b) the Purchaser has satisfied its obligations in Section 10.10 hereof, then, in addition to any other remedies it may have, the Purchaser shall be entitled to receive at the applicable Closing an amount in cash in immediately available funds determined by MULTIPLYING (x) the product of the Conversion Multiple multiplied by the number of shares of Preferred Stock to which the 35 Purchaser would otherwise be entitled (assuming for these purposes that the REIT has elected to deliver Preferred Stock and has not elected to deliver REIT Common Stock or a combination of Preferred Stock and REIT Common Stock) BY (y) the average last sale price per share of the REIT Common Stock on the NYSE over the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that the Purchaser delivered notice of its exercise of the Exchange Option, the Initial Warrant or the Expansion Capital Warrant or notice of its election to receive Preferred Stock under Section 4.1 or to purchase Preferred Stock under Section 4.2 or, if no such election was made, the date that the REIT delivered notice of its election to make payment in Preferred Stock and/or REIT Common Stock under Section 4.3 or the date upon which any Put/Sale distribution occurred, as applicable (adjusted to take into account any splits, combinations, reclassifications or other changes in the REIT's capitalization that occur during such period). In the event that the REIT Common Stock is no longer trading on the NYSE then the average price shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. Without limiting the foregoing, if the REIT can satisfy the conditions set forth in Section 7.1 with respect to a portion, but not all, of the shares of Preferred Stock and/or REIT Common Stock to which the Purchaser is otherwise entitled then the REIT shall be obligated to issue as many shares of Preferred Stock and/or REIT Common Stock, as applicable, as possible while still satisfying the conditions set forth in Section 7.1 and to deliver the remaining portion of consideration in cash in accordance with this Section 7.3. 8. REPRESENTATIONS AND WARRANTIES, COVENANTS, ETC. OF EACH OF THE REIT AND THE OPERATING PARTNERSHIP. In order to induce the Purchaser to enter into this Agreement, the REIT and the Operating Partnership each hereby jointly and severally represents and warrants and covenants that, with such exceptions as are specifically set forth in a letter delivered by the REIT to the Purchaser prior to the execution of this Agreement (the "Disclosure Letter," which Disclosure Letter shall be appended to and shall be deemed to be part of this Agreement): 8.1 ORGANIZATION AND QUALIFICATION; AUTHORITY. Each of the REIT, the Operating Partnership and the other Subsidiaries, whether wholly or indirectly owned, is a corporation duly incorporated or partnership, limited partnership or limited liability company duly formed and is validly existing and, if applicable, in good standing under the laws of the jurisdiction of its incorporation or formation, has full corporate, partnership or limited liability company power and authority to own and lease its respective properties and carry on its respective business as presently conducted, is duly qualified, registered or licensed as a foreign corporation, partnership, limited partnership or limited liability company to do business and is in good standing in each jurisdiction in which the ownership or leasing of its respective properties or the character of its present operations makes such qualification, registration or licensing necessary, except where the failure so to qualify or be in good standing would not have a material adverse effect on the condition (financial or otherwise), assets, business or results of operations of (a "Material Adverse Effect") the REIT and the Subsidiaries on a consolidated basis. The REIT has heretofore made available to Purchaser's Counsel complete 36 and correct copies of the REIT's Charter Documents and the Operating Partnership's Partnership Documents, each as amended and restated to date and as presently in effect. 8.2 LICENSES. Each of the REIT, the Operating Partnership and the Subsidiaries holds all licenses, franchises, permits, consents, registrations, certificates and other approvals (individually, a "License" and collectively, "Licenses") required for the conduct of its business as now being conducted, and operates in substantial compliance therewith, except where the failure to hold any such License or to operate in compliance therewith would not have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis. The REIT, the Operating Partnership and each of the Subsidiaries are in compliance with all laws, regulations, orders and decrees applicable to them, except in each case where the failure so to comply would not have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis, or a Material Adverse Effect on the ability of the REIT, the Operating Partnership or any of the Subsidiaries to perform on a timely basis any obligation that they have or will have under any Transaction Document to which they are a party. 8.3 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the REIT, the Operating Partnership and the Subsidiaries of the Transaction Documents to which they are a party and all other instruments or agreements to be executed in connection herewith or therewith and, with respect to the REIT, the issuance and sale to (and the purchase hereunder by) the Purchaser of the Initial Warrant, the Expansion Capital Warrant or the Preferred Stock and/or REIT Common Stock pursuant to this Agreement (a) are within the REIT's, the Operating Partnership's and the Subsidiaries' respective corporate, partnership or limited liability company powers; (b) have been duly authorized by all necessary corporate, partnership or limited liability company action on the part of the REIT, the Operating Partnership and each such Subsidiary; (c) do not require any License or Approval (except such as have been obtained); (d) do not contravene or constitute a default under or violation of (i) any provision of applicable law or regulation of any Governmental Authority, (ii) the Charter Documents or Partnership Documents of the REIT, the Operating Partnership or any of the Subsidiaries, (iii) any agreement (or require the consent of any Person under any agreement that has not been made or obtained) to which the REIT, the Operating Partnership or any of the Subsidiaries are a party, or (iv) any judgment, injunction, order, decree or other instrument binding upon the REIT, the Operating Partnership, any of the Subsidiaries or any of their respective properties, except where such contravention, default or violation would not have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis; and (e) do not and will not result in the creation or imposition of any Lien on any asset of the REIT, the Operating Partnership or any of the Subsidiaries, except where the creation or imposition of such Lien would not have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis. The shares of Preferred Stock or REIT Common Stock to be issued at a Closing and the shares of REIT Common Stock issuable upon conversion of the Common Stock have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, free and clear of all liens, encumbrances, equities or claims of any nature whatsoever. 37 8.4 VALIDITY AND BINDING EFFECT. Each of the Transaction Documents has been duly executed and delivered by each of the REIT, the Operating Partnership and any Subsidiary which is a party thereto and is a valid and binding agreement of the REIT, the Operating Partnership and any such Subsidiary, as applicable, enforceable against the REIT, the Operating Partnership and any such Subsidiary, as applicable, in accordance with its terms. 8.5 CAPITALIZATION. (a) As of December 31, 1998, the REIT had 17,044,361 shares of REIT Common Stock and no shares of any other class or series of capital stock issued and outstanding. As of the Closing, upon the issuance to the Purchaser of shares of Preferred Stock or REIT Common Stock, as applicable, in connection with the Exchange Option, any Put/Sale Distribution or an election by either party under Section 4 hereof, such shares of Preferred Stock or REIT Common Stock, as applicable, will be validly issued, fully paid and non-assessable and free of any preemptive or similar rights. (b) As of December 31, 1998, the Operating Partnership had 16,335,475 partnership units of limited and general partnership interest issued and outstanding and no partnership units of any other class or series issued and outstanding. (c) Except as disclosed in the SEC Filings or the Operating Partnership's Partnership Documents as provided to the Purchaser, as of the Closing, there are no outstanding subscriptions, options, warrants, rights, convertible or exchangeable securities or other agreements or commitments of any character obligating the REIT, the Operating Partnership or the Subsidiaries to issue any securities. As of the Closing, there are no voting trusts or other agreements or understandings to which the REIT, the Operating Partnership or the Subsidiaries are a party with respect to the voting of the Capital Stock or Partnership Interests of the REIT, the Operating Partnership or the Subsidiaries, as the case may be. Except as contemplated by the Registration Rights Agreement, neither the REIT, the Operating Partnership nor any of the Subsidiaries has entered into any agreement to register their equity or debt securities under the Securities Act. 8.6 LITIGATION; DEFAULTS. There is (a) no action, suit, or proceeding pending or, to the knowledge of the REIT or the Operating Partnership, threatened against or affecting the REIT, the Operating Partnership, any of the Subsidiaries, or any properties of any of the foregoing, or (b) to the knowledge of the REIT or the Operating Partnership, no investigation pending against or affecting the REIT, the Operating Partnership, any of the Subsidiaries, or any properties of any of the foregoing before or by any Governmental Authority which (individually or in the aggregate) could reasonably be expected to (i) have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis, or (ii) impair the ability of the REIT, the Operating Partnership or any Subsidiary to perform fully on a timely basis any material obligation which the REIT, the Operating Partnership or any such Subsidiary has or will have under any Transaction Document to which the REIT, the Operating Partnership or any Subsidiary is a party. Neither the REIT, the Operating Partnership nor any Subsidiary is in violation of, or in default under (and there does not exist 38 any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its Charter Documents or Partnership Documents or of any term of any agreement, instrument, judgment, decree, order, statute, injunction, governmental regulation, rule or ordinance (including without limitation, those relating to zoning, city planning or similar matters) applicable to the REIT, the Operating Partnership or any Subsidiary or to which the REIT, the Operating Partnership or any Subsidiary is bound, or to any properties of the REIT, the Operating Partnership or any Subsidiary, except in each case to the extent that such violations or defaults, individually or in the aggregate, would not (a) affect the validity of any Transaction Document, (b) have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis, or (c) impair the ability of the REIT, the Operating Partnership or any Subsidiary to perform fully on a timely basis any material obligation which the REIT, the Operating Partnership or any Subsidiary has or will have under any Transaction Document to which the REIT, the Operating Partnership or any Subsidiary is a party. 8.7 PUBLIC REPORTS; NO MATERIAL ADVERSE CHANGE. As of the date of this Agreement each SEC Filing filed since December 31, 1997 complied in all material respects with the requirements of the Securities Act and the Exchange Act and did not when filed contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Except as disclosed in the SEC Filings, there has been since September 30, 1998 (i) no adverse change in the condition (financial or other), assets, business, results of operations or prospects of the REIT, the Operating Partnership or any of the Subsidiaries which could have a Material Adverse Effect on the REIT, the Operating Partnership and the Subsidiaries on a consolidated basis, (ii) no obligation or liability (contingent or otherwise) incurred by the REIT, the Operating Partnership or any of the Subsidiaries, other than obligations and liabilities which would not have a Material Adverse Effect on the REIT, the Operating Partnership or on any of the Subsidiaries on a consolidated basis and no mortgage, encumbrance or Lien placed on any of the properties of the REIT, the Operating Partnership or any of the Subsidiaries which remains in existence on the date hereof other than mortgages, encumbrances and Liens incurred in the ordinary course of business, and (iii) no acquisition or disposition of any material assets by the REIT, the Operating Partnership or any of the Subsidiaries (or any contract or arrangement therefor), or any other material transaction, otherwise than for fair value in the ordinary course of business. There is no material fact known to the REIT or the Operating Partnership which the REIT or the Operating Partnership have not disclosed in the SEC Filings which have or, insofar as the REIT or the Operating Partnership can reasonably foresee, may have or will have a Material Adverse Effect on the REIT, the Operating Partnership or the Subsidiaries on a consolidated basis or a Material Adverse Effect on the ability of the REIT or the Operating Partnership to perform their respective obligations under any of the Transaction Documents to which they are a party or any document contemplated hereby or thereby. 8.8 PRIVATE OFFERING. No form of general solicitation or general advertising, including, but not limited to, advertisements, articles, notices or other communications, published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation 39 or general advertising, was used by the REIT, the Operating Partnership or any of the Subsidiaries or any of the REIT's, Operating Partnership's or such Subsidiary's representatives, or, to the knowledge of the REIT or the Operating Partnership, any other Person acting on behalf of the REIT, the Operating Partnership or any of the Subsidiaries, in connection with the offering of any shares of Preferred Stock or REIT Common Stock being purchased under this Agreement or under any other Transaction Document. The REIT and the Operating Partnership further represent to the Purchaser that, assuming the accuracy of the representations of, and compliance with the covenants of, the Purchaser as set forth in Section 10 hereof, neither the REIT, the Operating Partnership or any of the Subsidiaries nor any Person acting on the REIT's, the Operating Partnership's, or such Subsidiary's behalf has taken or will take any action which would subject the issue and sale of such shares of the Preferred Stock or REIT Common Stock to the provisions of Section 5 of the Securities Act, except as contemplated by the Registration Rights Agreement. 8.9 BROKER'S OR FINDER'S COMMISSIONS. In addition to and not in limitation of any other rights hereunder, the REIT and the Operating Partnership agree that they will jointly and severally indemnify and hold harmless the Purchaser from and against any and all claims, demands or liabilities for broker's, finder's, placement agent's or other similar fees or commissions arising from the transactions contemplated hereby, except for fees or commissions contemplated by, and specifically addressed in, the Joint Venture Agreement. 8.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY; U.S. ENTITY. Neither the REIT nor the Operating Partnership (i) is or, for so long as the Purchaser has the right to receive, or obligation to accept, Preferred Common Stock under this Agreement, will become an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), (ii) is or, for so long as the Purchaser has the right to receive, or obligation to accept, Preferred Common Stock under this Agreement, will become an "investment company" for purposes of Section 12(d)(1) of the 1940 Act, (iii) is or, for so long as the Purchaser has the right to receive, or obligation to accept, Preferred Common Stock under this Agreement, will become a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, (iv) is or, for so long as the Purchaser has the right to receive, or obligation to accept, Preferred Stock or REIT Common Stock under this Agreement, will be headquartered or organized in any jurisdiction outside the United States of America or (v) directly or indirectly conducts or, for so long as the Purchaser has the right to receive, or obligation to accept, Preferred Stock or REIT Common Stock under this Agreement, will conduct activities or owns or will own assets in any foreign jurisdiction. 8.11 ERISA REQUIREMENTS. At or before the Closing and annually thereafter, the REIT and the Operating Partnership shall provide to the Purchaser any information or documents that the Purchaser may reasonably request in order for the Purchaser to be able to make a determination as to whether the REIT is a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(e) (the "Plan Assets Regulation"). Any such information or documents provided under this Section 8.11 on an annual basis shall be provided no later than 30 days after the expiration of each "annual valuation period" (as that 40 term is defined in the Plan Assets Regulation) which ends on or after any purchase of securities contemplated herein. For the purposes of this Section 8.11, the REIT's annual valuation period shall be the 90-day period commencing on each December 31. 8.12 CREATION OF PREFERRED STOCK AND PREFERRED UNITS. (a) As of the date hereof, the REIT shall have taken all actions necessary to duly authorize and establish the Preferred Stock, including without limitation, filing EXHIBIT G and any other necessary documents with the appropriate state authorities. So long as the Purchaser has the right to receive, or obligation to accept, Preferred Stock under this Agreement, the REIT shall not (i) amend, repeal or otherwise alter in any manner the rights, preferences, privileges, voting power or other terms of the Preferred Stock, or (ii) authorize or create or increase the authorized amount of any shares of any class or series, or any security convertible into any shares of any class or series, ranking senior to the Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the REIT and/or in the payment of dividends ("Senior Preferred Stock"); PROVIDED, HOWEVER, that, without the consent of the Purchaser, the REIT may issue up to an aggregate of $50,000,000 of Senior Preferred Stock following the date hereof to any Person other than a Related Party of the REIT so long as the terms of any such class or series of Senior Preferred Stock, if sold in a transaction that has not been registered pursuant to Section 5 of the Securities Act, (i) do not provide the holders thereof with the right to receive a dividend with an effective yield in excess of fifteen percent (15%) (subject to the provisions below) and (ii) if such class or series has conversion rights, the conversion price of such Senior Preferred Stock, or such other price used in determining the conversion rights thereof, shall not be less than the Option Exercise Price. If the terms of the Senior Preferred Stock provide the holders thereof with the right to receive a dividend with an effective yield in excess of fifteen percent (15%), then the REIT will not issue or sell any shares of such Senior Preferred Stock unless it has first offered to the Purchaser, for a minimum period of at least fifteen (15) business days, the right to purchase all, but not a portion, of the shares of Senior Preferred Stock at the same price proposed for such issuance or sale. If the Purchaser declines to purchase the Senior Preferred Stock so offered, then the REIT may issue and sell Senior Preferred Stock with terms providing the holders thereof with the right to receive a dividend with an effective yield up to, but not in excess of, twenty percent (20%) without the consent of the Purchaser at any time within the six (6) months following the date the Purchaser elected not to purchase such Senior Preferred Stock. (b) As of the date hereof, the REIT and the Operating Partnership shall have taken all actions necessary to adopt an amendment to the Operating Partnership's Partnership Documents in the form of EXHIBIT H attached hereto in order to provide for the issuance of a class of units of limited partnership interests in the Operating Partnership to the REIT with designations, preferences and other rights such that the economic interests attributable to such new class of units are substantially similar to the designations, preferences and other rights of the Preferred Stock (such units, the "Preferred Units"). So long as the Purchaser has the right to receive, or obligation to accept, Preferred Stock under this Agreement, neither the REIT nor the Operating Partnership shall take any action to amend, 41 repeal or otherwise alter in any manner the rights, preferences, privileges or other terms of such class of preferred units (it being understood that this sentence does not prohibit the REIT from issuing any shares of another series of preferred stock or prohibit the Operating Partnership from issuing any units ranking on a parity with the units outstanding as of the date immediately preceding the date hereof or the issuance of any units with substantially the same economic rights and preferences as another series of preferred stock issued by the REIT). 8.13 OWNERSHIP LIMIT WAIVER. As of the date hereof, the REIT has duly entered into the Ownership Waiver Letter substantially in the form of EXHIBIT F hereto and, so long as the Purchaser has the right to receive, or obligation to accept, Preferred Stock and/or REIT Common Stock under this Agreement, the Initial Warrant or the Expansion Capital Warrant, or owns any shares of Preferred Stock or REIT Common Stock purchased or acquired pursuant to this Agreement or the Warrants, the REIT shall take no action to amend, repeal or otherwise alter in any manner such Ownership Waiver Letter. In addition, so long as the Ownership Waiver Letter is in effect, the REIT shall not grant any other Person a waiver from the operation of Division C of its Articles of Incorporation that would permit such Person to own, for the purposes of Division C of the Articles of Incorporation, in excess of nine percent (9.0%) of the outstanding shares of REIT Common Stock and of any other class of equity security with substantially comparable voting rights unless the Board of Directors of the REIT, after consultation with and based upon the advice of REIT Counsel, determines in good faith that such waiver is necessary for the Board of Directors of the REIT to comply with its fiduciary duties to its stockholders under applicable law. 9. REPRESENTATIONS AND WARRANTIES, COVENANTS, ETC. OF THE PURCHASER. In order to induce each of the REIT and the Operating Partnership to enter into this Agreement, the Purchaser hereby represents and warrants and covenants that: 9.1 PURCHASE FOR INVESTMENT; SOURCE OF FUNDS. The Purchaser is an accredited investor as defined in Regulation D under the Securities Act and intends to purchase the Preferred Stock and/or REIT Common Stock, as applicable, for its own account or for one or more separate accounts maintained by it or for the account of one or more institutional investors on whose behalf the Purchaser has authority to make this representation for investment and not with a view to the distribution thereof or with any present intention of distributing or selling any of the Preferred Stock and/or REIT Common Stock, as applicable, except in compliance with the Securities Act, provided that subject to that compliance the disposition of the Purchaser's Property shall at all times be within its control. The Purchaser understands and agrees that, unless a registration statement covering the issuance thereof is in effect, the shares of Preferred Stock and/or REIT Common Stock have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions thereunder or if an exemption from registration is available. 9.2 VALIDITY AND BINDING EFFECT. The Purchaser has full power and authority and has taken all action necessary to authorize it to enter into and perform its obligations under the Transaction Documents and all other documents or instruments contemplated hereby. Each of the Transaction Documents has been duly executed and delivered by the Purchaser and 42 is the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. 9.3 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Purchaser of the Transaction Documents and all other instruments or agreements to be executed in connection herewith and the purchase hereunder by the Purchaser of the Initial Warrant, the Expansion Capital Warrant or the Preferred Stock and/or REIT Common Stock, as applicable, pursuant to this Agreement (a) are within the Purchaser's partnership powers; (b) have been duly authorized by all necessary partnership action on the part of the Purchaser; (c) do not require any License or Approval (except such as have been obtained); (d) do not contravene or constitute a default under or violation of (i) any provision of applicable law or regulation of any Governmental Authority, (ii) the Partnership Documents of the Purchaser; (iii) any agreement (or require the consent of any Person under any agreement that has not been made or obtained) to which the Purchaser is a party, or (iv) any judgment, injunction, order, decree or other instrument binding upon the Purchaser except where such contravention, default or violation would not have a Material Adverse Effect on the Purchaser's ability to purchase the shares of Preferred Stock and/or REIT Common Stock, as applicable, hereunder. 9.4 LITIGATION; DEFAULTS. As of the date of this Agreement, there is (a) no action, suit, or proceeding, pending or, to the knowledge of the Purchaser, threatened against or affecting the Purchaser, or (b) to the knowledge of the Purchaser, no investigation pending against or affecting the Purchaser before or by any Governmental Authority which (individually or in the aggregate) could reasonably be expected to (i) have a Material Adverse Effect on the Purchaser's ability to purchase the shares of Preferred Stock or REIT Common Stock, as applicable, hereunder, or (ii) impair the ability of the Purchaser to perform fully on a timely basis any material obligation which the Purchaser has or will have under any Transaction Document to which the Purchaser is a party. The Purchaser is not in violation of, or in default under (and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its Partnership Documents or of any term of any agreement, instrument, judgment, decree, order, statute, injunction, governmental regulation, rule or ordinance (including without limitation, those relating to zoning, city planning or similar matters) applicable to the Purchaser or to which the Purchaser is bound, except in each case to the extent that such violations or defaults, individually or in the aggregate, would not (a) affect the validity of any Transaction Document, (b) have a Material Adverse Effect on the Purchaser's ability to purchase the shares of Preferred Stock or REIT Common Stock, as applicable, hereunder, or (c) impair the ability of the Purchaser to perform fully on a timely basis any material obligation which the Purchaser has or will have under any Transaction Document to which the Purchaser is a party. 10. ADDITIONAL COVENANTS OF THE REIT. So long as this Agreement remains in effect, the REIT hereby covenants and agrees as follows: 10.1 DELIVERY OF INFORMATION. The REIT will furnish to the Purchaser copies of its SEC Filings promptly after filing such documents with the Commission and copies of all 43 materials distributed to its stockholders concurrently with such distribution, including all quarterly and annual reports to stockholders and any materials distributed in connection with the solicitation of stockholder votes. 10.2 NO IMPAIRMENT. The REIT shall not by any action, including, without limitation, by amendment of its Charter Documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the REIT but shall at all times in good faith assist in the carrying out of all the provisions of this Agreement and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Purchaser against impairment. 10.3 RESERVATION OF SHARES OF PREFERRED STOCK AND REIT COMMON STOCK. (a) The REIT shall at all times reserve and keep available out of its authorized and unissued Preferred Stock, solely for issuance pursuant to the terms of this Agreement or the other Transaction Documents, free from any preemptive rights or other obligations, a good faith estimate of the maximum number of shares of Preferred Stock that may from time to time be issuable under the terms of this Agreement, which shall not be less than that number of shares of Preferred Stock equal to the product of (x) three (3) and (y) the quotient obtained by DIVIDING (i) the quotient obtained by dividing $50,000,000 by the Option Exercise Price BY (ii) the Conversion Multiple; PROVIDED, HOWEVER, that, if the Operating Partnership has approved an increase to the Capital Contribution Cap under Section 3.7(a) of the Joint Venture Agreement, then the REIT shall increase the number of shares reserved by at least that number equal to the product of (x) 3 and (y) the quotient obtained by DIVIDING (i) the quotient obtained by dividing Expansion Capital by the Expansion Option Exercise Price BY (ii) the Conversion Multiple, and, if any Additional Capital has been contributed, then the REIT shall increase the number of shares reserved by at least that number equal to the product of (x) 3 and (y) the quotient obtained by DIVIDING (i) the quotient obtained by dividing Additional Capital by the Additional Option Exercise Price BY (ii) the Conversion Multiple. (b) In addition, the REIT shall at all times reserve and keep available out of its authorized and unissued REIT Common Stock, solely for issuance pursuant to the terms of this Agreement or the other Transaction Documents, free from any preemptive rights or other obligations, a good faith estimate of the maximum number of shares of REIT Common Stock that may from time to time be issuable under the terms of this Agreement, which shall not be less than the number resulting from MULTIPLYING (i) that number of shares of Preferred Stock reserved for issuance at any time in accordance with Section 10.3(a) above, BY (ii) the Conversion Multiple. (c) The REIT shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, excluding permits or authorizations relating to registration under federal or state securities laws, in order to enable the REIT lawfully to issue and deliver to the Purchaser 44 such number of shares of Preferred Stock and/or REIT Common Stock as shall from time to time be sufficient to effect the issuance of Preferred Stock and/or REIT Common Stock hereunder or the issuance of REIT Common Stock upon conversion of the Preferred Stock. The REIT shall from time to time take all action which may be necessary or appropriate so that the shares of REIT Common Stock issuable hereunder or issuable upon the conversion of Preferred Stock, immediately following their issuance, will be listed or quoted, as the case may be, on the principal securities exchanges or markets within the United States of America, if any, on which other shares of REIT Common Stock are then listed or quoted. (d) The REIT agrees not to (i) issue additional shares of Preferred Stock as a dividend or other distribution on outstanding shares of Preferred Stock; (ii) issue additional shares of Preferred Stock pursuant to a reclassification of shares of Preferred Stock; (iii) subdivide the outstanding shares of Preferred Stock into a greater number of shares of Preferred Stock; (iv) combine the outstanding shares of Preferred Stock into a smaller number of shares of Preferred Stock; or (v) to otherwise issue any shares of Preferred Stock other than pursuant to the terms of this Agreement, the Initial Capital Warrant or the Expansion Capital Warrant. 10.4 COMPLIANCE WITH LAWS UPON ISSUANCE. The REIT shall use all commercially reasonable efforts to ensure that the issuance of shares of Preferred Stock or REIT Common Stock pursuant to this Agreement will not violate, or require any consent or approval not already obtained under, any federal or state statute, rule or regulation, any contract or other agreement, or the rules and requirements of any stock exchange or any other self regulatory organization on which the REIT Common Stock is quoted or listed, including without limiting the generality of the foregoing, maintaining sufficient issued and outstanding shares of REIT Common Stock so that stockholder approval is not required prior to the issuance of Preferred Stock and/or REIT Common Stock under the terms of this Agreement. 10.5 HART-SCOTT-RODINO ACT COMPLIANCE. Prior to issuing any shares of REIT Common Stock and/or Preferred Stock hereunder, the REIT shall, upon the request of the Purchaser (an "HSR Act Filing Request"), as promptly as possible (i) make all filings required, and take all such other action that may be required or desirable, under or in connection with the HSR Act, (ii) use all commercially reasonable efforts to cause the expiration or termination of any waiting period under the HSR Act to occur as promptly as possible, and (iii) use all commercially reasonable efforts to cause any other Person (other than the Purchaser) who may be required to make any filing, or to take any other action, under or in connection with the HSR Act to do so as promptly as possible. The parties agree that each of the REIT and the Purchaser shall be responsible for one-half of the aggregate filing fee in connection with any filing required under the HSR Act. 10.6 PREFERRED STOCK OR REIT COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND NON-ASSESSABLE. The REIT will take all such action as may be necessary to ensure that all shares of Preferred Stock and/or REIT Common Stock issued hereunder shall, at the time of delivery of the certificates for such shares, be duly and validly 45 authorized and issued and fully paid and non-assessable shares and free from all liens and charges with respect to the issuance thereof. 10.7 TRANSFER TAXES. The REIT will pay when due and payable any and all federal and state transfer taxes and charges (but not income taxes) which may be payable in respect of the issuance or delivery of any shares of Preferred Stock and/or REIT Common Stock issued under the terms of this Agreement. 10.8 SHAREHOLDER RIGHTS PLAN. So long as this Agreement is in effect, the REIT shall not adopt what is commonly referred to as a "shareholder rights plan," or issue any convertible securities, the conversion rights of which would be triggered, accelerated or otherwise altered by the issuance of shares of Preferred Stock and/or REIT Common Stock under this Agreement or the issuance of shares of REIT Common Stock upon conversion of the Preferred Stock unless the exercise of the Purchaser's rights hereunder and under the Initial Warrant and the Expansion Capital Warrant are specifically exempted from the application of such shareholder rights plan or convertible securities. For the purposes of this section, the REIT shall be deemed to have adopted a shareholder rights plan or issued a convertible security if it merges with or into, consolidates with or transfers all or substantially all of its assets to a Person that has such a plan in effect or that has an outstanding class or series of convertible securities. 10.9 BUSINESS COMBINATION STATUTE, CONTROL SHARE STATUTE. The REIT shall use all commercially reasonable efforts to ensure that the issuance of any shares of Preferred Stock or REIT Common Stock hereunder is exempted from the application of Chapter 1704 of the Ohio Revised Code and 1701.831 of the Ohio General Corporation Law. 10.10 FURTHER ASSURANCES. Following the exercise of the Exchange Option, any exercise of the Initial Warrant or the Expansion Capital Warrant, an election by the Purchaser or the REIT under Section 4 hereof or the occurrence of a Put/Sale Distribution, each of the REIT, the Operating Partnership and the Purchaser shall use all commercially reasonable efforts to perform and fulfill all conditions and obligations on their parts to be performed and fulfilled under this Agreement and to cause the conditions in Section 7 hereof to be satisfied in a timely manner prior to any Closing. 11. RESTRICTIONS ON TRANSFER. 11.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section 11, each share of Preferred Stock or REIT Common Stock issued pursuant to this Agreement shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF, EXCEPT IN 46 ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH TRANSFER. The REIT shall maintain a copy of this Agreement and any amendments thereto on file in its principal office, and will make such copy available during normal business hours for inspection to any party thereto or will provide such copy to the Purchaser or any transferee upon its or their request. Whenever the legend requirements imposed by this Section 11.1 shall terminate, as provided in Section 11.2, the respective holders of shares of Preferred Stock or REIT Common Stock for which such legend requirements have terminated shall be entitled to receive from the REIT, at the REIT's expense, shares of Preferred Stock or REIT Common Stock, as applicable, without such legend. 11.2 NOTICE OF TRANSFER; OPINIONS OF COUNSEL. The holder of each of the shares of Preferred Stock or REIT Common Stock bearing the restrictive legend set forth in Section 11.1 above (a "Restricted Security"), agrees with respect to any transfer of such Restricted Security to give to the REIT, (a) written notice describing the transferee and the circumstances, if any, necessary to establish the availability of an exemption from the registration requirements of the Securities Act and any state law and (b) upon reasonable request by the REIT, to such transferring holder, an opinion of counsel (at the expense of such holder), which is knowledgeable in securities law matters (including in-house counsel or regular counsel to the Purchaser or its investment adviser), in form and substance reasonably satisfactory to the REIT, to the effect that the proposed transfer of such Restricted Security may be effected without registration of such Restricted Security under the Securities Act or any state law. If for any reason the REIT, (after having been furnished with the opinion required to be furnished pursuant to this Section 11.2) shall fail to notify such holder within ten (10) business days after such holder shall have delivered such notice or opinion to the REIT, that, in its or its counsel's opinion, the transfer may not be legally effective (the "Illegal Transfer Notice"), such holders shall thereupon be entitled to transfer the Restricted Security as proposed. If the holder of the Restricted Security delivers to the REIT, an opinion of counsel (including in-house counsel or regular counsel to the Purchaser or its investment adviser) in form and substance reasonably satisfactory to the REIT, that subsequent transfers of such Restricted Security will not require registration under the Securities Act or any state law, the REIT will promptly after such contemplated transfer deliver new certificates for such Restricted Security which do not bear the Securities Act legend set forth in Section 11.1 above. The restrictions imposed by this Section 11 upon the transferability of any particular Restricted Security shall cease and terminate when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or at such time as the shares are eligible to be transferred pursuant to Rule 144(k) promulgated under the Securities 47 Act. The holder of any Restricted Security as to which such restrictions shall have terminated shall be entitled to receive from the REIT, a new security of the same type but not bearing the restrictive Securities Act legend set forth in Section 11.1 and not containing any other reference to the restrictions imposed by this Section 11. Notwithstanding any of the foregoing, no opinion of counsel will be required to be rendered pursuant to this Section 11.2 with respect to the transfer of any securities on which the restrictive legend has been removed in accordance with this Section 11.2. As used in this Section 11.2, the term "transfer" encompasses any sale, transfer or other disposition of any securities referred to herein. 11.3 NO RESTRICTIVE LEGENDS. Notwithstanding Section 11.1 hereof, shares of Preferred Stock or REIT Common Stock issued under the terms of this Agreement will not contain any restrictive legend similar to that provided for in Section 11.1 above in the event that the issuance of such shares is covered by an effective registration statement filed with the Commission. 12. MISCELLANEOUS 12.1 INDEMNIFICATION; EXPENSES, ETC. (a) In addition to any and all obligations of the REIT and the Operating Partnership to indemnify the Purchaser hereunder the REIT and the Operating Partnership agree, without limitation as to time, to jointly and severally indemnify and hold harmless the Purchaser, its Affiliates, and the employees, officers, directors, trustees, direct and indirect partners, members, agents and investment advisors of the Purchaser and such Affiliates (individually, a "Purchaser Indemnified Party" and, collectively the "Purchaser Indemnified Parties") from and against any and all losses, claims, damages, liabilities, costs (including the costs of preparation and reasonable attorneys' fees) and reasonable expenses (including expenses of investigation) (collectively, "Losses") incurred or suffered by a Purchaser Indemnified Party in connection with or arising out of any material breach by the REIT or the Operating Partnership of any warranty or representation or covenant made by the REIT or the Operating Partnership in this Agreement; PROVIDED, HOWEVER, that neither the REIT nor the Operating Partnership shall be liable for any losses resulting from action on the part of any Purchaser Indemnified Party which is finally determined in such proceeding to be wrongful or which is an act of gross negligence, recklessness, or willful misconduct by such Purchaser Indemnified Party. Each of the REIT and the Operating Partnership agree promptly to reimburse any Purchaser Indemnified Party for all such Losses as they are incurred or suffered by such Purchaser Indemnified Party. Except as otherwise provided herein, each of the REIT and the Operating Partnership agree (for the benefit of the Purchaser) to pay, and to hold the Purchaser harmless from and against, all costs and expenses (including, without limitation, attorneys' fees, expenses and disbursements), if any, in connection with the enforcement against the REIT or the Subsidiaries of this Agreement or any other Transaction Document or any other agreement or instrument furnished pursuant hereto or in connection herewith in any action in which the 48 Purchaser attempts to enforce any of the foregoing, PROVIDED, that the Purchaser shall prevail in such action. (b) In addition to any and all obligations of the Purchaser to indemnify the REIT and the Subsidiaries hereunder, the Purchaser agrees, without limitation as to time, to indemnify and hold harmless the REIT, the Subsidiaries, their Affiliates, and the employees, officers, directors, trustees, direct and indirect partners, members and agents of the REIT, the Subsidiaries and their Affiliates (individually, a "REIT Indemnified Party" and, collectively the "REIT Indemnified Parties") from and against any and all Losses, incurred or suffered by a REIT Indemnified Party in connection with or arising out of any material breach by the Purchaser of any warranty or representation or covenant made by the Purchaser in this Agreement; PROVIDED, HOWEVER, that the Purchaser shall not be liable for any losses resulting from action on the part of any REIT Indemnified Party which is finally determined in such proceeding to be wrongful or which is an act of gross negligence, recklessness, or willful misconduct by such REIT Indemnified Party. The Purchaser agrees promptly to reimburse any REIT Indemnified Party for all such Losses as they are incurred or suffered by such REIT Indemnified Party. Except as otherwise provided herein, the Purchaser agrees (for the benefit of the REIT) to pay, and to hold the REIT harmless from and against, all costs and expenses (including, without limitation, attorneys' fees, expenses and disbursements), if any, in connection with the enforcement against the Purchaser of this Agreement or any other Transaction Document or any other agreement or instrument furnished pursuant hereto or in connection herewith in any action in which the REIT attempts to enforce any of the foregoing, PROVIDED, that the REIT shall prevail in such action. (c) If any Indemnified Party is entitled to indemnification hereunder, such Indemnified Party or its representative shall give prompt notice to the REIT or the Purchaser, as the case may be (each, for purposes of this Section 12.1(c), an "Indemnifying Party" to the extent the context so requires) of any claim or of the commencement of any proceeding against such Indemnified Party brought by any third party with respect to which such Indemnified Party seeks indemnification pursuant hereto; PROVIDED, HOWEVER, that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any obligation or liability except to the extent the Indemnifying Party is prejudiced by such failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or proceeding, to assume, at the expense of the Indemnifying Party, the defense of any such claim or proceeding with counsel reasonably satisfactory to such Indemnified Party. The Indemnified Party or Parties will not be subject to any liability for any settlement made without its or their consent (but such consent will not be unreasonably withheld). The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement in connection with any matter for which the Indemnified Party is entitled to indemnification hereunder, which does not include as an unconditional term thereof the giving by claimant or plaintiff to such Indemnified Party or Parties of a release, in form and substance satisfactory 49 to the Indemnified Party or Parties, from all liability in respect of such claim, litigation or proceeding. 12.2 ASSIGNABILITY. No party may directly or indirectly assign or otherwise transfer any of its respective rights or obligations under this Agreement without the prior written consent of the other parties hereto; PROVIDED, HOWEVER, that the Purchaser may transfer its rights and obligations hereunder in connection with a concurrent transfer of all or substantially all of its limited liability company interest in the Joint Venture permitted pursuant to Section 8.1 of the Joint Venture Agreement to the transferee of its limited liability company interest in the Joint Venture. Notwithstanding any other provision in this Agreement to the contrary, in the event that the Purchaser transfers all or substantially all of its limited liability company interests in the Joint Venture in any transaction other than one permitted pursuant to Section 8.1.3(a) of the Joint Venture Agreement, the provisions of Sections 2, 3.2, 4.1 and 4.2 shall be deemed terminated immediately upon the consummation of such transfer, and the parties and their assignees or transferees shall have no further rights or obligations with respect to such sections. 12.3 SUCCESSORS AND ASSIGNS. Subject to Section 12.2, whenever in this Agreement any of the parties hereto are referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the respective parties which are contained in this Agreement shall bind and inure to the benefit of the successors and assigns of all other parties. Except as otherwise provided herein or in any other Transaction Document, the terms and provisions of this Agreement and the other Transaction Documents shall inure to the benefit of and shall be binding upon any assignee or transferee of the Purchaser, and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Purchaser shall automatically extend to and be vested in, and become an obligation of, such transferee or assignee, all subject to the terms and conditions hereof. 12.4 USE OF DEPOSITARY SHARES. The parties agree that, at any time at which shares of Preferred Stock are to be issued pursuant to this Agreement, the REIT may in lieu thereof issue Depositary Shares, in each case at a ratio of 100 Depositary Shares for each share of Preferred Stock, and the Transaction Documents shall be deemed simultaneously amended in all respects necessary to adjust the rights, terms and provisions hereunder as appropriate to reflect such issuance. Each Depositary Share will have, proportionately, the same rights, privileges, duties and limitations as the share of Preferred Stock in which that Depositary Share evidences an interest. 12.5 TERMINATION OF AGREEMENT. Notwithstanding anything in this Agreement to the contrary, this Agreement shall be deemed terminated as of the dissolution of the Joint Venture and the liquidation of the assets in connection therewith and the distribution to the members thereof of all funds held by the Joint Venture. 12.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY. All representations and warranties contained in this Agreement or the Transaction Documents or 50 made in writing by or on behalf of the REIT, the Operating Partnership or the Purchaser in connection with the transactions contemplated by this Agreement or the Transaction Documents shall survive, for the duration of any statutes of limitation applicable thereto, the execution and delivery of this Agreement, any investigation at any time made by the REIT, the Operating Partnership, the Purchaser or on such party's behalf, the purchase of any shares of Preferred Stock or REIT Common Stock by the Purchaser under this Agreement and any disposition of or payment on such shares of Preferred Stock or REIT Common Stock. All statements contained in any certificate or other instrument delivered to the Purchaser by or on behalf of the REIT or delivered to the REIT by or on behalf of the Purchaser pursuant to this Agreement or the other Transaction Documents shall be deemed representations and warranties of the REIT or the Purchaser, as applicable, under this Agreement. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 12.7 NOTICES. All notices required or permitted to be given under this Agreement shall be in writing and shall be either personally delivered or sent by registered or certified mail, return receipt requested, to the addresses set forth below, as they may be changed from time to time by the addressee party by written notice to the other parties. If to the REIT or the Boykin Lodging Company Operating Partnership: Guildhall Building 45 West Prospect Avenue, Suite 1500 Cleveland, Ohio 44115 Attn: Robert W. Boykin, Chief Executive Officer with copies to: Robert A. Weible, Esq. Baker and Hostetler LLP 3200 National City Center 1900 E. 9th Street Cleveland, Ohio 44114 Tel: (216) 861-7553 Fax: (216) 696-0740 If to the Purchaser: AEW Partners III, L.P. 225 Franklin Street, 25th Floor Boston, Massachusetts 02109 Attn: J. Grant Monahon, Esq. Tel: 617-261-9000 Fax: 617-261-9555 51 with copies to: Michael H. Glazer, P.C. Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 Tel: 617-570-1420 Fax: 617-523-1231 12.8 NO WAIVER. No waiver or consent shall be effective under this Agreement unless it is in writing and executed by the party against which enforcement thereof is sought. Unless otherwise provided herein, the giving of any consent with respect to this Agreement shall be in the sole discretion of the party giving such consent. A waiver or consent shall be effective only with respect to the specific event or circumstances for which it is given and not any subsequent occurrence, unless otherwise expressly stated therein. 12.9 AMENDMENTS. No alteration, modification or amendment of the terms and provisions of this Agreement shall be binding unless in writing and consented to by the parties hereto. 12.10 FURTHER ASSURANCES. In connection with this Agreement, as well as all transactions contemplated by this Agreement, each party agrees to execute and deliver all such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate and perform all of the terms, provisions and conditions of this Agreement and all such transactions. 12.11 ENTIRE AGREEMENT. The Joint Venture Agreement, this Agreement, the Registration Rights Agreement, the Initial Warrant, the Expansion Capital Warrant and any other instruments to be executed and delivered pursuant thereto, constitute the entire agreement between the parties and supersede all prior understandings and writings, and may be changed only by a writing signed by the parties thereto. 12.12 DESCRIPTIVE HEADINGS. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 12.13 GENDER, NUMBER. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons may require. 12.14 SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to a particular party, the determination of such satisfaction shall be made by such party, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 12.15 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES 52 SHALL BE GOVERNED BY, THE LAW OF THE STATE OF OHIO WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW. 12.16 EXPENSES. The Joint Venture will pay at any Closing (or on such later date as one or more invoices may be submitted to the Joint Venture) the legal fees of Purchaser's Counsel incurred in connection with this Agreement and consummation of the transactions contemplated hereby. 12.17 COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, binding on all parties hereto, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 12.18 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Agreement may not be used to interpret another agreement, indenture, loan or debt agreement of the REIT or any Subsidiary. Any such agreement, indenture, loan or debt agreement may not be used to interpret this Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 53 STOCK PURCHASE OPTION AGREEMENT If this Agreement is satisfactory, please so indicate by signing the applicable attached signature page of this Agreement and delivering such counterpart to the Purchaser, whereupon this Agreement will become binding among the parties hereto in accordance with its terms. BOYKIN LODGING COMPANY, an Ohio corporation By: /s/ Paul A. O'Neil -------------------------------- Name: Paul A. O'Neil Title: Chief Financial Officer BOYKIN HOTEL PROPERTIES, L.P. an Ohio limited partnership By: Boykin Lodging Company, its General Partner By: /s/ Richard C. Conti ------------------------------- Name: Richard C. Conti Title: Chief Operating Officer S-1 STOCK PURCHASE OPTION AGREEMENT PURCHASER SIGNATURE PAGE Accepted and agreed as of the date first written above: AEW PARTNERS III, L.P. By: AEW III, L.L.C., its General Partner By: AEW Partners III, Inc., its Managing Member By: /s/ James J. Finnegan -------------------------------- Name: James J. Finnegan Title: Vice President S-2 EX-10.17 4 EXHIBIT 10.17 WARRANT TO PURCHASE CLASS A CUMULATIVE PREFERRED STOCK, SERIES 1999-A OF BOYKIN LODGING COMPANY Certificate No. W-1 February 1, 1999 TABLE OF CONTENTS
PAGE ---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS . . . . . . . . . . . . . . . . . . 6 2.1 GENERAL . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 6 2.2 NUMBER OF SHARES UNDERLYING WARRANT . . . . . . . . . . . . . . . . . . . . . 6 2.3. RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK UPON EXERCISE OF WARRANT. . . . 6 2.4 EXPIRATION OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.5 MANNER OF EXERCISE; PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.6 FRACTIONAL SHARES OF PREFERRED STOCK OR REIT COMMON STOCK . . . . . . . . . . 9 2.7 CERTAIN RIGHTS OF HOLDERS; REIT TO REAFFIRM OBLIGATIONS . . . . . . . . . . . 9 3. PUT RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.1 CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 3.2 PROCEDURES FOR EXERCISING PUT RIGHT . . . . . . . . . . . . . . . . . . . . .10 4. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 4.1 RESTRICTIONS ON TRANSFER OF WARRANT . . . . . . . . . . . . . . . . . . . . .10 4.2 RESTRICTIVE LEGENDS ON SHARES ISSUED UPON EXERCISE. . . . . . . . . . . . . .10 4.3 NOTICE OF TRANSFER; OPINIONS OF COUNSEL . . . . . . . . . . . . . . . . . . .11 4.4 NO RESTRICTIVE LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .12 5. TRANSFERS, EXCHANGES AND SUBSTITUTION OF WARRANT. . . . . . . . . . . . . . . . . .12 5.1 EXCHANGE AND TRANSFER OF WARRANT CERTIFICATES . . . . . . . . . . . . . . . .12 5.2 DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . .12 5.3 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS . . . . . . . . . . . . . . . .12 5.4 CANCELLATION OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . .13 60 ADJUSTMENT TO EXERCISE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . .13 6.1 ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 (i) PAGE ---- 6.2 FURTHER ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .13 6.3 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. . . . . . . . . .15 6.4 OTHER DILUTIVE EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 6.5 WHEN ADJUSTMENTS SHALL BE MADE. . . . . . . . . . . . . . . . . . . . . . . .16 6.6 WHEN ADJUSTMENT NOT REQUIRED. . . . . . . . . . . . . . . . . . . . . . . . .16 6.7 WHEN ADJUSTMENTS CARRIED FORWARD. . . . . . . . . . . . . . . . . . . . . . .16 6.8 NOTICE OF ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 70 ADJUSTMENT TO NUMBER OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .17 7.1 ADJUSTMENT RELATING TO JOINT VENTURE CONTRIBUTIONS. . . . . . . . . . . . . .17 7.2 ADJUSTMENTS RELATING TO CHANGES IN CAPITALIZATION, DISTRIBUTIONS, ETC . . . .17 7.3 ADJUSTMENT REBATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 7.4 NOTICE OF ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 80 COVENANTS OF THE REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 8.1 DELIVERY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . .18 8.2 NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 8.3 RESERVATION OF SHARES OF PREFERRED STOCK AND REIT COMMON STOCK. . . . . . . .18 8.4 COMPLIANCE WITH LAWS UPON ISSUANCE. . . . . . . . . . . . . . . . . . . . . .19 8.5 HART-SCOTT-RODINO ACT COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . .19 8.6 PREFERRED STOCK OR REIT COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND NON-ASSESSABLE . . . . . . . . . . . . . . . . .20 8.7 TRANSFER TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 8.8 SHAREHOLDER RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . .20 8.9 CREATION OF PREFERRED STOCK AND PREFERRED UNITS . . . . . . . . . . . . . . .20 8.10 BUSINESS COMBINATION STATUTE, CONTROL SHARE STATUTE . . . . . . . . . . . . .21 8.11 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC . . . . . . . . . . . . .22 (ii) PAGE ---- 90 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 9.1 USE OF DEPOSITARY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .22 9.2 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . .22 9.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 9.4 AVAILABILITY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .23 9.5 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 9.6 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.8 DESCRIPTIVE HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.9 GENDER, NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.10 SATISFACTION REQUIREMENT. . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.12 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 9.13 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . . . . . . . . . .25
(iii) PAGE (iv) SCHEDULES EXHIBITS EXHIBIT A -- Form of Subscription Agreement EXHIBIT B -- Form of Assignment EXHIBIT C -- Form of Put Notice (v) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE SECURITIES ACT, (ii) RULE 144 OR RULE 144A UNDER THE SECURITIES ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. Date of Issuance: February 1, 1999 Certificate No. W-1 WARRANT To Purchase Shares of Class A Cumulative Preferred Stock, Series 1999-A BOYKIN LODGING COMPANY FOR VALUE RECEIVED, Boykin Lodging Company, an Ohio corporation (the "REIT") hereby grants to AEW Partners III, L.P., a Delaware limited partnership (the "Holder"), or registered assigns, the right to purchase from the REIT at any time prior to the Expiration Date (as defined herein) up to 12,136 duly authorized, validly issued, fully paid and nonassessable shares of the REIT's Preferred Stock (as defined herein), at a purchase price of $1,648.00 per share (the "Exercise Price"), all on the terms and conditions and pursuant to the provisions hereinafter set forth. The amount of securities purchasable pursuant to the rights granted hereunder and the purchase price for such securities are subject to adjustment pursuant to the provisions contained in this Warrant. Unless otherwise defined, capitalized terms used in this Warrant are defined in Section 1; references to an "Exhibit" are, unless otherwise specified, to an Exhibit attached to this Warrant; references to a "Section" are, unless otherwise specified, to a section of this Warrant. This Warrant is originally issued in connection with the execution and delivery of the Stock Purchase Option Agreement dated as of February 1, 1999 by and among the REIT, the Operating Partnership (as defined herein) and the Holder (the "Stock Purchase Option Agreement"). 1. DEFINITIONS In addition to any terms defined elsewhere herein, as used in this Warrant, the following terms have the respective meanings set forth below: "Aggregate Trading Value" has the meaning ascribed thereto in Section 6.2 hereof. "Approvals" has the meaning ascribed thereto in Section 8.10 hereof. "Articles of Incorporation" means the Amended and Restated Articles of Incorporation of the REIT, as amended to date and presently in effect. "Buy/Sell" means the right set forth in Section 8.4 of the Joint Venture Agreement. "Capital Stock" means, with respect to any Person, any and all shares, interests, participation, rights in or other equivalents (however designated) of such Person's capital stock, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock. "Certificate of Amendment " means the Certificate of Amendment of the REIT's Articles of Incorporation relating to the creation of the Preferred Stock filed with the Ohio Secretary of State on February 1, 1999. "Change in Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the REIT) : (i) if any "person" or "group" as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner," directly or indirectly, of more than 50% of the total voting power of the Capital Stock of the REIT and treating as "beneficially owned" all shares of Capital Stock of the REIT that such "person" or "group" may receive upon exchange of units of limited partnership interest in the Operating Partnership held by such "person" or "group"; (ii) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the REIT in one transaction or a series of transactions to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) or group of related persons for purposes of Section 13(d) of the Exchange Act (a "Group of Persons"); (iii) the REIT consolidates with or merges with or into another Person or any Person consolidates with, or merges with or into, the REIT (in each case, whether or not in compliance with the terms of this Warrant), in any such event pursuant to a transaction in which immediately after the consummation thereof the stockholders of the REIT immediately prior to the consummation of the transaction shall cease to have the power, directly or indirectly (including by way of a general partnership interest), to vote or direct the voting of securities having in the aggregate at least a majority of the ordinary voting power for the election of the directors of the REIT or its successor; or (iv) the adoption of any plan of liquidation or dissolution of the REIT. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of the Operating Partnership (or any other Subsidiary of the REIT), the general partnership interest in which constitutes all or substantially all of the assets of the REIT), shall be deemed to be the transfer of all or substantially all of the assets of the REIT. "Charter Documents" means, with respect to any Person, the certificates or articles of incorporation, by-laws, code of regulations, or other equivalent organizational documents, each as amended and restated to date and presently in effect of a Person. "Commission" means the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Contributions" has the meaning ascribed thereto in the Joint Venture Agreement. "Conversion Multiple" has the meaning ascribed thereto in the Certificate of Amendment, subject to adjustment as provided from time to time following the date hereof, as provided therein. "Depositary Share" means a fractional interest of one one-hundredth (1/100) of one share of Preferred Stock, as more fully described, and having the rights and privileges and being subject to the limitations set forth, in the Depositary Agreement dated February 1, 1999 between the REIT and National City Bank. "Early Termination Right" means the right of the Operating Partnership to terminate the Investment Period prior to its expiration, if as of the first anniversary of the date hereof, the aggregate amount of all Contributions plus the amount of Committed Contributions (as defined therein) shall equal less than $26,666,667, which right is set forth in the second to last sentence of Section 10.2 of the Joint Venture Agreement. "Exchange Act," means the Securities Exchange Act of 1934, and the rules and regulations of the Commission promulgated thereunder, as from time to time amended. "Exercise Price" means initially $1,648.00, subject to adjustment from time to time as provided in Section 6 hereof. "Expiration Date" has the meaning ascribed thereto in Section 2.4 hereof. "Fractional Share Value" means the average last sale price per share of the REIT Common Stock on the NYSE over the thirty (30) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the date that Fractional Share Value is determined (adjusted to take into account any splits, combinations, reclassifications, or other changes in the REIT's capitalization that occur during such period). In the event that the REIT Common Stock is no longer trading on the NYSE then the Fractional Share Value shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. 3 "Holder" has the meaning ascribed thereto in the introduction hereof and shall include the Holder's successors by assignment, transfer, merger, acquisition, reorganization or otherwise, subject to Section 4 hereof. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as the same may be amended from time to time. "HSR Act Filing Request" has the meaning ascribed thereto in Section 8.5 hereof. "Illegal Transfer Notice" has the meaning ascribed thereto in Section 4.3 hereof. "Investment Period" has the meaning ascribed thereto in Section 10.2 of the Joint Venture Agreement. "Joint Venture" means Boykin/AEW LLC, a Delaware limited liability company. "Joint Venture Agreement" means the Limited Liability Company Agreement of Boykin/AEW LLC, dated as of date this Warrant was originally issued. "NYSE" means the New York Stock Exchange, Inc. "Operating Partnership" means Boykin Hotel Properties, L.P., an Ohio limited partnership, and shall include the Operating Partnership's successors by merger, acquisition, reorganization or otherwise. "Person" means any individual, corporation, limited or general partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Preferred Stock" means the Class A Cumulative Preferred Stock, Series 1999-A, without par value, of the REIT, the terms of which are set forth in the Certificate of Amendment. "Registrable Securities" has the meaning ascribed thereto in the Registration Rights Agreement. "Registration Rights Agreement" means the registration rights agreement by and between the REIT and the Holder, dated as of the date this Warrant was originally issued, as amended or supplemented from time to time in accordance with the terms thereof. "Related Party" shall mean with respect to any Person, (i) any Person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person, or (ii) any Person who is a member of the immediate family of such Person, or (iii) any Person in which such Person or one or more members of the immediate 4 family of such Person has a twenty-five percent (25%) or more beneficial interest or as to which such Person serves as a trustee or general partner or in a similar fiduciary capacity. A Person shall be deemed to control a Person if it and/or any member of the immediate family of such Person owns, directly or indirectly, at least twenty-five percent (25%) of the ownership interest in such Person or otherwise has the power to direct the management, operations or business of such Person. The term "beneficial owner" is to be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act. "REIT" has the meaning ascribed thereto in the introduction hereof and shall include the REIT's successors by merger, acquisition, reorganization or otherwise. "REIT Common Stock" means the common stock, no par value, of the REIT. "Restricted Security" has the meaning ascribed thereto in Section 4.3 hereof. "Right of First Offer" means the right set forth in Section 8.2 of the Joint Venture Agreement. "Rule 144" means Rule 144 as promulgated by the Commission under the Securities Act, and any successor rule or regulation thereto. "SEC Filings" means official filings of the REIT filed with the Commission in accordance with the Securities Act and the Exchange Act with respect to events occurring, or periods ending on or after December 31, 1997. "Securities Act" means the Securities Act of 1933, and the rules and regulations of the Commission promulgated thereunder, as from time to time amended. "Senior Preferred Stock" has the meaning ascribed thereto in Section 8.9 hereof. "Stock Purchase Option Agreement" has the meaning ascribed thereto in the introduction hereof. "Subsidiaries" means subsidiary corporations, partnerships, limited partnerships, joint ventures and limited liability companies which are directly or indirectly and wholly or majority owned by the REIT, including, unless the context requires otherwise, the Operating Partnership. "Target Asset" has the meaning ascribed thereto in the Joint Venture Agreement. "Warrant" means this Warrant, as amended, modified or supplemented from time to time, together with any exhibits, schedules, appendices or other attachments thereto. 5 "Warrant Price" means an amount (expressed in dollars) equal to (i) the number of shares of Preferred Stock being purchased upon exercise of this Warrant pursuant to Section 2 hereof (assuming for these purposes that the REIT has not made an election under Section 2.3 hereof to deliver REIT Common Stock or a combination of Preferred Stock and REIT Common Stock) MULTIPLIED BY (ii) the Exercise Price as of the date of such exercise. "Warrant Trigger Event" means the earliest to occur of (i) the expiration or termination of the Investment Period; (ii) the consummation of a transfer of all or substantially all of the limited liability company interests of the Holder to the REIT and/or the Operating Partnership in the Joint Venture pursuant to the Buy/Sell or otherwise, or (iii) the consummation or occurrence of a Change in Control. 2. WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS 2.1 GENERAL. Prior to the Expiration Date, the Holder may exercise this Warrant at any time: (i) within the twelve-month period following the expiration of the Investment Period; PROVIDED, HOWEVER, that the Holder may exercise this Warrant at any time within the twenty-four-month period following the expiration of the Investment Period in the event that the Operating Partnership terminates the Investment Period in accordance with the Early Termination Right contained in Section 10.2 of the Joint Venture Agreement; (ii) following the consummation of a transfer of all or substantially all of the limited liability company interests in the Joint Venture held by the Holder to the REIT and/or the Operating Partnership pursuant to the Buy/Sell or otherwise; (iii) immediately preceding the consummation or occurrence of a Change in Control of the REIT. 2.2 NUMBER OF SHARES UNDERLYING WARRANT. Subject to Sections 2.3 and 7 below, upon exercise of this Warrant, the Holder shall be entitled to receive 12,136 duly authorized, fully paid and nonassessable shares of Preferred Stock, as adjusted from time to time pursuant to Sections 6 and 7 hereof. 2.3 RIGHT OF REIT TO SUBSTITUTE REIT COMMON STOCK UPON EXERCISE OF WARRANT. In lieu of delivering shares of Preferred Stock upon exercise of the Warrant, the REIT may elect, at its sole option, to satisfy its obligations under the Warrant by delivering to the Holder either: (a) that number of shares of REIT Common Stock determined by MULTIPLYING (i) the number of shares of Preferred Stock determined pursuant to Section 2.2 6 above to which the Holder would be otherwise entitled BY (ii) the Conversion Multiple, and, if necessary, rounding the resulting number of shares to the next highest whole number; or (b) a combination of shares of REIT Common Stock and Preferred Stock determined as follows: (x) shares of REIT Common Stock up to that number of shares that, upon delivery, would result in the Holder beneficially owning nine percent (9.0%) of the total number of outstanding shares of REIT Common Stock (determined pursuant to Section 13(d) of the Exchange Act or Division C of Article Fourth of the Articles of Incorporation, whichever is more restrictive), and (y) a number of shares of Preferred Stock equal to the quotient obtained by DIVIDING (A) the amount, if any, by which the aggregate number of shares of REIT Common Stock determined in accordance with Section 2.3(a) above exceeds the number of shares of REIT Common Stock determined by clause (x) above BY (B) the Conversion Multiple and, if necessary, rounding the resulting number of shares to the next highest one one-hundredth (1/100) of a share. Notwithstanding anything in this Warrant to the contrary, the REIT may not make an election to deliver any shares of REIT Common Stock in lieu of Preferred Stock pursuant to this Section 2.3 if the issuance of such shares of REIT Common Stock would result in a violation of Division C of the REIT's Articles of Incorporation unless the REIT has waived the applicability of such Division C to the exercising Holder. 2.4 EXPIRATION OF WARRANT. Notwithstanding anything in this Warrant to the contrary, this Warrant shall expire at 5:00 p.m. Eastern time on February 1, 2002; PROVIDED, HOWEVER, if the Investment Period is extended beyond February 1, 2001, this Warrant shall expire at 5:00 p.m. Eastern time on the earlier to occur of (i) twelve months following the expiration or termination of the Investment Period or (ii) April 1, 2002 (the "Expiration Date"). 7 2.5 MANNER OF EXERCISE; PAYMENT. (a) The Holder may exercise this Warrant by surrender of this Warrant to the REIT at its principal office identified in Section 9.3 hereof during normal business hours on any business day on or prior to the Expiration Date, accompanied by (i) a subscription in substantially the form attached to this Warrant as EXHIBIT A hereto (the "Subscription Agreement"), duly executed by the Holder and specifying the number of shares of Preferred Stock to be issued, (ii) payment of the Warrant Price in the manner set forth below and, (iv) if this Warrant is not registered in the name of the Holder, an assignment or assignments substantially in the form of the assignment attached as EXHIBIT B hereto (the "Assignment") evidencing the assignment of this Warrant to the Person exercising the purchase rights represented hereby (in which case the Holder shall have complied with all requirements of Section 5 hereof). The Warrant Price applicable to any exercise shall be paid in full by wire transfer, cash, check, or money order, payable in United States currency to the order of the REIT. Within two (2) business days of receiving the Subscription Agreement, the REIT shall notify the Holder in writing if it is electing to deliver shares of REIT Common Stock or a combination of Preferred Stock and REIT Common Stock in satisfaction of its obligations hereunder and specify the number of shares of REIT Common Stock and/or Preferred Stock to be issued in satisfaction of the Warrant exercise. (b) Upon receipt of the Subscription Agreement, the REIT shall, as promptly as practicable, and in any event within ten (10) business days thereafter execute, or cause to be executed, and deliver, or cause to be delivered, to the Holder a certificate or certificates representing the shares of Preferred Stock and/or REIT Common Stock, as applicable, to be issued hereunder, together with cash in lieu of any fraction of a share (as hereinafter provided). The certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or such other name as shall be designated in the notice. The shares of Preferred Stock and/or REIT Common Stock, as applicable, represented by such certificate or certificates shall be deemed to be issued, and the Holder (or any other person designated as the registered holder) shall be deemed to have become a holder of record of such shares of Preferred Stock and/or REIT Common Stock, as applicable, for all purposes, as of the date that the Subscription Agreement, together with the Warrant Price and this Warrant, is received by the REIT as described above. Except as provided in subsection (c) below, the issuance of certificates for shares of Preferred Stock and/or REIT Common Stock shall be made without charge to the Holder for any issuance tax in respect thereof or other cost incurred by the REIT in connection with such issuance of the shares of Preferred Stock and/or REIT Common Stock. Unless otherwise provided in this Warrant, all other costs incurred in connection with the exercise of this Warrant shall be borne by the party that actually incurred such costs. (c) Upon exercise of this Warrant, Chadwick, Saylor & Co., Inc. shall be entitled to a brokerage commission equal in amount to two percent (2%) of the 8 Warrant Price. As soon as possible following exercise, such brokerage commission shall be paid by the parties as follows: (i) if, as of the occurrence of the Warrant Trigger Event, the Holder's aggregate Contributions to the Joint Venture are less than $30,000,000, seventy-five percent (75%) by the Holder and twenty-five percent (25%) by the REIT; (ii) if, as of the occurrence of the Warrant Trigger Event, the Holder's aggregate Contributions to the Joint Venture equal or exceed $30,000,000, fifty percent (50%) by the Holder and fifty percent (50%) by the REIT. 2.6 FRACTIONAL SHARES OF PREFERRED STOCK OR REIT COMMON STOCK. (a) The REIT shall not be required to issue fractional shares of Preferred Stock in amount less than one one-hundredth (1/100) of a share upon exercise of any Warrant. As to any fraction of a share of Preferred Stock less than one one-hundredth (1/100) of a share which the Holder of this Warrant would otherwise be entitled to purchase upon such exercise, the REIT shall pay a cash adjustment in respect of such final fraction (which shall be deemed to be a fraction of the last share of Preferred Stock issued, as applicable) in an amount equal to such fraction multiplied by the Fractional Share Value on the date of exercise and then multiplied by the Conversion Multiple. (b) The REIT shall not be required to issue fractional shares of REIT Common Stock upon exercise of any Warrant. As to any fraction of a share of REIT Common Stock which the Holder of this Warrant would otherwise be entitled to purchase upon such exercise, the REIT shall pay a cash adjustment in respect of such final fraction (which shall be deemed to be a fraction of the last share of REIT Common Stock issued, as applicable) in an amount equal to such fraction multiplied by the Fractional Share Value on the date of exercise. 2.7 CERTAIN RIGHTS OF HOLDERS; REIT TO REAFFIRM OBLIGATIONS. (a) The shares of Preferred Stock and/or REIT Common Stock issuable upon exercise of this Warrant shall constitute Registrable Securities (as such term is defined in the Registration Rights Agreement). The Holder of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Registrable Securities under the Registration Rights Agreement and the Holder, by its acceptance of this Warrant, agrees to be bound by and agrees to the terms and conditions of the Registration Rights Agreement applicable to the Holder as a holder of such Registrable Securities. (b) The REIT will, at the time of the exercise of this Warrant and upon the request of the Holder, acknowledge in writing its continuing obligation to afford to the Holder all rights (including without limitation the rights to registration, pursuant to the Registration Rights Agreement of any shares of Preferred Stock and/or REIT Common Stock 9 issued upon such exercise or shares of REIT Common Stock issued upon conversion of the Preferred Stock) to which the Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant; PROVIDED, HOWEVER, that if the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the REIT to afford such rights to the Holder. 3. PUT RIGHT 3.1 CONDITIONS. In the event that the Operating Partnership terminates the Investment Period in accordance with the Early Termination Right contained in Section 10.2 of the Joint Venture Agreement, the Holder shall have the right, within thirty (30) days following such termination of the Investment Period, to require the REIT to repurchase this Warrant for $250,000 in cash and, upon the Holder's election to exercise this put right, the REIT shall have the obligation to purchase this Warrant. 3.2 PROCEDURES FOR EXERCISING PUT RIGHT. In order to exercise its put right hereunder, the Holder shall deliver to the REIT a written notice of exercise, duly executed by the Holder, which notice shall indicate that the Holder is exercising its rights under this Section 3. No later than the tenth (10th) business day following the REIT's receipt of the notice of exercise, the Holder shall surrender the certificate or certificates representing this Warrant against payment of the purchase price therefor by wire transfer of immediately available funds. 4. RESTRICTIONS ON TRANSFER 4.1 RESTRICTIONS ON TRANSFER OF WARRANT. Prior to the occurrence of a Warrant Trigger Event, the Holder may not transfer this Warrant without the prior written consent of the REIT except to a transferee permitted pursuant to Section 8.1 of the Joint Venture Agreement in connection with a concurrent transfer of the entire amount of the Holder's limited liability company interest in the Joint Venture. Following the occurrence of a Warrant Trigger Event, the Holder may transfer this Warrant at any time, in whole but not in part, without the consent of the REIT. 4.2 RESTRICTIVE LEGENDS ON SHARES ISSUED UPON EXERCISE. Except as otherwise permitted by this Section 4, each certificate for shares of Preferred Stock or REIT Common Stock issued pursuant to this Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE 10 SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH TRANSFER. The REIT shall maintain a copy of this Warrant and any amendments thereto on file in its principal office, and will make such copy available during normal business hours for inspection to any party thereto or will provide such copy to the Holder or any transferee upon its or their request. Whenever the legend requirements imposed by this Section 4.2 shall terminate, as provided in Section 4.4, the respective holders of shares of Preferred Stock or REIT Common Stock for which such legend requirements have terminated shall be entitled to receive from the REIT, at the REIT's expense, shares of Preferred Stock or REIT Common Stock, as applicable, without such legend. 4.3 NOTICE OF TRANSFER; OPINIONS OF COUNSEL. The holder of each of the shares of Preferred Stock or REIT Common Stock bearing the restrictive legend set forth in Section 4.2 above (a "Restricted Security"), agrees with respect to any transfer of such Restricted Security to give to the REIT, (a) written notice describing the transferee and the circumstances, if any, necessary to establish the availability of an exemption from the registration requirements of the Securities Act and any state law and (b) upon reasonable request by the REIT, to such transferring holder, an opinion of counsel (at the expense of such holder), which is knowledgeable in securities law matters (including in-house counsel or regular counsel to the holder or its investment adviser), in form and substance reasonably satisfactory to the REIT, to the effect that the proposed transfer of such Restricted Security may be effected without registration of such Restricted Security under the Securities Act or any state law. If for any reason the REIT, (after having been furnished with the opinion required to be furnished pursuant to this Section 4.3) shall fail to notify such holder within ten (10) business days after such holder shall have delivered such notice or opinion to the REIT, that, in its or its counsel's opinion, the transfer may not be legally effective (the "Illegal Transfer Notice"), such holders shall thereupon be entitled to transfer the Restricted Security as proposed. If the holder of the Restricted Security delivers to the REIT, an opinion of counsel (including in-house counsel or regular counsel to the holder or its investment adviser) in form and substance reasonably satisfactory to the REIT, that subsequent transfers of such Restricted Security will not require registration under the Securities Act or any state law, the REIT, will promptly after such contemplated transfer deliver new certificates for such 11 Restricted Security which do not bear the Securities Act legend set forth in Section 4.2 above. The restrictions imposed by Section 4.2 upon the transferability of any particular Restricted Security shall cease and terminate when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or at such time as the shares are eligible to be transferred pursuant to Rule 144(k) promulgated under the Securities Act. The holder of any Restricted Security as to which such restrictions shall have terminated shall be entitled to receive from the REIT, a new security of the same type but not bearing the restrictive Securities Act legend set forth in Section 4.2 and not containing any other reference to the restrictions imposed by this Section 4.2. Notwithstanding any of the foregoing, no opinion of counsel will be required to be rendered pursuant to this Section 4.3 with respect to the transfer of any securities on which the restrictive legend has been removed in accordance with this Section 4.3. As used in this Section 4.3, the term "transfer" encompasses any sale, transfer or other disposition of any securities referred to herein. 4.4 NO RESTRICTIVE LEGENDS. Notwithstanding Section 4.2 hereof, shares of Preferred Stock or REIT Common Stock issued under the terms of this Warrant will not contain any restrictive legend similar to that provided for in Section 4.2 above in the event that the issuance of such shares is covered by an effective registration statement filed with the Commission. 5. TRANSFERS, EXCHANGES AND SUBSTITUTION OF WARRANT 5.1 EXCHANGE AND TRANSFER OF WARRANT CERTIFICATES. The Warrant (and any shares of Preferred Stock and/or REIT Common Stock issued upon exercise of the Warrant) shall bear such restrictive legend or legends as may be required by Section 4 hereof. Subject to the restrictions on transfer described in Section 4 above, this Warrant and all rights hereunder are transferable, in whole but not in part, without charge to the Holder, upon surrender of this Warrant with a properly executed Assignment at the principal office of the REIT. Upon such surrender, the REIT shall execute and deliver a new Warrant in the name of the assignee or assignees, and this Warrant shall promptly be canceled. A Warrant, if properly assigned in compliance herewith, may be exercised by a new Holder without having a new Warrant issued. 5.2 DIVISION AND COMBINATION. This Warrant shall not be divided but may be combined with other Warrants upon presentation hereof at the aforesaid office or agency of the REIT, together with a written notice specifying the names and denominations in which the new Warrant is to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4 as to any transfer which may be involved in such combination, the REIT shall execute and deliver a new Warrant in exchange for the Warrants to be combined in accordance with such notice. 5.3 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If any Warrant shall be mutilated, lost, stolen or destroyed, the REIT shall issue, execute and deliver, in exchange and 12 substitution for and upon cancellation of a mutilated Warrant, or in lieu of or in substitution for a lost, stolen or destroyed Warrant, a new Warrant representing equivalent rights of the Holder. If required by the REIT, the Holder of the mutilated, lost, stolen or destroyed Warrant must provide indemnity sufficient to protect the REIT from any loss which it may suffer if the Warrant is replaced. Any such new Warrant shall constitute an original contractual obligation of the REIT, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 5.4 CANCELLATION OF WARRANT. Any Warrant surrendered upon exercise or for exchange or transfer, or purchased or otherwise acquired by the REIT, shall be canceled and shall not be reissued by the REIT; and, except as provided herein in case of the partial exercise of the Warrants or upon an exchange or transfer, no Warrant shall be issued hereunder in lieu of such canceled Warrant. Any Warrant so canceled shall be destroyed by the REIT. 60 ADJUSTMENT TO EXERCISE PRICE. 6.1 ADJUSTMENTS. In the event that the REIT shall at any time: (a) issue additional shares of REIT Common Stock as a dividend or other distribution on outstanding shares of REIT Common Stock; (b) issue additional shares of REIT Common Stock pursuant to a reclassification of shares of REIT Common Stock; (c) subdivide the outstanding shares of REIT Common Stock into a greater number of shares of REIT Common Stock; or (d) combine the outstanding shares of REIT Common Stock into a smaller number of shares of REIT Common Stock; then in each such case the Exercise Price shall, simultaneously with the happening of such dividend, subdivision or combination, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the number of shares of REIT Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of REIT Common Stock outstanding immediately after such event. 6.2 FURTHER ADJUSTMENTS. In the event that the REIT shall at any time take a record of the holders of the REIT Common Stock for the purpose of entitling them to receive any dividend or other distribution (including without limitation any distribution by way of spin-off, reclassification, recapitalization or similar corporate rearrangement or otherwise) of: (a) cash (other than regular quarterly dividends payable out of earnings or earned surplus (plus depreciation and amortization) legally available for the 13 payment of dividends under the laws of the jurisdiction of the REIT, and any special additional dividends made for the purposes of distributing 100% of the REIT's real estate investment trust taxable income); (b) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever; or (c) any securities convertible into, or warrants or other rights to subscribe for or purchase any evidence of its indebtedness, any shares of its capital stock or any other securities or property of any nature, whether or not the rights to exchange or convert thereunder are immediately exercisable; then in each such case the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then effective Exercise Price by a fraction, the numerator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event less the then fair market value of the cash or other assets, rights, warrants, evidence of indebtedness or other securities so distributed and the denominator of which shall be the Aggregate Trading Value of the REIT Common Stock at the time of such event. The fair market value of the cash distributed will be equal to the amount of cash distributed and the fair market value of any other assets, rights, warrants, evidence of indebtedness or other securities distributed, will be determined in good faith by the Board of Directors of the REIT. For the purposes of this Section 6.2, "Aggregate Trading Value" of the REIT Common Stock shall mean the product obtained by MULTIPLYING (A) the average of the last reported sale price per share of REIT Common Stock on the NYSE over the twenty-one (21) days on which the NYSE is open and for which trades in the REIT Common Stock are reported immediately preceding the "ex" date with respect to the dividend or distribution requiring such computation (adjusted to take into account any splits, combinations, reclassifications, or other changes in the REIT's capitalization that occur during such period) BY (B) the total number of shares of REIT Common Stock then outstanding. In the event that the REIT Common Stock is no longer trading on the NYSE then the Aggregate Trading Value shall be determined using the prices reported on the exchange or automated quotation system on which the REIT Common Stock then trades. The term "'ex' date," when used with respect to this Section 6.2, means the business day immediately following the date the REIT takes a record of the holders of the REIT Common Stock for the purpose of entitling them to receive the dividend or distribution set forth in this Section 6.2. In the event that, at any time, the REIT Common Stock is not then traded on an exchange or automated quotation system then "Aggregate Trading Value" shall be determined using the fair market value of a share of REIT Common Stock agreed upon in good faith by the parties. Notwithstanding anything in this Section 6.2 to the contrary, the occurrence of a distribution of rights to subscribe for or purchase shares of the REIT's Capital Stock in connection with the adoption of what is commonly referred to as a "shareholder rights plan" 14 by the REIT ("Rights") shall be deemed not to be a distribution of securities, warrants or rights for the purposes of Section 6.2(c) or otherwise give rise to any adjustment of the Exercise Price pursuant to this Section 6; PROVIDED, HOWEVER, that in lieu of any adjustment as a result of any such distribution, the REIT shall make sufficient provisions in the shareholder rights agreement to ensure that, in connection with the issuance of any shares of REIT Common Stock pursuant to this Warrant or upon conversion of the Preferred Stock, the Holder will be entitled to simultaneously receive Rights in the same amount and manner in which Rights would be received on any new issuance by the REIT at that time of an equal amount of REIT Common Stock. 6.3 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. In case the REIT after the date hereof (a) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (b) shall permit any other Person to consolidate with or merge into the REIT and the REIT shall be the continuing or surviving Person but, in connection with such consolidation or merger, the REIT Common Stock and/or the Preferred Stock, shall be changed into or exchanged for Capital Stock or other securities of any other Person or cash or any other property, or (c) shall transfer directly or indirectly all or substantially all of its properties or assets to any other Person in one transaction or a series of transactions, or (d) shall effect a capital reorganization or reclassification of the REIT Common Stock and/or the Preferred Stock, then, and in the case of each such transaction, proper provision shall be made so that, upon such time, if ever, that the Holder would be entitled to receive shares of Preferred Stock and/or REIT Common Stock under the terms of this Warrant after the consummation of such transaction, the Holder shall be entitled to receive, in lieu of the Preferred Stock and/or REIT Common Stock issuable under the terms of this Warrant, the greatest amount of securities, cash or other property to which the Holder would actually have been entitled as a shareholder upon such consummation if the Holder had received shares of Preferred Stock and/or REIT Common Stock pursuant to this Warrant immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in Sections 6 and 7 hereof; ; PROVIDED, HOWEVER, that if (i) a purchase, tender or exchange offer shall have been made to and accepted by more than fifty percent (50%) of the outstanding shares of REIT Common Stock prior to the consummation of a transaction described above, (ii) such purchase, tender or exchange offer shall have been approved by the REIT's Board of Directors and that transaction is consummated, and (iii) the purchaser so designates in a notice given to the REIT on or before the date immediately preceding the final deadline for acceptance of the terms of such purchase, tender or exchange offer, then the Purchaser shall be entitled to receive upon such exercise the greatest amount of securities, cash or other property to which the Purchaser would actually have been entitled as a shareholder if the Purchaser had exercised such rights prior to the expiration of such purchase, tender or exchange offer and accepted such offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in this Section 6. 15 6.4 OTHER DILUTIVE EVENTS. In case any event shall occur as to which the provisions of Sections 6 and 7.2 hereof are not strictly applicable but the failure to make any adjustment would not, in the opinion of the Holder, fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such Section, then, in each such case, at the request of the Holder, the REIT shall appoint a firm of independent investment bankers of recognized national standing (which shall be completely independent of the REIT and the Holder and shall be satisfactory to the Holder), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Sections 6 and 7.2 hereof, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion, the REIT will promptly mail a copy thereof to the Holder and shall make the adjustments described therein. 6.5 WHEN ADJUSTMENTS SHALL BE MADE. The adjustments required by this Section 6 shall be made whenever and as often as any specified event requiring an adjustment shall occur. An adjustment made pursuant to this paragraph shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a reclassification, subdivision or combination, shall become effective immediately as of the effective date thereof. All adjustments pursuant to this Section 6 affecting the number of shares of REIT Common Stock that the Holder may receive pursuant to the terms of this Warrant shall be made without duplication of the provisions for adjustment to the conversion rights of the Preferred Stock contained in the Certificate of Amendment with respect to the same transaction. 6.6 WHEN ADJUSTMENT NOT REQUIRED. If the REIT shall take a record of the holders of the shares of REIT Common Stock for the purpose of entitling them to receive a dividend or distribution of additional shares of REIT Common Stock or other cash or property and shall, thereafter and before such distribution, legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 6.7 WHEN ADJUSTMENTS CARRIED FORWARD. No adjustment in the Exercise Price in accordance with the provisions of this Section 6 need be made unless such adjustment would amount to a change of at least 1% therein; PROVIDED, HOWEVER, that the amount by which any adjustment is not made by reason of the provisions of this Section 6.7 shall be carried forward and taken into account in determining whether this Section 6.7 is applicable to any subsequent potential adjustment in the Exercise Price. 6.8 NOTICE OF ADJUSTMENTS. Whenever any adjustment is to be made pursuant to this Section 6, the REIT shall prepare and deliver to the Holder a notice, executed by the Chief Financial Officer of the REIT at least fifteen (15) days prior thereto, such notice 16 to include in reasonable detail (i) the events precipitating the adjustment, (ii) the computation of any adjustments, and (iii) the Exercise Price immediately before and immediately after the adjustment. 70 ADJUSTMENT TO NUMBER OF SHARES 7.1 ADJUSTMENT RELATING TO JOINT VENTURE CONTRIBUTIONS. (a) Subject to Section 7.1(b) below, the maximum number of shares of Preferred Stock that may be issued pursuant to an exercise of this Warrant shall be automatically adjusted, without the necessity of any further action on the part of the REIT or the Holder, in the event that the Holder's aggregate Contributions to the Joint Venture made prior to the expiration or termination of the Investment Period exceed $30,000,000. The maximum number of shares of Preferred Stock issuable pursuant to this Warrant following such event shall be determined by MULTIPLYING (a) 12,136 BY (b) a fraction, (i) the numerator of which is $20,000,000 less the amount by which the Holder's aggregate Contributions to the Joint Venture made prior to the expiration or termination of the Investment Period exceed $30,000,000, and (ii) the denominator of which is $20,000,000. (b) Notwithstanding anything in this Warrant to the contrary, no adjustments pursuant to Section 7.1(a) above shall be made following the occurrence of a Warrant Trigger Event. Accordingly, the maximum number of shares of Preferred Stock that may be issued upon an exercise of this Warrant at any time following the occurrence of a Warrant Trigger Event shall be equal to the maximum number issuable immediately prior to such Warrant Trigger Event; PROVIDED, HOWEVER, that such maximum number shall remain subject to adjustment pursuant to Section 7.2 below. 7.2 ADJUSTMENTS RELATING TO CHANGES IN CAPITALIZATION, DISTRIBUTIONS, ETC. Upon each adjustment of the Exercise Price pursuant to Section 6 hereof, this Warrant shall thereupon evidence the right to purchase the maximum number of shares of Preferred Stock (calculated to the nearest one one-hundredth (1/100) of a share) obtained by multiplying the maximum number of shares of Preferred Stock purchasable immediately prior to such 17 adjustment upon exercise of this Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment. 7.3 ADJUSTMENT REBATE. Upon the occurrence of the Warrant Trigger Event, if the Holder's aggregate Contributions to the Joint Venture exceed $30,000,000, then the REIT shall pay the Holder an adjustment rebate equal to (a) $500,000 TIMES (b) a fraction, (i) the numerator of which is the amount by which the Holder's aggregate Contributions to the Joint Venture exceeds $30,000,000, and (ii) the denominator of which is $20,000,000. Such adjustment rebate shall be paid in cash by wire transfer of immediately available funds as soon as practicable following the occurrence of such event. 7.4 NOTICE OF ADJUSTMENT. Whenever any adjustment is to be made pursuant to this Section 7, the REIT shall prepare and deliver to the Holder a notice, executed by the Chief Financial Officer of the REIT at least fifteen (15) days prior thereto, such notice to include in reasonable detail (i) the events precipitating the adjustment, (ii) the computation of any adjustments, and (iii) the maximum number of shares of Preferred Stock issuable upon exercise of this Warrant immediately before and immediately after the adjustment. 80 COVENANTS OF THE REIT. So long as any portion of this Warrant remains outstanding, the REIT hereby covenants and agrees as follows: 8.1 DELIVERY OF INFORMATION. The REIT will furnish to the Holder copies of its SEC Filings promptly after filing such documents with the Commission and copies of all materials distributed to its stockholders concurrently with such distribution, including all quarterly and annual reports to stockholders and any materials distributed in connection with the solicitation of stockholder votes. 8.2 NO IMPAIRMENT. The REIT shall not by any action, including, without limitation, by amendment of its Charter Documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the REIT but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. 8.3 RESERVATION OF SHARES OF PREFERRED STOCK AND REIT COMMON STOCK. (a) The REIT shall at all times reserve and keep available out of its authorized and unissued Preferred Stock, solely for issuance pursuant to the terms of this Warrant, free from any preemptive rights or other obligations, the maximum number of shares of Preferred Stock that may from time to time be issuable under the terms of this Warrant. 18 (b) In addition, the REIT shall at all times reserve and keep available out of its authorized and unissued REIT Common Stock, solely for issuance pursuant to the terms of this Warrant, free from any preemptive rights or other obligations, the maximum number of shares of REIT Common Stock that may from time to time be issuable under the terms of this Warrant or issuable upon conversion of the maximum number of shares of Preferred Stock that may be issued under the terms of this Warrant. (c) The REIT shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, excluding permits or authorizations relating to registration under federal or state securities laws, in order to enable the REIT lawfully to issue and deliver to the Holder such number of shares of Preferred Stock and/or REIT Common Stock as shall from time to time be sufficient to effect the issuance of Preferred Stock and/or REIT Common Stock hereunder or the issuance of REIT Common Stock upon conversion of the Preferred Stock. The REIT shall from time to time take all action which may be necessary or appropriate so that the shares of REIT Common Stock issuable hereunder or issuable upon the conversion of Preferred Stock, immediately following their issuance, will be listed or quoted, as the case may be, on the principal securities exchanges or markets within the United States of America, if any, on which other shares of REIT Common Stock are then listed or quoted. (d) The REIT agrees not to (i) issue additional shares of Preferred Stock as a dividend or other distribution on outstanding shares of Preferred Stock; (ii) issue additional shares of Preferred Stock pursuant to a reclassification of shares of Preferred Stock; (iii) subdivide the outstanding shares of Preferred Stock into a greater number of shares of Preferred Stock; (iv) combine the outstanding shares of Preferred Stock into a smaller number of shares of Preferred Stock; or (v) to otherwise issue any shares of Preferred Stock other than pursuant to this Warrant or in a transaction contemplated by the Stock Purchase Option Agreement. 8.4 COMPLIANCE WITH LAWS UPON ISSUANCE. The REIT shall use all commercially reasonable efforts to ensure that the issuance of shares of Preferred Stock and/or REIT Common Stock upon exercise of this Warrant or the issuance of shares of REIT Common Stock upon conversion of the Preferred Stock will not violate, or require any consent or approval not already obtained under, any federal or state statute, rule or regulation, any contract or other agreement, or the rules and requirements of any stock exchange or any other self regulatory organization on which the REIT Common Stock is quoted or listed, including without limiting the generality of the foregoing, maintaining sufficient issued and outstanding shares of REIT Common Stock so that stockholder approval is not required prior to the issuance of Preferred Stock and/or REIT Common Stock upon exercise of this Warrant. 8.5 HART-SCOTT-RODINO ACT COMPLIANCE. Prior to issuing any shares of REIT Common Stock and/or Preferred Stock upon exercise of this Warrant, the REIT shall, upon 19 the request of the Holder (an "HSR Act Filing Request"), as promptly as possible (i) make all filings required, and take all such other action that may be required or desirable, under or in connection with the HSR Act, (ii) use all commercially reasonable efforts to cause the expiration or termination of any waiting period under the HSR Act to occur as promptly as possible, and (iii) use all commercially reasonable efforts to cause any other Person (other than the Holder) who may be required to make any filing, or to take any other action, under or in connection with the HSR Act to do so as promptly as possible. The parties agree that each party shall be responsible for one-half of the aggregate filing fee in connection with any filing required under the HSR Act. 8.6 PREFERRED STOCK OR REIT COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND NON-ASSESSABLE. The REIT will take all such action as may be necessary to ensure that all shares of Preferred Stock and/or REIT Common Stock issued upon exercise of this Warrant and all shares of REIT Common Stock issued upon the conversion of the Preferred Stock shall, at the time of delivery of the certificates for such shares, be duly and validly authorized and issued and fully paid and non-assessable shares and free from all liens and charges with respect to the issuance thereof. 8.7 TRANSFER TAXES. The REIT will pay when due and payable any and all federal and state transfer taxes and charges (but not income taxes) which may be payable in respect of the issuance or delivery of any shares of Preferred Stock and/or REIT Common Stock issued upon exercise of this Warrant or the shares of REIT Common Stock issued upon the conversion of the Preferred Stock. 8.8 SHAREHOLDER RIGHTS PLAN. So long as this Warrant is in effect, the REIT shall not adopt what is commonly referred to as a "shareholder rights plan," or issue any convertible securities, the conversion rights of which would be triggered, accelerated or otherwise altered by the issuance of shares of Preferred Stock and/or REIT Common Stock under this Warrant or the issuance of shares of REIT Common Stock upon conversion of the Preferred Stock unless the exercise of the Holder's rights hereunder are specifically exempted from the application of such shareholder rights plan or convertible securities. For the purposes of this section, the REIT shall be deemed to have adopted a shareholder rights plan or issued a convertible security if it merges with or into, consolidates with or transfers all or substantially all of its assets to a Person that has such a plan in effect or that has an outstanding class or series of convertible securities. 8.9 CREATION OF PREFERRED STOCK AND PREFERRED UNITS. (a) As of the date hereof, the REIT shall have taken all actions necessary to duly authorize and establish the Preferred Stock, including without limitation, filing the Certificate of Amendment and any other necessary documents with the appropriate state authorities. So long as the Holder has the right to receive, or obligation to accept, Preferred Stock under this Warrant, the REIT shall not (i) amend, repeal or otherwise alter in 20 any manner the rights, preferences, privileges, voting power or other terms of the Preferred Stock, or (ii) authorize or create or increase the authorized amount of any shares of any class or series, or any security convertible into any shares of any class or series, ranking senior to the Preferred Stock in the distribution of assets on any liquidation, dissolution or winding up of the REIT and/or in the payment of dividends ("Senior Preferred Stock"); PROVIDED, HOWEVER, that, without the consent of the Holder, the REIT may issue up to an aggregate of $50,000,000 of Senior Preferred Stock following the date hereof to any Person other than a Related Party of the REIT so long as the terms of any such class or series of Senior Preferred Stock, if sold in a transaction that has not been registered pursuant to Section 5 of the Securities Act, (i) do not provide the holders thereof with the right to receive a dividend with an effective yield in excess of fifteen percent (15%) (subject to the provisions below) and (ii) if such class or series has conversion rights, the conversion price of such Senior Preferred Stock, or such other price used in determining the conversion rights thereof, shall not be less than the quotient obtained by dividing the Exercise Price by the Conversion Multiple. If the terms of the Senior Preferred Stock provide the holders thereof with the right to receive a dividend with an effective yield in excess of fifteen percent (15%), then the REIT will not issue or sell any shares of such Senior Preferred Stock unless it has first offered to the Holder, for a minimum period of at least fifteen (15) business days, the right to purchase all, but not a portion, of the shares of Senior Preferred Stock at the same price proposed for such issuance or sale. If the Holder declines to purchase the Senior Preferred Stock so offered, then the REIT may issue and sell Senior Preferred Stock with terms providing the holders thereof with the right to receive a dividend up to, but not in excess of, twenty percent (20%) without the consent of the Holder at any time within the six (6) months following the date the Holder elected not to purchase such Senior Preferred Stock. (b) As of the date hereof, the REIT and the Operating Partnership shall have taken all actions necessary to adopt an amendment to the Operating Partnership's Amended and Restated Agreement of Limited Partnership in order to provide for the issuance of a class of units of limited partnership interests in the Operating Partnership to the REIT with designations, preferences and other rights such that the economic interests attributable to such new class of units are substantially similar to the designations, preferences and other rights of the Preferred Stock. So long as the Holder has the right to receive, or obligation to accept, Preferred Stock under this Warrant, neither the REIT nor the Operating Partnership shall take any action to amend, repeal or otherwise alter in any manner the rights, preferences, privileges or other terms of such class of preferred units, (it being understood that this sentence does not prohibit the REIT from issuing any shares of another series of preferred stock or prohibit the Operating Partnership from issuing any units ranking on a parity with the units outstanding as of the date immediately preceding the date hereof or the issuance of any units with substantially the same economic rights and preferences as another series of preferred stock issued by the REIT.) 8.10 BUSINESS COMBINATION STATUTE, CONTROL SHARE STATUTE. The REIT shall use all commercially reasonable efforts to ensure that the issuance of any shares of Preferred 21 Stock of REIT Common Stock hereunder is exempted from the application of Chapter 1704 of the Ohio Revised Code and 1701.831 of the Ohio General Corporation Law. 8.11 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The REIT, the Operating Partnership and the Subsidiaries shall have duly applied for and obtained all approvals, orders, licenses, consents and other authorizations (collectively, the "Approvals") from each federal, state and local government and governmental agency, department or body, or pursuant to any agreement to which the REIT, the Operating Partnership and the Subsidiaries is a party or to which it or any of its assets is subject, which may be required in connection with this Warrant. 90 MISCELLANEOUS. 9.1 USE OF DEPOSITARY SHARES. The parties agree that, at any time at which shares of Preferred Stock are to be issued under this Warrant, the REIT may in lieu thereof issue Depositary Shares, in each case at a ratio of 100 Depositary Shares for each share of Preferred Stock, and this Warrant shall be deemed simultaneously amended in all respects necessary to adjust the rights, terms and provisions hereunder as appropriate to reflect such issuance. Each Depositary Share will have, proportionately, the same rights, privileges, duties and limitations as the share of Preferred Stock in which that Depositary Share evidences an interest. 9.2 SUCCESSORS AND ASSIGNS. Whenever in this Warrant any of the parties hereto are referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the respective parties which are contained in this Warrant shall bind and inure to the benefit of the successors and assigns of all other parties. Except as otherwise provided herein, the terms and provisions of this Warrant shall inure to the benefit of and shall be binding upon any assignee or transferee of the Holder, and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Holder shall automatically extend to and be vested in, and become an obligation of, such transferee or assignee, all subject to the terms and conditions hereof. 9.3 NOTICES. All notices required or permitted to be given under this Warrant shall be in writing and shall be either personally delivered or sent by registered or certified mail, return receipt requested, to the addresses set forth below, as they may be changed from time to time by the addressee party by written notice to the other parties. 22 If to the REIT: Boykin Lodging Company Guildhall Building 45 West Prospect Avenue, Suite 1500 Cleveland, Ohio 44115 Attn: Robert W. Boykin, Chief Executive Officer with copies to: Robert A. Weible, Esq. Baker and Hostetler LLP 3200 National City Center 1900 E. 9th Street Cleveland, Ohio 44114 Tel: (216) 861-7553 Fax: (216) 696-0740 If to the Holder: AEW Partners III, L.P. 225 Franklin Street, 25th Floor Boston, Massachusetts 02109 Attn: J. Grant Monahon, Esq. Tel: 617-261-9000 Fax: 617-261-9555 with copies to: Michael H. Glazer, P.C. Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 Tel: 617-570-1420 Fax: 617-523-1231 9.4 AVAILABILITY OF INFORMATION. If the REIT shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the REIT will comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act and will comply with all other public information reporting requirements of the Commission (including Rule 144 and 144A promulgated by the Commission under the Securities Act) from time to time in effect and relating to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The REIT will also cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. 9.5 NO WAIVER. No waiver or consent shall be effective under this Warrant unless it is in writing and executed by the party against which enforcement thereof is sought. 23 Unless otherwise provided herein, the giving of any consent with respect to this Warrant shall be in the sole discretion of the party giving such consent. A waiver or consent shall be effective only with respect to the specific event or circumstances for which it is given and not any subsequent occurrence, unless otherwise expressly stated therein. 9.6 AMENDMENTS. No alteration, modification or amendment of the terms and provisions of this Warrant shall be binding unless in writing and consented to by the party against which enforcement of such alteration, modification or amendment is sought. 9.7 FURTHER ASSURANCES. In connection with this Warrant, as well as all transactions contemplated by this Warrant, each party agrees to execute and deliver all such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate and perform all of the terms, provisions and conditions of this Warrant and all such transactions. 9.8 DESCRIPTIVE HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 9.9 GENDER, NUMBER. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons may require. 9.10 SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Warrant required to be satisfactory to a particular party, the determination of such satisfaction shall be made by such party, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 9.11 GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF OHIO WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW. 9.12 COUNTERPARTS. This Warrant may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, binding on all parties hereto, and it shall not be necessary in making proof of this Warrant to produce or account for more than one such counterpart. 24 9.13 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Warrant may not be used to interpret another agreement, indenture, loan or debt agreement of the REIT or any Subsidiary. Any such agreement, indenture, loan or debt agreement may not be used to interpret this Warrant. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 25 WARRANT ISSUER SIGNATURE PAGE IN WITNESS WHEREOF, this Warrant has been duly executed by the parties of the day and year first written above. BOYKIN LODGING COMPANY, an Ohio corporation By: /s/ Paul A. O'Neil ---------------------------------------- Name: Paul A. O'Neil Title: Chief Financial Officer S-1 WARRANT HOLDER SIGNATURE PAGE Accepted and agreed as of the date first written above: AEW PARTNERS III, L.P. By: AEW III, L.L.C., its General Partner By: AEW Partners III, Inc., its Managing Member By: /s/ James J. Finnegan ---------------------------------------- Name: James J. Finnegan Title: Vice President S-2 EXHIBIT A --------- FORM OF SUBSCRIPTION AGREEMENT ------------------------------ Date: Boykin Lodging Company Guildhall Building 45 West Prospect Avenue, Suite 550 Cleveland, OH 44115 Attn: Robert V. Boykin, Chief Executive Officer The undersigned registered Holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, _______ shares of Class A Cumulative Preferred Stock, Series 1999-A, and herewith makes payment of cash equal to $__________ therefor, and requests that a certificate for such shares be issued in the name of the undersigned and be delivered to the undersigned at the address stated below. Signed: AEW PARTNERS III, L.P. By: AEW III, L.L.C., its General Partner By: AEW PARTNERS III, INC., its Managing-Member By: -------------------------- Name: Title: Address: c/o AEW Capital Management, L.P. 225 Franklin Street Boston, MA 02110 A-1 EXHIBIT B --------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the percentage of the shares of Class A Cumulative Preferred Stock, Series 1999-A, issuable hereunder set forth below: NAME AND ADDRESS OF ASSIGNEE PERCENTAGE - ---------------------------- ---------- 100% and does hereby irrevocably constitute and appoint ______________________ attorney-in-fact to register such transfer on the books of Boykin Lodging Company maintained for the purpose, with full power of substitution in the premises. Dated: Print Name: ---------------- ------------------------------------- Signature: -------------------------------- Witness: -------------------------------- NOTICE: The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. B-1 EXHIBIT C --------- FORM OF PUT NOTICE ------------------ Boykin Lodging Company Guildhall Building 45 West Prospect Avenue, Suite 550 Cleveland, OH 44115 Attn: Robert V. Boykin, Chief Executive Officer The undersigned registered Holder of the within Warrant hereby irrevocably puts to the Boykin Lodging Company (the "REIT") the Warrant relating to _______ shares of Class A Cumulative Preferred Stock, Series 1999-A, which such holder would be entitled to receive upon the exercise hereof, for $250,000 in immediately available funds. Signed: AEW PARTNERS III, L.P. By: AEW III, L.L.C., its General Partner By: AEW PARTNERS III, INC., its Managing-Member By: -------------------------- Name: Title: Address: c/o AEW Capital Management, L.P. 225 Franklin Street Boston, MA 02110 C-1 EX-10.18 5 EXHIBIT 10.18 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of February 1, 1999, by and among Boykin Lodging Company, an Ohio corporation (the "Company"), and AEW Partners III, L.P., a Delaware limited partnership (the "Holder"). This Agreement is made pursuant to that certain Stock Purchase Option Agreement (the "Stock Purchase Option Agreement") dated as of the date hereof by and among the Company, Boykin Hotel Properties, L.P., an Ohio limited partnership (the "Operating Partnership") and the Holder pursuant to which (i) the Company has granted the Holder certain rights to purchase shares of Preferred Stock (as defined below), in the amounts and on the terms set forth in the Stock Purchase Option Agreement, including in certain circumstances following the sale of assets by the Joint Venture (as defined below) and the distribution of the proceeds resulting therefrom, (ii) the Company has issued and sold to the Holder a warrant and agreed, upon the occurrence of certain conditions, to issue and sell to the Holder a second warrant, in substantially the same form, each such warrant granting the Holder the right to purchase shares of Preferred Stock, in the amounts and on the terms set forth in such warrants, (each, a "Warrant"), (iii) the Company and the Holder have agreed that, in lieu of cash, the Holder may elect to receive shares of Preferred Stock, or the Company may elect to issue shares of Preferred Stock or Common Stock (as defined below), in the amounts and on the terms set forth in the Stock Option Purchase Agreement, in the event that the Company purchases all or substantially all of the Holder's interests in AEW/Boykin LLC (the "Joint Venture") in accordance with certain rights set forth in the Limited Liability Company Agreement of the Joint Venture (the "Joint Venture Agreement") or otherwise, and (iv) the Company has the right to issue and deliver Common Stock in lieu of Preferred Stock in satisfaction of its obligations in connection with any exercise by the Holder of any of its foregoing rights to receive Preferred Stock, (all of such rights collectively, the "Stock Rights"). In order to induce the Holder to enter into the Stock Purchase Option Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the consummation of any issuance of Common Stock and/or Preferred Stock pursuant to any of the Stock Rights. In consideration of the foregoing, the parties hereby agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "ADVICE" has the meaning set forth in Section 5. "AFFILIATE" means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, PROVIDED that, for purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by agreement or otherwise. "AGREEMENT" has the meaning set forth in the introductory statement. "BUSINESS DAY" means any day other than a Saturday or Sunday or a day on which commercial banking institutions in Boston, Massachusetts, New York, New York or Cleveland, Ohio are authorized by law to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. "COMMISSION" means the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "COMMON STOCK" means the common stock, no par value, of the Company. "COMPANY" has the meaning set forth in the introductory statement and shall include the Company's successors by merger, acquisition, reorganization or otherwise. "CONTROLLING PERSONS" has the meaning set forth in Section 7(a). "CAPITAL CONTRIBUTION CAP" has the meaning set forth in the Joint Venture Agreement. "CONVERSION MULTIPLE" has the meaning set forth in the Certificate of Amendment relating to the creation of the Class A Cumulative Preferred Stock, Series 1999-A, filed with the Secretary of State of Ohio on February 1, 1999, subject to adjustment as provided from time to time following the date hereof, as provided in Section 6.E. thereof. "DAMAGES" has the meaning set forth in Section 7(a). "DEPOSITARY SHARE" means a fractional interest of one one-hundredth (1/100) of one share of Preferred Stock, as more fully described, and having the rights and privileges and being subject to the limitations set forth, in the Depositary Agreement dated February 1, 1999 between the Company and National City Bank. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. 2 "EXPANSION OPTION EXERCISE PRICE" has the meaning set forth in the Stock Purchase Option Agreement, as adjusted from time to time pursuant to the terms thereof. "HOLDER" has the meaning set forth in the introductory statement and shall include (i) the Holders' successor by merger, acquisition, reorganization or otherwise; (ii) each Person to whom a Holder transfers Securities if such Person acquires such Securities as Registrable Securities; and (iii) each Person to whom a Holder transfers any of the Stock Rights or any Warrant, subject to any transfer restriction set forth in Stock Purchase Option Agreement. "INSPECTORS" has the meaning set forth in Section 5(k). "JOINT VENTURE" has the meaning set forth in the introductory sentence. "MAXIMUM NUMBER" means such number of securities that may be included in an underwritten public offering when the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the maximum number which can be included in such offering without adversely affecting the marketability of the offering. "NASD" has the meaning set forth in Section 5(m). "NASDAQ" has the meaning set forth in Section 5(m). "OPERATING PARTNERSHIP" has the meaning set forth in the introductory statement and shall include the Operating Partnership's successors by merger, acquisition, reorganization or otherwise. "OPTION EXERCISE PRICE" has the meaning set forth in the Stock Purchase Option Agreement, as adjusted from time to time pursuant to the terms thereof. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or other agency or political subdivision thereof. "PIGGY-BACK REGISTRATION" has the meaning set forth in Section 4(a). "PREFERRED STOCK" means the Class A Cumulative Preferred Stock, Series 1999-A, without par value, of the Company. "PRIMARY REQUIRED FILING DATE" has the meaning set forth in Section 2(a). "PRIMARY SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a). 3 "PRIMARY TARGET EFFECTIVE DATE" means the date 45 days after the earlier of (i) the date on which the Primary Shelf Registration Statement is actually filed with the Commission; or (ii) the fourteenth (14th) day preceding the first anniversary of the date of the Stock Purchase Option Agreement. "PROSPECTUS" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "RECORDS" has the meaning set forth in Section 5(k). "REGISTRABLE SECURITIES" means the Securities; PROVIDED, HOWEVER, that any Securities shall cease to be Registrable Securities when (i) issued to a Holder pursuant to a Primary Shelf Registration Statement so long as that Holder is not an Affiliate of the Company, (ii) a Registration Statement covering such Securities has been declared effective and such Registrable Securities have been disposed of by the holder thereof pursuant to such effective Registration Statement or any other effective registration statement, (iii) such Securities are transferred by the holder thereof to any Person (other than a Holder) in compliance with Rule 144 (but not Rule 144A) under the Securities Act, including a sale pursuant to the provisions of Rule 144(k), or (iv) such Securities shall have ceased to be outstanding. "REGISTRATION EXPENSES" has the meaning set forth in Section 6. "REGISTRATION STATEMENT" means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "RESALE REQUIRED FILING DATE" has the meaning set forth in Section 3(a). "RESALE SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 3(a). "RESALE TARGET EFFECTIVE DATE" means the date 45 days after the earlier of (i) a Resale Required Filing Date or (ii) the date on which the Resale Shelf Registration Statement is actually filed with the Commission. 4 "RULE 144" means Rule 144 promulgated by the Commission under the Securities Act, as amended from time to time, and any successor rule or regulation or similar provision then in effect. "RULE 144A" means Rule 144A promulgated by the Commission under the Securities Act, as amended from time to time, and any successor rule or regulation or similar provision then in effect. "SECURITIES" means (i) all shares of Common Stock or Preferred Stock issued or issuable to Holders upon exercise of any of the Stock Rights, (ii) all shares of Common Stock issuable upon conversion of any such shares of Preferred Stock and (iii) any other securities directly or indirectly issued or issuable in respect of the foregoing shares of Common Stock or Preferred Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "SHELF REGISTRATION STATEMENT" means, as applicable, the Primary Shelf Registration Statement and/or the Resale Shelf Registration Statement. "STOCK PURCHASE OPTION AGREEMENT" has the meaning set forth in the introductory statement. "STOCK RIGHTS" has the meaning set forth in the introductory statement and shall refer to any or all of such rights of the Holder to receive Preferred Stock or Common Stock pursuant to the Stock Purchase Option Agreement or the Warrants, or the right to receive Common Stock upon conversion of any shares of Preferred Stock issuable thereunder, as the context may require. "SUSPENSION EVENT" has the meaning set forth in Section 5. "SUSPENSION NOTICE" has the meaning set forth in Section 5. "SUSPENSION PERIOD" has the meaning set forth in Section 5. "TARGET EFFECTIVE PERIOD" means the period of time between the date on which a Shelf Registration Statement is actually declared effective and the later of (i) the date which is 24 months following the latest date that any shares of Common Stock or Preferred Stock covered by such Registration Statement were issued, and (ii) the date which is three months following the date on which all Holders have ceased to be Affiliates of the Company, provided the Company first provides the Holder with an opinion of counsel to such effect. 5 "WARRANT" has the meaning set forth in the introductory statement and shall include any new Warrant issued following the transfer or exercise of a Warrant, the division, combination or substitution of any existing Warrant or similar event. SECTION 2. PRIMARY SHELF REGISTRATION. (a) FILING; EFFECTIVENESS. Within the fourteen (14) day period preceding the first anniversary of the date of the Stock Purchase Option Agreement, the Company shall prepare and file with the Commission a "primary shelf" registration statement (the "PRIMARY SHELF REGISTRATION STATEMENT") on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor rule or similar provision then in effect) covering the issuance to the Holders of the Registrable Securities. The initial Primary Shelf Registration Statement prepared pursuant hereto shall register for issuance to the Holder a good faith estimate of the maximum number of Registrable Securities that may from time to time be issuable pursuant to any of the Stock Rights, which shall not be less than (i) that number of shares of Common Stock equal to the product of (x) three (3) and (y) the quotient obtained by dividing (A) $50,000,000 by (B) the Option Exercise Price; and (ii) that number of shares of Preferred Stock determined by dividing (x) the number of shares of Common Stock being registered pursuant to clause (i) of this sentence, by (y) the Conversion Multiple. The Company shall use commercially reasonable efforts to have the Primary Shelf Registration Statement declared effective on or before the Primary Target Effective Date and to keep such Primary Shelf Registration Statement (or in the event such initial Primary Shelf Registration Statement is withdrawn or terminated for any reason, to keep a successor Primary Shelf Registration Statement) continuously effective until such time as all of the Stock Rights have terminated and the Holders have no further right to receive any shares of Common Stock and/or Preferred Stock under the terms of any of the Stock Rights. (b) SUPPLEMENTS; AMENDMENTS. The Company agrees, if necessary, to supplement or amend from time to time the Primary Shelf Registration Statement, as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Primary Shelf Registration Statement or by the Securities Act, including as necessary to reflect any change in the number or nature of Securities issuable upon exercise of the Stock Rights as a result of adjustments to the Stock Rights, changes in the estimated value of the Joint Venture (determined in good faith), additional capital contributions to the Joint Venture, adjustments to the conversion rights of the Preferred Stock or otherwise. Without limitation of the foregoing, in the event that an increase to the Capital Contribution Cap has been approved by the Operating Partnership pursuant to Section 3.7(a) of the Joint Venture Agreement, the Company agrees to increase the number of shares covered by the Primary Shelf Registration Statement by at least (i) that number of shares of Common Stock equal to the product of (x) three (3) and (y) the quotient obtained by dividing (A) the amount of the Holders' share of such increase to the Capital Contribution Cap by (B) the Expansion Option Exercise Price; and (ii) that number of shares of Preferred Stock determined by dividing (x) the number of shares of Common Stock being registered pursuant to clause (i) of this sentence, by (y) the Conversion Multiple. 6 (c) EFFECTIVE REGISTRATION. A registration will not be deemed to have been effected as a Primary Shelf Registration Statement unless the Primary Shelf Registration Statement with respect thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; PROVIDED, HOWEVER, that if after the Primary Shelf Registration Statement has been declared effective, the offering of Registrable Securities pursuant to such Primary Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Primary Shelf Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Primary Shelf Registration Statement may legally resume. If a registration required pursuant to this Section 2 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 2. (d) HOLDER'S ADDITIONAL RIGHTS. In the event that (i) the Company is unable to cause such Primary Shelf Registration Statement to be declared effective by the Commission or is unable to keep such Primary Shelf Registration Statement or successor Primary Shelf Registration Statements effective until such time as all of the Stock Rights have been terminated and the Holders have no further right to receive any shares of Common Stock and/or Preferred Stock under the terms of any of the Stock Rights, (ii) the Company for any reason issues any shares of Common Stock or Preferred Stock pursuant to any of the Stock Rights in a transaction not covered by a Primary Shelf Registration Statement, or (iii) a Holder is an Affiliate of the Company, then the Holders shall have the rights set forth in Sections 3 and 4 below. SECTION 3. RESALE SHELF REGISTRATION. (a) FILING; EFFECTIVENESS. Prior to (i) the thirtieth (30th) day following the determination that the Company is unable to cause the Primary Shelf Registration Statement to be declared effective by the Commission or to keep such Primary Shelf Registration Statement (or successor Primary Shelf Registration Statements) effective until such time as all of the Stock Rights have been terminated and the Holders have no further right to receive any shares of Common Stock and/or Preferred Stock under the terms of any of the Stock Rights, or (ii) the tenth (10th) day following the Company's issuance of any shares of Common Stock or Preferred Stock pursuant to the Stock Rights in a transaction not covered by a Primary Shelf Registration Statement or a determination that a Holder is an Affiliate of the Company (but in no event earlier than the fourteenth (14th) day preceding the first anniversary of the date of the Stock Purchase Option Agreement) (each, a "RESALE REQUIRED FILING DATE") the Company shall prepare and file with the Commission a "resale shelf" registration statement (the "RESALE SHELF REGISTRATION STATEMENT") on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor rule or similar provision then in effect) covering the resale by the Holders of the Registrable Securities. It is the parties' intent that pursuant to this Section 3(a) the Holders of the Securities shall at all times until the expiration of the Target Effective Period, subject to the Suspension Events, have in effect a Registration Statement covering resales of any Registrable Securities held by the Holders if and to the extent 7 the resale of any such Registrable Securities would be limited by the volume limitations under Rule 144 or otherwise. The initial Resale Shelf Registration Statement prepared pursuant hereto shall register for resale by the Holders a good faith estimate of the maximum number of Registrable Securities that may from time to time be issuable pursuant to any of the Stock Rights, which shall not be less than at least (i) that number of shares of Common Stock equal to the product of (x) three (3) and (y) the quotient obtained by dividing (A) $50,000,000 by (B) the Option Exercise Price; and (ii) that number of shares of Preferred Stock determined by dividing (x) the number of shares of Common Stock being registered pursuant to clause (i) of this sentence, by (y) the Conversion Multiple. The Company shall use commercially reasonable efforts to have the Resale Shelf Registration Statement declared effective on or before the Resale Target Effective Date and to keep such Resale Shelf Registration Statement (or in the event such initial Resale Shelf Registration Statement is withdrawn or terminated for any reason, to keep a successor Resale Shelf Registration Statement) continuously effective for the Target Effective Period. Any Holder shall be permitted to withdraw all or any part of the Registrable Securities from a Resale Shelf Registration Statement at any time prior to the effective date of such Shelf Registration Statement, but the Company shall be under no further obligation to register such Securities pursuant to this Section 3. (b) SUPPLEMENTS; AMENDMENTS. The Company agrees, if necessary, to supplement or amend from time to time the Resale Shelf Registration Statement, as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Resale Shelf Registration Statement or by the Securities Act, including as necessary to reflect any change in the number or nature of Securities issuable upon exercise of the Stock Rights as a result of adjustments to the Stock Rights, changes in the estimated value of the Joint Venture (determined in good faith), additional capital contributions to the Joint Venture, adjustments to the conversion rights of the Preferred Stock or otherwise, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. Without limitation of the foregoing, in the event that an increase to the Capital Contributions Cap has been approved by the Operating Partnership pursuant to Section 3.7(a) of the Joint Venture Agreement, the Company agrees to increase the number of shares covered by the Resale Shelf Registration Statement by at least (i) that number of shares of Common Stock equal to the product of (x) three (3) and (y) the quotient obtained by dividing (A) the amount of the Holders' share of such increase to the Capital Contribution Cap by (B) the Expansion Option Exercise Price; and (ii) that number of shares of Preferred Stock determined by dividing (x) the number of shares of Common Stock being registered pursuant to clause (i) of this sentence, by (y) the Conversion Multiple. (c) EFFECTIVE REGISTRATION. A registration will not be deemed to have been effected as a Resale Shelf Registration Statement unless the Resale Shelf Registration Statement with respect thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; PROVIDED, HOWEVER, that if after the Resale Shelf Registration Statement has been declared effective, the offering of Registrable Securities pursuant to such Resale Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the 8 Commission or any other governmental agency or court, the Target Effective Period will be extended by the time period of such interference. If a registration required pursuant to this Section 3 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 3. SECTION 4. PIGGY-BACK REGISTRATION. (a) REQUEST FOR REGISTRATION. Each time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its security holders of any class of equity security (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that is adopted by the Commission) or (ii) a registration statement filed in connection with an exchange offer or the offering of securities solely to the Company's existing security holders), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer the Holders the opportunity to register such number of shares of Registrable Securities as each Holder may request (which request must be made in writing and shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "PIGGY-BACK REGISTRATION"); PROVIDED, HOWEVER, that the Company shall not be required to include Registrable Securities in the securities to be registered pursuant to a registration statement on any form which limits the amounts of securities which may be registered by the issuer and/or selling security holders if, and to the extent that, such inclusion would make the use of such form unavailable. The Company shall permit, or, if the offering relating to a Piggy-Back Registration is an underwritten offering, shall use commercially reasonable efforts to cause the managing underwriter or underwriters of such proposed underwritten offering to permit, the Registrable Securities requested to be included in such Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and shall permit, or use commercially reasonable efforts to cause such managing underwriter or underwriters to permit, the sale or other disposition of such Registrable Securities in accordance with such Holder's intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 4 by giving written notice to the Company of such withdrawal at any time before the marketing of the offering has begun. The Company may withdraw such registration statement at any time prior to the time it becomes effective, provided that the Company shall give immediate notice of such withdrawal to the Holders who requested Registrable Securities to be included in such Piggy-Back Registration, and shall reimburse such Holders for all reasonable out-of-pocket fees and expenses incurred prior to such withdrawal. (b) PRIORITY ON PRIMARY REGISTRATIONS. In the event a Piggy-Back Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of shares requested to be included in such registration exceeds the Maximum Number, the Company will limit the number of shares included in such registration to the Maximum Number, and the shares registered shall be selected in the following order of priority: (i) first, securities the Company proposes to sell, and 9 (ii) second, Registrable Securities covered by Piggy-Back Registration requests and all other securities requested to be included in such registration, pro rata among the holders thereof on the basis of the number of shares requested to be included in such registration. (c) PRIORITY ON SECONDARY REGISTRATIONS. In the event a Piggy-Back Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the Maximum Number, the Company will include in such registration the shares requested to be included therein by the holders requesting such registration and the Registrable Securities covered by Piggy-Back Registration requests and any other securities requested to be included in such registration, pro rata among the holders thereof on the basis of the number of shares requested to be included in such registration; PROVIDED, HOWEVER, that if the holders requesting registration are doing so pursuant to demand registration rights of such holders, such holders' shares shall take priority over any Registrable Securities and any other securities requested to be included, which shall be included on a pro rata basis. (d) CONTINUING OBLIGATIONS OF THE COMPANY. Although the specific shares of Common Stock and/or Preferred Stock disposed of pursuant to a Piggy-Back Registration will cease to be Registrable Securities, the mere registration of Registrable Securities under this Section 4 shall not relieve the Company of its obligation to effect or maintain a Shelf Registration Statement pursuant to Section 2 or 3. No failure by the Holders to elect a Piggy-Back Registration under this Section 4 or to complete the sale of Registrable Securities pursuant to the registration statement effected in connection therewith, and no withdrawal of Registrable Securities from a Piggy-Back Registration, shall relieve the Company of any other obligation under this Agreement, including without limitation, the Company's obligations under Sections 2, 3, 5 and 6. SECTION 5. REGISTRATION PROCEDURES. In connection with the obligations of the Company to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, the Company shall use commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection therewith: (a) When and as required pursuant to this Agreement, the Company shall prepare and file with the Commission a Registration Statement on the appropriate form under the Securities Act, which Registration Statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; PROVIDED, HOWEVER, that, at least three (3) Business Days prior to filing a Registration Statement or Prospectus relating to any registration of Registrable Securities to be effected pursuant to Section 3 or 4 hereof or any amendments or supplements thereto, including documents 10 incorporated by reference after the initial filing of such Registration Statement, the Company shall furnish to the Holders of the Registrable Securities covered by such Registration Statement, Holders' Counsel and the underwriters, if any, draft copies of all such documents proposed to be filed (other than exhibits to Forms 8-K, 10-K or 10-Q unless reasonably requested by a Holder), which documents will be subject to the review of Holders' Counsel and the underwriters, if any. (b) The Company shall (i) prepare and file with the Commission such amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period; (ii) cause the Prospectus to be amended or supplemented as required and to be filed as required by Rule 424 or any similar rule that may be adopted under the Securities Act; (iii) respond as promptly as practicable to any comments received from the Commission with respect to the Registration Statement or any amendment thereto; and (iv) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the Holder covered thereby. (c) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall promptly furnish to any Holder and the underwriters, if any, without charge, such number of conformed copies of such Registration Statement and any post-effective amendment thereto and such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, any documents incorporated by reference therein and such other documents as any such Holder or underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder. (d) The Company shall, on or prior to the date on which any Resale Shelf Registration Statement or any Registration Statement relating to a Piggy-Back Registration is declared effective, (i) use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or "blue sky" laws of each of the 50 states of the United States (or such United States jurisdictions as any Holder, Holders' counsel or underwriter may request) or obtain appropriate exemptions therefrom; (ii) do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities included in the Registration Statement to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof; (iii) use its best efforts to keep each such state securities or "blue sky" registration or qualification (or exemption therefrom) effective during the period in which the Company is required to keep the Registration Statement effective; and (iv) do any and all other acts or things which may be necessary or advisable to enable the Holders of Registrable Securities included in the Registration Statement to complete the disposition in such jurisdictions of such Registrable Securities in accordance with their intended method of distribution thereof; PROVIDED, HOWEVER, that the Company shall not be required (A) to qualify to do business in any jurisdiction where it would not otherwise be required to so qualify but for this Section 5(d), (B) to file any general consent to service of process or (C) subject itself to taxation in any such jurisdiction where it is not otherwise subject to taxation. 11 (e) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall promptly notify each Holder, Holders' Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, (i) when a Registration Statement or a Prospectus or any post-effective amendment or any Prospectus supplement has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the registration or qualification or exemption from registration or qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation or threatening of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering of such Registrable Securities cease to be true and correct in all material respects, and (vi) of the happening of any event which makes any statement of a material fact made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that such Registration Statement or Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, as promptly as practicable thereafter, prepare and file an amendment to such Registration Statement with the Commission and furnish to the Holders and any underwriter a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) The Company shall make generally available to its security holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act as soon as practicable after the effective date of a Registration Statement, which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act. (g) The Company shall promptly use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement, and, if any such order suspending the effectiveness of a Registration Statement is issued, shall promptly use its best efforts to obtain the withdrawal of such order at the earliest possible moment. 12 (h) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall, if reasonably requested by the managing underwriter or underwriters, if any, Holders' Counsel, or any Holder promptly incorporate in a Prospectus supplement or post-effective amendment such information as such managing underwriter or underwriters or Holder or Holders' Counsel requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and any other terms of an underwritten offering of the Registrable Securities to be sold in such offering, and the Company shall promptly make all required filings of such Prospectus supplement or post-effective amendment. (i) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall cooperate with the Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing Registrable Securities sold under a Registration Statement to the purchasers thereof, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such Registration Statement a supply of such certificates. (j) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall enter into such customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as the Holders or the underwriters retained by the Holders participating in an underwritten public offering, if any, may request in order to expedite or facilitate the disposition of Registrable Securities. (k) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall promptly make available to each Holder, any underwriter participating in any disposition of Registrable Securities pursuant to a Registration Statement, and any attorney, accountant or other agent or representative retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement. (l) In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, the Company shall furnish to each Holder of Registrable Securities included in such offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, 13 each in customary form and covering matters of the type customarily covered by opinions or comfort letters, as the case may be. (m) The Company shall use commercially reasonable efforts to cause all shares of Common Stock included in a Registration Statement (if the Company and the Registrable Securities so qualify) (i) to be listed on each national securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) if similar securities of the Company are not then listed, to be authorized for quotation or listing, as applicable, on the New York Stock Exchange or the National Association of Securities Dealers, Inc.'s ("NASD") Nasdaq Stock Market ("NASDAQ"). (n) The Company shall provide a CUSIP number for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (o) The Company shall cooperate with each Holder and each underwriter participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. (p) The Company shall, during the period when the Prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. (q) The Company shall appoint or maintain a transfer agent and registrar for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (r) If the Registrable Securities are of a class of securities that is listed on a national securities exchange, the Company shall file copies of any Prospectus with such exchange in compliance with Rule 153 under the Securities Act so that the Holders shall benefit from the prospectus delivery procedures described therein. In the case of a Resale Shelf Registration Statement, each Holder, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company of the happening of any Suspension Event, shall forthwith discontinue marketing or disposition, as applicable, of the Registrable Securities pursuant to the Resale Shelf Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(e) or until such Holder is advised in writing (the "ADVICE") by the Company that the use of the Prospectus may be resumed, and such Holder has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such Suspension Notice. In addition, the Company shall have the 14 right to deliver a Suspension Notice to the Holder(s) prior to or following any exercise of the Stock Rights during the happening of a Suspension Event, which notice will (i) inform Holder(s) of the happening of a Suspension Event and the anticipated duration thereof, and (ii) offer Holder(s) the option of delaying the issuance of shares of Common Stock and/or Preferred Stock pursuant to their exercise of the Stock Rights or receiving such shares in a private placement exempt from the registration requirements of Section 5 of the Securities Act. If the Holders elect to receive such shares in a private placement, then the Company shall, as promptly as practicable following such Suspension Event, file a Resale Registration Statement covering the resale of such shares pursuant to Section 3 hereof and perform all of its other obligations under this Agreement in connection therewith. Notwithstanding anything in the Agreement to the contrary, the Company shall not give more than two Suspension Notices during any period of 12 consecutive months or which cover an aggregate of more than 90 days during any twelve-month period that a Suspension Notice is in effect (the "Suspension Period"). In the event that the Company shall give any Suspension Notice, the Company shall use commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice and end the period that a Suspension Notice is in effect as promptly as practicable. A "Suspension Event" is any event (including without limitation (i) an underwritten primary offering by the Company if the Company is advised by the underwriters that sale of Registrable Securities under the Resale Shelf Registration Statement would have a material adverse effect on the primary offering (it being understood that the effect of a sale of Registrable Securities to the Holders under a Primary Shelf Registration Statement is not sufficient to constitute a Suspension Event) or (ii) pending negotiations relating to, or consummation of, a transaction or the occurrence of an event that would require additional disclosure of material information by the Company in the Shelf Registration Statement or such filing, as to which the Company has a bona fide business purpose for preserving confidentiality or which renders the Company unable to comply with Commission's requirements) that would make it impractical or inadvisable to cause the Shelf Registration Statement to become effective or to issue and/or sell Registrable Securities pursuant to a Shelf Registration Statement, but such suspension shall continue only for so long as such event or its effect is continuing. Each Holder agrees, in connection with any underwritten primary public offering by the Company, to cooperate with all reasonable and customary requests made by the managing underwriter. If any Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that the reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal or state securities or "blue sky" statute and the rules and regulations thereunder then in force, the deletion of the reference to such Holder. 15 SECTION 6. REGISTRATION EXPENSES. Any and all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation, all Commission and securities exchange, Nasdaq or NASD registration, listing and filing fees, all fees and expenses incurred in connection with compliance with state securities or "blue sky" laws (including reasonable fees and disbursements of counsel for any underwriters or Holder in connection with the state securities or "blue sky" qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), all expenses for word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, the fees and expenses incurred in connection with the listing of the Registrable Securities, the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letter requested pursuant to Section 5(l), Securities Act liability insurance (if the Company elects to obtain such insurance), and the reasonable fees and expenses of any special experts or other Persons retained by the Company in connection with any registration (all such expenses being herein called "REGISTRATION EXPENSES"), will be borne by the Company whether or not the Shelf Registration Statement or Piggy-Back Registration to which such expenses relate becomes effective; PROVIDED, HOWEVER, that the Holder(s) agree to reimburse the Company for fifty percent (50%) of the filing fee paid to the Commission with respect to the Registrable Securities in connection with the filing of a Primary Shelf Registration Statement or a Resale Shelf Registration Statement and that each Holder shall be solely responsible for any fees and disbursements of such Holder's legal counsel in connection with the filing of any Shelf Registration Statement hereunder and any offering or sale of Registrable Securities thereunder. SECTION 7. INDEMNIFICATION AND CONTRIBUTION. 16 (a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless, each Holder, its partners, officers, directors, trustees, stockholders, employees, agents and investment advisers, and each Person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees, agents and investment advisors of such controlling Person (collectively, the "CONTROLLING PERSONS"), from and against all losses, claims, damages, liabilities and expenses (including, without limitation, any legal or other fees and expenses incurred by any Holder or any such Controlling Person in connection with defending or investigating any action or claim in respect thereof) (collectively, the "DAMAGES") to which such Holder, its partners, officers, directors, trustees, stockholders, employees, agents and investment advisers, and any such Controlling Person, may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) effected pursuant to Section 3 or 4 hereof and pursuant to which Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) relating to any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the Company shall not be liable for Damages to any Holder or Controlling Person under this Section 7(a) to the extent that any such Damages (i) arise out of or are based upon any such untrue statement or omission which is based upon information relating to such Holder furnished in writing to the Company by such Holder for use in any such Registration Statement (or any amendment thereto) or Prospectus (or amendment or supplement thereto) relating to a registration of Registrable Securities effected pursuant to Section 3 or 4 hereof; or (ii) were caused by the fact that such Holder sold Securities to a Person as to whom it shall be established that there was not sent or given, or deemed sent or given pursuant to Rule 153 under the Securities Act, at the time of or prior to the written confirmation of such sale, a copy of the applicable Prospectus as then amended or supplemented if, and only if, (a) the Company has previously furnished copies of such amended or supplemented Prospectus to such Holder and (b) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. (b) INDEMNIFICATION BY THE HOLDER. Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against all Damages to the same extent as the foregoing indemnity from the Company to such Holder, but only to the extent such Damages arise out of or are based upon any untrue statement of a material fact contained in any Registration 17 Statement (or any amendment thereto) or Prospectus (or any amendment or supplement thereto) relating to a registration of Registrable Securities effected pursuant to Section 3 or 4 hereof or are caused by any omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, which untrue statement or omission is based upon information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any such Registration Statement (or any amendment thereto) or any such Prospectus (or any amendment or supplement thereto) relating to a registration of Registrable Securities effected pursuant to Section 3 or 4 hereof; PROVIDED, HOWEVER, that such Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of the Company to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus relating to a registration of Registrable Securities effected pursuant to Section 3 or 4 hereof on the basis of corrected or supplemental information furnished in writing to the Company by such Holder expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) INDEMNIFICATION PROCEDURES. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceedings and shall pay the fees and disbursements of such counsel relating to such proceeding. The failure of an indemnified party to notify the indemnifying party with respect to a particular proceeding shall not relieve the indemnifying party from any obligation or liability (i) which it may have pursuant to this Agreement if the indemnifying party is not substantially prejudiced by such failure to so notify it or (ii) which it may have otherwise than pursuant to this Agreement. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, or (ii) the indemnifying party fails promptly to assume the defense of such proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (iii) (A) the named parties to any such proceeding (including any impleaded parties) include both such indemnified party or an Affiliate of such indemnified party and any indemnifying party or an Affiliate of such indemnifying party, (B) there may be one or more defenses available to such indemnified party or any Affiliate of such indemnified party that are different from or additional to those available to any indemnifying party or any Affiliate of any indemnifying party and (C) such indemnified party shall have been advised by such counsel that there may exist a conflict of interest between or among such indemnified party or any Affiliate of such indemnified party and such indemnifying party or any Affiliate of such indemnifying party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel of its choice at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the 18 defense thereof and such counsel shall be at the expense of the indemnifying party, it being understood, however, that unless there exists a conflict among indemnified parties, the indemnifying parties shall not, in connection with any one such proceeding or separate but substantially similar or related proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify each indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of each indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is a party, and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on all claims that are the subject matter of such proceeding with no payment by such indemnified party of consideration in connection with such settlement. (d) CONTRIBUTION. If the indemnification from the indemnifying party provided for in this Section 7 is found, pursuant to a final judicial determination not subject to appeal, to be unavailable to an indemnified party hereunder or insufficient in respect of any Damages incurred by such indemnified party, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the Damages paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified parties in connection with the actions or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action or omission in question, including any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Damages referred to above shall be deemed to include, subject to the limitations set forth in Section 7(c), any legal or other expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public (less any underwriting discounts or commissions) exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no selling Holder shall be required to contribute any amount in excess of the amount by which the total net proceeds received by such selling 19 Holder with respect to Registrable Securities sold by such selling Holder exceeds the amount of any damages which such selling Holder has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. Each Holder's obligation to contribute pursuant to this Section 7(d) is several and not joint and shall be determined by reference to the proportion that the proceeds of the offering received by such Holder bears to the total proceeds of the offering received by all the Holders. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any indemnified party at law or in equity. Notwithstanding the foregoing, if indemnification is available under paragraph (a) or (b) of this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 7(d). (e) COVENANTS OF THE HOLDERS. In connection with any registration of Registrable Securities effected pursuant to Section 3 or 4 hereof, each Holder hereby agrees (a) to cooperate with the Company and to furnish to the Company all such information concerning its plan of distribution and ownership interests with respect to its Registrable Securities in connection with the preparation of the Registration Statement and any filing with any state securities commissions as the Company may reasonably request and (b) to deliver or cause delivery of the Prospectus contained in the Registration Statement to any purchaser of the Registrable Securities covered by the Registration Statement from the Holder. SECTION 8. RULE 144. The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act, (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales of the Registrable Securities under Rule 144), and it will take such further action as any Holder may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144, or (b) any successor rule or similar provision or regulation hereafter adopted by the Commission. Upon the request of any Holder at any time when the Company is not required to file reports under the Securities Act or the Exchange Act, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. SECTION 9. RULE 144A. The Company covenants that it will file all reports required to be filed by it under the Securities Act and the Exchange Act, and the rules and regulations adopted by the Commission thereunder (or if the Company is not required to file such reports, it will, upon the request of any Holder, make available other information so long as necessary to permit sales of the Registrable Securities pursuant to Rule 144A under the Securities Act), and it will take such further action as any Holder may request, all to the extent required from time to 20 time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144A, as such rule may be amended from time to time, or (b) any successor rule or similar provision or regulation hereafter adopted by the Commission. SECTION 10. MISCELLANEOUS. (a) USE OF DEPOSITARY SHARES. In the event that the Company issues, or intends to issue, Depositary Shares to any Holder in connection with an exercise of any of the Stock Rights, references to Preferred Stock in this Agreement shall be deemed amended to refer to Depositary Shares, in each case at a ratio of 100 Depositary Shares for each share of Preferred Stock, and this Agreement shall be deemed simultaneously amended in all respects necessary to adjust the rights, terms and provisions hereunder as appropriate to reflect such issuance. Each Depositary Share will have, proportionately, the same rights, privileges, duties and limitations as the share of Preferred Stock in which that Depositary Share evidences an interest. (b) NO INCONSISTENT AGREEMENTS. The Company has not entered into nor will the Company while this Agreement is in effect enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in interest of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; PROVIDED, HOWEVER, that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof (other than any immaterial amendment, modification, supplement, waiver or consent) shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (d) NOTICES. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by registered or certified mail, return receipt requested, or by a nationally recognized overnight courier, postage prepaid, addressed, (a) if to the Holder, at the address set forth on the signature page hereto or such other address as the Holder shall have furnished to the Company in writing, or (b) if to any other holder of any Securities, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Securities who has furnished an address to the Company, or (c) if to the Company, at its address set forth on the signature page hereto, or at such other address the Company shall have furnished to the Holder and each such other holder in writing. This Agreement and all documents entered into on the date hereof in conjunction with the transactions contemplated by the Stock Purchase Option Agreement and the Warrants and any such other documents delivered in connection herewith or therewith embody 21 the entire agreement and understanding between the Holder and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; by confirmed receipt of transmission, if telecopied; and on the next Business Day if timely delivered to a courier guaranteeing overnight delivery. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. If any transferee of the Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without regard to principles or rules of conflicts of law. (i) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holders shall be enforceable to the fullest extent permitted by law. (j) ATTORNEYS' FEES. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 22 (k) FURTHER ASSURANCES. Each party shall cooperate and take such action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. (l) REMEDIES. In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that remedies at law for violations hereof, including monetary damages, are inadequate and that the right to object in any action for specific performance or injunctive relief hereunder on the basis that a remedy at law would be adequate is waived. [Remainder of Page Intentionally Left Blank] 23 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. BOYKIN LODGING COMPANY, an Ohio corporation By: /s/ Paul A. O'Neil ------------------------------------------- Name: Paul A. O'Neil Title: Chief Financial Officer and Treasure Notice Information: Boykin Lodging Company Guildhall Building 45 West Prospect Avenue, Suite 1500 Cleveland, Ohio 44115 Attention: Robert W. Boykin, Chief Executive Officer Telecopier: with a copy to: Baker & Hostetler LLP 3200 National City Center 1900 E. 9th Street Cleveland, Ohio 44114 Attention: Robert A. Weible, Esq. Telecopier: S-1 AEW PARTNERS III, L.P., a Delaware limited partnership By: AEW III, L.L.C., its General Partner By: AEW Partners III, Inc., its Managing-Member By: /s/ James J. Finnegan ------------------------------- Name: James J. Finnegan Title: Vice President Notice Information: c/o AEW Capital Management, Inc. 225 Franklin Street Boston, MA 02125 Attention: J. Grant Monahan, Esq, Telecopier: (617) 261-9555 with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Attention: Michael H. Glazer, P.C. Telecopier: (617) 523-1231 S-2 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001015859 BOYKIN LODGING COMPANY 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 890 0 6,158 0 0 0 634,376 39,762 609,072 0 288,000 0 0 0 281,796 609,072 0 19,462 0 11,164 278 0 5,138 2,882 0 2,882 0 0 0 2,882 .17 .17 REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE TOTAL CURRENT ASSETS AND TOTAL CURRENT LIABILITIES ARE NOT APPLICABLE.
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