-----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, Dzxz4POoX92RqXFqyMP5t2AMthjE9/xYCc9456zeFdfSc2cPLAY/ciZFAoJWTF6k QjrFQydtFIOauI0TQ7wdmg== 0000950123-01-002714.txt : 20010329 0000950123-01-002714.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950123-01-002714 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME HOSPITALITY CORP CENTRAL INDEX KEY: 0000080293 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222640625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06869 FILM NUMBER: 1580982 BUSINESS ADDRESS: STREET 1: 700 RTE 46 E CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 9738821010 MAIL ADDRESS: STREET 1: 700 RTE 46 EAST CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: PRIME MOTOR INNS INC DATE OF NAME CHANGE: 19920609 FORMER COMPANY: FORMER CONFORMED NAME: PRIME EQUITIES INC DATE OF NAME CHANGE: 19731120 10-K405 1 y47030e10-k405.txt PRIME HOSPITALITY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-6869 ------------------------ PRIME HOSPITALITY CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2640625 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
700 ROUTE 46 EAST, FAIRFIELD, NEW JERSEY 07004 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 882-1010 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- PAR VALUE $.01 PER SHARE, COMMON STOCK NEW YORK STOCK EXCHANGE 9 1/4% FIRST MORTGAGE NOTES DUE 2006 NEW YORK STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's common stock held by non-affiliates on March 15, 2001 based on the last sale price as reported by the National Quotation Bureau, Inc. on that date was approximately $497,341,527 The Registrant had 45,008,283 shares of Common Stock outstanding as of March 15, 2001. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement prepared for the 2000 annual meeting of shareholders are incorporated by reference into Part III of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 References in this report to the "Company" or "Prime" are to Prime Hospitality Corp. and its subsidiaries. EBITDA represents earnings before extraordinary items, interest expense, provision for income taxes and depreciation and amortization and excludes interest income on cash investments and other income. EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Hotel EBITDA represents EBITDA generated from the operations of owned hotels. Hotel EBITDA excludes management fee income, interest income from mortgages and notes receivable, general and administrative expenses and other revenues and expenses which do not directly relate to operations of owned hotels. EBITDA and Hotel EBITDA are not measures of financial performance under accounting principles generally accepted in the United States and should not be considered as alternatives to net income as an indicator of the Company's operating performance or as alternatives to cash flows as a measure of liquidity. Unless otherwise indicated, industry data is based on reports of Smith Travel Research. PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES THE COMPANY Prime is an owner, manager and franchisor of hotels, with 239 hotels in operation containing 30,750 rooms located in 33 states (the "Portfolio") as of December 31, 2000. Prime controls two hotel brands -- AmeriSuites(R) and Wellesley Inn & Suites(R) -- as well as a portfolio of upscale, full-service hotels operated under franchise agreements with national hotel chains. As of December 31, 2000, the Company owned and operated 135 hotels (the "Owned Hotels"), operated 55 hotels under lease agreements primarily with real estate investment trusts (the "Leased Hotels"), managed 24 hotels for third parties (the "Managed Hotels"), and franchised 25 hotels which it does not operate (the "Franchised Hotels"). The portfolio is comprised of 133 AmeriSuites hotels, 70 Wellesley Inn & Suites hotels and 36 non-proprietary brand hotels. The Company's strategy is to develop its proprietary AmeriSuites and Wellesley Inn & Suites brands. Through the development of its proprietary brands, the Company is transforming itself from an owner/operator into a franchisor and manager and has positioned itself to generate additional revenues with minimal capital investment. Since Prime began franchising in mid-1998, the Company has executed 72 AmeriSuites franchise agreements. To date, eight of these AmeriSuites have opened and there are currently four AmeriSuites under construction. Of the remaining pipeline of 60 hotels, ten are scheduled to begin construction in the next 120 days. Prime has also signed 12 Wellesley Inn & Suites franchise agreements. To date, one Wellesley Inn & Suites has opened with another two hotels scheduled to be converted from other brands in the next 120 days. In addition, the Company also has 14 AmeriSuites and eleven Wellesley Inn & Suites which are franchised pursuant to asset sales. Prime's strategy is also focused on growing the operating profits of its Portfolio. With 214 hotels under management, Prime believes it possesses the hotel management expertise to maximize the profitability and value of its hotel assets. Prime's hotels can be categorized into three types: AmeriSuites, Wellesley Inn & Suites and non-proprietary brands. AmeriSuites: As of December 31, 2000, there were 133 AmeriSuites in operation. Prime owns and operates 65 of these hotels, operates and leases 46 hotels from third parties and franchises the operation of the remaining 22 hotels, four of which are operated by Prime. There are also eight AmeriSuites currently under construction, with an additional 60 AmeriSuites to be developed pursuant to franchise agreements. AmeriSuites are upscale, all-suite hotels containing approximately 128 suites and are located in 31 states. The hotels are situated, primarily, near suburban commercial centers, corporate office parks and other travel destinations, within close proximity to dining, shopping and entertainment amenities. In 2000, AmeriSuites contributed approximately 49.1%, of the Company's Hotel EBITDA. Wellesley Inn & Suites: As of December 31, 2000, there were 70 Wellesley Inn & Suites in operation. Prime owns and operates 58 of these hotels and franchises 12 hotels, five of which are managed by Prime. 1 3 There are also three hotels under conversion from other brands and an additional nine Wellesley Inn & Suites to be built under franchise agreements. Wellesley Inn & Suites are mid-price limited service hotels containing between 100-130 rooms and are located in 21 states primarily in the Southeast, Northeast and Southwest. In 2000, Wellesley Inn & Suites contributed approximately 25.9%, of the Company's Hotel EBITDA. Non-Proprietary Brands: As of December 31, 2000, there were 36 hotels operated primarily under national franchises. Prime owns 12 of these hotels, leases nine hotels and manages 15 of these hotels for third parties. The non-proprietary branded hotels operate primarily in the upscale full-service segment under national franchises such as Hilton, Radisson, Sheraton, Crowne Plaza, Holiday Inn and Ramada with food and beverages service and banquet facilities. The hotels are primarily located in the Northeast. In 2000, the non-proprietary brand hotels contributed approximately 25.0%, of the Company's Hotel EBITDA. ASSET DIVESTITURES/FINANCIAL CONDITION The Company has also undertaken a strategic initiative to dispose of hotel real estate and to utilize proceeds to repurchase stock, retire debt or invest in the growth of its brands. During the past two years, the Company sold approximately $301 million of assets. During 2000, the Company sold $215 million of assets including five AmeriSuites, ten Wellesley Inns, two full-service hotels and the remaining five Homegate hotels which were not converted to Wellesley Inn & Suites. The Company retained the franchise rights on all the sold AmeriSuites and Wellesley Inns generally under 20 year franchise agreements. Prime utilized the proceeds from asset sales along with its cash flow from operations to reduce its debt balance since the beginning of the year by $203 million to $346 million as of December 31, 2000. Prime also repurchased 3.9 million of its outstanding shares in 2000 at a total average cost of $7.98 per share. This brings the total number of shares repurchased in the past two years to 9.7 million, or 18.0%, of the shares outstanding on January 1, 1999. As of December 31, 2000, Prime's debt to EBITDA ratio was 2.1 times, and its debt to book capitalization percentage was 34%. This represents a significant improvement in the ratios from the December 1999 levels of 3.2 times and 46%, respectively. ACQUISITIONS In November 2000, the Company converted 27 Sumner Suites hotels to its AmeriSuites brand. Due to the substantially identical nature of the Sumner Suites and AmeriSuites hotels, the conversion consisted only of new signage, technology upgrades and collateral material and cost approximately $2.0 million. Prime had previously acquired the leasehold interests on these hotels in July 2000 from Sholodge, Inc ("Sholodge") for $1.6 million. In addition, pursuant to the transaction, Sholodge is constructing three additional AmeriSuites, two of which are funded by Sholodge and one by Prime. The 27 existing hotels, along with the three hotels under construction, are located in 14 states primarily in the Southeast, Midwest and Southwest regions of the United States and have an average age of approximately four years. The conversion increased AmeriSuites units by almost 30% over its previous level. INDUSTRY OVERVIEW In 2000, industry-wide percentage growth in demand exceeded industry-wide percentage growth in room supply (3.7% versus 3.1%), for the first year since 1996. This resulted in a slight increase in overall occupancy levels from 63.1% in 1999 to 63.5% in 2000. In addition, due to the relatively high levels of occupancy, the industry as a whole was able to increase the average daily rate ("ADR") by 4.9% from $81.29 in 1999 to $85.24 in 2000, resulting in a REVPAR increase of 5.5%. Historical performance, however, may not be indicative of future results. The following table was compiled from industry operating data as reported by Smith Travel Research and highlights industry data for the United States and the regions in which most of the Company's hotels are located: the Middle Atlantic region, which is comprised of New Jersey, New York and Pennsylvania; the South Atlantic region, which is comprised of Florida, Georgia, South Carolina, North Carolina, Virginia, 2 4 West Virginia, Maryland and Delaware; and the West South Central Region which is composed of Texas, Oklahoma, Arkansas and Louisiana. The table also includes operating data concerning the two price levels (of the five price levels classified by Smith Travel Research) in which the Company competes: upscale and mid-price. REVPAR data was calculated by the Company based on occupancy and ADR data supplied by Smith Travel Research.
% CHANGE IN: ROOM SUPPLY ROOM DEMAND REVPAR --------------------------- --------------------------- --------------------------- 2000 V. 1999 V. 1998 V. 2000 V. 1999 V. 1998 V. 2000 V. 1999 V. 1998 V. 1999 1998 1997 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------- ------- ------- ------- ------- ------- United States.................. 3.1% 4.2% 4.0% 3.7% 3.3% 3.1% 5.5% 3.1% 3.6% BY REGION: Middle Atlantic................ 2.8 2.9 2.3 3.2 2.2 3.1 7.6 4.0 7.3 South Atlantic................. 3.3 4.6 4.3 3.0 3.8 2.8 3.5 3.1 2.7 West South Central............. 3.9 5.4 5.1 5.4 3.1 5.2 5.3 0.3 4.5 BY SERVICE (PRICE LEVEL): Upscale........................ 4.0 4.8 5.0 4.3 3.6 4.2 4.2 1.3 2.9 Mid-Price...................... 3.9 5.8 6.2 4.6 4.5 4.7 5.8 2.9 3.4
PRIME'S LODGING OPERATIONS The following table sets forth information with respect to the Portfolio as of December 31, 2000 and 1999:
DECEMBER 31, DECEMBER 31, 2000 1999 CHANGE --------------- --------------- --------------- NUMBER OF NUMBER OF NUMBER OF HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ------ ------ ------ ------ ------ AMERISUITES (1)Owned........................................ 65 8,409 69 8,916 (4) (507) Leased.......................................... 46 5,710 19 2,403 27 3,307 Managed......................................... 4 542 1 128 3 414 Franchised...................................... 18 2,205 8 1,026 10 1,179 --- ------ --- ------ --- ------ Total................................... 133 16,866 97 12,473 36 4,393 === ====== === ====== === ====== WELLESLEY INN & SUITES (1)Owned........................................ 58 6,747 66 7,475 (8) (728) Leased.......................................... -- -- -- -- -- -- Managed......................................... 5 463 -- -- 5 463 Franchised...................................... 7 673 -- -- 7 673 --- ------ --- ------ --- ------ Total................................... 70 7,883 66 7,475 4 408 === ====== === ====== === ====== NON-PROPRIETARY BRANDS (1)Owned........................................ 12 2,303 16 3,276 (4) (973) Leased.......................................... 9 1,464 9 1,464 -- -- Managed......................................... 15 2,234 16 2,604 (1) (370) Franchised...................................... -- -- -- -- -- -- --- ------ --- ------ --- ------ Total................................... 36 6,001 41 7,344 (5) (1,343) === ====== === ====== === ======
3 5
DECEMBER 31, DECEMBER 31, 2000 1999 CHANGE --------------- --------------- --------------- NUMBER OF NUMBER OF NUMBER OF HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ------ ------ ------ ------ ------ TOTAL PORTFOLIO (1)Owned........................................ 135 17,459 151 19,667 (16) (2,208) Leased.......................................... 55 7,174 28 3,867 27 3,307 Managed......................................... 24 3,239 17 2,732 7 507 Franchised...................................... 25 2,878 8 1,026 17 1,852 --- ------ --- ------ --- ------ Total................................... 239 30,750 204 27,292 35 3,458 === ====== === ====== === ======
(1) The Owned Hotels represent those hotels in which the Company owns significant economic interests. The Company owns the land and building on all but 11 hotels which are operated under ground or building lease agreements. The ground and building leases provide for fixed base rents and, in most instances, additional percentage rents based on a percentage of room revenues. (2) In addition to the above, as of December 31, 2000, there were two owned AmeriSuites, two leased AmeriSuites and four franchised AmeriSuites under construction. There was also one Wellesley Inn under conversion by Prime and two by franchisees. The following table sets forth the location of the Portfolio as of December 31, 2000:
OWNED LEASED MANAGED FRANCHISED TOTAL --------------- -------------- -------------- -------------- --------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ------ ------ ----- ------ ----- ------ ----- ------ ------ Alabama............................ 1 128 1 128 2 256 Arizona............................ 6 780 3 364 1 128 10 1,272 Arkansas........................... 1 130 1 130 California......................... 1 128 3 306 2 256 6 690 Colorado........................... 5 662 1 126 6 788 Connecticut........................ 3 389 2 305 1 103 6 797 Florida............................ 23 2,700 6 621 1 80 6 661 36 4,062 Georgia............................ 9 1,122 4 499 1 189 2 216 16 2,026 Idaho.............................. 1 128 1 128 Illinois........................... 5 649 3 330 3 380 11 1,359 Indiana............................ 2 260 3 383 5 643 Kansas............................. 3 374 2 261 5 635 Kentucky........................... 2 251 2 251 Louisiana.......................... 1 128 1 128 Maine.............................. 1 130 1 130 Maryland........................... 2 261 1 128 3 389 Massachusetts...................... 1 158 1 158 Michigan........................... 3 394 3 394 Minnesota.......................... 1 125 1 128 4 514 6 767 Missouri........................... 1 135 1 135 Nevada............................. 1 125 3 552 4 677 New Jersey......................... 12 2,085 4 648 8 1,355 24 4,088 New Mexico......................... 2 237 2 253 4 490 New York........................... 7 850 1 82 8 932 North Carolina..................... 5 648 2 248 1 75 8 971 Ohio............................... 4 460 4 504 8 964 Oklahoma........................... 2 256 1 128 3 384 Oregon............................. 1 137 1 161 2 298 Pennsylvania....................... 3 528 1 104 4 632 South Carolina..................... 4 455 4 455
4 6
OWNED LEASED MANAGED FRANCHISED TOTAL --------------- -------------- -------------- -------------- --------------- HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS ------ ------ ------ ----- ------ ----- ------ ----- ------ ------ Tennessee.......................... 4 503 3 356 1 84 8 943 Texas.............................. 19 2,355 8 985 5 638 32 3,978 Virginia........................... 3 339 2 261 2 200 7 800 --- ------ -- ----- -- ----- -- ----- --- ------ Total..................... 135 17,459 55 7,174 24 3,239 25 2,878 239 30,750 === ====== == ===== == ===== == ===== === ======
The following table sets forth, for the years ended December 31, 2000 and 1999, operating data by product type for the comparable hotels in the Portfolio as of December 31, 2000.
OWNED HOTELS TOTAL PORTFOLIO --------------------------------------- ------------------------------ OCCUPANCY ADR REVPAR OCCUPANCY ADR REVPAR ------------------- ------- ------ --------- ------- ------ AMERISUITES 2000....................... 67.7% $ 81.61 $55.27 69.2% $ 81.80 $56.61 1999....................... 65.3% $ 81.78 $53.40 66.9% $ 81.56 $54.56 Change..................... 2.4 pts..... (0.2)% 3.5% 2.3 pts. 0.3% 3.8% WELLESLEY INN & SUITES 2000....................... 66.5% $ 60.77 $40.44 67.3% $ 61.39 $41.30 1999....................... 63.6% $ 60.16 $38.27 64.7% $ 60.40 $39.10 Change..................... 2.9 pts...... 1.0% 5.7% 2.6 pts. 1.6% 5.6% NON-PROPRIETARY BRANDS 2000....................... 72.9% $111.83 $81.55 73.1% $103.40 $75.57 1999....................... 71.4% $106.68 $76.12 70.4% $ 99.69 $70.18 Change..................... 1.5 pts...... 4.8% 7.1% 2.7 pts. 3.7% 7.7% TOTAL 2000....................... 68.2% $ 82.06 $55.99 69.7% $ 83.18 $57.98 1999....................... 65.7% $ 81.21 $53.36 67.3% $ 81.91 $55.13 Change..................... 2.5 pts...... 1.0% 4.9% 2.4 pts. 1.6% 5.2%
AMERISUITES The Company currently has 133 AmeriSuites in operation and there are eight AmeriSuites hotels under construction. Prime also has an additional 60 executed AmeriSuites franchise agreements for new AmeriSuites to be built. While the majority of the current AmeriSuites hotels were developed with Prime's capital, the Company intends to develop AmeriSuites on a more limited scale with the bulk of new development capital coming from franchisees. AmeriSuites are positioned in the upscale segment of the lodging industry, competing predominantly with other upscale and mid-price brands such as Courtyard by Marriott, Hilton Garden Inns, Hampton Inns & Suites and Holiday Inn. The average age of the AmeriSuites hotels as of March 15, 2001 was approximately 4.1 years. The Company is committed to the expansion of the AmeriSuites brand due to its attractive investment returns, rapid stabilization, broad customer appeal and positioning in the fast-growing all-suites segment. AmeriSuites are all-suite, upscale hotels which offer guests an attractively designed suite, a complimentary continental breakfast in a spacious lobby cafe, remote-control cable television, high speed internet access, fitness centers and pool facilities. The hotels provide group meeting space, but do not include restaurant or lounge facilities. AmeriSuites attract customers principally because of the size and quality of the guest suites which contain approximately 420 square feet, approximately 25% larger than a standard hotel room. The suites offer distinct living, sleeping and kitchen areas with microwaves, refrigerators, in-room coffee makers, ironing boards and hair dryers. AmeriSuites hotels also offer business suites marketed under the name "TCB (Taking Care of Business) Suites". TCB Suites were developed specifically for the business traveler and feature a well-equipped, in-suite office, including an oversized desk with executive chair, dual phone lines, easy chair and 5 7 ottoman, in addition to voice mail extras, data ports, speaker phones and other amenities. The typical AmeriSuites contains approximately 128 suites, including 20-30 TCB Suites, and two to four meeting rooms. AmeriSuites are primarily located near suburban commercial centers, corporate office parks and other travel destinations, within close proximity to dining, shopping and entertainment amenities. The target customer is primarily the business traveler, with an average length of stay of two to three nights, and leisure or weekend travelers. AmeriSuites are marketed primarily through direct local sales, national marketing programs and a central reservation system. Since 1997, the Company has utilized a central reservation system for the AmeriSuites brand developed and operated by Pegasus Solutions ("Pegasus"). WELLESLEY INN & SUITES The Company currently has 70 Wellesley Inn & Suites in operation and there are three hotels under conversion. Prime also has an additional nine executed Wellesley Inn & Suites franchise agreements. The brand is comprised of 30 Wellesley Inns and 40 Wellesley Inn & Suites which, in addition to Wellesley Inn features, also contain suite rooms. The Company intends to develop this brand primarily through franchisees and believes that conversion opportunities from other brands exist in this segment. Wellesley Inn & Suites are positioned in the mid-price segment of the industry and compete with other chains such as Hampton Inn & Suites, La Quinta Inn & Suites, Holiday Inn Express and Comfort Inn & Suites. The average age of the chain's hotels is 7.1 years. The target customer is the transient business traveler, although approximately 25% of the customers stay on an extended basis. Of the Company's 30 Wellesley Inns, 17 are located in Florida and the remainder in the Middle Atlantic and Northeast United States. The prototypical Wellesley Inn has approximately 100 rooms and is distinguished by a stucco exterior, spacious lobby and amenities such as pool facilities, complimentary continental breakfast, remote control cable television with free movie channels and in-room coffee makers. Marketing efforts for the Wellesley Inns chain rely primarily on direct local marketing, but also include national programs and the same reservation system utilized by AmeriSuites. In Florida, where the population has grown rapidly, the Company has built a geographically concentrated group of Wellesley Inns, thereby developing strong regional brand name recognition. The Company's 40 Wellesley Inn & Suites were formed primarily from the conversion of 38 former HomeGate hotels in November 1999. Wellesley Inn & Suites are located primarily in the Southwest, Midwest and Southeast. The conversion has proven to be successful for Prime with REVPAR rising by 22% at these 38 hotels in 2000 over 1999. The typical Wellesley Inn & Suites consists of approximately 110 to 130 rooms. In addition to the amenities of a typical Wellesley Inn, the Wellesley Inn & Suites hotels offer suite accomodations in approximately 60% of the guest rooms. The suites contain approximately 450 square feet offering separate living, sleeping and eating areas. The suite rooms also contain kitchenettes with stove tops, refrigerators and microwaves. The Wellesley Inn & Suites utilize the same reservation system as AmeriSuites. NON-PROPRIETARY BRANDS The Company operates 36 non-proprietary brand hotels, 28 of which are in the upscale full-service segment. The Company owns 12 of these hotels, operates nine hotels under lease agreements with REITs and manages 15 hotels for third parties. The full-service hotels provide food and beverage service and banquet facilities and are operated under franchise agreements with Hilton, Radisson, Sheraton, Crowne Plaza, Holiday Inn and Ramada. The full-service hotels are concentrated in the Northeast. The hotels are generally positioned along major highways within close proximity to corporate headquarters, office parks, airports, convention or trade centers and other major facilities. The customer base for the full-service hotels consists primarily of business travelers. Sales and marketing efforts are concentrated at the local level where the Company's sales force markets its rooms and its meeting and banquet services to groups for seminars, 6 8 business meetings and other events. The hotels are also marketed through national franchisor programs and central reservation systems. The Company's full-service hotels generally have between 150 and 300 rooms and pool, restaurant, lounge, banquet and meeting facilities. Other amenities include fitness rooms, room service, remote-control cable television and business centers. In order to enhance guest satisfaction, the Company also has theme concept lounges in a number of its hotels. In recent years, the Company has received recognition from various franchisors and associations for its hotel quality and service. The Company also manages eight limited-service hotels for third parties under franchise agreements with Ramada Limited, Country Inn & Suites, Comfort Inn & Suites, Days Inn and Howard Johnson. The limited service hotels generally contain between 100 and 120 rooms and are designed to appeal to business travelers. The Company is currently converting one of its non-proprietary brand hotels to a Wellesley Inn and intends to divest certain of its remaining 11 owned non-proprietary brand hotels. Prime intends to pursue opportunities to manage hotels in this segment. BRAND INFRASTRUCTURE As Prime continues to evolve into a franchisor, it has undertaken a number of brand initiatives. These include the following: Brand Advertising -- Prime increased its national brand advertising expenditures by 33% in 2000 to $6.3 million. The Company's efforts have focused primarily on print advertising both on a regional level and in national publications such as USA Today. Prime plans to further increase brand advertising expenditures by approximately $1.0 million in 2001 expanding the program to include national television and radio promotions. Central Reservation System -- Prime and Pegasus have made several enhancements to the central reservation system. Utilizing fiber optic technology, the Company implemented a seamless two-way interface between the hotels and the reservation system which provides for instant inventory updates for customer and agents. Other initiatives included an easy access booking screen for travel agents and improved database functions. National Accounts -- The Company continues to add to the number of national companies listing AmeriSuites and Wellesley Inn & Suites as preferred hotel providers. Prime now has over 200 national accounts which include leading companies throughout the country. High Speed Internet Access -- The Company has an agreement with CAIS Internet to provide high speed internet access via laptops or personal computers to all its proprietary brand hotels. Currently, approximately 90% of Prime's AmeriSuites and Wellesley Inn & Suites hotels provide this access with the remainder to be installed in 2001. Rewards Programs -- During 2000, the Company increased its AmeriSuites and Wellesley club membership by 37% to approximately 71,000 members. Frequent customers can currently earn rewards such as a free night's stay or an American Express gift certificate. Prime intends to upgrade this program in 2001 to include additional benefits such as airline miles and rental cars. E-Commerce -- Recognizing the potential impact that the internet can have on hotel bookings, Prime increased the presence of its brands on the web this year. Customers can book hotel rooms through its proprietary websites (amerisuites.com and wellesleyinnandsuites.com) which were upgraded with enhanced reservation features during 2000. The brands' hotel rooms are also distributed through popular travel web sites such as TravelScape, Priceline, Expedia, Travelocity, WorldRes and Hot Wire. In the future, the Company plans to continue to increase its distribution channels, create web based marketing alliances and develop business to business booking and marketing relationships. 7 9 E-Folio -- In 2000, Prime introduced a new E-folio program in partnership with IBM and Multi-Systems, Inc., its front desk systems provider. The system is a paperless method of collecting and distributing hotel data from corporate travelers to their home offices for immediate expense report generation. Management believes that the growing brand infrastructure, consisting of elements such as improved frequent stay programs, an enhanced central reservations system, increased advertising and marketing programs, e-commerce initiatives and the heightened visibility from the increase in the chains' number of hotels in the past year, will enable its brands to compete effectively with older, more established chains. FRANCHISING Prime intends to grow its brands primarily through franchising. The Company began its franchise sales efforts in mid-1998 when it obtained all the necessary statutory approvals to begin franchising its AmeriSuites and Wellesley brands. Prime currently has a franchise sales team of eight professionals which include a senior vice president and seven regional vice presidents. In addition to their direct sales effort, the franchise sales team also develops the franchise marketing programs which include advertising in industry and business publications, attending various trade shows and producing brochures and other collateral material. Prime has also formed a franchise services team which has developed a variety of programs to guide its franchisees through the various phases of opening and operating a hotel. These include training, pre-opening, construction management and purchasing services. Prime also offers its franchisees an internet based communications system which provides brand updates, operating standards and manuals and other important communications. The following table illustrates the number of franchise agreements executed by Prime through March 15, 2001 since it began its franchising efforts in June 1998.
WELLESLEY INN AMERISUITES & SUITES TOTAL ----------- ------------- ----- 1998................................................ 3 1 4 1999................................................ 49 1 50 2000................................................ 19 2 21 2001 (through March 15)............................. 1 8 9 -- -- -- Total.......................................... 72 12 84 Less: Opened -- Franchised.............................. 8 1 9 Under Construction................................ 4 2 6 -- -- -- Remaining Pipeline.................................. 60 9 69 == == ==
Prime believes that the results of its conversion of the former HomeGate hotels to its Wellesley brand will improve the chain's future franchising prospects by adding critical mass to the brand and by demonstrating the feasibility of converting other brands to the Wellesley Inn & Suites brand. As part of its franchising initiatives, in 2000 Wellesley Inn & Suites became a founding sponsor of the Asian American Hotel Owners' Association, a group representing a substantial number of owners in this segment. Prime's AmeriSuites and Wellesley franchise agreements typically provide for terms of twenty years and require the franchisee to maintain certain operating and product standards. The franchise fees are generally comprised of an initial application fee, plus monthly fees based on a percentage of hotel revenues. The monthly fees cover royalties and the cost of marketing and reservation services. Prime also offers additional services including purchasing and design services. The standard monthly fees as a percentage of room sales are as follows:
ROYALTY MARKETING RESERVATION FEE FEE FEE ------- --------- ----------- AmeriSuites.......................................... 5.0% 2.0% 1.5% Wellesley Inn & Suites............................... 4.5% 1.5% 1.5%
8 10 DEVELOPMENT While the Company has developed the majority of its existing AmeriSuites and Wellesley Inn & Suites, it intends to rely on franchisees for the majority of future development of its hotels. During 2000, Prime opened two owned AmeriSuites hotels, located in the Baltimore and Orlando markets. Prime currently has two owned AmeriSuites hotels under construction in the Detroit and San Jose markets. Prime intends to focus any future development efforts in the Northeast and West Coast, or in other areas where the development process is more difficult and high barriers to entry exist. The Company intends to fund new development primarily from internally generated cash flow. The Company's Wellesley Inn & Suites development effort will focus on the conversion of other limited-service hotels to its brands. The Company converted one owned hotel in 2000 and intends to convert another owned hotel to its Wellesley brand in 2001. OPERATIONS As a leading domestic hotel operating company, the Company believes that it enjoys a number of operating advantages over other lodging companies. With 214 hotels under management covering a number of price points and broad geographic regions, the Company possesses the critical mass to support operating, marketing and financial systems. The Company believes that its broad array of central services permits on-site hotel general managers to effectively focus on providing guest services, resulting in economies of scale. The Company's operating strategy combines operating service and guidance from its central management team with decentralized decision-making authority delegated to each hotel's on-site management. The on-site hotel management teams consist of a general manager and, depending on the hotel's size and market position, managers of sales and marketing, food and beverage, front desk services, housekeeping and engineering. The Company's operating objective is to exceed guest expectations by providing quality services and comfortable accommodations at a fair value. On-site hotel management is responsible for efficient expense controls and uses operating standards provided by the Company. Within parameters established in the operating and capital planning process, on-site management possesses broad decision-making authority on operating issues such as guest services, marketing strategies and hiring decisions. Each hotel's management team is empowered to take all necessary steps to ensure guest satisfaction within established guidelines. Key on-site personnel participate in an incentive program based on hotel revenues and profits. The central management team is located in Fairfield, New Jersey. Central management provides four major categories of services: (i) operations management, (ii) sales and marketing management, (iii) financial reporting and control and (iv) hotel support services. Operations Management. Operations management consists of the development, implementation and monitoring of hotel operating standards and is provided by a network of regional operating officers who are each responsible for the operations of 15 to 20 hotels. They are supported by training, food and beverage and human resources departments, each staffed full-time by specialized professionals. The Company's training efforts focus on sales, housekeeping, food service, front desk services and leadership. The Company believes these efforts increase employee effectiveness, reduce turnover and improve the level of guest services. Sales and Marketing Management. Sales and marketing management is directed by a corporate staff which includes regional marketing directors who are responsible for each hotel's sales and marketing strategies, and the Company's national sales group, which markets its brands to major companies which produce a high volume of room nights. In cooperation with the regional marketing staff, on-site sales management develops and implements short and intermediate-term marketing plans. The Company focuses on yield management techniques, which optimize the relationship between hotel rates and occupancies and seek to maximize profitability. Complementing regional, national and on-site marketing efforts, the Company formed a sales group under a wholly-owned subsidiary, Market Segments, Inc. ("MSI"). MSI's marketing team targets specific 9 11 hotel room demand generators including tour operators, major national corporate accounts, athletic teams, religious groups and others with segment-specialized sales initiatives. MSI's primary objective is to book hotel rooms at the Company's hotels and its secondary objective is to market its services on a commission basis to hotels throughout the industry. Sales activities on behalf of non-affiliated hotels increase the number of hotels where bookings can be made to support marketing efforts and defray the costs of the marketing organization. The Company's brand advertising programs are developed at the central office. As the AmeriSuites chain has grown, the Company has rapidly increased its brand marketing expenditures, spending approximately 2% of revenues. The Company has also developed a rewards program targeted for frequent travelers which it intends to upgrade in 2001. Financial Reporting and Control. The Company's system of centralized financial reporting and control permits management to closely monitor decentralized hotel operations without the cost of financial personnel on site. Centralized accounting personnel produce detailed financial and operating reports for each hotel. Additionally, central management directs budgeting and analysis, processes payroll, handles accounts payable, manages each hotel's cash, oversees credit and collection activities and conducts on-site hotel audits. Hotel Support Services. The Company's hotel support services combine a number of technical functions in central, specialized management teams to attain economies of scale and minimize costs. Central management establishes human resources guidelines, handles purchasing, directs construction and maintenance and provides design services. Technical staff teams support each hotel's information and communication systems needs. Additionally, the Company directs safety/risk management activities, benefit programs and provides central legal services. CAPITAL IMPROVEMENTS The Company continuously refurbishes its Owned Hotels in order to maintain consistent quality standards. The Company generally spends between 3% to 6% of hotel revenue on capital improvements at its Owned Hotels and typically refurbishes each hotel approximately every five years. The Company believes that its Owned Hotels are in generally good physical condition, with over half of the Owned Hotels being five years old or less. The Company recommends refurbishment and repair projects on its Managed Hotels and Leased Hotels, although spending amounts vary based on the plans of such hotels' owners and the Company's role as the franchisor. LEASED HOTELS As of December 31, 2000, the Company operated 55 hotels under lease agreements, primarily with REITs. These are comprised of 24 AmeriSuites owned by Hospitality Properties Trust (HPT), 19 AmeriSuites hotels owned by Equity Inns, Inc., three AmeriSuites owned by Sholodge, Inc., eight full-service hotels owned by MeriStar Hospitality, Inc. and one full-service hotel owned by Winston Hotels. The leases have terms ranging from 10 to 13 years expiring from 2007 to 2013 with certain renewal options. The 27 hotels leased from HPT and Sholodge provide for a fixed annual minimum rent plus eight percent of revenue in excess of a base year. The 28 hotels leased from Equity Inns, MeriStar and Winston provide for rent equal to the greater of base rents, which increase annually by the inflation rate, or percentage rents based on a percentage of room, food and beverage and other revenue. The percentage lease calculations on these 28 hotels are designed to provide the Company with revenue streams equal to approximately 2.5% to 3.0% of hotel revenues. In February 2001, MeriStar notified the Company of its intent to terminate its lease agreements with the Company related to four of its full-service hotels effective May 2001. Under the terms of the lease agreement, MeriStar would be obligated to pay termination fees based on a multiple of net operating income related to those terminated leases. The impact of the termination will be immaterial to the Company's financial condition. 10 12 MANAGED HOTELS As of December 31, 2000, the Company provided hotel management services to third party hotel owners of 24 Managed Hotels. Management fees are based on fixed percentages of the property's total revenues and incentive payments based on certain measures of hotel income. Additional fees are also generated from the rendering of specific services such as accounting, construction, design and purchasing. The Company's fixed management fee percentages are generally 3.0% to 4.0% of total revenues before giving consideration to performance related incentive payments. Terms of the management agreements vary with expiration dates ranging from 2001 to 2014. The Company intends to pursue new management opportunities to capitalize on its present management infrastructure, particularly in the full-service hotel segment. AGREEMENTS AS FRANCHISEE The Company has entered into franchise licensing agreements with third party franchisors, which agreements typically have a ten year term and allow the Company to benefit from franchise brand recognition and loyalty. The franchise agreements require the Company to pay monthly fees, to maintain certain standards and to implement certain capital programs. The payment of monthly fees, which typically total 8% to 9% of room revenues, cover royalties and the costs of marketing and reservation services provided by the franchisors. Franchise agreements, when initiated, generally provide for an initial fee in addition to monthly fees payable to the franchisor. The Company believes it currently enjoys good relationships with its franchisors. WORKING CAPITAL The Company believes that its operating cash flow is sufficient to cover its current operational and capital needs. The Company also intends to generate proceeds from asset sales, to be utilized for repayment of debt and/or the repurchase of its common shares. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SEASONALITY The impact of seasonality on the Company as a whole is relatively modest due to the seasonal balance achieved from the geographical location of the Company's hotel properties. The second and third quarters of the year are generally the strongest due to business travel patterns. COMPETITION The Company operates hotel properties in areas that contain numerous other hotels, some of which are affiliated with national or regional brands. The Company competes with other hotels primarily on the basis of price, physical facilities and customer service. EMPLOYEES As of December 31, 2000, the Company employed approximately 7,750 employees. Certain of the Company's employees are covered by collective bargaining agreements. The Company believes that relations with its employees are generally good. ENVIRONMENTAL MATTERS The Hotels are subject to environmental regulations under Federal, state and local laws. Certain of these laws may require a current or previous owner or operator of real estate to clean up designated hazardous or toxic substances or petroleum product releases affecting the property. In addition, the owner or operator may be held liable to a governmental entity or to third parties for damages or costs incurred by such parties in connection with the contamination. The Company does not believe that it is subject to any environmental liability that is likely, individually or in the aggregate, to have a material adverse effect on its financial condition or results of operations or cash flows. 11 13 ITEM 3. LEGAL PROCEEDINGS The Company currently and from time to time is involved in litigation arising in the ordinary course of its business. The Company does not believe that it is involved in any litigation that is likely, individually or in the aggregate, to have a material adverse effect on its financial condition or results of operations or cash flows. Pourzal v. Prime (Civ. No. 1999-139M) This action was commenced on August 18, 1999, against Prime in the district court of the Virgin Islands, Division of St. Thomas and St. John (the "Court"). The action is for breach of a contract allegedly formed in 1978 between Nick Pourzal and American Motor Inns, Inc., a predecessor of Prime. The plaintiff, a former employee of Prime, alleges that Prime or its predecessor breached a contract to make certain payments to him with respect to a parcel of land in St. Thomas U.S.V.I., previously owned by Prime. The plaintiff seeks a declaratory judgment that Prime is liable to him for payment of ten percent (10%) of Prime's pre-tax earnings on the land, as well as compensatory, incidental, and consequential damages, interest, costs, and attorneys' fees. Discovery is currently proceeding in this matter. Prime believes that Plaintiff's action is without merit and intends to vigorously defend this case. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the quarter ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, par value $.01 per share, trades on the New York Stock Exchange (the "NYSE") under the symbol "PDQ." As of March 15, 2001 there were 45,008,283 shares of common stock outstanding. The following table sets forth the reported high and low closing sales prices of, and the dividends per share on, the common stock on the NYSE.
HIGH LOW ----- ----- Year Ended December 31, 2000 First Quarter............................................... 8.81 7.25 Second Quarter.............................................. 9.94 7.38 Third Quarter............................................... 10.94 9.00 Fourth Quarter.............................................. 11.63 9.00 Year Ended December 31, 1999 First Quarter............................................... 11.13 9.06 Second Quarter.............................................. 12.94 10.38 Third Quarter............................................... 12.13 7.94 Fourth Quarter.............................................. 9.00 7.63
As of March 15, 2001, the closing sales price of the common stock on the NYSE was $11.05 per share, and there were approximately 1,789 holders of record of common stock. The Company has not declared any cash dividends on its common stock during the two prior fiscal years and does not currently anticipate paying any dividends on the common stock in the foreseeable future. The Company currently anticipates that it will retain any future earnings for use in its business. In addition, the Company is prohibited by the terms of certain debt agreements from paying cash dividends. 12 14 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY The table below presents selected consolidated financial data derived from the Company's historical financial statements for the five years ended December 31, 2000. This data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included herein.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues...................... $ 559,944 $ 552,732 $ 469,405 $ 340,961 $271,100 Income from continuing operations before extraordinary items and the cumulative effect of change in accounting principle........................ 62,814 40,197 53,847 25,931 30,048 Cumulative effect of a change in accounting principle (net of income taxes)(a)................. -- (5,315) -- -- -- Extraordinary items-gains/(losses) on discharge of indebtedness (net of income taxes)................. (314) -- -- -- 202 Net income.......................... 62,500 34,882 53,847 25,931 30,250 Pro-forma effect of change in accounting principle (net of income taxes)(b)................. -- -- (3,788) (255) (1,260) Pro-forma net income after taxes(b)......................... $ 62,500 $ 34,882 $ 50,059 $ 25,676 $ 28,990 NET INCOME PER COMMON SHARE: Basic............................... $ 1.37 $ .68 $ 1.04 $ .56 $ .74 Diluted............................. $ 1.34 $ .67 $ 1.00 $ .54 $ .68 PRO-FORMA NET INCOME PER COMMON SHARE(b): Basic............................... -- -- $ .97 $ .55 $ .71 Diluted............................. -- -- $ .94 $ .53 $ .66 BALANCE SHEET DATA: Total assets........................ $1,159,840 $1,328,779 $1,408,398 $1,196,666 $877,100 Long-term debt, net of current portion.......................... 340,987 543,485 582,031 554,500 319,836 Stockholders' equity................ 668,100 632,000 641,045 524,413 484,584
- --------------- (a) Cumulative effect of a change in accounting principle of $5.3 million (net of income taxes) in 1999, relates to the adoption by the Company of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). The Company adopted SOP 98-5 on January 1, 1999, and was required to write-off any unamortized pre-opening costs that remained on the balance sheet. (b) Pro-forma amounts reflect the effect on net income and earnings per share had the Company written off pre-opening costs pursuant to SOP-98-5 in 1995-1998. 13 15 Unaudited selected consolidated quarterly financial data for the years ending December 31, 2000 and 1999 follow (in thousands, except per share amounts):
THREE MONTHS ENDED -------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1999 1999 1999 1999 2000 2000 --------- -------- ------------- ------------ --------- -------- Total revenue............. $133,300 $146,021 $140,832 $132,579 $137,891 $140,641 Operating income.......... 24,677 36,093 10,645 29,321 29,772 36,751 Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes................ 11,516 16,264 1,393 11,024 10,757 24,397 Cumulative effect of a change in accounting principle (net of taxes).................. (5,315) -- -- -- -- -- Extraordinary items (net of taxes)............... -- -- -- -- (302) -- Net income................ 6,201 16,264 1,393 11,024 10,455 24,397 Earnings per common share: Basic: Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes)............... $ 0.22 $ 0.32 $ 0.03 $ 0.22 $ 0.22 $ 0.54 Cumulative effect of a change in accounting principle (net of taxes).................. (0.11) -- -- -- -- -- Extraordinary items (net of taxes)............... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Earnings per share........ $ 0.11 $ 0.32 $ 0.03 $ 0.22 $ 0.22 $ 0.54 ======== ======== ======== ======== ======== ======== Diluted: Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes)............... $ 0.22 $ 0.31 $ 0.03 $ 0.21 $ 0.22 $ 0.53 Cumulative effect of a change in accounting principle (net of taxes).................. (0.10) -- -- -- -- -- Extraordinary items (net of taxes)............... -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Earnings per share........ $ 0.12 $ 0.31 $ 0.03 $ 0.21 $ 0.22 $ 0.53 ======== ======== ======== ======== ======== ======== THREE MONTHS ENDED ---------------------------- SEPTEMBER 30, DECEMBER 31, 2000 2000 ------------- ------------ Total revenue............. $146,771 $134,641 Operating income.......... 34,456 27,481 Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes................ 15,653 12,006 Cumulative effect of a change in accounting principle (net of taxes).................. -- -- Extraordinary items (net of taxes)............... -- (11) Net income................ 15,653 11,995 Earnings per common share: Basic: Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes)............... $ 0.35 $ 0.27 Cumulative effect of a change in accounting principle (net of taxes).................. -- -- Extraordinary items (net of taxes)............... -- -- -------- -------- Earnings per share........ $ 0.35 $ 0.27 ======== ======== Diluted: Income before cumulative effect of a change in accounting principle and extraordinary items (net of taxes)............... $ 0.34 $ 0.26 Cumulative effect of a change in accounting principle (net of taxes).................. -- -- Extraordinary items (net of taxes)............... -- -- -------- -------- Earnings per share........ $ 0.34 $ 0.26 ======== ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Prime is an owner, manager and franchisor of hotels, with 239 hotels in operation containing 30,750 rooms located in 33 states (the "Portfolio") as of December 31, 2000. Prime controls two hotel brands -- AmeriSuites(R) and Wellesley Inn & Suites(R) -- as well as a portfolio of upscale, full-service hotels operated under franchise agreements with national hotel chains. As of December 31, 2000, the Company owned and operated 135 hotels (the "Owned Hotels"), operated 55 hotels under lease agreements primarily with real estate investment trusts (the "Leased Hotels"), managed 24 hotels for third parties (the "Managed Hotels"), and franchised 25 hotels which it does not operate (the "Franchised Hotels"). The Portfolio is comprised of 133 AmeriSuites hotels, 70 Wellesley Inn & Suites hotel and 36 non-proprietary brand hotels. 14 16 The Company's strategy is to develop its proprietary AmeriSuites and Wellesley Inn & Suites brands. Through the development of its proprietary brands, the Company is in the process of transforming itself from an owner/operator into a franchisor and manager and has positioned itself to generate additional revenues with minimal capital investment. Since Prime began franchising in mid-1998, the Company has executed 72 AmeriSuites franchise agreements. To date, eight of these AmeriSuites have opened and there are currently four AmeriSuites under construction. Of the remaining pipeline of 60 hotels, ten are scheduled to begin construction during the first quarter of 2001. Prime has also signed twelve Wellesley Inn & Suites franchise agreements. To date, one Wellesley Inn & Suites has opened with another two hotels scheduled to be converted from other brands during the first quarter of 2001. In addition, the Company also has 14 AmeriSuites and eleven Wellesley Inn & Suites which are franchised pursuant to asset sales. Prime's strategy is also focused on growing the operating profits of its Portfolio. With 214 hotels in operation, Prime believes it possesses the hotel management expertise to maximize the profitability and value of its hotel assets. For the year ended December 31, 2000, revenues were $559.9 million and EBITDA was $170.1 million. Excluding the impact of hotels divested in the past year, revenues increased by 13.7% and EBITDA before lease expense grew by 13.8%. The Company evaluates the performance of its segments based primarily on EBITDA generated by the operations of its hotels. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States and should not be considered as alternatives to net income as an indicator of the Company's operating performance or as alternatives to cash flows as a measure of liquidity. Certain statements in this Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include the information about Prime's possible or assumed future results of operations and statements preceded by, followed by or that include the words "believe," "except," "anticipate," "intend," "plan," "estimate," or similar expressions, or the negative thereof. Actual results may differ materially from those expressed in these forward-looking statements. Readers of this Form 10-K are cautioned not to unduly rely on any forward-looking statements. The following important factors, in addition to those discussed elsewhere in this Form 10-K or incorporated herein by reference, could cause results to differ materially from those expressed in such forward-looking statements: competition within each of the Company's business segments in areas such as access, location, quality or accommodations and room rate structures; the balance between supply of and demand for hotel rooms and accommodations; the Company's continued ability to obtain new operating contracts and franchise agreements; the Company's ability to develop and maintain positive relations with current and potential hotel owners and other industry participants; the level of rates and occupancy that can be achieved by such properties and the availability and terms of financing; the ability of the Company or its franchisees to maintain the properties in a first-class manner, including meeting capital expenditure requirements; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; the effect of international, national and regional economic conditions that will affect, among other things, demand for products and services at the Company's hotels; government approvals, actions and initiatives including the need for compliance with environmental and safety requirements, and change in laws and regulations or the interpretation thereof and the potential effects of tax legislative action; and other risks described from time to time in our filings with the SEC. Although the Company believes the expectations reflected in these forward-looking statements are based upon reasonable assumptions, no assurance can be given that Prime will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, the Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking 15 17 statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999 Hotel revenues consist of lodging revenues (which consist primarily of room, telephone and vending revenues) and food and beverage revenues. Hotel revenues for the year ended December 31, 2000 increased by $5.7 million, or 1.1%, from $532.7 million in 1999 to $538.4 million in 2000. The increase was due primarily to incremental revenues of $49.7 million from new and converted hotels added during 1999 and 2000. The new hotels consist primarily of the leasehold interests on 27 Sumner Suites hotels acquired from Sholodge in July 2000 and subsequently converted to AmeriSuites in November 2000. In addition, Prime realized growth in revenues at comparable Owned and Leased Hotels of $11.6 million. These increases were offset by a decrease in revenues of $55.6 million related to properties sold during the year. The Company operates three product types: its proprietary AmeriSuites which are upscale all-suites hotels; its proprietary Wellesley Inn & Suites which are mid-price limited service hotels and its non-proprietary brand hotels which are primarily upscale full-service hotels. The following table illustrates the REVPAR growth, by segment in 2000 for the Owned hotels, which were operated for comparable periods in 2000 and 1999.
YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 % CHANGE ------- ------- -------- AMERISUITES Occupancy.......................................... 67.7% 65.3% ADR................................................ $ 81.61 $ 81.78 REVPAR............................................. $ 55.27 $ 53.40 3.5% WELLESLEY INN & SUITES Occupancy.......................................... 66.5% 63.6% ADR................................................ $ 60.77 $ 60.16 REVPAR............................................. $ 40.44 $ 38.27 5.7% NON-PROPRIETARY BRANDS Occupancy.......................................... 72.9% 71.4% ADR................................................ $111.83 $106.68 REVPAR............................................. $ 81.55 $ 76.12 7.1% TOTAL Occupancy.......................................... 68.2% 65.7% ADR................................................ $ 82.06 $ 81.21 REVPAR............................................. $ 55.99 $ 53.36 4.9%
The REVPAR increases reflect the results of continued favorable industry trends in the full-service segment, which is concentrated in the Northeast, and growing recognition of AmeriSuites as a leading brand in the fast-growing all-suites segment. The limited-service segment also reflected strong growth over the prior year due primarily to 38 properties converted from HomeGates to Wellesley Inn & Suites in the fourth quarter of 1999. The improvements in REVPAR at comparable Owned Hotels were generated by increases in ADR, which rose by 1.0%, and an increase in occupancy, which rose by 2.5 pts or 3.8%. Management, franchise and other fees consist primarily of base and incentive fees earned under management agreements, royalties earned under franchise agreements and sales commissions earned by the Company's national sales group. Management, franchise and other fees increased by $3.6 million, or 26.4%, from $13.6 million in 1999 to $17.2 million in 2000. The increase was primarily due to increased base and incentive management fees associated with the Managed Hotels and franchise royalty fees derived from hotels sold to franchisees and new hotel openings. 16 18 Rental and other consists of rental income, interest on mortgages and notes receivable and other miscellaneous operating income. Rental and other decreased by $2.0 million from $6.3 million in 1999 to $4.3 million in 2000. This decrease is primarily due to the settlement of various cash flow mortgages and notes receivable in 1999 and 2000. Hotel operating expenses which consist of all direct costs related to the operation of the Company's properties (lodging, food & beverage, administration, selling and advertising, utilities and repairs and maintenance) remained the same at $276.0 million. Hotel operating expenses, as a percentage of hotel revenues, decreased slightly from 51.7% in 1999 to 51.2% in 2000 due to the strong REVPAR increases at the hotels. Rent and other occupancy expenses consist primarily of rent expense, property insurance and real estate and other taxes. Rent and other occupancy expenses increased by $13.2 million, or 18.7%, from $70.9 million in 1999 to $84.1 million in 2000, primarily due to the addition of the 27 leased hotels acquired from Sholodge in July 2000. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating the hotels and general corporate expenses. General and administrative expenses increased by $931,000, or 3.2%, from $29.2 million in 1999 to $30.1 million in 2000, due to increased brand advertising which rose from $4.7 million in 1999 to $6.3 million in 2000. As a percentage of total revenues, general and administrative expenses increased slightly from 5.3% in 1999 to 5.4% in 2000. Depreciation and amortization expense decreased by $4.2 million, or 9.2%, from $45.8 million in 1999 to $41.6 million in 2000. This decrease was primarily due to the disposal of 22 hotel properties during 2000. Valuation and other charges in 1999 consisted of a $7.1 million valuation allowance related to five HomeGate properties, a $22.0 million valuation allowance related to the Frenchman's Reef hotel and $1.4 million for severance charges related to a restructuring of the Company's corporate and regional offices. Investment income increased by $323,000, or 20.0%, from $1.6 million in 1999 to $1.9 million in 2000 primarily due to higher cash balances and interest earned on security deposits on the leased hotels acquired from Sholodge. Interest expense decreased by $2.3 million, or 5.3%, from $43.6 million in 1999 to $41.3 million in 2000, primarily due to the paydowns of debt resulting from asset sales and operating cash flows. The Company capitalized $2.3 million and $11.0 million of interest in 2000 and 1999, respectively. Excluding the impact of capitalized interest and the amortization of deferred loan fees, cash interest expense declined by $10.9 million, or 21.2%, from $51.5 million in 1999 to $40.6 million in 2000. Other income consists of property transactions and other items, which are not part of the Company's recurring operations. Other income in 2000 consisted of $13.9 million of net gains related to the disposition of properties. Other income in 1999 consisted of a $4.0 million fee for the termination of a hotel sale agreement, net gains on disposition of property of $8.0 million and losses of $4.8 million on the sales of marketable securities. Cumulative effect of a change in accounting principle of $5.3 million (net of income taxes) in 1999, relates to the adoption by the Company of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). The Company adopted SOP 98-5 on January 1, 1999 and was required to write-off any unamortized pre-opening costs that remained on the balance sheet. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 Hotel revenues consist of lodging revenues (which consist primarily of room, telephone and vending revenues) and food and beverage revenues. Hotel revenues for the year ended December 31, 1999 increased by $85.4 million or 19.1% from $447.4 million in 1998. The increase was due primarily to incremental revenues of $79.1 million from new hotels added during 1998 and 1999, growth in revenues at comparable 17 19 Owned Hotels of $3.6 million and increased revenues related to the Frenchman's Reef of $5.7 million. Revenues related to properties sold during the year offset these increases. The following table illustrates the REVPAR growth, by segment in 1999 for the Owned Hotels which were operated for comparable periods in 1999 and 1998.
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 % CHANGE ------- ------- -------- AMERISUITES Occupancy........................................... 68.4% 66.2% ADR................................................. $ 81.70 $ 81.85 REVPAR.............................................. $ 55.88 $ 53.87 3.7% WELLESLEY INN & SUITES Occupancy........................................... 71.0% 70.8% ADR................................................. $ 60.90 $ 61.13 REVPAR.............................................. $ 43.26 $ 43.26 0.0% NON-PROPRIETARY BRANDS Occupancy........................................... 70.8% 70.7% ADR................................................. $106.02 $101.95 REVPAR.............................................. $ 75.06 $ 72.03 4.2% TOTAL Occupancy........................................... 69.4% 68.0% ADR................................................. $ 81.65 $ 80.89 REVPAR.............................................. $ 56.67 $ 54.96 3.1%
Management, franchise and other fees consist primarily of base and incentive fees earned under management agreements, royalties earned under franchise agreements and sales commissions earned by the Company's national sales group. Management, franchise and other fees increased by $2.7 million, or 24.8%, from $10.9 million in 1998 to $13.6 million in 1999. The increase was primarily due to increased base and incentive management fees associated with the Managed Hotels and franchise royalty fees derived from hotels sold to franchisees. Rental and other consist of rental income, interest on mortgages and notes receivable primarily relates to mortgages secured by certain Managed Hotels and other miscellaneous operating income. Rental and other decreased by $4.8 million from $11.1 million in 1998 to $6.3 million in 1999. This decrease is primarily due to the settlement of various cash flow mortgages and notes receivable in 1998 and 1999 and business interruption insurance revenue recognized in 1998 of $4.0 million related to the Company's claim related to the hurricane damage at the Frenchman's Reef caused by Hurricane Bertha in July 1996. Hotel operating expenses, which consist of all cost, related to the operation of the Company's properties (lodging, food & beverage, administration, selling and advertising, utilities and repairs and maintenance) increased by $38.1 million or 16.0% from $237.5 million to $275.6 million. This increase was due primarily to $37.7 million of incremental expense from new hotels added during 1999 and 1998. Hotel operating expenses, as a percentage of hotel revenues decreased from 53.1% in 1998 to 51.7% in 1999 due to the strong increases in REVPAR. Rent and other occupancy expenses consist primarily of rent expense, property insurance, and real estate and other taxes. Rent and other occupancy expenses increased by $13.8 million, or 24.2%, from $57.1 million in 1998 to $70.9 million in 1999, primarily due to the full year's rent associated with the sale/leaseback of nine hotels to Equity Inns, Inc. ("Equity Inns") and eight hotels to MeriStar Hospitality Corporation ("MeriStar") in 1998. As a percentage of hotel revenues, occupancy and other operating expenses increased from 12.8% in 1998 to 13.3% in 1999, primarily due to the rent associated with the Leased Hotels. General and administrative expenses consist primarily of centralized management expenses such as operations management, sales and marketing, finance and hotel support services associated with operating the 18 20 hotels and general corporate expenses. General and administrative expenses increased by $2.7 million, or 10.2%, from $26.5 million in 1998 to $29.2 million in 1999, due to increased brand advertising, payroll and training costs associated with opening new AmeriSuites and Wellesley Inn & Suites hotels and the costs related to the development of the Company's franchising business. As a percentage of total revenues, general and administrative expenses decreased from 5.6% in 1998 to 5.3% in 1999. Depreciation and amortization expense increased by $3.8 million, or 9.2%, from $42.0 million in 1998 to $45.8 million in 1999. This increase was due primarily to the impact of new hotel properties. Valuation and other charges in 1999 consist of a $7.1 million valuation allowance related to five HomeGate properties, a $22.0 million valuation allowance related to Frenchmen's Reef and $1.4 million for severance charges related to a restructuring of the Company's corporate and regional offices. Valuation and other charges in 1998 consist of a $10.0 million valuation allowance related to certain non-prototype HomeGate properties, a charge of $4.0 million for costs associated with the terminating hotel development projects under contract, $2.4 million for severance charges related to the resignations of the Company's chief executive officer and chief operating officer, and a $1.0 million charge for hurricane damage at the Frenchman's Reef. Investment income decreased by $1.9 million, or 53.7%, from $3.5 million in 1998 to $1.6 million in 1999 primarily due to sales of marketable securities resulting in a decrease in dividend income and lower average cash balances. Interest expense increased by $19.7 million, or 82.5%, from $23.9 million in 1998 to $43.6 million in 1999, primarily due to decreases in capitalized interest related to the construction of new hotels. The Company capitalized $26.7 million and $11.0 million of interest in 1998 and 1999, respectively. Other income/loss consists of property transactions and other items, which are not part of the Company's recurring operations. Other income in 1999 consisted of a $4.0 million fee for the termination of a hotel sale agreement, net gains on disposition of property of $8.0 million and losses of $4.8 million on the sales of marketable securities. For the year ended December 31, 1998, other income consisted of gains associated with the settlement of notes receivable of $18.4 million, net gains on property sales of $1.1 million and a net loss on the sale of marketable securities of $1.3 million. Cumulative effect of a change in accounting principle of $5.3 million (net of income taxes) in 1999, relates to the adoption by the Company of Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). The Company adopted SOP 98-5 on January 1, 1999 and was required to write-off any unamortized pre-opening costs that remained on the balance sheet. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had cash, cash equivalents and current marketable securities of $5.1 million. In addition, at December 31, 2000, the Company had $139.0 million available to it under its Revolving Credit Facility. The Company's major sources of cash for 2000 were net proceeds from the sales of hotels of $183.5 million, cash flows from operations of $77.8 million and borrowings of $31.0 million. The Company's major uses of cash during the period were debt repayments of $214.0 million, capital expenditures of $39.0, repurchases of its common stock totaling $31.0 million and the posting of a $16.5 million security deposit. Cash flow from operations was positively impacted by the utilization of net operating loss carryforwards ("NOLs") and other tax basis differences of $3.1 million in 2000 and $5.0 million in 1999. At December 31, 2000, the Company had federal NOLs relating primarily to its predecessor, Prime Motor Inns, Inc. ("PMI"), of approximately $52.4 million, which are subject to annual utilization limitations and expire in 2006. Sources of Capital. The Company has undertaken a strategic initiative to dispose of certain hotel real estate while retaining the franchise rights and to invest the proceeds in the reduction of debt, the growth of its proprietary brands and the repurchase of the Company's common stock. 19 21 During 2000, the Company sold $214.7 million of assets. These were comprised of the sale of the Frenchman's Reef hotel for $73.0 million, five AmeriSuites for $56.0 million, ten Wellesley Inn and Suites for $45.0 million, one full service property for $18.2 million and the remaining five HomeGate hotels for $17.7 million. The Company also sold five land parcels for $4.8 million. The Company has a $200.0 million Revolving Credit Facility, which bears interest at LIBOR plus 2.0%. The facility is available through 2001 and may be extended by the Company for an additional year. The aggregate amount of the Revolving Credit Facility was reduced to $175.0 million in December 2000 and will be reduced to $125.0 million in December 2001. Borrowings under the facility are secured by first liens on certain of the Company's hotels with recourse to the Company. Additional properties may be added subject to the approval of the lenders. Availability under the facility is subject to a borrowing base test and certain other covenants. During 2000, the Company borrowed $31.0 million and repaid $156.0 million under this facility eliminating the entire amount outstanding in December 2000, with further availability of $139.0 million under its borrowing base test. The Revolving Credit Facility contains covenants requiring the Company to maintain certain financial ratios and limitations on the incurrence of debt, liens, dividend payments, stock repurchases, certain investments, transactions with affiliates, asset sales, mergers and consolidations and any change of control of the Company. In October 1999, the Revolving Credit Facility was amended to allow an additional $100.0 million of share repurchases to be funded by 50% of the proceeds from asset sales. In April 2000, the Revolving Credit Facility was amended to allow for additional retirements of other debt owed by the Company. Uses of Capital. The Company utilized the proceeds from asset sales, along with its cash flow from operations, to reduce its debt balance during the year by $203.3 million to $345.7 million at December 31, 2000. This reduction of debt was primarily comprised of the gross payments or transfers of $62.0 million of mortgage debt on assets sold, the net reduction in the outstanding Revolving Credit Facility debt of $125.0 million and the retirement of $15.9 million of the Company's $120 million First Mortgage Notes due 2006 ("First Mortgage Notes"). The Company also purchased approximately 3.9 million shares of its common stock during 2000 for $31.0 million at an average cost of $7.98 per share. The Revolving Credit Facility limits the purchase of these shares to 50% of the proceeds from asset sales not to exceed $100 million. As of March 15, 2001, the Company has repurchased $33.4 million of its shares under this covenant and has $44.8 million of availability based on the proceeds from asset sales. Under the terms of its lease agreement with HPT, the Company posted a $16.5 million cash deposit which will be returned to the Company at the earliest of the end of the lease or when the hotels achieve a 1.3 to 1.0 cash flow coverage. The Company intends to continue the growth of its brands primarily through franchising and, therefore, its corporate development will be limited. The Company opened two owned AmeriSuites in 2000 and spent $19.3 million during 2000 on new construction. The Company plans to spend approximately $25.0 to $30.0 million during 2001 on the construction of two AmeriSuites and the conversion of two Wellesley Inns. In addition, in 2000 the Company also spent $19.7 million on capital improvements at its Owned Hotels and expects to spend a similar amount on its Owned Hotels in 2001. The Company plans to fund its corporate development and capital improvements with internally generated cash flow. In order to facilitate future tax-deferred exchanges of hotel properties, the Company from time to time enters into arrangements with an unaffiliated third party under Section 1031 of the Internal Revenue Code of 1986, as amended. At December 31, 2000, the Company had advances of approximately $125.8 million to such third party, which advances are classified as property, equipment and leasehold improvements in the Company's accompanying financial statements. 20 22 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changes in interest rates primarily from its floating rate debt arrangements. At December 31, 2000, 1999 and 1998 a hypothetical 100 basis point adverse move (increase) in interest rates along the entire rate curve would have an adverse affect on the Company's annual interest cost by approximately $175,000, $1.9 million and $2.5 million annually. The Company has changed its method of disclosure to the above from the December 31, 1999 Form 10-K filed March 28, 2000, due to the $125.0 million reduction in its variable debt balance and the termination of its interest rate protection agreement in October 2000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements included in Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the names, ages and positions of the directors and executive officers of the Company:
NAME AGE POSITIONS - ---- --- --------- A.F. Petrocelli........................... 57 President, Chief Executive Officer and Chairman of the Board of Directors Lawrence N. Friedland(1).................. 78 Director Howard M. Lorber(1)....................... 52 Director Herbert Lust, II(1)....................... 74 Director Jack H. Nusbaum........................... 60 Director Allen Kaplan.............................. 51 Director Douglas W. Vicari......................... 41 Director, Senior Vice President and Chief Financial Officer Joseph Bernadino.......................... 54 Senior Vice President, Secretary and General Counsel Stephen M. Kronick........................ 46 Senior Vice President/Hotel Operations John Valletta............................. 49 Senior Vice President/Hotel Operations Richard T. Szymanski...................... 43 Vice President/Finance
- --------------- (1) Member of the Compensation and Audit Committee. The following is a biographical summary of the experience of the directors and executive officers of the Company: A.F. Petrocelli has been a Director since 1992 and was a member of the Compensation and Audit Committee from 1993 to 1998. Mr. Petrocelli has been Chairman of the Board of Directors, President and Chief Executive Officer of the Company since 1998. Mr. Petrocelli has been Chairman of the Board of Directors and Chief Executive Officer of United Capital Corp. for more than the past five years. He is also a director of Nathan's Famous, Inc., Boyar Value Fund, Inc. and Philips International Realty Corp. 21 23 Lawrence N. Friedland has been a Director of the Company and a member of the compensation and Audit Committee since 1998. Mr. Friedland has been a partner in the law firm of Hoffinger Friedland Dobrish & Stern, P.C. for more than the past 25 years. He has been a director of the Apple Bank for Savings since 1990, a director of Lutron Electronics Co., Inc. since 1961, a member of the Advisory Committee of Brown Harris Stevens, LLC since 1995 and a general partner, manager or director of numerous real estate entities. Howard M. Lorber has been a Director of the Company and a member since 1994 and Chairman since 1998 of the Compensation and Audit Committee. Mr. Lorber has been Chairman of the Board and Chief Executive Officer of Nathan's Famous, Inc. for more than the past five years and Chairman of the Board of Directors and Chief Executive Officer of Hallman & Lorber Associates, Inc., for over five years. He has been a director, President and Chief Operating Officer of New Valley Corporation for more than five years. He has been a director of and member of the Audit Committee of United Capital Corp. for more than the past five years. He also became President and Chief Operating Officer of Vector Group Ltd. In January 2001. Herbert Lust, II has been a Director since 1992 and a member of the Compensation and Audit Committee of the Company since 1993. Mr. Lust has been a private investor and President of Private Water Supply Inc. for more than the past five years. Mr. Lust is a director of BRT Realty Trust. Jack H. Nusbaum has been a Director since 1994. Mr. Nusbaum is the Chairman of the law firm of Willkie Farr & Gallagher, where he has been a partner for more than the past twenty-five years. He also is a director of W.R. Berkley Corporation, Neuberger Berman, Inc., Pioneer Companies, Inc., Strategic Distribution, Inc. and The Topps Company, Inc. Allen S. Kaplan has been a Director of the Company since February 2001. Mr. Kaplan has been Vice President and Chief Operating Officer of Team Systems, Inc. for more than the past five years. He also is currently Vice President of the Metropolitan Taxicab Board of Trade and a director of Ameritrans Capital Corp. Douglas W. Vicari has been a Director of the Company since 1999 and Senior Vice President and Chief Financial Officer of the Company since 1998. Prior to that he had been a Vice President and Treasurer of the Company for more than five years. Joseph Bernadino has been Senior Vice President, Secretary and General Counsel of the Company since 1992. Stephen M. Kronick has been a Senior Vice President of the Company since 1999. Prior to that he held the position of Vice President of the Company for more than five years. John Valletta has been a Senior Vice President of the Company since 2000. Prior to that he was a Vice President of Operations for La Quinta Inns for more than five years. Richard T. Szymanski has been a Vice President of the Company for more than five years. ITEM 11. EXECUTIVE COMPENSATION There are incorporated in this Item 11 by reference those portions of the Company's definitive Proxy Statement, which the Company intends to file not later than 120 days after the end of the fiscal year covered by this Form 10-K, appearing under the captions "Executive Compensation," "Compensation Pursuant to Plans," "Other Compensation," "Compensation of Directors," and "Termination of Employment and Change of Control Agreements". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There are incorporated in this Item 12 by reference those portions of the Company's definitive Proxy Statement, which the Company intends to file not later than 120 days after the end of the fiscal year covered 22 24 by this Form 10-K, appearing under the captions "Principal Shareholders" and "Security Ownership of Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There are incorporated in this Item 13 by reference those portions of the Company's definitive Proxy Statement, which the Company intends to file not later than 120 days after the end of the fiscal year covered by this Form 10-K, appearing under the caption "Certain Relationships and Related Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The Financial Statements listed in the accompanying index to financial statements are filed as part of this Annual Report. 2. Exhibits 2(a) Reference is made to the Contract of Purchase and Sale between Hillsborough Associates, Meriden Hotel Associates, L.P., Wellesley I, L.P., Multi-Wellesley Limited Partnership and the Company, dated March 6, 1996, filed as an Exhibit to the Company's 8-K dated March 21, 1996, which is incorporated herein by reference. (b) Reference is made to Consent of the Holders Thereof to the Purchase by the Company of the Outstanding First Mortgage Notes filed as an Exhibit to the Company's 8-K, dated March 21, 1996, which is incorporated herein by reference. (c) Reference is made to the Agreement and Plan of Merger as of July 25, 1997 by and among Prime Hospitality Corp., PH Sub Corporation and Homegate Hospitality, Inc. filed as an Exhibit to the Company's Form S-4, dated October 24, 1997, which is incorporated herein by reference. (d) Reference is made to the form of Amended and Restated Purchase and Sale Agreement between Prime Hospitality Corp., as seller and Equity Inns Partnership, L.P., as purchaser, dated December 2, 1997, filed as an Exhibit to the Company's Form 8-K dated December 11, 1997, which is incorporated herein by reference. (e) Reference is made to the form of Amended and Restated Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and American General Hospitality Operating Partnership, L.P., as purchaser, dated January 7, 1998 filed as an Exhibit to the Company's Form 8-K dated January 7, 1998, which is incorporated herein by reference. (f) Reference is made to the form of Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and Equity Inns Partnership, L.P., as purchaser, dated June 26, 1998, filed as an Exhibit to Company's Form 10-Q, dated June 30, 1998, which is incorporated herein by reference. (g) Reference is made to the Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and Marriott International, Inc. as purchaser, dated September 15, 1999 which is incorporated herein by reference. (h) Reference is made to the First Amendment dated December 18, 1999, to Purchase and Sale Agreement between Prime Hospitality Corp. and Marriott International, Inc., dated September 15, 1999 which is incorporated herein by reference. (i) Reference is made to the Sale and Purchase Agreement between Prime Hospitality Inc. and Sholodge, Inc., dated March 16, 2000 which is incorporated herein by reference.
23 25 (j) First Amendment to Sale and Purchase Agreement dated July 9, 2000, by and between Sholodge, Inc. and Prime Hospitality Corp. filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (k) Lease Agreement Dated as of November 19, 1997 by and between HPT Suite Properties Trust as Landlord, and Suite Tenant, Inc. as Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (l) First Amendment to Lease Agreement entered March 5, 1999 by and between HPT Suite Properties Trust as landlord and Suite Tenant, Inc. filed as an Exhibit to the Company's. Form 10-K dated March 28, 2000. (m) Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated June 29, 1999 by and between Hospitality Properties Trust as landlord HPT Suites Properties Trust and Sholodge, Inc., Suite Tenant, as tenant filed as an Exhibit to the Company's. Form 10-K, dated March 28, 2000. (n) Third Amendment to Lease Agreement dated March 3, 2000, by and between HPT Suite Properties Trust as Landlord, and Suite Tenant, Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (o) Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated May 11, 2000 by and between HPT Suite Properties Trust as Landlord and Suite Tenant, Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (p) Consent to Assignment, Fifth Amendment to Lease Agreement and Amendment to Incidental Documents dated July 9, 2000 by and among HPT Suites Properties, Suite Tenant, Inc. and Glen Rock Holding Corp. filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. 3(a) Reference is made to the Restated Certificate of Incorporation of the Company, dated June 5, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the Restated Certificate of Incorporation, As Amended, filed as an Exhibit to the Company's Form 10-QA, dated April 30, 1996, which is incorporated herein by reference. (c) Reference is made to the Restated Bylaws of the Company filed as an Exhibit to the Company's Form 10-K, dated September 25, 1992, which is incorporated herein by reference. 4(a) Reference is made to a Form 8-A of the Company as filed on June 5, 1992 with the Securities and Exchange Commission, as amended by Amendment No. 1 and Amendment No. 2, which is incorporated herein by reference. (b) Reference is made to an Indenture, dated January 23, 1996, between the Company and the Trustee related to 9 1/4% First Mortgage Notes due 2006, filed as an Exhibit to the Company's Form 10-K dated March 21, 1996, which is incorporated herein by reference. (c) Reference is made to the Senior Secured Revolving Credit Agreement, dated as of June 26, 1996, among the Company and the Lenders Party hereto, and Credit Lyonnais New York Branch, as Documentation Agent, and Bankers Trust Company, as Agent, filed as an Exhibit to the Company's Amendment No. 1 to Form S-3 dated July 26, 1996, which is incorporated herein by reference. (d) Reference is made to the 9 3/4% Senior Secured Subordinated Notes due 2007, dated March 21, 1997, filed as an exhibit to the Company's Form S-4, dated April 2, 1997, which is incorporated herein by reference.
24 26 (e) Reference is made to the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of December 17, 1997, among Prime Hospitality Corp., and The Lenders Party hereto, and Societe Generale, Southwest Agency, as Documentation Agent, and Credit Lyonnais New York Branch, as Syndication Agent, and Bankers Trust Company, as Agents filed as an Exhibit to the Company's Form 10-K, dated December 31, 1997, which is incorporated herein by reference. (f) Reference is made to the Second Amendment to the Senior Secured Revolving Credit Agreement, dated September 30, 1998, among Prime Hospitality Corp., Societe Generale Southwest Agency, as Documentation Agent, Credit Lyonnais New York Bank, as Syndication Agent and Bankers Trust Company as Agent for Lenders filed as an Exhibit to the Company's Form 10-Q dated November 6, 1998, which is incorporated herein by reference. (g) Reference is made to the Third Amendment to the Senior Secured Revolving Credit Agreement, dated October 27, 1999, among Prime Hospitality Corp., Societe Generale Southwest Agency, as Documentation Agent, Credit Lyonnais New York Bank, as Syndication Agent and Bankers Trust Company as Agent for Lenders filed as an exhibit to the Company's Form 10-K dated December 31, 1999, which is incorporated herein by reference. 10(a) Reference is made to the 1992 Performance Incentive Stock Option Plan of the Company, dated as of July 31, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the 1992 Stock Option Plan of the Company filed as an Exhibit to the Company's Form 10-K, dated September 25, 1992, which is incorporated herein by reference. (c) Reference is made to an Amendment regarding the 1995 Employee and Non-Employee Stock Option Plans, incorporated in the Company's proxy statement dated April 13, 1998, whereby $1.8 million shares were made available for distribution which is incorporated herein by reference. (d) Reference is made to Change of Control Agreement, dated May 14, 1998, between Joseph Bernadino and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (e) Reference is made to Change of Control Agreement, dated May 14, 1998, between Richard T. Szymanski and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (f) Reference is made to Change of Control Agreement, dated May 14, 1998, between Douglas W. Vicari and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (g) Reference is made to Employment Agreement, dated September 14, 1998, between Attilio F. Petrocelli and the Company which is incorporated herein by reference. (h) Reference is made to Change of Control Agreement, dated September 14, 1998, between Atillio F. Petrocelli and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (i) Reference is made to the Nonqualified Stock Option Agreement dated October 14, 1998 between A.F. Petrocelli and the Company which is incorporated herein by reference. (j) Reference is made to the Change in Control Agreement, dated October 25, 1999, between Stephen Kronick and the Company which is incorporated herein by reference. (k) Reference is made to the Amendment to Change in Control Agreement, dated March 18, 1999, between A.F. Petrocelli and the Company which is incorporated herein by reference.
25 27 (21) Subsidiaries of the Company are as follows:
JURISDICTION OF NAME INCORPORATION - ---- --------------- Alpine Holding Corp......................................... Delaware AmeriSuites Franchising, Inc................................ Delaware AmeriSuites Vacation Club, Inc.............................. Delaware Budd Holding Corp........................................... Delaware Caldwell Holding Corp....................................... Delaware Clifton Holding Corp........................................ Delaware Dynamic Marketing Group, Inc................................ Delaware Edison Holding Corp......................................... Delaware Fairfield-Meridian Claims Service, Inc...................... Delaware Fairfield Holding Corp...................................... Delaware Flanders Holding Corp....................................... Delaware Glen Rock Holding Corp...................................... Delaware Glen Rock Liquor License, Inc............................... Delaware Haledon Holding Corp........................................ Delaware KSA Management, Inc......................................... Kansas Landing Holding Corp........................................ Delaware Mahwah Holding Corp......................................... Delaware Market Segments, Incorporated............................... Delaware Maywood Holding Corp........................................ Delaware Oradell Holding Corp........................................ Delaware Prime Hospitality Franchising, Inc.......................... Delaware Prime Hospitality Management Co., Inc....................... Delaware Prime-O-Lene, Inc........................................... New Jersey Republic Motor Inns, Inc.................................... Virginia Ridgewood Holding Corp...................................... Delaware Roxbury Holding Corp........................................ Delaware Secaucus Holding Corp....................................... Delaware Wayne Holding Corp.......................................... Delaware Wellesley Inn & Suites Franchising, Inc..................... Delaware
(23) Consent of independent auditors. Certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries have not been filed in accordance with Item 601(b)(4)(iii) of Regulation S-K. The Company hereby agrees to furnish a copy of such instruments to the Commission upon request. 26 28 PRIME HOSPITALITY CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (ITEM 14(a))
PAGE ---- Report of Independent Auditors.............................. F-2 Consolidated Financial Statements: Balance Sheets at December 31, 2000 and 1999.............. F-3 Statements of Income for the Years Ended December 31, 2000, 1999 and 1998.................................... F-4 Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998....................... F-5 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.................................... F-6 Notes to Consolidated Financial Statements.................. F-7
All schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. F-1 29 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Prime Hospitality Corp.: We have audited the accompanying consolidated balance sheets of Prime Hospitality Corp. (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Prime Hospitality Corp. and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP New York, New York February 8, 2001 F-2 30 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................... $ 1,735 $ 7,240 Marketable securities available for sale.................... 3,325 8,262 Accounts receivable, net of allowance of $1,067 and $954 in 2000 and 1999, respectively............................... 27,916 21,379 Current portion of mortgages and notes receivable........... 3,306 1,920 Other current assets........................................ 17,745 16,879 ---------- ---------- Total current assets.............................. 54,027 55,680 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization................. 1,015,997 1,093,123 Assets held for sale........................................ 32,517 134,596 Mortgages and notes receivable, net of current portion...... 11,991 11,750 Other assets................................................ 45,308 33,630 ---------- ---------- Total Assets...................................... $1,159,840 $1,328,779 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of debt..................................... $ 4,702 $ 5,547 Current portion of deferred income.......................... 10,322 10,322 Other current liabilities................................... 62,228 61,225 ---------- ---------- Total current liabilities......................... 77,252 77,094 Long-term debt, net of current portion...................... 340,987 543,485 Deferred income, net of current portion..................... 60,950 70,977 Other liabilities........................................... 12,551 5,223 ---------- ---------- Total Liabilities................................. 491,740 696,779 Commitments and contingencies Stockholders' equity: Preferred stock, par value $10 per share; 20,000,000 shares authorized; none issued................................... -- -- Common stock, par value $01 per share; 75,000,000 shares authorized; 55,972,932 and 55,747,340 shares issued and outstanding in 2000 and 1999, respectively................ 560 557 Capital in excess of par value.............................. 524,549 519,834 Retained earnings........................................... 256,966 194,466 Accumulated other comprehensive loss, net of taxes.......... (2,838) (2,694) Treasury stock, at cost (11,130,878 and 7,263,578 shares in 2000 and 1999, respectively).............................. (111,137) (80,163) ---------- ---------- Total Stockholders' Equity........................ 668,100 632,000 ---------- ---------- Total Liabilities and Stockholders' Equity........ $1,159,840 $1,328,779 ========== ==========
See Accompanying Notes to Consolidated Financial Statements. F-3 31 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Hotel revenues........................................... $538,410 $532,746 $447,379 Management, franchise and other fees..................... 17,230 13,637 10,924 Rental and other......................................... 4,304 6,349 11,102 -------- -------- -------- Total revenues................................... 559,944 552,732 469,405 -------- -------- -------- Costs and expenses: Hotel operating expenses................................... 275,641 275,643 237,532 Rent and other occupancy................................... 84,100 70,862 57,067 General and administrative................................. 30,131 29,200 26,509 Depreciation and amortization.............................. 41,611 45,835 41,975 Valuation and other charges................................ -- 30,456 17,361 -------- -------- -------- Total costs and expenses......................... 431,483 451,996 380,444 -------- -------- -------- Operating income........................................... 128,461 100,736 88,961 Investment income.......................................... 1,936 1,613 3,486 Interest expense........................................... (41,325) (43,634) (23,914) Other income, net.......................................... 13,901 7,182 18,132 Income before income taxes, the cumulative effect of a change in accounting principle and extraordinary items... 102,973 65,897 86,665 Provision for income taxes................................. 40,159 25,700 32,818 -------- -------- -------- Income before the cumulative effect of a change in accounting principle and extraordinary items............. 62,814 40,197 53,847 Cumulative effect of a change in accounting principle (net of income taxes of $3,398)............................... -- (5,315) -- Extraordinary item (net of income taxes of $201)........... (314) -- -- -------- -------- -------- Net income................................................. $ 62,500 $ 34,882 $ 53,847 ======== ======== ======== Basic earnings per Common Share: Income before the cumulative effect of a change in accounting principle and extraordinary items............. $ 1.37 $ .79 $ 1.04 Cumulative effect of a change in accounting principle...... -- (.11) -- Extraordinary item......................................... -- -- -- -------- -------- -------- Net income per common share................................ $ 1.37 $ .68 $ 1.04 ======== ======== ======== Diluted earnings per Common Share: Income before the cumulative effect of a change in accounting principle and extraordinary items............. $ 1.34 $ .77 $ 1.00 Cumulative effect of a change in accounting principle...... -- (.10) -- Extraordinary item......................................... -- -- -------- -------- -------- Net income per common share................................ $ 1.34 $ .67 $ 1.00 ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements. F-4 32 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED OTHER COMMON STOCK CAPITAL IN COMPREHENSIVE ------------------- EXCESS OF RETAINED LOSS, NET TREASURY COMPREHENSIVE SHARES AMOUNT PAR VALUE EARNINGS OF TAXES STOCK TOTAL INCOME ---------- ------ ---------- -------- ------------- --------- -------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Balance December 31, 1997.... 47,182,972 $472 $419,242 $105,737 $ -- $ (1,038) $524,413 $ -- Net income................... -- -- -- 53,847 -- -- 53,847 53,847 Utilization of net operating loss carryforwards......... -- -- 3,956 -- -- -- 3,956 -- Amortization of pre-fresh start tax basis differences................ -- -- 1,005 -- -- -- 1,005 -- Proceeds from exercise of stock options.............. 146,167 2 1,906 -- -- -- 1,908 -- Proceeds from exercise of stock warrants............. 637,524 6 1,712 -- -- -- 1,718 -- Unrealized loss on marketable securities available for sale (net of income taxes)..................... -- -- -- -- (4,993) -- (4,993) (4,993) Conversion of long-term debt....................... 7,185,551 72 84,160 -- -- -- 84,232 -- Treasury stock purchases..... (1,420,400) -- -- -- -- (25,041) (25,041) -- Contribution from shareholder................ -- -- -- -- -- -- -- -- ------- Comprehensive income......... -- -- -- -- -- -- -- $48,854 ---------- ---- -------- -------- ------- --------- -------- ======= Balance December 31, 1998.... 53,731,814 552 511,981 159,584 (4,993) (26,079) 641,045 $ -- Net income................... -- -- -- 34,882 -- -- 34,882 34,882 Utilization of net operating loss carryforwards......... -- -- 3,425 -- -- -- 3,425 -- Amortization of pre-fresh start tax basis differences................ -- -- 484 -- -- -- 484 -- Proceeds from exercise of stock options.............. 545,087 5 3,944 -- -- -- 3,949 -- Unrealized gain marketable securities available for sale (net of income taxes)..................... -- -- -- -- 2,299 -- 2,299 2,299 Treasury stock purchases..... (5,793,139) -- -- -- -- (54,084) (54,084) -- ------- Comprehensive income......... -- -- -- -- -- -- -- $37,181 ---------- ---- -------- -------- ------- --------- -------- ======= Balance December 31, 1999.... 48,483,762 557 519,834 194,466 (2,694) (80,163) 632,000 $ -- Net income................... -- -- -- 62,500 -- -- 62,500 62,500 Utilization of net operating loss carryforwards......... -- -- 3,057 -- -- -- 3,057 -- Proceeds from exercise of stock options.............. 228,922 3 1,658 -- -- -- 1,661 -- Unrealized loss marketable securities available for sale (net of income taxes)..................... -- -- -- -- (144) -- (144) (144) Treasury stock purchases..... (3,867,300) -- -- -- -- (30,974) (30,974) -- ------- Comprehensive income......... -- -- -- -- -- -- -- $62,356 ---------- ---- -------- -------- ------- --------- -------- ======= Balance December 31, 2000.... 44,845,384 $560 $524,549 $256,966 $(2,838) $(111,137) $668,100 ========== ==== ======== ======== ======= ========= ========
See Accompanying Notes to Consolidated Financial Statements. F-5 33 PRIME HOSPITALITY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 --------- -------- --------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................... $ 62,500 $ 34,882 $ 53,847 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 41,611 45,835 41,975 Valuation adjustment on properties held for sale....... -- 29,045 10,000 Amortization of deferred financing costs............... 2,921 3,113 3,109 Utilization of net operating loss carryforwards........ 3,057 3,425 3,956 Extraordinary items.................................... 514 -- -- Amortization of pre-fresh start tax basis differences......................................... -- 484 1,005 Net gains on sales of assets........................... (13,901) (3,182) (18,132) Cumulative effect of a change in accounting principle........................................... -- 8,713 -- Amortization of deferred income........................ (9,984) (10,028) (9,421) Deferred income taxes.................................. 3,894 (7,858) (4,259) Reserve for hurricane damages.......................... -- -- 1,000 Increase/(decrease) from changes in other operating assets and liabilities: Accounts receivable.................................... (6,537) (564) (4,498) Other current assets................................... (3,398) 9,306 (1,554) Other liabilities...................................... (2,844) (13,379) 5,405 --------- -------- --------- Net cash provided by operating activities........... 77,833 99,792 82,433 Cash flows from investing activities: Net proceeds from mortgages and notes receivable....... 1,387 785 26,320 Disbursements for mortgages and notes receivable....... (668) (1,771) (1,541) Proceeds from sales of property, equipment and leasehold improvements.............................. 183,497 86,660 223,773 Purchases of property, equipment and leasehold improvements........................................ (19,702) (20,384) (28,473) Construction of new hotels............................. (19,312) (88,013) (402,288) Decrease/(increase) in restricted cash................. 400 8,580 (7,012) Proceeds from insurance settlement..................... -- 4,706 3,782 Proceeds from sales of marketable securities........... -- 7,725 1,906 Security deposits on leased hotels..................... (16,500) -- -- Purchase of marketable securities...................... -- (4,702) (350) Other.................................................. (20) (176) (3,298) --------- -------- --------- Net cash provided by (used in) investing activities........................................ 129,082 (6,590) (187,181) --------- -------- --------- Cash flows from financing activities: Net proceeds from issuance of debt..................... 30,820 22,352 203,552 Payments of debt....................................... (213,927) (70,713) (69,870) Proceeds from the exercise of stock options and warrants............................................ 1,661 3,949 3,628 Purchase of treasury stock............................. (30,974) (54,084) (25,041) --------- -------- --------- Net cash provided by/(used in) financing activities........................................ (212,420) (98,496) 112,269 --------- -------- --------- Net (decrease)/increase in cash and cash equivalents..... (5,505) (5,294) 7,521 Cash and cash equivalents at beginning of year........... 7,240 12,534 5,013 --------- -------- --------- Cash and cash equivalents at end of year................. $ 1,735 $ 7,240 $ 12,534 ========= ======== =========
See Accompanying Notes to Consolidated Financial Statements. F-6 34 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 NOTE 1 -- BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITIES The Company is an owner, manager and franchisor of hotels, with 239 hotels in operation containing 30,750 rooms located in 33 states (the "Portfolio") as of December 31, 2000. Prime controls two hotel brands -- AmeriSuites(R) and Wellesley Inn & Suites(R) -- as well as a portfolio of upscale, full-service hotels operated under franchise agreements with national hotel chains. As of March 15, 2001, the Company owned and operated 135 hotels (the "Owned Hotels"), operated 55 hotels under lease agreements with real estate investment trusts (the "Leased Hotels"), managed 24 hotels for third parties (the "Managed Hotels"), and franchised 25 hotels which it does not operate (the "Franchised Hotels"). The portfolio is comprised of 133 AmeriSuites hotels, 70 Wellesley Inn & Suites hotels and 36 non-proprietary brand hotels. BASIS OF PRESENTATION The Company emerged from the Chapter 11 reorganization proceeding of its predecessor, Prime Motor Inns, Inc. and certain of its subsidiaries ("PMI"), which consummated its Plan of Reorganization ("the Plan") on July 31, 1992. Pursuant to the American Institute of Certified Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company adopted fresh start reporting as of July 31, 1992. Under fresh start reporting, the reorganization value of the entity was allocated to the reorganized Company's assets on the basis of the purchase method of accounting. The reorganization value (the approximate fair value) of the assets of the emerging entity was determined by consideration of many factors and various valuation methods, including discounted cash flows and price/earnings and other applicable ratios believed by management to be representative of the Company's business and industry. Liabilities were recorded at face values, which approximated the present values of amounts to be paid, determined at appropriate interest rates. Under fresh start reporting, the consolidated balance sheet as of July 31, 1992 became the opening consolidated balance sheet of the emerging Company. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS Cash equivalents are highly liquid, unrestricted investments with a maturity of three months or less when acquired. At December 31, 2000 and 1999, cash and cash equivalents were comprised of approximately $180,000 and $644,000, respectively, of cash, and $1.5 million and $6.6 million, respectively, of commercial paper and other cash equivalents. F-7 35 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) MARKETABLE SECURITIES Marketable securities consist of equity securities, which are available for sale within one year. Marketable securities are valued at current market value. The differences between the historical cost of the marketable securities available for sale and the current market value are reflected in stockholders' equity, as accumulated other comprehensive losses, net of income taxes. Realized gains and losses are determined using the cost basis of the security recorded at the time of purchase. At December 31, 2000 and 1999, the Company has marketable securities available for sale of $3.3 million and $8.2 million, respectively with an original cost basis of $8.0 million and $13.1 million, respectively. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements that the Company intends to continue to operate are stated at their fair market value as of July 31, 1992 plus the cost of acquisitions subsequent to that date less accumulated depreciation and amortization from August 1, 1992. Provision is made for depreciation and amortization using the straight-line method over the estimated useful lives of the assets. Construction in progress represents costs incurred in the development of hotels. Such costs include construction costs and capitalized interest. The Company reviews each of its assets held for use for which indicators of impairment are present to determine whether the carrying amount of the asset will be recovered. The Company recognizes impairment if the future undiscounted cash flows (before interest charges) are less than the carrying amount. Assets held for sale are recorded at the lower of carrying value or fair value less costs to sell (See Notes 3). MORTGAGES AND NOTES RECEIVABLE Mortgages and notes receivable are reflected at their fair value as of July 31, 1992, adjusted for payments and other advances since that date. The amount of interest income recognized on mortgages and notes receivable is generally based on the stated interest rate and the carrying value of the notes. Interest income on cash flow mortgages and delinquent notes receivable is generally recognized when cash is received. The Company measures impairment of its mortgages and notes receivable based on the present value of expected future cash flows (net of estimated costs to sell) discounted at the effective interest rate. Impairment can also be measured based on observable market price or the fair value of collateral, if the mortgages and notes receivable are collateral dependent. If the measure of the impaired mortgage or note receivable is less than the recorded investment, the Company will establish a valuation allowance, or adjust existing valuation allowances, with a corresponding charge or credit to operations. Based upon its evaluation, the Company determined that no impairment of the mortgage and notes receivable had occurred as of December 31, 2000, 1999 and 1998. OTHER ASSETS Other assets consist primarily of deferred issuance costs related to the Company's debt obligations and security deposits. Deferred issuance costs are amortized over the respective terms of the loans. INSURANCE PROGRAMS The Company uses an incurred loss retrospective insurance plan for general and auto liability and workers' compensation. Predetermined loss limits have been arranged with insurance companies to limit the Company's per occurrence and aggregate cash outlay. F-8 36 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company maintains a self-insurance program for major medical and hospitalization coverage for employees and dependents, which is partially funded by payroll deductions. Payments for major medical and hospitalization below specified aggregate annual amounts are self-insured by the Company. Claims for benefits in excess of these amounts are covered by insurance purchased by the Company. Provisions have been made in the consolidated financial statements which represent the expected future payments based on the estimated ultimate cost for incidents incurred through the balance sheet date and are included in other current liabilities. REVENUE RECOGNITION Room revenue and other revenues are recognized when earned. Management and franchise fee revenues are recognized when all material services or conditions relating to the respective property or franchisee have been substantially performed or satisfied by the Company. Such revenues, when recognized, are included in management, franchise and other fees on the accompanying consolidated financial statements. Gains and losses resulting from sales of hotels are recorded in full when title is conveyed to the buyer and when various criteria are met relating to the buyer's financial commitment and any subsequent involvement by the Company with respect to the hotels being sold. The Company's sales of hotels are sometimes accompanied by a leaseback of the facilities under operating lease arrangements. Such sales are recognized when the above sales criteria are met and certain specific criteria are met relating to the lease terms. Related profit is deferred and is recognized as income over the remaining lease term. INCOME TAXES The Company files a consolidated Federal income tax return. In accordance with SOP 90-7, income taxes have been provided at statutory rates in effect during the period. Tax benefits associated with net operating loss carryforwards and other temporary differences that existed at the time fresh start reporting was adopted are reflected as a contribution to stockholders' equity in the period in which they are realized. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences of revenue and expense items for financial statement and income tax purposes. PRE-OPENING COSTS In January 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," ("SOP 98-5"). The Company recorded a $5.3 million charge, net of income taxes, for the cumulative effect of a change in accounting principle to write off the unamortized pre-opening costs that remained on the balance sheet at the date of adoption. Additionally, subsequent to the adoption of this new standard, all future pre-opening costs are being expensed as incurred. Prior to the Company's adoption of SOP 98-5, non-capital expenditures incurred before the opening of new or renovated hotels, such as payroll and operating supplies, were deferred and expensed within one year after opening. Pre-opening costs charged to expense was $6.7 million for the year ended December 31, 1998. Had the Company adopted SOP 98-5 at the beginning of 1998 net income before income taxes, would have been reduced by $6.1 million and diluted earnings per share would have been reduced by $.06. DEFERRED INCOME Deferred income consists of gains related to the sale of properties under sale/leaseback transactions. These gains are being amortized over the life of their respective leases as a reduction of rent expense. F-9 37 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTEREST RATE AGREEMENTS The Company had an interest rate swap agreement with a major financial institution which reduced the Company's exposure to interest rate fluctuations on its variable rate debt. The amount paid or received in connection with this agreement was accrued and recognized as an adjustment of interest expense (See Note 6). In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137, amending Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which extended the required date of adoption to fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company anticipates an immaterial impact due to its limited derivative activity. RECLASSIFICATIONS Certain reclassifications have been made to the December 31, 1999 and 1998 consolidated financial statements to conform them to the December 31, 2000 presentation. NOTE 2 -- HOTEL ACQUISITION On July 10, 2000, the Company acquired the leasehold interests on 24 Sumner Suites hotels owned by Hospitality Properties Trust ("HPT") from Sholodge, Inc. ("Sholodge") and entered into lease agreements on three additional Sumner Suites hotels owned by Sholodge for $1.6 million. On November 1, 2000, the Company converted all 27 hotels to its AmeriSuites brand. The leases provide for a fixed annual minimum rent of approximately $27 million plus 8% of revenues in excess of base levels. The leases with HPT and Sholodge expire in 2013 and 2011, respectively, and are renewable at the Company's option for various periods through 2048 and 2061, respectively. Under the terms of the lease with HPT, the Company posted a $16.5 million cash deposit which will be returned to the Company at the earliest of the end of the lease term or when the hotels achieve a 1.3 to 1.0 cash flow coverage. The Company also received the rights to $28.5 million of other security deposits due upon the expiration of the leases. These other security deposits are recorded at their present value on the Company's financial statements and are being accreted over the term of the lease. In addition, pursuant to the transaction, Sholodge is constructing three additional AmeriSuites, two of which will be funded by Sholodge and one by the Company. The 27 existing hotels along with the three hotels under construction are located in 14 states primarily in the Southeast, Midwest and Southwest regions of the United States and have an average age of approximately three years. The transaction increases the size of the AmeriSuites brand by almost 30% over its previous level. NOTE 3 -- HOTEL DISPOSITIONS SALE/LEASEBACK TRANSACTIONS In January 1998, the Company completed the sale/leaseback of eight full-service hotels to MeriStar Hospitality Corp. ("MeriStar"), formally known as American General Hospitality, Inc., for total consideration of $138.4 million. The Company is operating the hotels under an operating lease agreement, which has a term of ten years. The transaction generated a net gain of approximately $64.9 million, which was deferred and is being recognized as a reduction of rent expense over the life of the lease. As of December 31, 2000, $20.3 million of this gain had been amortized. F-10 38 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company also had a contract to sell and lease back nine additional full-service hotels from MeriStar not later than March 31, 1999. In February 1999, MeriStar informed the Company that it was unable to fulfill its contractual obligation. Under the terms of the contract, the Company received a $4.0 million contract termination fee in February 1999. Such amount is included in other income, net in the accompanying consolidated financial statements. In February 2001, MeriStar notified the Company of its intent to terminate its lease agreements with the Company related to four of its full-service hotels effective May 2001. Under the terms of the lease agreement, MeriStar would be obligated to pay termination fees based on a multiple of net operating income related to those terminated leases. The impact of the termination will be immaterial to the Company's financial condition. In December 1997, the Company completed the sale and leaseback of 10 hotels to Equity Inns for total consideration of $87.0 million. The Company is operating the hotels under an operating lease agreement for a term of 10 years with certain renewal options. The Company is also generating franchise fees under a ten-year franchise agreement. The sale generated a gain of approximately $20.8 million, which was deferred and is being recognized over the life of the lease. As of December 31, 2000, $6.5 million of this gain had been amortized. In June 1998, the Company sold nine additional AmeriSuites hotels to Equity Inns for total consideration of $97.0 million. The Company is operating the hotels under a lease agreement for a ten-year term with certain renewal options. The Company is also generating franchise fees under a ten-year franchise agreement. The transaction generated a net gain of $15.2 million, which was deferred and is being recognized as a reduction of rent expense over the life of the lease. As of December 31, 2000, $3.9 million of this gain had been amortized. The amortization of the gains is recorded as a reduction of rent and other occupancy expense in the accompanying consolidated financial statements. OTHER DISPOSITIONS In February 2000, the Company's five remaining HomeGate hotels and the Company's rights to the HomeGate brand name were sold for approximately $17.7 million, including the assumption of debt by the purchaser of approximately $17.4 million related to these properties. During 1999, the Company had reduced the carrying value of the assets by $2.5 million to reflect the estimated fair value less the costs to sell the hotels. In March 2000, the Company sold its Frenchman's Reef hotel in St. Thomas, U.S.V.I. ("Frenchman's Reef") for $73.0 million. During 1999, the Company had reduced the carrying value of this asset by $24.5 million to reflect the estimated fair value less the costs to sell the hotel. The Company utilized $40.0 million of the proceeds to retire debt encumbering the hotel. Upon repayment of the debt associated with this hotel, the Company also expensed unamortized deferred financing costs of approximately $546,000, which is included in extraordinary items, net of income taxes, in the accompanying consolidated financial statements. During 2000, the Company also sold five AmeriSuites hotels for $56.0 million, ten Wellesley Inns for $45.0 million, one full-service hotel for $18.2 million and five land parcels for $4.8 million. The asset sales generated net gains of approximately $13.9 million during 2000, which are included in other income, net in the accompanying consolidated financial statements. The Company also retained the franchise rights on the AmeriSuites and Wellesley Inns under 20-year franchise agreements. In addition, the Company entered into management agreements on one of the sold AmeriSuites and four of the sold Wellesley Inns. F-11 39 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to the hotels sold in 1999 and 2000, the Company has five hotels that are currently being marketed for sale with a carrying value of $32.5 million as of December 31, 2000. These hotels consists of one AmeriSuites, three Wellesley Inns and one full-service hotel which contributed $1.6 million, $1.3 million and $1.2 million, respectively of operating income for the year ended December 31, 2000. The Company anticipates the sale of the properties to be completed during 2001. The Company has discontinued depreciating these assets while they are held for sale. NOTE 4 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements consist of the following (in thousands):
DECEMBER 31, ------------------------ YEARS OF 2000 1999 USEFUL LIFE ---------- ---------- ----------- Land and land leased to others(a)....................... $ 157,698 $ 164,770 Hotels.................................................. 767,243 800,354 20 to 40 Furniture, fixtures and autos........................... 165,748 166,047 3 to 10 Leasehold improvements.................................. 61,165 68,282 3 to 40 Construction in progress................................ 6,097 11,981 ---------- ---------- Sub-total............................................. 1,157,951 1,211,434 Less accumulated depreciation and amortization.......... (141,954) (118,311) ---------- ---------- Total property, equipment and leasehold improvements................................ $1,015,997 $1,093,123 ========== ==========
(a) Included in land at December 31, 2000 and 1999, was $7.8 million and $5.8 million, respectively, of land associated with hotels under construction. At December 31, 2000, the Company is the lessor of land and certain restaurant facilities in Company-owned hotels with an approximate aggregate book value of $6.8 million pursuant to noncancelable operating leases expiring on various dates through 2010. Minimum future rent under such leases for each of the next 5 years subsequent to December 31, 2000, and thereafter are as follows: 2001................................................ $ 754 2002................................................ 754 2003................................................ 248 2004................................................ 38 2005................................................ 39 Thereafter.......................................... 208 ------ Total............................................... $2,041 ======
Depreciation and amortization expense on property, equipment and leasehold improvements was $41.4 million, $45.4 million and $36.7 million for the years ended December 31, 2000, 1999 and 1998, respectively. During the years ended December 31, 2000, 1999 and 1998, the Company capitalized $2.3 million, $11.0 million and $26.7 million, respectively, of interest related to borrowings used to finance hotel construction. In order to facilitate future tax-deferred exchanges of hotel properties, the Company from time to time enters into arrangements with an unaffiliated third party under Section 1031 of the Internal Revenue Code of 1986, as amended. At December 31, 2000, the Company had advances of approximately $125.8 million to such third party, which advances are classified as property, equipment and leasehold improvements in the Company's accompanying financial statements. F-12 40 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- MORTGAGES AND NOTES RECEIVABLE Mortgages and notes receivable are comprised of the following (in thousands):
DECEMBER 31, ------------------ 2000 1999 ------- ------- Properties operated by the Company(a).................... $ 9,870 $10,200 Other(b)................................................. 5,427 3,470 ------- ------- Total mortgage and notes receivable............ 15,297 13,670 Less current portion..................................... (3,306) (1,920) ------- ------- Long-term portion........................................ $11,991 $11,750 ======= =======
- --------------- (a) At December 31, 2000, the Company is the holder of mortgage notes receivable with a book value of $9.9 million secured by the Company's leasehold positions in three hotels. These notes bear interest at rates ranging from 8.5% to 13.0% and mature on various dates from 2001 through 2015. The mortgages were derived from the sales of hotel properties. During 1999 and 1998, the Company recognized $1.2 million and $3.3 million, respectively, of interest income related to mortgages, which pay interest based on excess cash flow. During 1999, these cash flow notes were settled. (b) Other notes receivable consist primarily of mezzanine loans issued to franchisees, as well as loans secured by hotel properties not currently managed by the Company. Other notes receivable mature through 2011 and excluding certain incentive loans, bear interest at an approximate effective rates of 8%. NOTE 6 -- DEBT Debt consists of the following (in thousands):
DECEMBER 31, -------------------- 2000 1999 -------- -------- 9.75% Senior Subordinated Notes(a)..................... $200,000 $200,000 Revolving Credit Facility(b)........................... -- 125,000 9.25% First Mortgage Notes(c).......................... 104,070 120,000 Mortgages and other notes payable(d)................... 41,619 104,032 -------- -------- Total debt............................................. 345,689 549,032 Less current maturities................................ (4,702) (5,547) -------- -------- Long-term debt, net of current portion................. $340,987 $543,485 ======== ========
- --------------- (a) In March 1997, the Company issued $200.0 million 9.75% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes") in reliance upon Rule 144A under the Securities Act of 1933, as amended. Interest on the notes is paid semi-annually on April 1 and October 1. The notes are unsecured obligations of the Company and contain certain covenants including limitations on the incurrence of debt, dividend payments, certain investments, and transactions with affiliates, asset sales and mergers and consolidations. These notes are redeemable, in whole or in part, at the option of the Company on or after April 1, 2002 at premiums to principal, which decline on each anniversary date. (b) The Company established a revolving credit facility (the "Revolving Credit Facility") in 1996 with a group of financial institutions providing for availability of funds up to the lesser of $100.0 million or a borrowing base determined under the agreement. In December 1997, the Revolving Credit Facility was F-13 41 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amended and the availability of funds was increased to $200.0 million. Pursuant to the terms of the agreements, the aggregate amount of the Revolving Credit Facility was reduced to $175.0 million in December 2000 and will be reduced to $125.0 million in December 2001. The Revolving Credit Facility is secured by first liens on certain of the Company's hotels with recourse to the Company. Availability under the facility is subject to a borrowing base test and certain other covenants. The Revolving Credit Facility bears interest at LIBOR plus 2.0%, which is paid monthly (weighted average for 2000 was 8.5%) and is available through December 2001 with a one-year extension. The Revolving Credit Facility contains covenants requiring the Company to maintain certain financial ratios and limitations on the incurrence of debt, liens, dividend payments, stock repurchases, certain investments, transactions with affiliates, asset sales, mergers and consolidations and any change of control of the Company. In October 1999, the Revolving Credit Facility was amended to allow an additional $100 million of share repurchases. The purchases of these additional shares are limited to 50% of the proceeds from asset sales. In April 2000, the Revolving Credit Facility was amended to allow for additional retirements of other debt owed by the Company. During 2000, the Company had gross borrowings and repayments of $31.0 million and $156.0 million, respectively, under the Revolving Credit Facility. As of December 31, 2000, the Company had no outstanding borrowings under this facility and had additional borrowing capacity of $139.0 million under its borrowing base test. (c) During 1996, the Company issued $120 million of 9.25% First Mortgage Notes due 2006. Interest on the notes is payable semi-annually on January 15 and July 15. At December 31, 2000, the notes are secured by first liens on 17 hotels with net book value of $111.0 million and contain certain covenants including limitations on the incurrence of debt, dividend payments, certain investments, and transactions with affiliates, asset sales and mergers and consolidations. These notes are redeemable, in whole or in part, at the option of the Company after January 15, 2001 at premiums to principal, which decline on each anniversary date. As of December 31, 2000, the Company had repurchased and retired $15.9 million of these notes. Included in the accompanying consolidated financial statements is an extraordinary gain on the discharge of indebtedness, net of income taxes of approximately $31,000 related to this retirement. (d) The Company has mortgage and other notes payable of approximately $41.6 million that are secured by mortgage notes receivable and hotel properties with a book value of $88.1 million. Principal and interest on these mortgages and notes are generally paid monthly. At December 31, 2000 these notes bear interest at rates ranging from 6.7% to 9.2%, with a weighted average interest rate of 8.5%, and mature from 2001 through 2009. In October 1999, the Company entered into an interest rate protection agreement with a major financial institution, which reduced the Company's exposure to fluctuations in interest rates by effectively fixing interest rates on $40.0 million of variable interest rate debt. Under this agreement, on a monthly basis the Company paid a fixed rate of interest of 6.03% and received a floating interest rate payment equal to the 30 day LIBOR rate on a $40.0 million notional principal amount. Due to the Company's limited exposure to interest rate fluctuations (approximately $17.5 million of floating rate debt at December 31, 2000), the agreement was subsequently terminated in October 2000 and all unamortized costs were recognized in the Company's consolidated financial statements. F-14 42 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Maturities of long-term debt subsequent to December 31, 2000 are as follows (in thousands): 2001.............................................. $ 4,702 2002.............................................. 21,125 2003.............................................. 1,052 2004.............................................. 1,121 2005.............................................. 955 Thereafter........................................ 316,734 -------- Total............................................. $345,689 ========
NOTE 7 -- OTHER CURRENT ASSETS/LIABILITIES Other current assets consist of the following (in thousands):
DECEMBER 31, ------------------ 2000 1999 ------- ------- Hotel inventories........................................ $13,589 $13,338 Accrued interest receivable.............................. 455 486 Prepaid expenses......................................... 2,298 1,428 Other.................................................... 1,403 1,627 ------- ------- Total current assets........................... $17,745 $16,879 ======= =======
Other current liabilities consist of the following (in thousands):
DECEMBER 31, ------------------ 2000 1999 ------- ------- Accounts payable......................................... $ 6,019 $ 9,793 Construction payables.................................... 554 825 Interest payable......................................... 9,174 10,860 Accrued payroll and related benefits..................... 4,698 6,121 Accrued expenses......................................... 22,366 16,881 Accrued income taxes..................................... 7,509 4,744 Accrued sales and use taxes.............................. 3,563 3,557 Insurance reserves....................................... 3,385 4,583 Other.................................................... 4,960 3,861 ------- ------- Total current liabilities...................... $62,228 $61,225 ======= =======
NOTE 8 -- COMMITMENTS AND CONTINGENCIES LEASES The Company leases various hotels under lease agreements with initial terms expiring at various dates from 2001 through 2061. The Company has options to renew certain of the leases for periods ranging from 1 to 99 years. Rental payments are based on minimum rentals plus a percentage of the hotel properties' revenues in excess of stipulated amounts. As of December 31, 2000, the Company operated 55 hotels under lease agreements, primarily with REITs. These are comprised of 24 AmeriSuites owned by Hospitality Properties Trust (HPT), 19 F-15 43 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) AmeriSuites hotels owned by Equity Inns, Inc., three AmeriSuites owned by Sholodge, Inc., eight full-service hotels owned by MeriStar Hospitality, Inc. and one full-service hotel owned by Winston Hotels. The leases have terms ranging from 10 to 13 years expiring from 2007 to 2013 with certain renewal options. The 27 hotels leased from HPT and Sholodge provide for a fixed annual minimum rent plus eight percent of revenue in excess of a base year. The 28 hotels leased from Equity Inns, MeriStar and Winston provide for rent equal to the greater of base rents, which increase annually by the inflation rate, or percentage rents based on a percentage of room, food and beverage and other revenue. The percentage lease calculations on these 28 hotels are designed to provide the Company with revenue streams equal to approximately 2.5% to 3.0% of hotel revenues. All of the lease agreements related to the 46 AmeriSuites hotels maintain restrictions which prevent the Company from operating an AmeriSuites hotel or similar type of hotel with a restricted area. The following is a schedule, by year, of future minimum lease payments required under the remaining operating leases that have terms in excess of one year as of December 31, 2000, (in thousands): 2001.............................................. $ 65,819 2002.............................................. 62,110 2003.............................................. 62,091 2004.............................................. 61,844 2005.............................................. 61,752 Thereafter........................................ 323,693 -------- Total............................................. $637,309 ========
Rental expense for all operating leases, including those with terms of less than one year, consist of the following for the years ended December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Rentals............................................... $56,878 $43,397 $41,237 Contingent rentals.................................... 14,859 12,826 7,010 ------- ------- ------- Rental expense.............................. $71,737 $56,223 $48,247 ======= ======= =======
Such amounts are included in occupancy and other operating expenses in the accompanying consolidated financial statements. EMPLOYEE BENEFITS The Company does not provide any material post employment benefits to its current or former employees. LITIGATION The Company is currently in arbitration with its former general manager of the Frenchman's Reef Beach Resort hotel, who has filed a demand for arbitration with the American Arbitration Association; which asserts that the Company had wrongfully terminated his employment, thereby breaching his contract of employment. The Company is also currently involved in a lawsuit filed in the United States District Court for the Virgin Islands by the same individual in which he seeks to recover the value of his alleged interest in certain land adjacent to the Frenchman's Reef hotel. The Company sold the hotel and all of the adjacent land on March 15, 2000 (See Note 3). F-16 44 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2000, there were other contingent liabilities for insurance and various other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, the Company believes that none of these contingencies will have a material adverse effect on the financial position of the Company. NOTE 9 -- INCOME TAXES The provision for income taxes (including amounts applicable to extraordinary items) consisted of the following for the years ended December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Current: Federal............................................. $15,114 $24,362 $33,391 State............................................... 4,100 5,800 4,500 ------- ------- ------- 19,214 30,162 37,891 Deferred: Federal............................................. 18,144 (6,560) (4,573) State............................................... 2,600 (1,300) (500) ------- ------- ------- 20,744 (7,860) (5,073) ------- ------- ------- Total....................................... $39,958 $22,302 $32,818 ======= ======= =======
Income taxes are provided at the applicable federal and state statutory rates. The tax effects of the changes in the temporary differences in the areas listed below resulted in deferred income tax provisions for the years ended December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, ------------------------------- 2000 1999 1998 ------- -------- -------- Utilization of net operating loss................... $ 3,057 $ 3,425 $ 3,956 Amortization of pre-fresh start basis differences -- properties and notes............... -- 484 1,005 Depreciation........................................ (298) 968 1,066 Compensation expense................................ -- -- 152 Property sales...................................... 20,509 (10,825) (10,822) Note settlement..................................... -- -- 1,104 Other............................................... (2,523) (1,912) (1,534) ------- -------- -------- Total..................................... $20,744 $ (7,860) $ (5,073) ======= ======== ========
The following is a reconciliation of the statutory Federal tax rate to the Company's effective income tax rate:
DECEMBER 31, -------------------- 2000 1999 1998 ---- ---- ---- Statutory Federal tax rate.................................. 35.0% 35.0% 35.0% State income taxes, net of Federal tax benefit.............. 4.3% 5.1% 5.1% Other, net.................................................. (0.3)% (1.1)% (2.2)% ---- ---- ---- Effective income tax rate......................... 39.0% 39.0% 37.9% ==== ==== ====
F-17 45 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 2000, the Company had available federal net operating loss carry forwards related to PMI of approximately $52.4 million, which will expire in 2006. This amount is subject to an annual utilization limitation of $8.7 million under the Internal Revenue Code due to a change in ownership of the Company upon consummation of the Plan. The Company has not recognized the future tax benefits associated with the net operating loss carryforwards. Accordingly, the Company has provided a valuation allowance of approximately $18.3 million against the deferred tax asset at December 31, 2000. To the extent any available carry forwards or other tax benefits related to PMI are utilized, the amount of tax benefit realized will be treated as a contribution to stockholders' equity and will have no effect on the income tax provision for financial reporting purposes. For the years ended December 31, 2000, 1999 and 1998, the Company recognized $3.1 million, $3.4 million and $4.0 million, respectively, of such benefits as a contribution to stockholders' equity and a corresponding reduction of the valuation allowance associated with the net operating losses. Additionally, the Company recognized $484,000 and $1.0 million as a contribution to stockholders' equity for the years ended December 31, 1999 and 1998, respectively, which represents the amortization of pre-fresh start tax basis differences related to properties and notes receivable. As of December 31, 2000, the Company had deferred tax liabilities of $25.3 million relating to differences in the methods of accounting for the Company's fixed assets and deferred tax assets of $9.3 million relating primarily to reserves which are currently deducted for tax purposes. As a result of reflecting substantially all of the deferred tax provisions as a contribution to stockholders' equity, the Company had no material deferred tax assets or liabilities as of December 31, 2000 and 1999. NOTE 10 -- COMMON STOCK AND COMMON STOCK EQUIVALENTS COMMON STOCK During 2000, the Company repurchased approximately 3.9 million shares of its common stock for $31.0 million at average cost of $7.98 per share. In 1999, the Company repurchased 5.8 million shares of its common stock for $54.1 million for a total average cost of $9.34. The Revolving Credit Facility limits the purchase of these shares to 50% of the proceeds from asset sales not to exceed $100 million. Through March 15, 2001, the Company has repurchased $34.0 million of its shares under this covenant and has $44.8 million of availability based on the proceeds from asset sales. STOCK OPTIONS The Company has adopted various stock option and performance incentive plans under which options to purchase shares of common stock may be granted to directors, officers or key employees under terms determined by the Board of Directors. At December 31, 2000, a total of 3.9 million options were outstanding under various plans with another 2.7 million options available to be issued. At December 31, 2001, the weighted average contractual life remaining related to these plans is approximately 7.6 years. In October, 1998, the Board of Directors granted options to purchase 1,750,000 shares of common stock to the Company's president and CEO. These options vest ratably over a five-year period with respect to 1,000,000 of the options. The additional 750,000 options vest as certain performance criteria are met or, if the criteria are not met, the options vest eight years after the original grant date. At December 31, 2000, 1,750,000 options were outstanding under this plan. The options are priced at $5.91 per share, which is market value at the date of grant and expire in 2008. Under the 1995 Employee Stock Option Plan, options to purchase shares of common stock may be granted at the fair market value of the common stock at the date of grant. Options can generally be exercised during a participant's employment with the Company in equal annual installments over a three-year period from the date of grant and expire ten years from the date of grant. During 2000, 1999 and 1998, respectively, F-18 46 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options to purchase 454,000, 544,000 and 1,393,000 shares of common stock, respectively, were granted under this plan. At December 31, 2000, 1,691,000 options were outstanding under this plan. The options are priced from $4.72 to $13.78 and expire from 2005 to 2010. Under the 1995 Non-Employee Director Stock Option Plan, options to purchase 10,000 shares of common stock are automatically granted to each non-employee director at the fair market value of the common stock at the date of grant. All options will be fully vested and exercisable one year after the date of grant and will expire ten years after the date of grant, or earlier if the non-employee director ceases to be a director. During 1998 options to purchase 190,000 shares of common stock were granted under this plan. At December 31, 2000, 330,000 options were outstanding under this plan. The options are priced from $9.31 to $10.00 and expire from 2001 to 2008. Under the Company's 1992 Stock Option and Performance Incentive Plans, options to purchase 81,000 shares of common stock were outstanding at December 31, 2000. The options are priced from $9.31 to $9.88, which is the fair market value at the date of grant and expire from 2001 to 2002. During 1998, the Company repriced certain outstanding options. Approximately 290,000 options issued pursuant to the non-employee director plans were repriced, as were options to purchase approximately 780,000 shares, which had been issued under the various employee stock option plans. These options were repriced to allow exercise at a price of $10.00 per share, an amount in excess of the fair market value of the Company's stock at the date of repricing. The options originally had exercise prices between $11.13 per share and $20.16 per share. Effective January 1, 1996, the Company adopted the provisions of SFAS 123, Accounting for Stock-Based Compensation. As permitted by the Statement, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for its stock-based compensation plans other than for performance-based awards, which was not significant. Had the fair value method of accounting been applied to the Company's stock plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments, net income would have been $57.2 million, or $1.22 per share in 2000, $32.0 million, or $.61 per share in 1999 and $47.3 million, or $.88 per share in 1998. This pro forma impact only takes into account options granted since January 1, 1998 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The weighted average fair value of options granted during 2000, 1999 and 1998 was $4.44, $5.92 and $3.49, respectively. The fair value was estimated using the Black-Scholes option-pricing model based on the weighted average market price at grant date of $9.16 in 2000, $11.25 in 1999 and $8.49 in 1998 and the following weighted average assumptions: risk-free interest rate of 5.05% in 2000, 6.23% in 1999, and 4.72% in 1998, volatility of 39.5% for 2000, 42.3% in 1999, and 40.4% in 1998, and dividend yield of 0.0% for 2000, 1999 and 1998. F-19 47 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of the stock options outstanding:
NUMBER OPTION PRICE OF SHARES PER SHARE ---------- --------------- Outstanding at December 31, 1997................ 2,876,000 Granted....................................... 4,403,000 $ 4.72 - $18.44 Exercised..................................... (146,000) $ 3.63 - $18.94 Canceled...................................... (1,765,000) $ 4.72 - $19.09 ---------- Outstanding at December 31, 1998................ 5,368,000 Granted....................................... 544,000 $11.25 - $11.25 Exercised..................................... (545,000) $ 3.20 - $10.00 Canceled...................................... (1,375,000) $ 3.63 - $20.16 ---------- Outstanding at December 31, 1999................ 3,992,000 Granted....................................... 454,000 $ 9.16 - $10.41 Exercised..................................... (229,000) $ 4.72 - $10.00 Canceled...................................... (365,000) $ 4.72 - $11.25 ---------- Outstanding at December 31, 2000................ 3,852,000 $ 4.72 - $13.78 ========== Exercisable at December 31, 1998................ 1,759,000 $ 3.20 - $18.44 ========== Exercisable at December 31, 1999................ 1,413,000 $ 4.72 - $13.78 ========== Exercisable at December 31, 2000................ 1,708,000 $ 4.72 - $13.78 ==========
WARRANTS Pursuant to the Plan, warrants to purchase 2,053,583 shares of the Company's common stock were issued to former shareholders of the Company's predecessor, PMI, in partial settlement of their bankruptcy interests. The warrants became exercisable on August 31, 1993 at an exercise price of $2.71 per share and expired in August 1998. NOTE 11 -- EARNINGS PER SHARE
FOR THE YEAR ENDED, DECEMBER 31, 2000 ------------------------------ PER-SHARE INCOME SHARES AMOUNT ------- ------ --------- Basic Earnings per Share: Net income............................................. $62,500 45,718 $1.37 ===== Diluted Earnings per Share: Options granted........................................ -- 806 ------- ------ Net income plus assumed conversions.................... $62,500 46,524 $1.34 ======= ====== =====
F-20 48 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEAR ENDED, DECEMBER 31, 1999 ------------------------------ PER-SHARE INCOME SHARES AMOUNT ------- ------ --------- Basic Earnings per Share: Net income............................................. $34,882 50,966 $.68 ==== Diluted Earnings per Share: Options granted........................................ -- 1,028 ------- ------ Net income plus assumed conversions.................... $34,882 51,994 $.67 ======= ====== ====
FOR THE YEAR ENDED, DECEMBER 31, 1998 ------------------------------ PER-SHARE INCOME SHARES AMOUNT ------- ------ --------- Basic Earnings per Share: Net income............................................. $53,847 51,749 $1.04 ===== Diluted Earnings per Share: Options granted and warrants issued.................... -- 902 Conversion of debt..................................... 1,142 2,108 ------- ------ Net income plus assumed conversions.................... $54,989 54,759 $1.00 ======= ====== =====
Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. The 7% convertible subordinated notes due 2002 were called and converted into common stock in April 1998. NOTE 12 -- HOTEL REVENUES Hotel revenues consist of lodging revenues (which consist primarily of room, telephone and vending revenues) and food and beverage revenues. For the years ended December 31, 2000, 1999 and 1998 hotel revenues were comprised of the following:
DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Lodging revenues................................... $491,042 $477,329 $393,988 Food and Beverage revenues......................... 47,368 55,417 53,391 -------- -------- -------- Total Hotel Revenues..................... $538,410 $532,746 $447,379 ======== ======== ========
NOTE 13 -- BUSINESS INTERRUPTION INSURANCE In July 1996, the Frenchman's Reef suffered damage when Hurricane Bertha struck the U.S. Virgin Islands. In March 1998, the Company settled its insurance claim with respect to Hurricane Bertha for $16.4 million. The impact of the hurricane caused operating profits to decline from prior year levels. In 1998, the Company, in addition to recording the operating revenues and expenses of the Frenchman's Reef, recorded business interruption insurance revenue of $4.0 million as a result of the settlement. This amount is included in rental and other in the accompanying consolidated financial statements. F-21 49 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- VALUATION AND OTHER CHARGES Valuation and other charges in 1999 consist of a $29.1 million valuation allowance related to certain non-prototype HomeGate properties and the Frenchman's Reef hotel and $1.4 million for severance charges. Both the Homegate properties and the Frenchman's Reef hotel were subsequently sold in 2000. Valuation and other charges in 1998 consist of a $10.0 million valuation allowance related to certain non-prototype HomeGate properties, charges of $4.0 million for costs associated with terminating hotel development projects under contract, $2.4 million for severance charges primarily related to the resignations of the Company's chief executive officer and chief operating officer and $1.0 million for hurricane damage at the Frenchman's Reef. NOTE 15 -- OTHER INCOME, NET Other income consists of items, which are not considered part of the Company's recurring operations and is composed of the following as of December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Gains on sales of properties.......................... $13,901 $ 7,993 $ 1,060 Gains on settlements of notes receivable.............. -- -- 18,353 Contract termination fee.............................. -- 4,000 -- Loss on the sale of marketable securities............. -- (4,811) (1,281) ------- ------- ------- Total....................................... $13,901 $ 7,182 $18,132 ======= ======= =======
NOTE 16 -- OTHER COMPREHENSIVE INCOME For the years ended December 31, 2000, 1999 and 1998, comprehensive income consisted of the following (in thousands):
DECEMBER 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Net income............................................ $62,500 $34,882 $53,847 Unrealized (loss) gain on marketable securities, (net of income taxes of $92, $(1,338), and $3,060, respectively for 2000, 1999 and 1998)............... (144) 2,299 (4,993) ------- ------- ------- Total....................................... $62,356 $37,181 $48,854 ======= ======= =======
NOTE 17 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The fair values of non-current financial assets and liabilities and other financial instruments are shown below (in thousands). The fair values of current assets and current liabilities approximate their reported carrying amounts.
DECEMBER 31, 2000 DECEMBER 31, 1999 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Mortgage and notes receivable........... $ 11,991 $ 11,991 $ 11,750 $ 11,750 Long-term debt.......................... 340,987 337,987 543,485 533,285 Interest rate swap agreement............ -- -- -- 388
The fair value for mortgages and notes receivable is based on the valuation of the underlying collateral utilizing discounted cash flows and other methods applicable to the industry. Valuations for long-term debt are F-22 50 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) based on quoted market prices or current rates available to the Company for debt of the same maturities. The fair value of the interest rate swap agreement is based on the estimated amounts the Company would receive if the agreement was terminated. The Company's mortgages and other notes receivable (See Note 5) are derived primarily from and are secured by hotel properties, which constitutes a concentration of credit risk. These notes are subject to many of the same risks as the Company's operating hotel assets. A significant portion of the collateral is located in the Northeastern United States. NOTE 18 -- RELATED PARTY TRANSACTIONS The following summarizes significant financial information with respect to transactions with present officers, directors, their relatives and certain entities they control or in which they have a beneficial interest for the years ended December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, -------------------- 2000 1999 1998 ---- ---- ---- Management and other fee income............................. $165 $136 $138
The amounts above relate to two hotels managed by the Company for an entity controlled by the Company's Chairman and Chief Executive Officer. NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION The following summarizes non-cash investing and financing activities for the years ended December 31, 2000, 1999 and 1998 (in thousands):
DECEMBER 31, ---------------------------- 2000 1999 1998 ------- ------ ------- Marketable securities exchanged in connection with the acquisition of hotels................................ $ 1,652 $ -- $ -- Marketable securities received in connection with the sale of hotels....................................... -- -- 13,841 Hotels received in settlements of mortgage notes receivable........................................... -- 2,800 -- Hotels sold in exchange for assumption of debt......... 17,364 -- -- Note receivable and equity interests received from the sale of hotels....................................... 3,348 -- --
Cash paid for interest was $43.0 million, $51.5 million and $48.5 million for the years ended December 31, 2000, 1999 and 1998, respectively. Cash paid for income taxes was $21.0 million, $31.0 million and $17.7 million for the years ended December 31, 2000, 1999 and 1998, respectively. NOTE 20 -- GEOGRAPHIC AND BUSINESS INFORMATION The Company's hotels primarily operate in three major lodging industry segments: the all-suites segment, under its AmeriSuites brand; the limited-service segment, primarily under its Wellesley Inn & Suites brand and the full-service segment under major national franchises. The Company's 133 AmeriSuites are upscale, all-suite limited service hotels containing approximately 128 suites and are located in 31 states throughout the United States. The 70 Wellesley Inn & Suites hotels compete in the mid-price segment, and are primarily located in the Northeast, Texas and Florida regions of the United States. A Wellesley Inn & Suites has between 100 to 140 rooms and suites. The Company also operates 36 non-proprietary brand hotels which F-23 51 PRIME HOSPITALITY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compete primarily in the upscale full-service segment, with food and beverage service and banquet facilities under franchise agreements with national hotel brands. The Company's full-service segment are primarily located in the northeastern region of the United States. On November 1, 1999, the Company converted 38 of its 43 extended-stay HomeGate hotels into its limited-service Wellesley Inn & Suites brand. The conversion changed the customer base from extended-stay to transient. In March 2000, the Company sold the remaining five HomeGate hotels and all its rights to the HomeGate brand name. The Company no longer operates in the extended-stay segment. As a result, segment information for prior periods has been restated to conform to this change. The Company evaluates the performance of its segments based primarily on earnings before interest, taxes and depreciation and amortization ("EBITDA") generated by the operations of its Owned Hotels. Interest expense is primarily related to debt incurred by the Company through its corporate obligations and collateralized by certain of its hotel properties. The Company's taxes are included in the consolidated Federal income tax return of the Company and are allocated based upon the relative contribution to the Company's consolidated taxable income/losses and changes in temporary differences. Other income, net consist of property transactions, which are not part of the recurring operation of the Company. The allocation of interest expense, taxes and other income, net are not evaluated at the segment level and therefore, would be necessary in order to reconcile EBITDA to consolidated net income on the consolidated financial statements. The following table presents revenues and other financial information by business segment for the years ended December 31, 2000, 1999 and 1998 (in thousands):
LIMITED FULL CORPORATE/ DECEMBER 31, 2000 ALL-SUITES SERVICE SERVICE OTHER CONSOLIDATED - ----------------- ---------- -------- -------- ---------- ------------ Revenues........................... $257,975 $109,255 $171,180 $ 21,534 $ 559,944 EBITDA(1).......................... 80,183 42,397 40,954 6,537 170,071 Depreciation and Amortization...... 19,855 12,939 7,641 1,175 41,610 Capital expenditures............... 20,039 8,351 6,381 4,243 39,014 Total Assets....................... 600,196 372,997 115,771 70,876 1,159,840
LIMITED FULL CORPORATE/ DECEMBER 31, 1999 ALL-SUITES SERVICE SERVICE OTHER CONSOLIDATED - ----------------- ---------- -------- -------- ---------- ------------ Revenues........................... $238,656 $105,437 $188,653 $ 19,986 $ 552,732 EBITDA(1).......................... 87,714 41,925 41,200 6,188 177,027 Depreciation and Amortization...... 20,876 13,898 10,125 936 45,835 Capital expenditures............... 54,084 41,871 11,239 1,203 108,397 Total Assets....................... 590,579 429,395 196,123 112,682 1,328,779
LIMITED FULL CORPORATE/ DECEMBER 31, 1998 ALL-SUITES SERVICE SERVICE OTHER CONSOLIDATED - ----------------- ---------- -------- -------- ---------- ------------ Revenues........................... $191,690 $ 76,716 $178,973 $ 22,026 $ 469,405 EBITDA(1).......................... 71,658 31,225 39,111 6,303 148,297 Depreciation and Amortization...... 20,967 8,865 11,992 151 41,975 Capital expenditures............... 237,601 172,753 18,154 2,253 430,761 Total Assets....................... 554,253 367,971 228,385 257,789 1,408,398
- --------------- (1) EBITDA represents earnings before interest, income taxes, depreciation and amortization from the hotels. F-24 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRIME HOSPITALITY CORP. By: /s/ A.F. PETROCELLI ------------------------------------ A.F. Petrocelli, Chairman of the Board of Directors, President and Chief Executive Officer DATE: March 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 28, 2001.
SIGNATURE TITLE --------- ----- /s/ A.F. PETROCELLI Chairman of Board of Directors, President and - --------------------------------------------------- Chief Executive Officer A.F. Petrocelli /s/ DOUGLAS VICARI Director, Senior Vice President and Chief - --------------------------------------------------- Financial Officer Douglas Vicari /s/ LAWRENCE FRIEDLAND Director - --------------------------------------------------- Lawrence Friedland /s/ HOWARD M. LORBER Director - --------------------------------------------------- Howard M. Lorber /s/ HERBERT LUST, II Director - --------------------------------------------------- Herbert Lust, II /s/ JACK H. NUSBAUM Director - --------------------------------------------------- Jack H. Nusbaum
F-25 53 EXHIBIT INDEX 2. Exhibits
DESCRIPTION ----------- 2(a) Reference is made to the Contract of Purchase and Sale between Hillsborough Associates, Meriden Hotel Associates, L.P., Wellesley I, L.P., Multi-Wellesley Limited Partnership and the Company, dated March 6, 1996, filed as an Exhibit to the Company's 8-K dated March 21, 1996, which is incorporated herein by reference. (b) Reference is made to Consent of the Holders Thereof to the Purchase by the Company of the Outstanding First Mortgage Notes filed as an Exhibit to the Company's 8-K, dated March 21, 1996, which is incorporated herein by reference. (c) Reference is made to the Agreement and Plan of Merger as of July 25, 1997 by and among Prime Hospitality Corp., PH Sub Corporation and Homegate Hospitality, Inc. filed as an Exhibit to the Company's Form S-4, dated October 24, 1997, which is incorporated herein by reference. (d) Reference is made to the form of Amended and Restated Purchase and Sale Agreement between Prime Hospitality Corp., as seller and Equity Inns Partnership, L.P., as purchaser, dated December 2, 1997, filed as an Exhibit to the Company's Form 8-K dated December 11, 1997, which is incorporated herein by reference. (e) Reference is made to the form of Amended and Restated Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and American General Hospitality Operating Partnership, L.P., as purchaser, dated January 7, 1998 filed as an Exhibit to the Company's Form 8-K dated January 7, 1998, which is incorporated herein by reference. (f) Reference is made to the form of Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and Equity Inns Partnership, L.P., as purchaser, dated June 26, 1998, filed as an Exhibit to Company's Form 10-Q, dated June 30, 1998, which is incorporated herein by reference. (g) Reference is made to the Purchase and Sale Agreement between Prime Hospitality Corp., as seller, and Marriott International, Inc. as purchaser, dated September 15, 1999 which is incorporated herein by reference. (h) Reference is made to the First Amendment dated December 18, 1999, to Purchase and Sale Agreement between Prime Hospitality Corp. and Marriott International, Inc., dated September 15, 1999 which is incorporated herein by reference. (i) Reference is made to the Sale and Purchase Agreement between Prime Hospitality Inc. and Sholodge, Inc., dated March 16, 2000 which is incorporated herein by reference. (j) First Amendment to Sale and Purchase Agreement dated July 9, 2000, by and between Sholodge, Inc. and Prime Hospitality Corp. filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (k) Lease Agreement Dated as of November 19, 1997 by and between HPT Suite Properties Trust as Landlord, and Suite Tenant, Inc. as Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (l) First Amendment to Lease Agreement entered March 5, 1999 by and between HPT Suite Properties Trust as landlord and Suite Tenant, Inc. filed as an Exhibit to the Company's. Form 10-K dated March 28, 2000.
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DESCRIPTION ----------- (m) Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated June 29, 1999 by and between Hospitality Properties Trust as landlord HPT Suites Properties Trust and Sholodge, Inc., Suite Tenant, as tenant filed as an Exhibit to the Company's. Form 10-K, dated March 28, 2000. (n) Third Amendment to Lease Agreement dated March 3, 2000, by and between HPT Suite Properties Trust as Landlord, and Suite Tenant, Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (o) Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated May 11, 2000 by and between HPT Suite Properties Trust as Landlord and Suite Tenant, Tenant, filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. (p) Consent to Assignment, Fifth Amendment to Lease Agreement and Amendment to Incidental Documents dated July 9, 2000 by and among HPT Suites Properties, Suite Tenant, Inc. and Glen Rock Holding Corp. filed as an Exhibit to the Company's Form 10-K, dated March 28, 2000. 3(a) Reference is made to the Restated Certificate of Incorporation of the Company, dated June 5, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the Restated Certificate of Incorporation, As Amended, filed as an Exhibit to the Company's Form 10-QA, dated April 30, 1996, which is incorporated herein by reference. (c) Reference is made to the Restated Bylaws of the Company filed as an Exhibit to the Company's Form 10-K, dated September 25, 1992, which is incorporated herein by reference. 4(a) Reference is made to a Form 8-A of the Company as filed on June 5, 1992 with the Securities and Exchange Commission, as amended by Amendment No. 1 and Amendment No. 2, which is incorporated herein by reference. (b) Reference is made to an Indenture, dated January 23, 1996, between the Company and the Trustee related to 9 1/4% First Mortgage Notes due 2006, filed as an Exhibit to the Company's Form 10-K dated March 21, 1996, which is incorporated herein by reference. (c) Reference is made to the Senior Secured Revolving Credit Agreement, dated as of June 26, 1996, among the Company and the Lenders Party hereto, and Credit Lyonnais New York Branch, as Documentation Agent, and Bankers Trust Company, as Agent, filed as an Exhibit to the Company's Amendment No. 1 to Form S-3 dated July 26, 1996, which is incorporated herein by reference. (d) Reference is made to the 9 3/4% Senior Secured Subordinated Notes due 2007, dated March 21, 1997, filed as an exhibit to the Company's Form S-4, dated April 2, 1997, which is incorporated herein by reference. (e) Reference is made to the Amended and Restated Senior Secured Revolving Credit Agreement, dated as of December 17, 1997, among Prime Hospitality Corp., and The Lenders Party hereto, and Societe Generale, Southwest Agency, as Documentation Agent, and Credit Lyonnais New York Branch, as Syndication Agent, and Bankers Trust Company, as Agents filed as an Exhibit to the Company's Form 10-K, dated December 31, 1997, which is incorporated herein by reference.
55
DESCRIPTION ----------- (f) Reference is made to the Second Amendment to the Senior Secured Revolving Credit Agreement, dated September 30, 1998, among Prime Hospitality Corp., Societe Generale Southwest Agency, as Documentation Agent, Credit Lyonnais New York Bank, as Syndication Agent and Bankers Trust Company as Agent for Lenders filed as an Exhibit to the Company's Form 10-Q dated November 6, 1998, which is incorporated herein by reference. (g) Reference is made to the Third Amendment to the Senior Secured Revolving Credit Agreement, dated October 27, 1999, among Prime Hospitality Corp., Societe Generale Southwest Agency, as Documentation Agent, Credit Lyonnais New York Bank, as Syndication Agent and Bankers Trust Company as Agent for Lenders filed as an exhibit to the Company's Form 10-K dated December 31, 1999, which is incorporated herein by reference. 10(a) Reference is made to the 1992 Performance Incentive Stock Option Plan of the Company, dated as of July 31, 1992, filed as an Exhibit to the Company's Form 10-K dated September 25, 1992, which is incorporated herein by reference. (b) Reference is made to the 1992 Stock Option Plan of the Company filed as an Exhibit to the Company's Form 10-K, dated September 25, 1992, which is incorporated herein by reference. (c) Reference is made to an Amendment regarding the 1995 Employee and Non-Employee Stock Option Plans, incorporated in the Company's proxy statement dated April 13, 1998, whereby $1.8 million shares were made available for distribution which is incorporated herein by reference. (d) Reference is made to Change of Control Agreement, dated May 14, 1998, between Joseph Bernadino and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (e) Reference is made to Change of Control Agreement, dated May 14, 1998, between Richard T. Szymanski and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (f) Reference is made to Change of Control Agreement, dated May 14, 1998, between Douglas W. Vicari and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (g) Reference is made to Employment Agreement, dated September 14, 1998, between Attilio F. Petrocelli and the Company which is incorporated herein by reference. (h) Reference is made to Change of Control Agreement, dated September 14, 1998, between Atillio F. Petrocelli and the Company filed as an Exhibit to the Company's Form 10-K, dated March 26, 1999 which is incorporated herein by reference. (i) Reference is made to the Nonqualified Stock Option Agreement dated October 14, 1998 between A.F. Petrocelli and the Company which is incorporated herein by reference. (j) Reference is made to the Change in Control Agreement, dated October 25, 1999, between Stephen Kronick and the Company which is incorporated herein by reference. (k) Reference is made to the Amendment to Change in Control Agreement, dated March 18, 1999, between A.F. Petrocelli and the Company which is incorporated herein by reference. (21) Subsidiaries of the Company are as follows: (23) Consent of independent auditors.
EX-2.J 2 y47030ex2-j.txt FIRST AMENDMENT TO SALE AND PURCHASE AGREEMENT 1 FIRST AMENDMENT TO SALE AND PURCHASE AGREEMENT This First Amendment to Sale and Purchase Agreement (the "First Amendment") is entered into as of July 9, 2000, by and between SHOLODGE, INC., a Tennessee corporation ("ShoLodge"), and PRIME HOSPITALITY CORP., a Delaware corporation ("Prime"). W I T N E S S E T H: WHEREAS, ShoLodge and Prime entered into that certain Sale and Purchase Agreement (the "Agreement"), dated March 16, 2000, regarding certain Sumner Suites hotels and development sites as described therein; and WHEREAS, by letter dated April 11, 2000 (the "Termination Letter") Prime terminated the Agreement; and WHEREAS, ShoLodge and Prime desire to withdraw the termination of the Agreement pursuant to the Termination Letter; and WHEREAS, ShoLodge and Prime have renegotiated certain terms and provisions of the Agreement and have agreed to the modification of certain terms and provisions of the Agreement as set forth herein. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ShoLodge and Prime hereby agree as follows: 1. Prime hereby withdraws the termination of the Agreement pursuant to the Termination Letter, and ShoLodge and Prime hereby enter into the Agreement, as amended hereby. 2. The Agreement is hereby amended by deleting the definitions of the terms "Additional Advance Payments", "Additional Buildings", "Additional Equipment", "Additional Hotel Operating Assets", "Additional Hotel Operating Assets Transfer Documents", "Additional Hotel Subsidiaries", "Additional HPT Hotels", "Additional Inventory", "Additional Land", "Additional Operating Agreements", "Additional Property" and "Additional Property Documents" in Section 1.1 thereof in their entirety. 3. The Agreement is hereby amended by deleting the definition of the term "Advance Payments" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Advance Payments" means the STI Advance Payments and the Texas Advance Payments. 4. The Agreement is hereby amended by deleting the definition of the term "Agreement" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: 1 2 "Agreement" means this Sale and Purchase Agreement as amended from time to time. 5. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Agreement", definitions of the terms "Albuquerque Property' and "Alpharetta Property", as follows: "Albuquerque Property" shall have the meaning set forth in Section 5.2(a). "Alpharetta Property" shall have the meaning set forth in Section 5.2(b). 6. The Agreement is hereby amended by deleting the definition of the term "Assets" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Assets" means collectively the STI Assets, the Texas Property and the Texas Hotel Operating Assets. 7. The Agreement is hereby amended by deleting the definition of the term "Buildings" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Buildings" means the STI Buildings and the Texas Buildings. 8. The Agreement is hereby amended by deleting the definition of the term "Closing" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Closing" shall mean the conference to be held at 10:00 a.m., New York, New York time, on the Closing Date, at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York, or at such other time and place on the Closing Date as the parties may mutually agree to in writing, at which time the transactions contemplated by this Agreement shall be consummated. 9. The Agreement is hereby amended by deleting the definition of the term "Closing Date" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Closing Date" shall mean the date on which the Closing occurs. 10. The Agreement is hereby amended by deleting the definition of the term "Closing Documents" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Closing Documents" means all documents to be executed by Prime, a Prime Subsidiary, ShoLodge or a ShoLodge Subsidiary to consummate the transactions contemplated in this Agreement, including, without limitation, the STI Transfer Documents, the Texas Lease, the Texas Hotel Operating Assets Transfer Documents, the Construction Contract and the Reservation Agreement. 11. The Agreement is hereby amended by deleting the definition of the term "Development Site Purchase Price" in Section 1.1 thereof in its entirety. 2 3 12. The Agreement is hereby amended by deleting the definition of the term "Development Site Transfer Documents" in Section 1.1 thereof in its entirety. 13. The Agreement is hereby amended by deleting the definition of the term "Due Diligence Period" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Due Diligence Period" means the period commencing on the Effective Date and ending on July 9, 2000. 14. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Effective Date", the definition of the term "Effective Closing Date", as follows: "Effective Closing Date" means July 9, 2000 at 11:00 p.m. (New York time). 15. The Agreement is hereby amended by deleting the definition of the term "Equipment" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Equipment" means the STI Equipment and the Texas Equipment. 16. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term"ERISA", the definition of the term "Escrow Agent", and the definition of the term "Escrow Agreement," as follows: "Escrow Agent" shall have the meaning set forth in Section 5.6. "Escrow Agreement" shall have the meaning set forth in Section 5.6. 17. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Existing HPT Hotels", the definition of the term "Fairfax County Option", as follows: "Fairfax County Option" shall have the meaning set forth in Section 5.2(b). 18. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Fairfax County Option", the definition of the term "Fairfax County Property", as follows: "Fairfax County Property" shall have the meaning set forth in Section 5.2(b). 19. The Agreement is hereby amended by deleting the definition of the term "HPT Estoppel Certificate" in Section 1.1 thereof in its entirety. 20. The Agreement is hereby amended by deleting the definition of the terms "Hotel" and "Hotels" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: 3 4 "Hotel" and "Hotels" shall mean individually one of the Existing HPT Hotels or one of the Texas Hotels and collectively the Existing HPT Hotels and the Texas Hotels. 21. The Agreement is hereby amended by deleting the definition of the term "HPT Assignment and Security Agreement" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Assignment and Security Agreement" means that certain Assignment and Security Agreement dated as of November 19, 1997 between STI and Landlord, as amended by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI and by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated as of May 11, 2000 among HPT, Landlord, ShoLodge and STI, together with such subsequent amendments, modifications and supplements thereto as shall have been approved by Prime in writing prior to execution by STI, such approval not to be unreasonably withheld, delayed or conditioned. 22. The Agreement is hereby amended by deleting the definition of "HPT Lease" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Lease" means that certain Lease Agreement dated as of November 19, 1997 between Landlord and STI, as amended or supplemented by those certain letters dated November 19, 1997 among HPT, Landlord, ShoLodge and STI concerning a Declaration of Restrictions recorded in the Allen County, Indiana Recorder's Office as Document Number 95-028307 and environmental matters related to certain property in San Antonio, Texas, respectively, by that certain First Amendment to Lease Agreement dated as of March 5, 1999 between Landlord and STI, by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI, by that certain letter dated June 29, 1999 from STI to Landlord concerning revenues from the sale of liquor, by that certain Third Amendment to Lease Agreement dated as of March 3, 2000 between Landlord and STI and by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated as of May 11, 2000 among HPT, Landlord, ShoLodge and STI, together with such subsequent amendments, modifications and supplements thereto as shall have been approved by Prime in writing prior to execution by STI, such approval not to be unreasonably withheld, delayed or conditioned. 23. The Agreement is hereby amended by deleting the definition of the term "HPT Lease Guaranty" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Lease Guaranty" means that certain Limited Guaranty Agreement dated as of November 19, 1997 executed by ShoLodge in favor of HPT and Landlord, as 4 5 amended or supplemented by that certain letter dated November 19, 1997 among HPT, Landlord, ShoLodge and STI concerning a Declaration of Restrictions recorded in the Allen County, Indiana Recorder's Office as Document Number 95-028307, by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI and by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated as of May 11, 2000 among HPT, Landlord, ShoLodge and STI, together with such subsequent amendments, modifications and supplements thereto as shall have been approved by Prime in writing prior to execution by ShoLodge, such approval not to be unreasonably withheld, delayed or conditioned. 24. The Agreement is hereby amended by deleting the definition of the term "HPT Lease Security Deposit" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Lease Security Deposit" means the "Retained Funds" in the amount of Twenty-Five Million Five Hundred Seventy-Five Thousand Two Hundred and No/100 Dollars ($25,575,200.00) deposited by STI with Landlord to secure the obligations of STI under the HPT Lease. 25. The Agreement is hereby amended by deleting the definition of the term "HPT Real Property" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Real Property" means the STI Land and the STI Buildings. 26. The Agreement is hereby amended by deleting the definition of the term "HPT Security Agreement" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "HPT Security Agreement" means that certain Security Agreement dated as of November 19, 1997 between STI and Landlord, as amended by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI, by that certain Second Amendment to Security Agreement dated as of March 3, 2000 between Landlord and STI and by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated as of May 11, 2000 among HPT, Landlord, ShoLodge and STI, together with such subsequent amendments, modifications and supplements thereto as shall have been approved by Prime in writing prior to execution by STI, such approval not to be unreasonably withheld, delayed or conditioned. 27. The Agreement is hereby amended by deleting the definition of the term "HPT Stock Pledge" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: 5 6 "HPT Stock Pledge" means that certain Stock Pledge dated as of November 19, 1997 made by ShoLodge in favor of Landlord, as amended by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents dated as of June 29, 1999 among HPT, Landlord, ShoLodge and STI and by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents dated as of May 11, 2000 among HPT, Landlord, ShoLodge and STI, together with such subsequent amendments, modifications and supplements thereto as shall have been approved by Prime in writing prior to execution by ShoLodge, such approval not to be unreasonably withheld, delayed or conditioned. 28. The Agreement is hereby amended by deleting the definition of the term "Inventory" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Inventory" means the STI Inventory and the Texas Inventory. 29. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Moore", the definition of the term "Mt. Laurel Option", as follows: "Mt. Laurel Option" shall have the meaning set forth in Section 5.2(a). 30. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Mt. Laurel Option", the definition of the term "Mt. Laurel Property", as follows: "Mt. Laurel Property" shall have the meaning set forth in Section 5.2(a). 31. The Agreement is hereby amended by deleting the definition of the term "Operating Agreements" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Operating Agreements" means the STI Operating Agreements and the Texas Operating Agreements. 32. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Operating Agreements", the definition of the term "Option", as follows. "Option" means, respectively, each of the Mt. Laurel Option and the Fairfax County Option. 33. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Option", the definition of the term "Option Agreement", as follows. "Option Agreement" means the Exchange Option Agreement applicable to each respective Option. 6 7 34. The Agreement is hereby amended by deleting the definition of the term "Permitted Exceptions" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Permitted Exceptions" means (a) with respect to all Assets, (i) liens for taxes, assessments and governmental charges with respect to an Asset not yet due and payable or due and payable but not yet delinquent or as to which adequate reserves are provided therefor, (ii) those Encumbrances to be created pursuant to this Agreement, and (iii) such other Encumbrances as shall be approved or deemed approved by Prime pursuant to Section 12.1; (b) with respect to the HPT Real Property only, the HPT Lease; (c) with respect to the Texas Property only, the Texas Lease; (d) with respect to the Hendersonville, Tennessee Hotel only, the Hendersonville Restriction; and (e) with respect to the Real Property only, applicable zoning regulations and ordinances provided the same do not prohibit or impair in any material respect use of such Real Property as a hotel as currently operated or constructed. 35. The Agreement is hereby amended by adding in Section 1.1 thereof, immediately following the definition of the term "Prime", the definition of the term 'Prime Development Site", as follows: "Prime Development Site" shall have the meaning set forth in Section 7.1. 36. The Agreement is hereby amended by deleting the definition of the term "Prime HPT Subsidiary" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Prime HPT Subsidiary" means Glen Rock Holding Corp., a Delaware corporation and a wholly-owned subsidiary of Prime, and its successors and permitted assigns. 37. The Agreement is hereby amended by deleting the definition of the term "Prime Texas Subsidiary" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Prime Texas Subsidiary" means May-Ridge, L.P., a Delaware limited partnership all of the partnership interests of which are owned, directly or indirectly, by Prime, and its successors and permitted assigns. 38. The Agreement is hereby amended by deleting the definition of the term "Real Property" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: "Real Property" means the STI Land, the STI Buildings, the Texas Land and the Texas Buildings. 39. The Agreement is hereby amended by deleting the definition of the term "ShoLodge Subsidiaries" in Section 1.1 thereof in its entirety and inserting in lieu thereof the following: 7 8 "ShoLodge Subsidiaries" means STI, Southeast, the Development Site Subsidiaries and Moore. 40. The Agreement is hereby amended by adding in Section 1.1 thereof, at the end thereof, the definition of the term "Unavoidable Delays" as follows: "Unavoidable Delays" shall mean delays caused by governmental orders or edicts, governmental rationing or allocation of materials, strikes, lockouts, fires, acts of God, disasters, riots, unreasonable delays in transportation, shortages of labor or materials or any other cause beyond the control of ShoLodge, Moore or a Development Site Subsidiary, as applicable. 41. The Agreement is hereby amended by changing all references to "Closing Date" in Section 2.1 thereof to "Effective Closing Date". 42. The Agreement is hereby amended by changing all references to "Closing Date" in Section 2.2 thereof to "Effective Closing Date". 43. The Agreement is hereby amended by deleting Section 2.3 thereof in its entirety and inserting in lieu thereof the following: 2.3 HPT Lease Guaranty. Prime will pay to ShoLodge at Closing the sum of Fourteen Million and No/100 Dollars ($14,000,000.00) in cash or other immediately available funds in exchange for the absolute assignment by ShoLodge to Prime of all right, title and interest of ShoLodge in and to the HPT Lease Guaranty Deposit, so long as Prime has received a fully executed counterpart of the HPT Lease Amendment. Prime acknowledges that such Guaranty Deposit shall continue to be held by HPT to secure the obligations of ShoLodge under the HPT Lease Guaranty. All accrued but unpaid interest on the HPT Lease Guaranty Deposit for the period prior to and including the Effective Closing Date shall be paid to ShoLodge by HPT, and all interest on the HPT Lease Guaranty Deposit after the Effective Closing Date shall be paid to Prime by HPT which then will be contributed to the Prime HPT Subsidiary by Prime. 44. The Agreement is hereby amended by changing the reference to "Closing Date" in the first sentence of Section 2.5 thereof to "Effective Closing Date". 45. The Agreement is hereby amended by deleting Article III thereof in its entirety and inserting in lieu thereof the following: ARTICLE III [INTENTIONALLY DELETED] 46. The Agreement is hereby amended by changing all references to "Closing Date" in Section 4.1 thereof to "Effective Closing Date". 47. The Agreement is hereby amended by changing all references to "Closing Date" in Section 4.2 thereof to "Effective Closing Date". 8 9 48. The Agreement is hereby amended by deleting Section 4.3 thereof in its entirety and inserting in lieu thereof the following: 4.3 Lease of Texas Property. The lease of the Texas Property from Southeast to the Prime Texas Subsidiary shall be effected by lease (the "Texas Lease") which contains terms and provisions reasonably satisfactory to Prime, but Prime shall not have reason to object to any terms and provisions which are in the HPT Lease unless an objection to such terms and provisions is made in accordance with the provisions of Section 12.1; provided, however, (i) the Texas Lease shall require an audit of hotel revenues only unless and until the Texas Property is sold to HPT or an Affiliate of HPT, at which time an audit of the Prime Texas Subsidiary shall be required if requested by such transferee, (ii) the Prime Texas Subsidiary shall be deemed to have deposited "Retained Funds" in the amount of Three Million One Hundred Twenty-Seven Thousand Eight Hundred and No/100 Dollars ($3,127,800.00), and (iii) the minimum annual rent under such lease with respect to the Texas Property shall be (A) Two Million Nine Hundred Twelve Thousand Two Hundred Forty-Four and No/100 Dollars ($2,912,244.00), allocated as set forth in Exhibit P attached hereto and incorporated herein by this reference, prior to July 1, 2011, and (B) Three Million One Hundred Twenty-Seven Thousand Eight Hundred and No/100 Dollars ($3,127,800.00), allocated as set forth in Exhibit P attached hereto and incorporated herein by this reference, after June 30, 2011. Notwithstanding anything to the contrary, in the event that (x) either (1) any portion of the HPT Lease Security Deposit which relates to an Existing HPT Hotel (or a hotel exchanged for an Existing HPT Hotel as contemplated in the last sentence of Section 11.6) is either (A) returned to Prime or the Prime HPT Subsidiary prior to June 30, 2013 for any reason or (B) applied against any obligation of the Prime HPT Subsidiary in accordance with the terms of the HPT Lease prior to June 30, 2013 due to a default by the Prime HPT Subsidiary under the HPT Lease, or (2) any portion of the HPT Lease Security Deposit is paid to ShoLodge and Prime pursuant to the last sentence of the initial paragraph of Section 5.3 or the last sentence of the third paragraph of Section 5.4, then (y) the minimum annual rent payable under the Texas Lease prior to July 1, 2011 (as previously increased, if applicable), shall be increased by an amount calculated by first determining the monthly amount that if invested at nine percent (9%) for the number of months between the date of calculation and June 30, 2013 (disregarding partial months) would equal the reduction in the amount payable by Prime to ShoLodge pursuant to Section 18.3 as a result of the event requiring such calculation (and assuming for the purpose of calculating such reduction only that minimum annual rent is increased as a result of such event and paid in a timely manner) and then multiplying such amount by twelve (12), such increase in minimum annual rent to be allocated among the Texas Hotels in the same proportion as the minimum annual rent is allocated among the Texas Hotels before such calculation. The calculation of minimum annual rent under the Texas Lease as set forth in part (y) of the preceding sentence is described in Exhibit T attached hereto and incorporated herein by this reference. In the event of any conflict between the calculation of minimum annual rent as set forth in (A) part (y) above and (B) Exhibit T, the terms of Exhibit T shall govern. The obligations 9 10 of the Prime Texas Subsidiary under the Texas Lease shall be secured by a security interest in the personal property located at the Texas Real Property and in the "FF&E Reserve" created pursuant to the Texas Lease and by a pledge of the partnership interests of the Prime Texas Subsidiary pursuant to documents which contain terms and provisions reasonably satisfactory to Prime, but Prime shall not have reason to object to any terms and provisions which are in the HPT Security Agreement, the HPT Assignment and Security Agreement or the HPT Stock Pledge unless an objection to such terms and provisions is made in accordance with the provisions of Section 12.1. The Texas Property shall be leased by the Prime Texas Subsidiary free and clear of all Encumbrances, but subject to the Permitted Exceptions which relate to the Texas Property and to the Texas Operating Agreements. From and after Closing, all liabilities of Southeast under the Texas Operating Agreements and under the instruments creating the Permitted Exceptions which relate to the Texas Property which first accrue after the Effective Closing Date shall be the responsibility of the Prime Texas Subsidiary. The obligation of Southeast to deliver the "Retained Funds" upon the expiration of the Texas Lease pursuant to the terms thereof shall be guaranteed by ShoLodge pursuant to an instrument in form and substance reasonably satisfactory to Prime and ShoLodge, but such undertaking by ShoLodge shall terminate upon the transfer of the Texas Property to HPT or an Affiliate of HPT or to another Person whose net worth on the date of such transfer is equal to or greater than ten (10) times the unapplied balance of the "Retained Funds" held pursuant to the Texas Lease, provided that such transferee has assumed the obligation of Southeast to deliver the "Retained Funds" upon the expiration of the Texas Lease by written documents in form and substance reasonably acceptable to Prime. 49. The Agreement is hereby amended by changing the reference to "Closing Date" in the last sentence of Section 4.4 thereof to "Effective Closing Date". 50. The Agreement is hereby amended by deleting Section 4.5 thereof in its entirety and inserting in lieu thereof the following: Section 4.5 [Intentionally Deleted] 51. The Agreement is hereby amended by changing the reference to "Closing Date" in the first sentence of Section 4.7 thereof to "Effective Closing Date". 52. The Agreement is hereby amended by deleting the words "Prime and Southeast shall enter into a license or franchise agreement whereby Southeast is given the right to operate the Texas Hotels as "AmeriSuites" hotels, which agreement shall be" from the first sentence of Section 4.8 thereof and inserting in lieu thereof the words "Southeast shall have the option, but not the obligation, to operate each of the Texas Hotels as an "AmeriSuites" hotel pursuant to". 53. The Agreement is hereby amended by deleting Section 4.9 thereof in its entirety. 10 11 54. The Agreement is hereby amended by deleting Article V thereof in its entirety and inserting in lieu thereof the following: ARTICLE V DEVELOPMENT SITES 5.1 Construction on Development Sites. ShoLodge hereby agrees to cause an AmeriSuites hotel to be constructed on each parcel of property more particularly described on Exhibit D attached hereto and incorporated herein by this reference (or on an alternative site or sites as shall be acceptable to Landlord and Prime in their absolute discretion) (the "Development Sites"). ShoLodge shall cause each Development Site Subsidiary to pay all costs and expenses for the construction of such hotel on its respective Development Site. Each such hotel shall be constructed in accordance with the plans and specifications which have been filed by ShoLodge, Moore or the applicable Development Site Subsidiary, as appropriate, with the respective building code officials, but with the hotel to be built on the Mt. Laurel, New Jersey Development Site to have one hundred twenty-five (125) units and the hotel to be built on the Fairfax County, Virginia Development Site to have one hundred twenty-four (124) units and with finishes and signages to be in accordance with the plans and specifications described on Exhibit K attached hereto and incorporated herein by this reference, all in accordance with any applicable laws, regulations, statutes and orders. On or prior to the Closing Date, ShoLodge shall deliver to Prime (i) a copy of the plans and specifications described in the preceding sentence and (ii) a schedule which sets forth: (a) the projected times for the commencement and completion of each stage of construction, including, but not limited to, the dates of substantial completion and the final completion; (b) required delivery dates of materials; (c) the percentage of completion of construction at the end of each stage; and (d) the proportionate amount of the total construction cost allocated to each such stage of construction. Subject to Unavoidable Delays to the extent permitted by Landlord pursuant to the documentation which evidences Landlord's exchange option with respect to the Development Sites as described in Section 10.6 and in Section 11.6 hereof, ShoLodge shall cause such construction to be completed including, without limitation, installation of the AmeriSuites signages by the later of (i) September 30, 2001, or (ii) the date fifteen (15) months from the Closing Date (or such later date as shall be permitted by Landlord pursuant to the documentation which evidences Landlord's exchange option with respect to the Development Sites as described in Section 10.6 and in Section 11.6 hereof). Prime shall have the right, during normal business hours and with prior notice to ShoLodge, to periodically (i) inspect the construction of each hotel and (ii) review the timing and cost of such construction with Moore and the architect for each hotel. In conducting such inspections, Prime shall use its best efforts to avoid disrupting ongoing construction activities and shall indemnify and hold ShoLodge, Moore and the Development Site Subsidiaries harmless from and against any and all claims for damages by third parties for damage to property or personal injuries to the extent arising out of or attributable to such inspections by Prime or Prime's employees or agents. The construction contract between each 11 12 Development Site Subsidiary and Moore shall provide that such contract is assignable to Prime without the consent of Moore and that Prime shall be a third party beneficiary thereunder. Prime shall not exercise any rights as such third party beneficiary unless and until the occurrence of, and during the continuance of, an Event of Default as described in Subsections (iv), (v), (vi), (vii), (viii), (ix) or (xiii) of Section 10.1 of each Option Agreement. Upon the occurrence and continuance of any such Event of Default, Prime and/or its designees shall (i) have the right to enter upon the Mt. Laurel Property and/or the Fairfax County Property to complete Completion (as defined under the Option) in accordance with the applicable Option and (ii) use the balance of the Deposit (as defined in the Escrow Agreement) in connection with the Completion. If Prime or its designee undertakes the work to complete the Completion in accordance with the applicable Option, upon Completion and opening of the applicable hotel as an "AmeriSuites" hotel to the public, Prime shall pay an amount equal to unreimbursed actual costs expended by the applicable Development Site Subsidiary in connection with the Completion from the balance of the Deposit after deducting any unpaid portion of the Exchange Shortfall Amount. 5.2 Exchange of Development Sites. Upon completion of the construction of each hotel as set forth in Section 5.1 and if Landlord exercises its exchange option applicable to such property as described in Section 10.6 and in Section 11.6 hereof, the following exchanges shall take place: (a) The Mt. Laurel, New Jersey Development Site (being the property described on pages D-2 and D-3 of Exhibit D attached hereto), along with the hotel and all other improvements located thereon and all furniture, fixtures and equipment used in the operation of a hotel thereon (collectively, the "Mt. Laurel Property") shall be transferred from the Development Site Subsidiary which owns the Mt. Laurel Property to Landlord in exchange for the STI Land located in Albuquerque, New Mexico (being the property described on page A-5 of Exhibit A attached hereto), along with the hotel and all other improvements located thereon and all furniture, fixtures and equipment used in the operation of a hotel thereon (collectively, the "Albuquerque Property") (the "Mt. Laurel Option"). All documents and instruments necessary for the transfer of the Mt. Laurel Property to Landlord and for the transfer of the Albuquerque Property to ShoLodge or its designee shall be in form and substance reasonably satisfactory to Landlord and to ShoLodge or its designee. Simultaneously with the consummation of the exchange transaction set forth above, the HPT Lease shall be amended to add the Mt. Laurel Property thereto and to delete the Albuquerque Property therefrom, such amendment to be in form and substance reasonably satisfactory to Landlord and Prime. 12 13 (b) The Fairfax County, Virginia Development Site (being the property described on page D-4 of Exhibit D attached hereto), along with the hotel and all other improvements located thereon and all furniture, fixtures and equipment used in the operation of a hotel thereon (collectively, the "Fairfax County Property") shall be transferred from the Development Site Subsidiary which owns the Fairfax County Property to Landlord in exchange for the STI Land located in Alpharetta, Georgia (being the property described on pages A-27 and A-28 of Exhibit A attached hereto), along with the hotel and all other improvements located thereon and all furniture, fixtures and equipment used in the operation of a hotel thereon (collectively, the "Alpharetta Property") (the "Fairfax County Option"). All documents and instruments necessary for the transfer of the Fairfax County Property to Landlord and for the transfer of the Alpharetta Property to ShoLodge or its designee shall be in form and substance reasonably satisfactory to Landlord and to ShoLodge or its designee. Simultaneously with the consummation of the exchange transaction set forth above, the HPT Lease shall be amended to add the Fairfax County Property thereto and to delete the Alpharetta Property therefrom, such amendment to be in form and substance satisfactory to Landlord and Prime. At the closing of any such exchange as contemplated herein and upon Landlord's authorization (without any obligations imposed on Prime, contingent or otherwise) and release of Prime and/or the Prime HPT Subsidiary with respect to the FF&E Reserve to be delivered to ShoLodge under the FF&E Pledge and/or the Deposit Account Control Agreement (both as defined or described in the HPT Lease Amendment), Prime shall cause the Prime HPT Subsidiary to deliver to ShoLodge an amount equal to the sum of the "FF&E Reserve" created pursuant to the HPT Lease allocable to the Existing HPT Hotel being exchanged as of the Effective Closing Date plus all deposits into such "FF&E Reserve" following the Effective Closing Date allocable to the Existing HPT Hotel being exchanged, less expenditures with respect to such Existing HPT Hotel reimbursed from such "FF&E Reserve" following the Effective Closing Date; provided, however, that the amount to be delivered to ShoLodge pursuant to this paragraph for a particular exchange shall not exceed an amount equal to the portion of the "FF&E Reserve" released by Landlord in connection with such exchange less any amount which the Prime HPT Subsidiary is obligated to deposit into the "FF&E Reserve" at the closing of the exchange with respect to the hotel exchanged for such Existing HPT Hotel. 5.3 Purchase of Property by ShoLodge. In the event Landlord exercises its put option with respect to one or both of the Alpharetta Property and the Albuquerque Property as described in Section 9(c) of the HPT Lease Amendment, then in such event ShoLodge shall purchase from Landlord the Alpharetta Property and/or the Albuquerque Property, as applicable, for the price as set forth in the HPT Lease Amendment. At the closing of any such purchase 13 14 by ShoLodge as contemplated herein and upon Landlord's authorization (without any obligations imposed on Prime, contingent or otherwise) and release of Prime and/or the Prime HPT Subsidiary with respect to the FF&E Reserve to be delivered to ShoLodge under the FF&E Pledge and/or the Deposit Account Control Agreement (both as defined or described in the HPT Lease Amendment), Prime shall cause the Prime HPT Subsidiary to deliver to ShoLodge an amount equal to the sum of the "FF&E Reserve" created pursuant to the HPT Lease allocable to such acquired property as of the Effective Closing Date plus all deposits into such "FF&E Reserve" following the Effective Closing Date allocable to such acquired property, less expenditures with respect to such acquired property reimbursed from such "FF&E Reserve" following the Effective Closing Date; provided, however, that the amount to be delivered to ShoLodge pursuant to this paragraph for a particular purchase shall not exceed an amount equal to the portion of the "FF&E Reserve" released by Landlord in connection with such purchase less any amount which the Prime HPT Subsidiary is obligated to deposit into the "FF&E Reserve" at the closing of such purchase and as a result of such purchase. Further, if in connection with any such purchase as contemplated herein, the HPT Lease Security Deposit which relates to such acquired property is returned by Landlord and the lien of Landlord therein is released, such returned portion of the HPT Lease Security Deposit shall be paid as follows: (a) an amount equal to the present value of the returned portion of the HPT Lease Security Deposit on the date of payment assuming payment on June 30, 2013 and assuming a discount rate of nine percent (9%), plus the present value of the rent reduction in Section 4.3 attributable to this portion of the HPT Lease Security Deposit from the date such portion of the HPT Lease Security Deposit is returned to June 30, 2011, assuming a discount rate of nine percent (9%), shall be paid to Prime; and (b) the balance of the returned portion of the HPT Lease Security Deposit shall be paid to ShoLodge. At the closing of any such purchase by ShoLodge as contemplated herein and for no additional consideration, Prime shall cause the Prime HPT Subsidiary to sell, convey, transfer, assign and deliver to ShoLodge or its designee, without any representation or warranty whatsoever, all the following (subject to Landlord having released any lien which Landlord may have on such property): (a) all merchandise, inventories, materials and supplies used or intended for use or held for use in connection with and located on the closing date of such purchase at the transferred hotel; (b) all reservation and advance booking deposits and guest deposits (including interest, if any, accrued thereon) for guests or future guests of the transferred hotel existing on the closing date of such 14 15 purchase; (c) to the extent assignable, all of the right, title and interest of the Prime HPT Subsidiary, if any, in and to all service contracts, vendor agreements, maintenance agreements, utility contracts, cable service agreements, advertising agreements, equipment leases and similar operating agreements relating to the transferred hotel and in effect on the closing date of such purchase; (d) to the extent assignable, all of the right, title and interest of the Prime HPT Subsidiary, if any, in and to licenses and permits for the sale and on-premises consumption of liquor and other alcoholic beverages at the transferred hotel in effect on the closing date of such purchase; and (e) all vehicles owned by the transferor and located at and used in connection with the transferred hotel on the closing date of such purchase. Further, at the closing of any such purchase as contemplated herein, revenues and expenses respecting the acquired properties shall be credited or charged, as the case may be, similar to the adjustments with respect to the Hotels as specified in Section 9.1 so that the Prime HPT Subsidiary is given a credit or charge, as the case may be, for all revenues and expenses respecting the transferred assets which are attributable to operations before the closing date of the acquisition, and the buyer of a particular property is given a credit or charge, as the case may be, for all such revenues and expenses attributable to operations on and after the closing date of the acquisition. Following the closing of any purchase as contemplated herein, the Prime HPT Subsidiary shall cooperate with the transferee in its efforts to obtain new operating permits and licenses for the transferred hotel or modifications to existing operating permits and licenses or, to the extent permitted by applicable law, to maintain the existing operating permits and licenses in effect until such time as the new or modified operating permits and licenses may be obtained. Until such time as such new or modified operating permits and licenses are obtained, the Prime HPT Subsidiary, to the extent permitted by applicable law, shall take all steps reasonably necessary to enable the current operating permits and licenses, if any, to be used in the operation of the transferred hotel and to permit the continued operation of the transferred hotel, including, without limitation, the uninterrupted sale and serving of alcoholic beverages at the transferred hotel, if applicable. All costs and expenses incurred by Prime and/or the Prime HPT Subsidiary in connection with the foregoing shall be paid by ShoLodge, and ShoLodge shall defend, indemnify and hold Prime and/or the Prime HPT Subsidiary harmless from and against any and all loss, expense (including, without limitation, reasonable attorney's fees and court costs arising 15 16 from the enforcement of this indemnity), damage and liability arising from the foregoing. 5.4 Purchase of Property by Prime. In the event (i) Landlord exercises its put option with respect to one or both of the Alpharetta Property and the Albuquerque Property as described in Section 9(c) of the HPT Lease Amendment, (ii) ShoLodge defaults in its obligation to acquire a put property within 10 days of the Landlord's exercise of its put option and otherwise in compliance with Section 5.3 hereof, and (iii) Prime or an Affiliate of Prime sends notice to Landlord that ShoLodge has failed to acquire such put property and that it will purchase such put property pursuant to the exercise by Landlord of its put option as described in Section 9(c) of the HPT Lease Amendment, then, in such event, simultaneously with the closing of the acquisition of such put property by Prime, the following exchanges shall take place: (x) if ShoLodge has failed to purchase and Prime is to purchase the Albuquerque Property, ShoLodge shall cause the Development Site Subsidiary which owns the Mt. Laurel Property to transfer the Mt. Laurel Property to Prime or its designee, (y) if ShoLodge has failed to purchase and Prime is to purchase the Alpharetta Property, ShoLodge shall cause the Development Site Subsidiary which owns the Fairfax County Property to transfer the Fairfax County Property to Prime or its designee and (z) if ShoLodge has failed to purchase and Prime is to purchase either or both of the Albuquerque Property and/or Alpharetta Property, ShoLodge shall pay the applicable Exchange Shortfall Amount (as defined below) in exchange for the applicable put property. Upon, ShoLodge's payment of the Exchange Shortfall Amount, Prime shall pay the applicable Development Site Subsidiary the balance of the Deposit, if any (as defined in the Escrow Agreement). All documents and instruments necessary for such exchange shall be in form and substance reasonably acceptable to ShoLodge or its designee and to Prime. In addition to the provisions of the preceding paragraph, if Prime acquires one or both of the Alpharetta Property and the Albuquerque Property pursuant to the exercise by Landlord of its put option as described in Section 9(c) of the HPT Lease Amendment, ShoLodge shall pay to Prime with respect to each such acquired property an amount equal to the difference between (an "Exchange Shortfall Amount") (i) the sum of (x) purchase price paid by Prime to Landlord for such property and (y) amounts incurred by Prime in connection with Completion under the Fairfax County Option or Mt. Laurel Option, as applicable, in excess of the portion of the Deposit (as defined in the Escrow Agreement) paid to Prime and (ii) an amount equal to the number of units at the Fairfax County Option (i.e., 124 units) or the Mt. Laurel Option (i.e., 125 units), as applicable, multiplied times Seventy-Six Thousand Five Hundred and No/100 Dollars ($76,500) per unit. Such payment shall be made by ShoLodge in immediately available funds simultaneously with the closing of Prime's purchase of the applicable property. At the closing of any such exchange as contemplated herein and upon Landlord's authorization (without any obligations imposed on Prime, contingent 16 17 or otherwise) and release of Prime and/or the Prime HPT Subsidiary with respect to the FF&E Reserve to be delivered to ShoLodge under the FF&E Pledge and/or the Deposit Account Control Agreement (both as defined or described in the HPT Lease Amendment), Prime shall cause the Prime HPT Subsidiary to deliver to ShoLodge an amount equal to the sum of the "FF&E Reserve" created pursuant to the HPT Lease allocable to the Existing HPT Hotel being exchanged as of the Effective Closing Date plus all deposits into such "FF&E Reserve" following the Effective Closing Date allocable to such Existing HPT Hotel being exchanged, less expenditures with respect to such Existing HPT Hotel reimbursed from such "FF&E Reserve" following the Effective Closing Date; provided, however, that the amount to be delivered to ShoLodge pursuant to this paragraph for a particular exchange shall not exceed an amount equal to the portion of the "FF&E Reserve" released by Landlord in connection with the purchase of such Existing HPT Hotel by Prime, less any amount which the Prime HPT Subsidiary is obligated to deposit into the "FF&E Reserve" at the closing of such purchase and as a result of such purchase. Further, if in connection with any purchase by Prime of a put property as contemplated herein, the HPT Lease Security Deposit which relates to such acquired property is returned by Landlord and the lien of Landlord therein is released, then at the closing of the exchange contemplated herein such returned portion of the HPT Lease Security Deposit shall be paid as follows: (a) an amount equal to the present value of the returned portion of the HPT Lease Security Deposit on the date of payment assuming payment on June 30, 2013 and assuming a discount rate of nine percent (9%), plus the present value of the rent reduction in Section 4.3 attributable to this portion of the HPT Lease Security Deposit from the date such portion of the HPT Lease Security Deposit is returned to June 30, 2011, assuming a discount rate of nine percent (9%), shall be retained by Prime or the Prime HPT Subsidiary; and (b) the balance of the returned portion of the HPT Lease Security Deposit shall be paid to ShoLodge The provisions of this Section 5.4 set forth the sole and exclusive remedy available to Prime for any default by ShoLodge in its obligation to purchase a put property as described in Section 5.3. Prime, however, shall have any and all remedies available to it at law or in equity in the event ShoLodge fails to perform its obligations set forth in this Section 5.4. Nothing contained herein is intended to relieve ShoLodge from causing the Development Site Subsidiary which owns the Mt. Laurel Property and/or Fairfax County Property to transfer to Prime or its designee the Mt. Laurel Property and/or the Fairfax County Property in the event it fails to pay to Prime the applicable Exchange Shortfall Amount. ShoLodge acknowledges (i) its obligation to cause such transfers of the Mt. Laurel Property and/or the Fairfax County Property to Prime or its designee is independent of Prime's obligation to 17 18 transfer the applicable put property to ShoLodge and (ii) the applicable put property or put properties will be transferred to ShoLodge upon (x) its payment to Prime of the applicable Exchange Shortfall Amount and (y) Completion, including without limitation, the opening of the Mt. Laurel Property and/or the Fairfax County Property, as applicable, as an "AmeriSuites" hotel to public. 5.5 Operating Assets. At the closing of any exchange as contemplated in Section 5.2 or in Section 5.4 and for no additional consideration, ShoLodge shall cause the applicable Development Site Subsidiary to sell, convey, transfer, assign and deliver to the Prime HPT Subsidiary, and Prime shall cause the Prime HPT Subsidiary to sell, convey, transfer, assign and deliver to ShoLodge or its designee, without any representation or warranty whatsoever, all the following (subject to Landlord having released any lien which Landlord may have on such property): (a) all merchandise, inventories, materials and supplies used or intended for use or held for use in connection with and located on the closing date of such exchange at the transferred hotel; (b) all reservation and advance booking deposits and guest deposits (including interest, if any, accrued thereon) for guests or future guests of the transferred hotel existing on the closing date of such exchange; (c) to the extent assignable, all of the right, title and interest of the transferor, if any, in and to all service contracts, vendor agreements, maintenance agreements, utility contracts, cable service agreements, advertising agreements, equipment leases and similar operating agreements relating to the transferred hotel and in effect on the closing date of such exchange; (d) to the extent assignable, all of the right, title and interest of the transferor, if any, in and to licenses and permits for the sale and on-premises consumption of liquor and other alcoholic beverages at the transferred hotel in effect on the closing date of such exchange; and (e) all vehicles owned by the transferor and located at and used in connection with the transferred hotel on the closing date of such exchange. Further, ShoLodge shall cause to be delivered to Prime a copy of all surveys, warranties, specifications and plans and as-built drawings, if any, in the possession of ShoLodge or an Affiliate of ShoLodge which relate to any property transferred to Landlord, Prime or the Prime HPT Subsidiary in connection with any exchange contemplated in Section 5.2 or in Section 5.4. 18 19 Further, at the closing of any such exchange as contemplated in Section 5.2 or in Section 5.4, revenues and expenses respecting the exchanged properties shall be credited or charged, as the case may be, similar to the adjustments with respect to the Hotels as specified in Section 9.1 so that the transferor of the operating assets described in the preceding paragraph is given a credit or charge, as the case may be, for all revenues and expenses respecting the transferred assets which are attributable to operations before the closing date of the exchange, and the transferee of the operating assets described in the preceding paragraph is given a credit or charge, as the case may be, for all such revenues and expenses attributable to operations on and after the closing date of the exchange. Following the closing of any exchange as contemplated in Section 5.2 or in Section 5.4, the transferor of the operating assets described in the second preceding paragraph shall cooperate with the transferee of such assets in its efforts to obtain new operating permits and licenses for the transferred hotel or modifications to existing operating permits and licenses or, to the extent permitted by applicable law, to maintain the existing operating permits and licenses in effect until such time as the new or modified operating permits and licenses may be obtained. Until such time as such new or modified operating permits and licenses are obtained, the transferor of the operating assets described in the second preceding paragraph, to the extent permitted by applicable law, shall take all steps reasonably necessary to enable the current operating permits and licenses, if any, to be used in the operation of the transferred hotel and to permit the continued operation of the transferred hotel, including, without limitation, the uninterrupted sale and serving of alcoholic beverages at the transferred hotel, if applicable. All costs and expenses incurred by such transferor in connection with the foregoing shall be paid by the transferee, and the transferee shall defend, indemnify and hold such transferor harmless from and against any and all loss, expense (including, without limitation, reasonable attorney's fees and court costs arising from the enforcement of this indemnity), damage and liability arising from the foregoing. 5.6 Escrow. In order to facilitate the transactions contemplated in Section 5.1, in Section 5.2 and in Section 5.3, on the Closing Date ShoLodge, Prime and Bankers Trust Company, as escrow agent (the "Escrow Agent") and others named therein, shall enter into the Escrow Agreement in the form of Exhibit I attached hereto (as the same may be amended and supplemented and in effect from time to time, the "Escrow Agreement" and incorporated herein by this reference whereby a limited warranty deed with covenants against grantor's acts, or its local equivalent, for each Development Site and a bill of sale or other transfer document for the remaining portion of the Mt. Laurel Property and the Fairfax County Property, all in form and substance reasonably satisfactory to Landlord and Prime, Seven Million and No/100 Dollars ($7,000,000.00) for the development of a hotel on the Mt. Laurel, New Jersey Development Site and Six Million Nine Hundred Thirty-Two Thousand and No/100 Dollars ($6,932,000.00) for the development of a hotel on the Fairfax County, Virginia Development Site 19 20 shall be placed in escrow to be held and delivered or invested and disbursed, as applicable, by the Escrow Agent as provided therein. 5.7 Condition of Properties. In the event ShoLodge or its designee acquires an Existing HPT Hotel pursuant to an exchange described in Section 5.2, a purchase described in Section 5.3 or an exchange described in Section 5.4, Prime HPT Subsidiary shall cause such Existing HPT Hotel (including, without limitation, the real property, the improvements located on such real property and the furniture, fixtures and equipment located on such real property or within such improvements) at the time of such acquisition by ShoLodge or its designee to be in the same condition as existed on the Effective Closing Date, ordinary wear and tear and conditions resulting from casualty and/or condemnation only excepted; provided, however, such exception for ordinary wear and tear shall not limit the maintenance and repair obligations of the Prime HPT Subsidiary under Article 5 of the HPT Lease, which obligations shall be performed by the Prime HPT Subsidiary as to each Existing HPT Hotel acquired by ShoLodge or its designee. Further, between the Effective Closing Date and the closing of any such exchange or purchase, as applicable, Prime shall not further encumber, or permit the Prime HPT Subsidiary to further encumber, any such property to be acquired by ShoLodge or its designee except in each case required under the HPT Lease or any amendments thereto. Nothing contained herein is intended to modify ShoLodge's right to receive the insurance and/or condemnation proceeds pursuant to Section 5.2 of the applicable Option Agreement. 5.8 AmeriSuites Name. ShoLodge or the Affiliate of ShoLodge which owns the Mt. Laurel Property, the Fairfax County Property, the Alpharetta Property or the Albuquerque Property, as appropriate, shall have the option, but not the obligation, to operate each such property as an "AmeriSuites" hotel pursuant to the standard license or franchise agreement, if any, then used, or most recently used if a standard license or franchise agreement is not then being used, by Prime to franchise "AmeriSuites" hotels, but with (i) a minimum term of ten (10) years, (ii) no "initial" fee or "license" fee due upon signing such agreement (but with full standard royalty, marketing and reservation fees), and (iii) a right of the licensee or franchisee to terminate without penalty or any termination fee upon at least thirty (30) days prior written notice (provided no written notice of termination shall be required if termination occurs in connection with an exchange contemplated in Section 5.2 or in Section 5.4). 5.9 Survival. The provisions of Article V shall survive the Closing of the transactions contemplated herein. 55. The Agreement is hereby amended by deleting the initial sentence of Section 6.1 thereof in its entirety and inserting in lieu thereof the following: The total purchase price for the STI Assets and the Texas Hotel Operating Assets shall be One Million Six Hundred Seventeen Thousand Six Hundred Twenty Five and No/100 Dollars ($1,617,625.00) (the "Purchase Price"). 20 21 56. The Agreement is hereby amended by deleting Section 6.1(a) in its entirety and inserting in lieu thereof the following: ShoLoge shall, on the date hereof, pay $29,495.00 to Prime, in cash or other immediately available funds, to an account or accounts designated by Prime prior to the Closing, in return for Prime's delivery of the debt securities referenced in Section 6.1(b) below which are in excess of the Purchase Price by such $29,495.00. 57. The Agreement is hereby amended by adding the following after the last sentence of Section 6.1: The parties hereto agree that the Purchase Price will increase by the Incremental Purchase Price, if and only if Landlord indefeasibly returns the Additional Deposit (as such term is defined in the HPT Lease Amendment) to Prime at which time the Purchase Price shall be paid to ShoLodge in cash or other immediately available funds, to an account or accounts designated by ShoLodge. The "Incremental Purchase Price" shall mean the difference between (i) $382,375.00 and (ii) the amount determined by multiplying Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00) by 2.00% and dividing the product of such multiplication by 12, which resulting stream of monthly payment amounts shall be discounted using a discount rate of 9% for the number months that have elapsed between the month in which the Closing occurs and the month in which Landlord indefeasibly returns the Additional Deposit to Prime (including the month in which the Closing and the return of the Additional Deposit occur). 58. The Agreement is hereby amended by deleting the last sentence of Section 6.1 thereof in its entirety and inserting in lieu thereof the following: The Purchase Price shall be allocated among the STI Assets and the Texas Hotel Operating Assets as set forth on Exhibit N attached hereto and made a part hereof. 59. The Agreement is hereby amended by deleting Section 6.2 thereof in its entirety. 60. The Agreement is hereby amended by deleting Section 7.1 thereof in its entirety and inserting in lieu thereof the following: 7.1 Construction Contract. At the Closing, Prime shall enter into, and ShoLodge shall cause Moore to enter into, an agreement (the "Construction Contract") in form and substance reasonably satisfactory to Prime and Moore whereby Moore will agree to construct for Prime, and Prime will engage Moore to construct, an AmeriSuites hotel on the property described on Exhibit R attached hereto and incorporated herein by this reference (or on an alternative site as shall be acceptable to Landlord and ShoLodge in their absolute discretion) (the "Prime Development Site"). The Construction Contract shall provide for a fixed price of Seventy-Six Thousand Five Hundred and No/100 Dollars ($76,500.00) per room (including land (to the extent specified below), building and furniture, fixtures 21 22 and equipment). The parties acknowledge that the fixed price set forth in the preceding sentence includes Prime's out-of-pocket cost of acquisition of the Prime Development Site in the amount of One Million One Hundred Fifteen Thousand and No/100 Dollars ($1,115,000.00), and, thus, Prime's out-of-pocket cost of acquiring the Prime Development Site in the amount of One Million One Hundred Fifteen Thousand and No/100 Dollars ($1,115,000.00) shall be deducted from the fixed price otherwise payable to Moore during the course of construction. Disbursements to Moore of the fixed price will be paid by Prime monthly during construction based upon the percentage of completion, subject to retainage of ten percent (10%). The Construction Contract shall further provide that Moore shall construct on the Prime Development Site a hotel building in accordance with the plans and specifications for a prototypical six (6) story one hundred twenty-four (124) unit Sumner Suites hotel, but with finishes and signage in accordance with the plans and specifications described on Exhibit K attached hereto and incorporated herein by this reference, all in accordance with all applicable laws, regulations, statutes and orders. The parties acknowledge that the Construction Contract shall contain a scheduled completion date, together with delay damages, among other terms, which terms shall be negotiated during the Due Diligence Period. ShoLodge shall join in the Construction Contract for the purpose of guaranteeing the obligations of Moore thereunder. At the Closing, ShoLodge shall cause Moore, at Moore's sole cost and expense, to deliver to Prime a Performance Bond and a Labor and Material Payment Bond relating to the Construction Contract, both in form and substance reasonably satisfactory to Prime and Moore. The provisions of this Section 7.1 shall survive the Closing, but any conflict between the terms of this Section 7.1 and the terms of the Construction Contract shall be governed by the Construction Contract. 61. The Agreement is hereby amended by deleting the language "an agreement (the" from the first sentence of Section 8.1 thereof and inserting in lieu thereof the language "an agreement or agreements (collectively, the ". 62. The Agreement is hereby amended by deleting the language "one (1) year period" both places it appears in Section 8.1(g) thereof and inserting in lieu thereof the language "eighteen (18) month period" and by deleting the language "initial Closing Date under this Agreement," and inserting in lieu thereof the words "Effective Closing Date". 63. The Agreement is hereby amended by deleting Section 9.1 thereof in its entirety and inserting in lieu thereof the following: (a) The cash portion of the Purchase Price described in Section 6.1(a) shall be increased, by: (i) any cash on hand at the Hotels when a Prime Subsidiary takes possession (any such cash shall be counted by representatives of ShoLodge and Prime on the Effective Closing Date); 22 23 (ii) any revenue generated by the operation of the Hotels through and including the night of the Effective Closing Date arising from accounts receivable with respect to guests of the Hotels then in occupancy which in the normal course of business would be received after the Effective Closing Date (the amount of such revenue to be determined by representatives of ShoLodge and Prime on the Effective Closing Date); (iii) amounts paid prior to Closing for any ad valorem real estate taxes and assessments relating to the Real Property on account of any period after the Effective Closing Date; (iv) personal property taxes, gross receipts taxes, sales taxes, excise taxes, hotel occupancy taxes or other similar taxes (but excluding income and franchise taxes), if any, relating to the Assets paid prior to Closing on account of any period after the Effective Closing Date; (v) amounts paid prior to Closing under any Operating Agreement, the HPT Lease or any instrument creating a Permitted Exception on account of any period after the Effective Closing Date; (vi) any utility deposits relating to the Assets which are transferred and remain on deposit after Closing for the benefit of a Prime Subsidiary or Prime, as applicable; and (vii) any other charges or fees customarily prorated by a credit to the seller in the jurisdiction in which the Real Property is situated, on customary terms. (b) The cash portion of the Purchase Price described in Section 6.1(a) shall be decreased, by: (i) any Advance Payments retained by STI or Southeast, as applicable; (ii) unpaid ad valorem real estate taxes and assessments relating to the Real Property on account of any period on or prior to the Effective Closing Date; (iii) unpaid personal property taxes, gross receipts taxes, sales taxes, excise taxes, hotel occupancy taxes or other similar taxes (but excluding income and franchise taxes), if any, relating to the Assets payable on account of any period on or prior to the Effective Closing Date; (iv) unpaid amounts payable under any Operating Agreement (ShoLodge shall use its best efforts to cause all amounts due under the Operating Agreements to be paid to the Effective Closing Date), the HPT Lease or any instrument creating a Permitted Exception on account of any period on or prior to the Effective Closing Date (for this purpose "Additional Rent" (as defined in the HPT Lease) shall be calculated based on the "Total Hotel Sales" (as defined in the 23 24 HPT Lease) for the current year to the Effective Closing Date compared to "Base Total Hotel Sales" (as defined in the HPT Lease) for the similar period of the applicable "Base Year" (as defined in the HPT Lease)); (v) unpaid rates, rents and charges for sewer, water, gas, electricity, telephone and other utility services provided to the Hotels for any period on or prior to the Effective Closing Date (ShoLodge shall use commercially reasonable efforts to cause meters to be read as of the Effective Closing Date); (vi) accrued but unpaid benefits due to employees of the Hotels who are hired by Prime or a Prime Subsidiary, as applicable, which are not paid by STI, ShoLodge or an Affiliate of ShoLodge directly to such employees upon termination of employment; and (vii) any other charges or fees customarily prorated by a charge to the seller in the jurisdiction in which the Real Property is situated, on customary terms. (c) The intent of the foregoing is to credit or charge, as the case may be, STI or Southeast, as applicable, with all revenues and expenses respecting the Assets which are attributable to operations prior to and including the Effective Closing Date and to credit or charge, as the case may be, Prime or a Prime Subsidiary, as applicable, with all such revenues and expenses attributable to operations after the Effective Closing Date. At Closing, STI and Southeast, as applicable, shall provide the Prime HPT Subsidiary and the Prime Texas Subsidiary, as applicable, with a list setting forth advance guest bookings, conventions, meetings and any other booking commitments for the period after the Effective Closing Date. 64. The Agreement is hereby amended by deleting Section 10.6 thereof in its entirety and inserting in lieu thereof the following: 10.6 HPT Closing. All transactions with HPT and Landlord as contemplated in this Agreement shall have closed pursuant to documents in form and substance reasonably satisfactory to ShoLodge, and ShoLodge shall have received (a) a fully executed counterpart of the HPT Lease Amendment; (b) a release by Landlord of STI of and from any liability under the HPT Lease arising after the Effective Closing Date; (c) a release by Landlord of any liability of STI under the HPT Security Agreement and the HPT Assignment and Security Agreement; (d) a release by Landlord of any liability of ShoLodge under the HPT Stock Pledge; and (e) a ratification of the HPT Lease Guaranty as to obligations thereunder after the Effective Closing Date and a supplement to the HPT Lease Guaranty to reflect the partial release described in item (b) of this sentence as to obligations thereunder prior to and including the Effective Closing Date. Further, Landlord's option to exchange the Alpharetta Property for the Mt. Laurel Property and to exchange the Albuquerque Property for the Fairfax County Property shall 24 25 have been evidenced pursuant to an option agreement in the form of Exhibit J attached hereto and incorporated herein by this reference. 65. The Agreement is hereby amended by adding in Article X thereof a new Section 10.8 as follows: 10.8 Landlord Consent. ShoLodge shall have received the written consent to the Texas Lease from the ground lessor of the Texas Land located in San Antonio, Texas (being the property described on page C-3 of Exhibit C attached hereto) in form and substance reasonably satisfactory to ShoLodge. 66. The Agreement is hereby amended by deleting Section 11.6 thereof in its entirety and inserting in lieu thereof the following: 11.6 HPT Closing. All transactions with HPT and Landlord as contemplated in this Agreement shall have closed pursuant to documents in form and substance reasonably satisfactory to Prime, and Prime shall have received a fully executed counterpart of an amendment to the HPT Lease in the form of Exhibit H attached hereto and incorporated herein by this reference (as further modified, if applicable, to remove any Hotel from the HPT Lease to accomplish a partial termination of this Agreement pursuant to Section 13.3 or Section 13.4 and to reduce minimum rent by the applicable amount set forth in Exhibit C to the HPT Lease) (such amendment being referred to herein as the "HPT Lease Amendment"). Further, (i) Landlord's option to exchange the Albuquerque Property for the Mt. Laurel Property and to exchange the Alpharetta Property for the Fairfax County Property shall have been evidenced pursuant to an option agreement in the form of Exhibit J attached hereto and incorporated herein by this reference, and (ii) Landlord's option to exchange the STI Land located in Irving, Texas (being the property described on page A-25 of Exhibit A attached hereto), along with the hotel and all other improvements located thereon and all assets used in the operation of the current hotel thereon, for the Prime Development Site, along with the hotel and all other improvements located thereon and all assets used in the operation of the current hotel thereon, shall have been evidenced pursuant to an option agreement in the form of Exhibit J attached hereto and incorporated herein by this reference. 67. The Agreement is hereby amended by deleting Section 11.9 thereof in its entirety and inserting in lieu thereof the following: 11.9 Landlord Consent. Prime shall have received the written consent to the Texas Lease from the ground lessor of the Texas Land located in San Antonio, Texas (being the property described on page C-3 of Exhibit C attached hereto) in form and substance reasonably satisfactory to Prime. 68. The Agreement is hereby amended by deleting Section 11.11 thereof in its entirety. 25 26 69. The Agreement is hereby amended by deleting the last paragraph of Article XI thereof in its entirety. 70. The Agreement is hereby amended by deleting the third sentence of Section 12.1 thereof in its entirety and inserting in lieu thereof the following: Unless ShoLodge undertakes to resolve such unacceptable items in a manner acceptable to Prime on or prior to the Closing Date, Prime may, by delivering written notice to ShoLodge on or prior to the Closing Date, terminate this Agreement, whereupon Prime and ShoLodge shall be released and relieved of all further obligations, liabilities and claims hereunder, other than the performance of each party of its Post Termination Obligations. 71. The Agreement is hereby amended by deleting the fourth, fifth and sixth sentences of Section 12.2 thereof in their entirety and inserting in lieu thereof the following: ShoLodge shall also request that HPT forward to Prime a copy of all examinations and inspections which HPT obtained with respect to the Existing HPT Hotels. Should Prime discover any physical condition of the Assets (including, without limitation, any environmental condition) which is not acceptable to Prime and which is not eligible to be repaired with funds then in the "FF&E Reserve" established under the HPT Lease or the Texas Lease, as applicable, Prime shall deliver written notice to ShoLodge on or prior to the last day of the Due Diligence Period specifying in detail all such unacceptable items; provided, however, that with respect to any of the foregoing examinations and inspections obtained by HPT with respect to the Existing HPT Hotels, the deadline for Prime to deliver such written notice to ShoLodge shall end on the later of (i) the last day of the Due Diligence Period or (ii) the date ten (10) days after delivery of such item to Prime or (iii) thirty (30) days after receipt by Prime of written notice from HPT or ShoLodge that any such examinations and inspections obtained by HPT will not be provided to Prime. Unless ShoLodge undertakes to resolve such unacceptable items in a manner acceptable to Prime on or prior to the Closing Date, Prime may, by delivering written notice to ShoLodge on or prior to the Closing Date, terminate this Agreement, whereupon Prime and ShoLodge shall be released and relieved of all further obligations, liabilities and claims hereunder, other than the performance of each party of its Post Termination Obligations. 72. The Agreement is hereby amended by adding in Article XII thereof a new Section 12.4 as follows: 12.4 Objections. Notwithstanding anything to the contrary contained in this Article XII, ShoLodge and Prime acknowledge that Prime has raised objections to the various title, survey and property issues, and Prime hereby does renew its objection to the uncured matters set forth on Exhibit S attached hereto and incorporated herein by this reference (collectively, the "Prime Objections"). ShoLodge has executed and delivered that certain side letter dated July 9, 2000 26 27 setting forth the obligation of ShoLodge to cure the Prime Objections or indemnify Prime with respect thereto. 73. The Agreement is hereby amended by deleting subparagraph (c) of Section 13.1 thereof in its entirety and inserting in lieu thereof the following: (c) any violation by STI or Southeast, as applicable, or notice of any alleged violation by STI or Southeast, as applicable, of any federal, state or local law, statute, ordinance, rule or regulation, but only as relates to the operations of the Hotels; or 74. The Agreement is hereby amended by deleting the words "the Additional Hotel Subsidiaries" from the introductory portion of Section 13.2 thereof. 75. The Agreement is hereby amended by deleting subparagraph (b) of Section 13.2 thereof in its entirety and inserting in lieu thereof the following: (b) maintain the Equipment in good operating condition and repair and replace with equipment of similar value which is in good operating condition or repair any of the Equipment which shall be worn out, lost, stolen or destroyed (which maintenance, repair and replacement as to the STI Equipment may be made from funds in the "FF&E Reserve" created pursuant to the HPT Lease). 76. The Agreement is hereby amended by deleting the words "or any separate lease as contemplated in Section 3.8" from subparagraph (g) of Section 13.2 thereof. 77. The Agreement is hereby amended by deleting subparagraph (m) of Section 13.2 thereof in its entirety and inserting in lieu thereof the following: (m) maintain the Buildings (including, but not limited to, the mechanical systems, plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning and ventilating equipment, elevators, boilers, equipment, roofs, structural members and furnaces) in substantially the same condition as they are as of the last day of the Due Diligence Period, reasonable wear and tear excepted (which maintenance as to the STI Buildings may be made from funds in the "FF&E Reserve" created pursuant to the HPT Lease); 78. The Agreement is hereby amended by changing the reference to "Closing Date" in Section 13.2(l) thereof to "Effective Closing Date". 79. The Agreement is hereby amended by deleting the initial paragraph of Section 13.3 thereof in its entirety and inserting in lieu thereof the following: If on or prior to the Effective Closing Date, any Hotel suffers loss or damage on account of fire, flood, earthquake, accident, act of war, civil commotion or other similar cause or event occurring after the Effective Date such that STI has the right to terminate the HPT Lease as to such Hotel or would have such right if such Hotel were leased by STI pursuant to the HPT Lease and ShoLodge has not 27 28 repaired such damage on or prior to the Effective Closing Date, Prime shall have the right to terminate this Agreement as to such damaged Hotel (and the Assets related thereto) only by giving written notice to ShoLodge on or prior to the Effective Closing Date, in which event (i) the Purchase Price shall be reduced by the applicable amount as reflected on Exhibit O attached hereto and incorporated herein by this reference, (such reduction to come first from the cash portion of the Purchase Price described in Section 6.1(a) and then from the ShoLodge debt securities described in Section 6.1(b)) and Exhibit N shall be appropriately modified, and (ii) if applicable, the "minimum annual rent" described in Section 4.3 shall be reduced by the applicable amount as specified on Exhibit P attached hereto and incorporated herein by this reference. If Prime fails to terminate this Agreement as to a damaged Hotel (and the Assets related thereto) by giving timely written notice of termination as provided herein or if a Hotel is damaged but the damage is such that Prime does not have an option to terminate this Agreement as to such damaged Hotel (and the Assets related thereto), Prime shall consummate the transactions contemplated hereunder (including, without limitation, as contemplated herein with respect to such damaged Hotel (and the Assets related thereto)), in which event the applicable Prime Subsidiary, except as otherwise provided in the HPT Lease, shall be entitled to all insurance or other proceeds payable by reason of such loss or damage to such damaged Hotel in excess of the amount spent by ShoLodge or a ShoLodge Subsidiary to repair such damage (insurance or other proceeds in such amount being payable to ShoLodge or such ShoLodge Subsidiary), and, in addition, there shall be a reduction in the Purchase Price by the amount by which any deductibles under the policies of insurance covering such loss or damage exceed the amount spent by ShoLodge or a ShoLodge Subsidiary to repair such damage which is not reimbursed from insurance or other proceeds. ShoLodge shall not permit STI to terminate the HPT Lease due to any casualty without the prior written approval of Prime, such written approval not to be unreasonably withheld, delayed or conditioned. In the event of a casualty to an Existing HPT Hotel such that Prime elects to terminate this Agreement as to such Hotel, ShoLodge agrees that, at Prime's request, ShoLodge shall cause STI to terminate the HPT Lease with respect to such Hotel pursuant to the provisions thereof. Further, prior to commencing the repair of any damage following a casualty event which would cost more than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate to repair, ShoLodge shall cause STI to obtain the prior written consent of Prime, not to be unreasonably withheld, conditioned or delayed, to such repair. 80. The Agreement is hereby amended by deleting Section 13.4 thereof in its entirety and inserting in lieu thereof the following: 13.4 Condemnation. In the event of any actual or threatened taking pursuant to the power of eminent domain of all or any portion of any HPT Real Property or the Texas Real Property such that STI has the right to terminate the HPT Lease as to such HPT Real Property or would have such right if such HPT Real Property or such Texas Real Property were leased by STI pursuant to the HPT Lease or any proposed sale in lieu thereof, ShoLodge shall give written 28 29 notice thereof to Prime promptly after ShoLodge learns or receives notice thereof, and Prime shall have the right to terminate this Agreement as to such HPT Real Property or such Texas Real Property (and the Assets related thereto), as applicable, only by giving written notice to ShoLodge on or prior to the date ten (10) days after receipt of such written notice from ShoLodge, in which event (i) if applicable, the Purchase Price shall be reduced by the applicable amount as reflected on Exhibit O attached hereto and incorporated herein by this reference (such reduction to come first from the cash portion of the Purchase Price described in Section 6.1(a) and then from the ShoLodge debt securities described in Section 6.1(b)) and Exhibit N shall be appropriately modified, and (ii) if applicable, the "minimum annual rent" in Section 4.3 shall be reduced by the applicable amount as specified on Exhibit P attached hereto and incorporated herein by this reference. If Prime fails to terminate this Agreement as to any such HPT Real Property or any such Texas Real Property (and the Assets related thereto), as applicable, by giving timely written notice of termination as provided herein or if the taking or threatened taking of such HPT Real Property or Texas Real Property, as applicable, is such that Prime does not have an option to terminate this Agreement as to such HPT Real Property or such Texas Real Property (and the Assets related thereto), as applicable, Prime shall consummate the transactions contemplated hereunder (including, without limitation, as contemplated herein with respect to such HPT Real Property or such Texas Real Property (and the Assets related thereto), as applicable), in which event the applicable Prime Subsidiary or Prime, as applicable, except as otherwise provided in the HPT Lease, shall be entitled to all proceeds, awards and other payments arising out of such condemnation or sale (actual or threatened), but there shall be no reduction in the Purchase Price. ShoLodge shall not permit STI to terminate the HPT Lease due to any taking pursuant to the power of eminent domain without the prior written approval of Prime, such written approval of Prime not to be unreasonably withheld, delayed or conditioned. In the event of a taking with respect to any HPT Real Property, ShoLodge agrees that, at Prime's request, ShoLodge shall cause STI to terminate the HPT Lease with respect to such HPT Real Property pursuant to the provisions thereof. In the event Prime timely elects to terminate this Agreement pursuant to the preceding paragraph with respect to any HPT Real Property or any Texas Real Property (and the Assets related thereto), as applicable, thereafter, ShoLodge and Prime shall be released and relieved of all further obligations, liabilities and claims hereunder with respect to such HPT Real Property or such Texas Real Property (and the Assets related thereto), as applicable, other than the performance by each party of its Post Termination Obligations with respect to such HPT Real Property or such Texas Real Property (and the Assets related thereto), as applicable. Such termination shall not affect the rights and obligations of the parties hereto with respect to the other Assets. 81. The Agreement is hereby amended by changing the reference to "Closing Date" in Section 15.11 thereof to "Effective Closing Date". 29 30 82. The Agreement is hereby amended by deleting the words "or the Development Site Purchase Price" from the second sentence of Section 15.18 thereof, by deleting the words "prior to the Closing Date" from the second sentence in Section 15.18 thereof and inserting in lieu thereof the words "on or prior to the Effective Closing Date" and by adding the word "Effective" before the words "Closing Date" both places in the third sentence of Section 15.18 thereof. 83. The Agreement is hereby amended by changing the reference to "Closing Date" in Section 15.20 thereof to "Effective Closing Date". 84. The Agreement is hereby amended by deleting the initial sentence of Section 15.21 thereof in its entirety and inserting in lieu thereof the following: The amount of the HPT Lease Security Deposit is Twenty-Five Million Five Hundred Seventy-Five Thousand Two Hundred and No/100 Dollars ($25,575,200.00). 85. The Agreement is hereby amended by deleting Section 17.1 thereof in its entirety and inserting in lieu thereof the following: 17.1 Closing. The Closing shall occur on such date as the parties hereto may agree upon in writing for the closing of the transactions contemplated hereby; provided, however, that such date shall not be later than July 21, 2000; provided, further, that if on such date the conditions precedent to Closing set forth in Sections 10.6, 10.8, 11.6 and 11.9 have not been satisfied, ShoLodge, by written notice to Prime, may postpone the Closing while ShoLodge diligently and continuously attempts to satisfy such conditions precedent, such postponed Closing to occur no later than the earlier of (i) the date one hundred five (105) days after the last day of the Due Diligence Period, and (ii) the date fifteen (15) days after such conditions precedent are satisfied. 86. The Agreement is hereby amended by deleting the language "the HPT Estoppel Certificate," from Section 17.2(a) thereof and inserting in lieu thereof the language "a copy as fully executed of the option agreements whereby Landlord is granted options to exchange the Alpharetta Property for the Mt. Laurel Property and the Albuquerque Property for the Fairfax County Property as described in Section 10.6,". 87. The Agreement is hereby amended by changing all references to "Closing Date" in Section 17.3 thereof to "Effective Closing Date". 88. The Agreement is hereby amended by deleting the language "prior to the Closing Date" in the first sentence of Section 17.4 in its entirety and inserting in lieu thereof the language "on or prior to the Effective Closing Date" and changing the reference to "Closing Date" in the second sentence of Section 17.4 thereof to "Effective Closing Date". 89. The Agreement is hereby amended by deleting Section 17.5 thereof in its entirety and inserting in lieu thereof the following: 30 31 17.5 Closing Costs and Expenses. Prime shall pay or cause to be paid the premium for any title policy insuring Prime or a Prime Subsidiary, as applicable, as to the Real Property. All costs of recording the transfer and assignment documents to Prime or a Prime Subsidiary, as applicable, contemplated herein, including, without limitation, any and all real estate transfer taxes, shall be paid in accordance with local custom; provided, however, all recording costs, including, without limitation, any and all real estate transfer taxes, incurred in connection with the closing of (1) the exchanges contemplated in the last sentence of Section 11.6, (2) the purchase by ShoLodge of any property put to ShoLodge pursuant to Section 9(c) of the HPT Lease Amendment, and (3) the purchase by Prime of any property put to Prime pursuant to Section 9(c) of the HPT Lease Amendment and the exchanges contemplated in Section 5.4, in each case shall be paid by ShoLodge. ShoLodge shall also pay (i) all expenses incurred by Landlord which Landlord requests to be reimbursed by Prime or by ShoLodge to Landlord in connection with the exchanges contemplated in the last sentence of Section 11.6, Section 5.3 or Section 5.4, including, without limitation, said expenses in connection with the amendment(s) to the HPT Lease and (ii) all reasonable out-of-pocket expenses, excluding attorneys fees and expenses, incurred by Prime or Prime HPT Subsidiary in connection with the exchange contemplated in the last sentence of Section 11.6 and the purchase and exchange contemplated in Section 5.3 or Section 5.4. Except as set forth in this paragraph or as otherwise expressly provided in this Agreement, each party shall be responsible for the payment of its own attorney's fees, copying expenses and other costs and expenses incurred in connection with the negotiation of this Agreement and the consummation of the transactions contemplated hereunder. The provisions of this Section 17.5 shall survive the Closing and any termination of this Agreement. 90. The Agreement is hereby amended by deleting the words "and the adjacent bank property" from part (ii) of the initial sentence of Section 17.6 thereof. 91. The Agreement is hereby amended by deleting Section 18.2 thereof in its entirety and inserting in lieu thereof the following: 18.2 Radius Restriction. For a twenty (20) year period commencing on the Effective Closing Date, neither ShoLodge nor any ShoLodge Affiliate shall own, operate or franchise any all-suites hotel substantially similar in nature and kind to the AmeriSuites hotels to be operated by Prime or a Prime Subsidiary, as applicable, as contemplated in this Agreement anywhere within a certain designated area of each Hotel, such area being, as to the Existing HPT Hotels, the applicable "Restricted Trade Area" as set forth in Exhibit B to the HPT Lease, and such area being, as to the Texas Hotels, a three (3) mile radius of each such Texas Hotel. The foregoing, however, shall not apply to the Texas Hotels upon the expiration or earlier termination of the Texas Lease, other than a termination due to a default by Southeast, the hotels developed on the Development Sites or the hotels obtained by ShoLodge or any ShoLodge Affiliate pursuant to Section 5.2, Section 5.3 or Section 5.4 and the foregoing shall not limit ShoLodge or any 31 32 ShoLodge Affiliate from (i) developing or constructing any all-suites hotel substantially similar in nature and kind to the AmeriSuites hotels contemplated herein within such restricted area as long as such hotel is both (A) operated by someone other than ShoLodge or a ShoLodge Affiliate, and (B) owned by someone other than ShoLodge or a ShoLodge Affiliate, or (ii) owning, operating or franchising (A) any "Shoney's" brand all-suites hotel within such restricted area, or (B) any other hotel within such restricted area as long as such other hotel is not an all-suites hotel substantially similar in nature and kind to the AmeriSuites hotels contemplated herein. The provisions of this Section 18.2 shall survive the Closing. Prime shall have the right to any remedies available to it at law or in equity, including without limitation, injunction, in the event ShoLodge or any ShoLodge Affiliate violates the covenant set forth in this Section 18.2. 92. The Agreement is hereby amended by adding a new Section 18.3, a new Section 18.4 and a new Section 18.5 at the end of Article XVIII as follows: 18.3 HPT Lease Extension. In the event that the HPT Lease extends beyond June 30, 2013 or in the event Landlord or an Affiliate of HPT and the Prime HPT Subsidiary or an Affiliate of Prime enter into a lease with respect to all of the Existing HPT Hotels leased pursuant to the HPT Lease immediately preceding the execution of such lease (including any hotel exchanged for an Existing HPT Hotel as contemplated in the last sentence of Section 11.6) which extends beyond June 30, 2013, then on July 1, 2013, Prime shall pay to ShoLodge an amount equal to Four Million Eight Hundred Seventeen Thousand Eight Hundred Seventy and No/100 Dollars ($4,817,870.00); provided, however, in the event that either (i) any portion of the HPT Lease Security Deposit which relates to an Existing HPT Hotel (or a hotel exchanged for an Existing HPT Hotel as contemplated in the last sentence of Section 11.6) either (A) is returned to Prime or the Prime HPT Subsidiary prior to June 30, 2013 for any reason or (B) is applied against any obligation of the Prime HPT Subsidiary in accordance with the terms of the HPT Lease prior to June 30, 2013 due to a default by the Prime HPT Subsidiary under the HPT Lease, or (ii) any portion of the HPT Lease Security Deposit is paid to ShoLodge and Prime pursuant to the last sentence of the initial paragraph of Section 5.3 or the last sentence of the third paragraph of Section 5.4, and the rent payable under the Texas Lease is increased pursuant to Section 4.3 and there has been no default in the payment of such increased rent under the Texas Lease, then the amount payable by Prime to ShoLodge (as previously reduced, if applicable) shall be reduced by an amount equal to the assumed earnings on the portion of the HPT Lease Security Deposit returned, applied or paid, as applicable, at nine percent (9%) interest compounded monthly between the later of (x) July 1, 2011, or (y) the date of such return, application or payment, as applicable, and June 30, 2013. The calculation of the amount payable to ShoLodge as set forth in the preceding sentence is described in Exhibit T attached hereto and incorporated herein by this reference. In the event of any conflict between the calculation of the amount payable to ShoLodge as set forth in (x) this Section 18.3 and (y) Exhibit T, the terms of Exhibit T shall govern. The provisions of this Section 18.3 shall survive the Closing. ShoLodge 32 33 shall have any and all remedies available to it at law or in equity in the event Prime violates the provisions of this Section 18.3. 18.4 Option Agreements. From and after the Closing Date, ShoLodge shall not enter into an amendment to the option agreements whereby Landlord is given options to exchange the Alpharetta Property for the Mt. Laurel Property and the Albuquerque Property for the Fairfax County Property as described in Section 10.6 unless such amendment shall have been approved by Prime in writing prior to execution by ShoLodge, such approval not to be unreasonably withheld, delayed or conditioned. The provisions of this Section 18.4 shall survive the Closing. 18.5 Development Sites. From and after the Closing Date, and until the release of the transfer documents with respect to a particular Development Site from the escrow described in Section 5.6, ShoLodge agrees with respect to each such Development Site, as appropriate, that (x) it will not sell any interest in the applicable Development Site Subsidiary, (y) it will not allow an applicable Development Site Subsidiary to sell its respective Development Site, and (z) it will prevent each applicable Development Site Subsidiary from encumbering its respective Development Site. 93. The Agreement is hereby amended by deleting the words "or the Development Site Purchase Price" from subparagraph (c) of Section 19.2 thereof and by deleting the language "on and after the Closing Date" and "on or after the Closing Date" in subparagraph (c) of Section 19.2 thereof and inserting in lieu thereof the language "after the Effective Closing Date". 94. The Agreement is hereby amended by deleting the words "or the Development Site Purchase Price" from subparagraph (c) of Section 19.3 thereof and by deleting the language "prior to the Closing Date" in subparagraph (c) of Section 19.3 thereof and inserting in lieu thereof the language "prior to the Effective Closing Date". 95. The Agreement is hereby amended by deleting the last paragraph of Section 19.3 thereof in its entirety and inserting in lieu thereof the following. Notwithstanding the foregoing, ShoLodge shall have no obligation to indemnify Prime or the Prime Subsidiaries with respect to any representation or warranty concerning the condition of the STI Assets or the Texas Property or any portion thereof to the extent such condition can be corrected in the ordinary course (by maintenance, repair or replacement) pursuant to the terms of the HPT Lease or the Texas Lease with funds then in the "FF&E Reserve" created pursuant to the HPT Lease or the Texas Lease, as applicable. 96. The Agreement is hereby amended by adding at the end of Exhibit A thereto the pages A-30, A-31, A-32 and A-33 attached hereto and incorporated herein by this reference. 33 34 97. The Agreement is hereby amended by deleting Exhibit B thereto in its entirety and inserting in lieu thereof the following: EXHIBIT B [Intentionally Deleted] 98. The Agreement is hereby amended by deleting Exhibit E thereto in its entirety and inserting in lieu thereof the Exhibit E attached hereto and incorporated herein by this reference. 99. The Agreement is hereby amended by deleting Exhibit F thereto in its entirety and inserting in lieu thereof the Exhibit F attached hereto and incorporated herein by this reference. 100. The Agreement is hereby amended by deleting Exhibit G thereto in its entirety and inserting in lieu thereof the Exhibit G attached hereto and incorporated herein by this reference. 101. The Agreement is hereby amended by deleting Exhibit H thereto in its entirety and inserting in lieu thereof the Exhibit H attached hereto and incorporated herein by this reference. 102. The Agreement is hereby amended by deleting Exhibit I thereto in its entirety and inserting in lieu thereof the Exhibit I attached hereto and incorporated herein by this reference. 103. The Agreement is hereby amended by deleting Exhibit J thereto in its entirety and inserting in lieu thereof the Exhibit J attached hereto and incorporated herein by this reference. 104. The Agreement is hereby amended by deleting Exhibit N thereto in its entirety and inserting in lieu thereof the Exhibit N attached hereto and incorporated herein by this reference. 105. The Agreement is hereby amended by deleting Exhibit P thereto in its entirety and inserting in lieu thereof the Exhibit P attached hereto and incorporated herein by this reference. 106. The Agreement is hereby amended by adding at the end thereof the Exhibit R, the Exhibit S and the Exhibit T attached hereto and incorporated herein by this reference. 107. All provisions of the Agreement not in conflict with this First Amendment shall remain in full force and effect. 108. Unless otherwise provided to the contrary herein, all capitalized undefined terms used in this First Amendment shall have the meanings assigned to them in the Agreement. 34 35 109. This First Amendment may be executed in multiple counterparts and by different parties on separate counterparts, each of which shall be deemed an original for all purposes, and all of which, when taken together, shall constitute but one and the same First Amendment. (signatures on following page) 35 36 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed, all as of the date first above written. SHOLODGE, INC. By: _________________________________ Date: July __, 2000 Title: ______________________________ PRIME HOSPITALITY CORP. By: _________________________________ Date: July __, 2000 Title: ______________________________
37 EXHIBIT A (attach pages A-30, A-31, A-32 and A-33) 38 EXHIBIT E --------- ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT THIS ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT ("Assignment") is made and delivered on this _____ day of __________, 2000, by SUITE TENANT, INC., a Tennessee corporation ("Assignor"), to GLEN ROCK HOLDING CORP., a Delaware corporation ("Assignee"). W I T N E S S E T H : WHEREAS, by Lease Agreement dated as of November 19, 1997 (the "Lease Agreement"), HPT Suite Properties Trust, a Maryland real estate investment trust ("Lessor"), as landlord, leased to Assignor, as tenant, certain parcels of land and improvements thereon as more particularly described in the Lease Agreement; and WHEREAS, the Lease Agreement was supplemented by those certain letters dated November 19, 1997 (the "1997 Letters") among Hospitality Properties Trust, Lessor, ShoLodge, Inc. and Assignor concerning a Declaration of Restrictions recorded in the Allen County, Indiana Recorder's Office as Document Number 95-028307 and environmental matters related to certain property in San Antonio, Texas, respectively; and WHEREAS, the Lease Agreement was amended by that certain First Amendment to Lease Agreement (the "First Amendment") dated as of March 5, 1999, between Lessor and Assignor; and WHEREAS, the Lease Agreement was further amended by that certain Second Amendment to Lease Agreement and First Amendment to Incidental Documents (the "Second Amendment") dated as of June 29, 1999, among Hospitality Properties Trust, Lessor, ShoLodge, Inc. and Assignor; and WHEREAS, the Lease Agreement was further supplemented by that certain letter dated June 29, 1999 (the "1999 Letter") from Assignor to Lessor concerning revenues from the sale of liquor; and WHEREAS, the Lease Agreement was further amended by that certain Third Amendment to Lease Agreement (the "Third Amendment") dated as of March 3, 2000, between Lessor and Assignor; and WHEREAS, the Lease Agreement was further amended by that certain Fourth Amendment to Lease Agreement and Amendment to Incidental Documents (the "Fourth Amendment") dated as of May 11, 2000, among Hospitality Properties Trust, Lessor, ShoLodge, Inc. and Assignor (the Lease Agreement as amended or supplemented by the 1997 Letters, the First Amendment, the Second Amendment, the 1999 Letter, the Third Amendment and the Fourth Amendment is collectively referred to herein as the "Lease"); and WHEREAS, Assignor now desires to assign its interest under the Lease to Assignee, and Assignee desires to assume all of Assignor's obligations under the Lease which 39 first accrue from and after the date of this Assignment, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Assignor hereby grants, assigns, transfers and sets over to Assignee all of Assignor's right, title and interest in, to and under the Lease (including, without limitation, the "Retained Funds" and the "FF&E Reserve" (both as described in the Lease)) and the leasehold estate of Assignor as created by the Lease, together with any and all easement rights of any kind appurtenant to and benefitting the premises demised under the Lease and with all right, title and interest of Assignor in and to any and all buildings, structures and improvements now or hereafter erected on, over, upon or under the premises demised under the Lease and together with all right, title and interest of Assignor in and to the "Fixtures" and the "Leased Personal Property" (both as described in the Lease). TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns, from the date hereof and for the rest of the term mentioned in the Lease, subject to the terms, covenants, provisions and conditions of the Lease, and subject to all existing title encumbrances of record. Assignee hereby assumes and agrees to perform all obligations, covenants and agreements of Assignor under the Lease arising after the Effective Closing Date (as defined in the Purchase Agreement described below) and to be bound by all the respective terms and provisions thereof after the Effective Closing Date. Assignor hereby agrees to indemnify and hold Assignee harmless from and against any and all liability, loss, costs, damages and expenses, including reasonable attorneys' fees, incurred by Assignee as a result of Assignor's failure to perform its obligations under the Lease which arose on or before the Effective Closing Date, including specifically, without limitation, Assignor's failure to comply with Section 4.3.1 of the Lease, even if such failure to comply is discovered after the Effective Closing Date, including, without limitation, with respect to the premises demised under the Lease located in Smyrna, Georgia, San Antonio (Riverwalk), Texas and Austin, Texas. Assignee hereby agrees to indemnify and hold Assignor harmless from and against any and all liability, loss, costs, damages and expenses, including reasonable attorneys' fees, incurred by Assignor as a result of Assignee's failure to perform its obligations under the Lease which arise after the Effective Closing Date. This Assignment is made pursuant to and subject to the terms and provisions of that certain Sale and Purchase Agreement dated March 16, 2000, as amended by that certain First Amendment to Sale and Purchase Agreement dated as of ____________, 2000, both between ShoLodge, Inc. and Prime Hospitality Corp. (collectively, the "Purchase Agreement"); provided, that the indemnities provided in this Assignment shall not be subject to any limitations set forth in the Purchase Agreement. 40 Assignor agrees to perform, execute and/or deliver or cause to be performed, executed and/or delivered any and all such further acts and assurances as Assignee may reasonably require to perfect Assignee's interest in the Lease and the leasehold estate assigned by this Assignment. Simultaneously with the execution and delivery of this Assignment, Assignor has executed and delivered to Assignee various other instruments of transfer and conveyance. Nothing herein contained shall be deemed to limit or restrict the properties, assets and rights conveyed, assigned or transferred to or acquired by Assignee by such other instruments. This Assignment may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Assignment on the date set forth above. ASSIGNOR: SUITE TENANT, INC., a Tennessee corporation By: ----------------------------------------- Title: --------------------------------------- ASSIGNEE: GLEN ROCK HOLDING CORP., a Delaware corporation By: ----------------------------------------- Title: -------------------------------------- 41 EXHIBIT F BILL OF SALE [Suite Tenant, Inc.] [Southeast Texas Inns, Inc.] (herein "Seller"), a Tennessee corporation having an office at 130 Maple Drive North, Hendersonville, Tennessee 37075, in consideration of Ten and No/100 Dollars ($10.00), receipt of which is hereby acknowledged, does hereby sell, assign, transfer and set over to [Glen Rock Holding Corp.] [May-Ridge, L.P.] (herein "Buyer"), a [Delaware corporation] [Delaware limited partnership] having an office at 700 Route 46 East, Fairfield, New Jersey 07004, all of Seller's right, title and interest in and to the [STI] [Texas] Inventory and the [STI] [Texas] Advance Payments (as those terms are defined in the Purchase Agreement described below). This Bill of Sale is made pursuant to and subject to the terms and provisions of that certain Sale and Purchase Agreement dated March 16, 2000, as amended by that certain First Amendment to Sale and Purchase Agreement dated as of _____________, 2000, both between ShoLodge, Inc. and Prime Hospitality Corp. (collectively, the "Purchase Agreement"). Seller agrees to perform, execute and/or deliver or cause to be performed, executed and/or delivered any and all such further acts and assurances as Buyer may reasonably require to more fully vest in Buyer title to any and all of the properties transferred by this Bill of Sale. Simultaneously with the execution and delivery of this Bill of Sale, Seller has executed and delivered to Buyer various other instruments of transfer and conveyance. Nothing herein contained shall be deemed to limit or restrict the properties, assets and rights conveyed, assigned or transferred to or acquired by Buyer by such other instruments. IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed by an officer duly authorized the ____ day of __________, 2000. [Suite Tenant, Inc.] [Southeast Texas Inns, Inc.], a Tennessee corporation By:_________________________________________________ Title:______________________________________________ STATE OF ____________ ) COUNTY OF ___________ ) The foregoing instrument was acknowledged before me this _____ day of __________, 2000, by ____________________, the __________ of [Suite Tenant, Inc.] [Southeast Texas Inns, Inc.], a Tennessee corporation, on behalf of the corporation. Notary Public My commission expires: ___________________________ 42 EXHIBIT G ASSIGNMENT AND ASSUMPTION OF CONTRACTS FOR VALUE RECEIVED, [Suite Tenant, Inc.] [Southeast Texas Inns, Inc.], a Tennessee corporation ("Assignor"), hereby conveys, assigns, transfers and sets over unto [Glen Rock Holding Corp.] [May-Ridge, L.P.], a [Delaware corporation] [Delaware limited partnership] ("Assignee"), to the extent assignable, all the right, title and interest of Assignor, if any, in and to the [STI] [Texas] Operating Agreements (as that term is defined in the Purchase Agreement described below). Assignee hereby accepts the foregoing conveyance, assignment and transfer and hereby assumes all obligations of Assignor under the [STI] [Texas] Operating Agreements accruing after the Effective Closing Date (as defined in the Purchase Agreement described herein). Assignor hereby agrees to indemnify and hold Assignee harmless from and against any and all liability, loss, costs, damages and expenses, including reasonable attorneys' fees, incurred by Assignee as a result of Assignor's failure to perform its obligations under the [STI] [Texas] Operating Agreements which arose on or before the Effective Closing Date. Assignee hereby agrees to indemnify and hold Assignor harmless from and against any and all liability, loss, costs, damages and expenses, including reasonable attorneys' fees, incurred by Assignor as a result of Assignee's failure to perform its obligations under the [STI] [Texas] Operating Agreements which arise after the Effective Closing Date. This Assignment is made pursuant to and subject to the terms and provisions of that certain Sale and Purchase Agreement dated March 16, 2000, as amended by that certain First Amendment to Sale and Purchase Agreement dated as of July 9, 2000, both between ShoLodge, Inc. and Prime Hospitality Corp. (collectively, the "Purchase Agreement"); provided, that the indemnities provided in this Assignment shall not be subject to any limitations set forth in the Purchase Agreement. Assignor agrees to perform, execute and/or deliver or cause to be performed, executed and/or delivered any and all such further acts and assurances as Assignee may reasonably require to perfect Assignee's interest in the properties assigned by this Assignment and Assumption of Contracts. Simultaneously with the execution and delivery of this Assignment and Assumption of Contracts, Assignor has executed and delivered to Assignee various other instruments of transfer and conveyance. Nothing herein contained shall be deemed to limit or restrict the properties, assets and rights conveyed, assigned or transferred to or acquired by Assignee by such other instruments. This Assignment and Assumption of Contracts may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 43 IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and Assumption of Contracts the _____ day of _____________, 2000. ASSIGNOR: [Suite Tenant, Inc.] [Southeast Texas Inns, Inc.], a Tennessee corporation By: -------------------------------------------------- Title: ----------------------------------------------- ASSIGNEE: [Glen Rock Holding Corp.] [May-Ridge, L.P.], a [Delaware corporation] [Delaware limited partnership] By: -------------------------------------------------- Title: ----------------------------------------------- 44 EXHIBIT H HPT LEASE AMENDMENT (to be attached) 45 EXHIBIT I ESCROW AGREEMENT (to be attached) 46 EXHIBIT J FORM OF OPTION AGREEMENT (to be attached) 47 EXHIBIT N PURCHASE PRICE ALLOCATION Present Value of HPT Lease Guaranty Deposit $11,000,000 less reserve for operating deficits $9,382,375 ----------- Purchase Price $1,617,625 48 EXHIBIT P MINIMUM ANNUAL RENT Before July 1, 2011 Texas Property Amount Grand Prairie, TX $1,087,572 Houston (Hobby Airport), TX 982,812 San Antonio (Crossroads), TX 841,860 ------- Total $2,912,244 After June 30, 2011 Texas Property Amount Grand Prairie, TX $1,168,068 Houston (Hobby Airport), TX 1,055,556 San Antonio (Crossroads), TX 904,176 ------- Total $3,127,800 49 773436.13 EXHIBIT R PRIME DEVELOPMENT SITE (attach legal description of Utica, Michigan property) 50 773436.13 EXHIBIT S UNCURED OBJECTIONS See Exhibits to the Indemnity Agreement 51 773436.13 EXHIBIT T TEXAS RENT CALCULATION EX-2.K 3 y47030ex2-k.txt LEASE AGREEMENT 1 LEASE AGREEMENT Dated as of November __, 1997 By and Between HPT SUITE PROPERTIES TRUST, AS LANDLORD, AND SUITE TENANT, INC., AS TENANT 2 TABLE OF CONTENTS ARTICLE 1: DEFINITIONS....................................................1 1.1 Accounting Period..................................1 1.2 Additional Charges ................................2 1.4 Affiliated Person .................................2 1.5 Agreement .........................................2 1.6 Applicable Laws ...................................2 1.7 Applicable Percentage .............................2 1.8 Award .............................................3 1.9 Base Total Hotel Sales ............................3 1.10 Base Year .........................................3 1.11 Business Day ......................................4 1.12 Capital Addition ..................................4 1.13 Capital Expenditure ...............................4 1.14 Claim .............................................4 1.15 Code ..............................................4 1.16 Commencement Date .................................4 1.17 Condemnation ......................................4 1.18 Condemnor .........................................4 1.19 Consolidated Financials ...........................4 1.20 Date of Taking ....................................4 1.21 Default ...........................................5 1.22 Disbursement Rate .................................5 1.23 Distribution ......................................5 1.24 Easement Agreement.................................5 1.25 Encumbrance........................................5 1.26 Entity.............................................5 1.27 Environment .......................................5 1.28 Environmental Obligation ..........................5 1.29 Environmental Notice ..............................5 1.30 Event of Default ..................................5 1.31 Excess Total Hotel Sales...........................6 1.32 Extended Terms ....................................6 1.33 FF&E Estimate......................................6 1.34 FF&E Funded Amount.................................6 1.36 FF&E Reserve.......................................6 1.37 Financial Officer's Certificate ...................6 1.38 Fiscal Year .......................................6 1.39 Fixed Term ........................................6 1.40 Fixtures ..........................................6 1.41 GAAP ..............................................6 1.42 Government Agencies................................7 1.43 Ground Lease ......................................7 1.45 Hazardous Substances ..............................7 1.46 Hotel .............................................8 1.47 Hotel Mortgage ....................................8 1.48 Hotel Mortgagee ...................................8 1.49 Immediate Family...................................8 1.50 Impositions .......................................8 1.51 Incidental Documents ..............................9 3 1.52 Indebtedness .......................................9 1.53 Insurance Requirements .............................9 1.54 Interest Rate.......................................9 1.55 Land ..............................................10 1.56 Landlord ..........................................10 1.57 Landlord Liens.....................................10 1.58 Lease Year ........................................10 1.59 Leased Improvements ...............................10 1.60 Leased Intangible Property ........................10 1.61 Leased Personal Property ..........................10 1.62 Leased Property ...................................10 1.63 Legal Requirements ................................10 1.64 Lien ..............................................11 1.65 Management Agreement ..............................11 1.66 Manager ...........................................11 1.67 Minimum Rent ......................................11 1.68 Net Worth .........................................11 1.70 Officer's Certificate .............................11 1.71 Overdue Rate ......................................11 1.72 Parent.............................................11 1.73 Permitted Encumbrances ............................12 1.74 Permitted Liens ...................................12 1.75 Permitted Use .....................................12 1.76 Person ............................................12 1.77 Property...........................................12 1.78 Purchase Agreement.................................12 1.79 Records ...........................................12 1.80 Rent ..............................................12 1.81 Retained Funds.....................................12 1.83 Security Agreement.................................12 1.84 ShoLodge...........................................13 1.85 State .............................................13 1.86 Stock Pledge Agreement ............................13 1.87 Subordinated Creditor .............................13 1.88 Subordination Agreement ...........................13 1.89 Subsidiary ........................................13 1.90 Successor Landlord ................................13 1.91 Tampa Renovation ..................................13 1.92 Tenant ............................................13 1.93 Tenant's Personal Property ........................13 1.94 Term ..............................................14 1.95 Total Hotel Sales..................................14 1.96 Uniform System of Accounts ........................14 1.97 Unsuitable for Its Permitted Use ..................14 1.98 Work ..............................................15 ARTICLE 2: LEASED PROPERTY AND TERM.......................................15 2.1 Leased Property.....................................15 2.2 Condition of Leased Property........................16 2.3 Fixed Term..........................................17 2.4 Extended Term.......................................17 ARTICLE 3: RENT...........................................................17 4 3.1 Rent................................................17 3.1.1 Minimum Rent.............................18 3.1.2 Additional Rent..........................18 3.1.3 Additional Charges.......................21 3.2 Late Payment of Rent, Etc...........................22 3.3 Net Lease...........................................23 3.4 No Termination, Abatement, Etc......................23 3.5 Retained Funds......................................24 ARTICLE 4 USE OF THE LEASED PROPERTY......................................25 4.1 Permitted Use.......................................25 4.1.1 Permitted Use............................25 4.1.2 Necessary Approvals......................26 4.1.3 Lawful Use, Etc..........................26 4.2 Compliance with Legal/Insurance Requirements, Etc.............................................26 4.3 Environmental Matters...............................27 4.3.1 Restriction on Use, Etc..................27 4.3.2 Indemnification of Landlord..............27 4.3.3 Survival.................................28 ARTICLE 5: MAINTENANCE AND REPAIRS........................................29 5.1 Maintenance and Repair..............................29 5.1.1 Tenant's General Obligations.............29 5.1.2 FF&E Reserve.............................29 5.1.3 Landlord's Obligations...................31 5.1.4 Nonresponsibility of Landlord, Etc.......32 5.2 Tenant's Personal Property..........................32 5.3 Yield Up............................................33 5.4 Management Agreement................................33 ARTICLE 6: IMPROVEMENTS, ETC..............................................34 6.1 Improvements to the Leased Property. ..............34 6.2 Salvage.............................................35 ARTICLE 7: LIENS..........................................................35 7.1 Liens...............................................35 7.2 Landlord's Lien.....................................35 ARTICLE 8: PERMITTED CONTESTS.............................................36 ARTICLE 9: INSURANCE AND INDEMNIFICATION..................................37 9.1 General Insurance Requirements......................37 9.2 Replacement Cost....................................38 9.3 Waiver of Subrogation...............................38 9.4 Form Satisfactory, Etc..............................39 9.5 Blanket Policy......................................39 9.6 No Separate Insurance...............................39 9.7 Indemnification of Landlord.........................40 ARTICLE 10: CASUALTY......................................................40 5 10.1 Insurance Proceeds.................................40 10.2 Damage or Destruction..............................41 10.2.1 Damage or Destruction of Leased Property........................................41 10.2.2 Partial Damage or Destruction...........41 10.2.3 Insufficient Insurance Proceeds.........41 10.2.4 Disbursement of Proceeds................42 10.3 Damage Near End of Term............................43 10.4 Tenant's Property..................................43 10.5 Restoration of Tenant's Property...................43 10.6 No Abatement of Rent...............................44 10.7 Waiver.............................................44 ARTICLE 11: CONDEMNATION..................................................44 11.1 Total Condemnation, Etc............................44 11.2 Partial Condemnation...............................44 11.3 Abatement of Rent..................................46 11.4 Temporary Condemnation.............................46 11.5 Condemnation Near End of Term......................46 11.6 Allocation of Award................................46 ARTICLE 12: DEFAULTS AND REMEDIES.........................................47 12.1 Events of Default..................................47 12.2 Remedies...........................................49 12.3 Tenant's Waiver....................................51 12.4 Application of Funds...............................51 12.5 Landlord's Right to Cure Tenant's Default..........51 ARTICLE 13: HOLDING OVER..................................................52 ARTICLE 14: LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT...............52 14.1 Landlord Notice Obligation.........................52 14.2 Landlord's Default.................................52 14.3 Indemnification of Tenant..........................53 ARTICLE 15: PURCHASE RIGHTS...............................................54 ARTICLE 16: SUBLETTING AND ASSIGNMENT.....................................54 16.1 Subletting and Assignment..........................54 16.2 Required Sublease Provisions.......................55 16.3 Permitted Sublease.................................56 16.4 Sublease Limitation................................57 ARTICLE 17: ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS................57 17.1 Estoppel Certificates..............................57 17.2 Financial Statements...............................57 ARTICLE 18: LANDLORD'S RIGHT TO INSPECT...................................58 ARTICLE 19: EASEMENTS.....................................................59 6 19.1 Grant of Easements.................................59 19.2 Exercise of Rights by Tenant.......................59 19.3 Permitted Encumbrances.............................59 ARTICLE 20: HOTEL MORTGAGES...............................................59 20.1 Landlord May Grant Liens...........................59 20.2 Subordination of Lease.............................60 20.3 Notice to Mortgagee and Superior Landlord..........61 ARTICLE 21: ADDITIONAL COVENANTS OF TENANT................................62 21.1 Prompt Payment of Indebtedness.....................62 21.2 Conduct of Business................................62 21.3 Maintenance of Accounts and Records................62 21.4 Notice of Litigation, Etc..........................62 21.5 Indebtedness of Tenant.............................63 21.6 Financial Condition of Tenant......................64 21.7 Distributions, Payments to Affiliated Persons, Etc............................................64 21.8 Prohibited Transactions............................64 21.9 Liens and Encumbrances.............................64 21.10 Merger; Sale of Assets; Etc.......................64 ARTICLE 22: MISCELLANEOUS.................................................65 22.1 Limitation on Payment of Rent......................65 22.2 No Waiver..........................................65 22.3 Remedies Cumulative................................65 22.4 Severability.......................................66 22.5 Acceptance of Surrender............................66 22.6 No Merger of Title.................................66 22.7 Conveyance by Landlord.............................66 22.8 Quiet Enjoyment....................................67 22.9 Memorandum of Lease................................67 22.10 Notices...........................................67 22.11 Trade Area Restriction............................68 22.12 Construction......................................69 22.13 Counterparts; Headings............................69 22.14 Applicable Law, Etc...............................69 22.15 Right to Make Agreement...........................70 22.16 Nonrecourse.......................................70 22.17 Attorneys' Fees...................................70 22.18 Nonliability of Trustees..........................70 7 -vi- 8 -vii- 9 -viii- 10 -ix- EXHIBITS A-1 through A-14 - The Land B - Restricted Trade Area C - Allocation of Minimum Rent D - Tampa Renovation Plans and Budget 11 LEASE AGREEMENT THIS LEASE AGREEMENT is entered into as of this ___ day of November __, 1997, by and between HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord"), and SUITE TENANT, INC., a Tennessee corporation, as tenant ("Tenant"). W I T N E S S E T H : WHEREAS, Landlord owns fee simple title to the Leased Property (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) described in Exhibit A-1 through A-13 and holds the tenant's interest under the Ground Lease with respect to the Property described in Exhibit A-14; and WHEREAS, Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, all subject to and upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (iii) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 1.1 "ACCOUNTING PERIOD" shall mean each four (4) week accounting period of Tenant, except that an Accounting Period 12 may, from time to time, include five (5) weeks in order to conform Tenant's accounting system to Tenant's Fiscal Year. 1.2 "ADDITIONAL CHARGES" shall have the meaning given such term in Section 3.1.3. 1.3 "ADDITIONAL RENT" shall have the meaning given such term in Section 3.1.2(a). 1.4 "AFFILIATED PERSON" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership, (b) in the case of any such Person which is a limited liability company, any member of such company, (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (a) and (b), (d) any other Person who is an officer, director, trustee or employee of, or partner in or member of, such Person or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any other Person who is a member of the Immediate Family of such Person or of any Person referred to in the preceding clauses (a) through (d). 1.5 "AGREEMENT" shall mean this Lease Agreement, including Exhibits A-1 through A-14, B and C hereto, as it and they may be amended from time to time as herein provided. 1.6 "APPLICABLE LAWS" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health or the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature. 13 1.7 "APPLICABLE PERCENTAGE" shall mean (a) three percent (3%) with respect to the 1998 Fiscal Year; (b) four percent (4%) with respect to the 1999 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term. 1.8 "AWARD" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of any of the Leased Property (after deduction of all reasonable legal fees and other reasonable costs and expenses, including, without limitation, expert witness fees, incurred by Landlord, in connection with obtaining any such award). 1.9 "BASE TOTAL HOTEL SALES" shall mean, with respect to each Property, Total Hotel Sales for such Property for the Base Year in the event the Base Year consists of 52 weeks, or, in the event the Base Year consists of 53 weeks, (x) Total Hotel Sales for such Property for the Base Year, (y) divided by 53 and then (z) multiplied by 52; provided, however, that in the event that, with respect to any Lease Year, or portion thereof, for any reason (including, without limitation, a casualty or Condemnation) there shall be a reduction of five percent (5%) or more in the number of rooms at any Hotel or a change in the services provided at any Hotel (including, without limitation, if applicable, the closing of restaurants or the discontinuation of food or beverage services) from the number of rooms or the services provided during the Base Year, in determining Additional Rent payable with respect to such Lease Year, Base Total Hotel Sales shall be reduced as follows: (a) in the event of the termination of this Lease with respect to any Property pursuant to Article 10, 11 or 12, all Total Hotel Sales attributable to such Property during the Base Year shall be subtracted from Base Total Hotel Sales, appropriately prorated based on time elapsed if such termination occurs on a date other than the first day of any Fiscal Year; (b) in the event of a complete closing of a Hotel, all Total Hotel Sales attributable to such Hotel during the Base Year shall be subtracted from Base Total Hotel Sales throughout the period of such closing; (c) in the event of a partial closing of a Hotel affecting five percent (5%) or more of the guest rooms in such Hotel, Total Hotel Sales attributable to guest room occupancy or guest room services at such Hotel during the Base Year shall be ratably allocated among all guest rooms in service at such Hotel during the Base Year and all such Total Hotel Sales attributable to rooms no longer in service shall be subtracted from Base Total Hotel Sales throughout the period of such closing; (d) in the event of a closing of a restaurant, all Total Hotel Sales attributable to such restaurant during the Base Year shall be subtracted from Base Total Hotel Sales throughout the period of such closing; and (e) in the event of any other change in circumstances affecting any Hotel, Base Total Hotel 14 Sales shall be equitably adjusted in such manner as Landlord and Tenant shall reasonably agree. 1.10 "BASE YEAR" shall mean, with respect to each Property other than any Property located in Arizona, the 1998 Fiscal Year, and, with respect to each Property located in Arizona, the thirteen Accounting Periods commencing July 13, 1998 with respect to the Properties located in Arizona. 1.11 "BUSINESS DAY" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or the State of New York are authorized by law or executive action to close. 1.12 "CAPITAL ADDITION" shall mean any renovation, repair or improvement to the Leased Property (or portion thereof), the cost of which constitutes a Capital Expenditure. 1.13 "CAPITAL EXPENDITURE" shall mean any expenditure treated as capital in nature in accordance with GAAP. 1.14 "CLAIM" shall have the meaning given such term in Article 8. 1.15 "CODE" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.16 "COMMENCEMENT DATE" shall mean the date of this Agreement. 1.17 "CONDEMNATION" shall mean, with respect to any Property, (a) the exercise of any governmental power with respect to such Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of such Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of all or part of such Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any condemnation or other eminent domain proceeding affecting such Property, whether or not the same shall have actually been commenced. 1.18 "CONDEMNOR" shall mean any public or quasi-public Person, having the power of Condemnation. 1.19 "CONSOLIDATED FINANCIALS" shall mean, for any Fiscal Year or other accounting period of ShoLodge, annual audited and quarterly unaudited financial statements of ShoLodge prepared on a consolidated basis, including ShoLodge's consolidated balance sheet and the related statements of income 15 and cash flows, all in reasonable detail, and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with GAAP throughout the periods reflected. 1.20 "DATE OF TAKING" shall mean, with respect to any Property, the date the Condemnor has the right to possession of such Property, or any portion thereof, in connection with a Condemnation. 1.21 "DEFAULT" shall mean any event or condition which with the giving of notice and/or lapse of time would ripen into an Event of Default. 1.22 "DISBURSEMENT RATE" shall mean an annual rate of interest, as of the date of determination, equal to the greater of (i) the Interest Rate and (ii) the per annum rate for fifteen (15) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred fifty (350) basis points. 1.23 "DISTRIBUTION" shall mean (a) any declaration or payment of any dividend (except dividends payable in common stock of Tenant) on or in respect of any shares of any class of capital stock of Tenant, (b) any purchase, redemption, retirement or other acquisition of any shares of any class of capital stock of a corporation, (c) any other distribution on or in respect of any shares of any class of capital stock of a corporation or (d) any return of capital to shareholders. 1.24 "EASEMENT AGREEMENT" shall mean any conditions, covenants and restrictions, easements, declarations, licenses and other agreements which are Permitted Encumbrances and such other agreements as may be granted in accordance with Section 19.1. 1.25 "ENCUMBRANCE" shall have the meaning given such term in Section 20.1. 1.26 "ENTITY" shall mean any corporation, general or limited partnership, limited liability company or partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency, authority or political subdivision thereof or any other entity. 1.27 "ENVIRONMENT" shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air. 1.28 "ENVIRONMENTAL OBLIGATION" shall have the meaning given such term in Section 4.3.1. 16 1.29 "ENVIRONMENTAL NOTICE" shall have the meaning given such term in Section 4.3.1. 1.30 "EVENT OF DEFAULT" shall have the meaning given such term in Section 12.1. 1.31 "EXCESS TOTAL HOTEL SALES" shall mean, with respect to any Property, with respect to any Lease Year, or portion thereof, the amount of Total Hotel Sales for such Property for such Lease Year, or portion thereof, in excess of Base Total Hotel Sales for such Property for the equivalent period; provided, however, that if any Lease Year consists of 53 weeks, Excess Total Hotel Sales shall equal the amount of (i) (x) Total Hotel Sales for the applicable Property for the applicable Lease Year (y) divided by 53 and then (z) multiplied by 52 in excess of (ii) Base Total Hotel Sales for such Property. 1.32 "EXTENDED TERMS" shall have the meaning given such term in Section 2.4. 1.33 "FF&E ESTIMATE" shall have the meaning given such term in Section 5.1.2(c). 1.34 "FF&E FUNDED AMOUNT" shall mean an amount equal to Five Hundred Thousand Dollars less any amounts paid prior to the date hereof with respect to the Tampa Renovation in accordance with Exhibit D and approved by Landlord. 1.35 "FF&E PLEDGE" shall mean the Assignment and Security Agreement, dated as of the date hereof, made by Tenant for the benefit of Landlord. 1.36 "FF&E RESERVE" shall have the meaning given such term in Section 5.1.2(a). 1.37 "FINANCIAL OFFICER'S CERTIFICATE" shall mean, as to any Person, a certificate of the chief executive officer, chief financial officer or chief accounting officer (or such officers' authorized designee) of such Person, duly authorized, accompanying the financial statements required to be delivered by such Person pursuant to Section 17.2, in which such officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of such Person at and as of the dates thereof and the results of its and their operations for the periods covered thereby, and (b), in the event that the certifying party is an officer of Tenant and the certificate is being given in such capacity, certify that no Event of Default has occurred and is continuing hereunder. 1.38 "FISCAL YEAR" shall mean the 52 or 53 week period ending on the last Sunday of each calendar year. 17 1.39 "FIXED TERM" shall have the meaning given such term in Section 2.3. 1.40 "FIXTURES" shall have the meaning given such term in Section 2.1(d). 1.41 "GAAP" shall mean generally accepted accounting principles constantly applied. 1.42 "GOVERNMENT AGENCIES" shall mean any court, agency, authority, board (including, without limitation, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or any State or any country or any political subdivision of any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or the Leased Property or any portion thereof or any Hotel operated thereon. 1.43 "GROUND LEASE" shall mean the Ground Lease, dated January 24, 1996, between Christian Chapel CME Church, as landlord, and Southeast Texas Inns, Inc., as tenant, as amended from time to time. 1.44 "GUARANTY" shall mean the Limited Guaranty Agreement, dated the date hereof, made by ShoLodge for the benefit of Landlord and Hospitality Properties Trust. 1.45 "HAZARDOUS SUBSTANCES" shall mean any substance: (1) the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statue, regulation, rule, ordinance, order, action or policy; or (2) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" or "pollutant" or "contaminant" under any present or future federal, state or local statue, regulation, rule or ordinance or amendments thereto including, without limitation, the Compensation and Liability Act (42 U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.) and the regulations promulgated thereunder; or (3) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any 18 state of the United States, or any political subdivision thereof; or (4) the presence of which on the Leased Property, or any portion thereof, causes or materially threatens to cause an unlawful nuisance upon the Leased Property, or any portion thereof, or to adjacent properties or poses or materially threatens to pose a hazard to the Leased Property, or any portion thereof, or to the health or safety of persons on or about the Leased Property, or any portion thereof; or (5) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or (6) without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or (7) without limitation, which contains or emits radioactive particles, waves or material; or (8) without limitation, constitutes materials which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988. 1.46 "HOTEL" shall mean, with respect to any Property described on Exhibit A-1 through A-14, the all suites hotel being operated on such Property. 1.47 "HOTEL MORTGAGE" shall mean any Encumbrance placed upon the Leased Property in accordance with Article 20. 1.48 "HOTEL MORTGAGEE" shall mean the holder of any Hotel Mortgage. 1.49 "IMMEDIATE FAMILY" shall mean, with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. 1.50 "IMPOSITIONS" shall mean collectively, all taxes (including, without limitation, all taxes imposed under the laws of any State, as such laws may be amended from time to time, and all ad valorem, sales and use, or similar taxes as the same relate to or are imposed upon Landlord, Tenant or the business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof), water, sewer or other rents and charges, excises, tax 19 levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Tenant (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof by Tenant; provided, however, that nothing contained herein shall be construed to require Tenant to pay and the term "Impositions" shall not include (i) any tax based on net income imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee (but excluding any mortgage or similar tax payable in connection with a Hotel Mortgage) or other tax imposed with respect to the sale, exchange or other disposition by Landlord of the Leased Property or the proceeds thereof, (iv) any single business, gross receipts tax, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, (v) any interest or penalties imposed on Landlord as a result of the failure of Landlord to file any return or report timely and in the form prescribed by law or to pay any tax or imposition, except to the extent such failure is a result of a breach by Tenant of its obligations pursuant to Section 3.1.3, (vi) any impositions imposed on Landlord that are a result of Landlord not being considered a "United States person" as defined in Section 7701(a)(30) of the Code, (vii) any impositions that are enacted or adopted by their express terms as a substitute for any tax that would not have been payable by Tenant pursuant to the terms of this Agreement or (viii) any impositions imposed as a result of a breach of covenant or representation by Landlord in any agreement governing Landlord's conduct or operation or as a result of the negligence or willful misconduct of Landlord. 1.51 "INCIDENTAL DOCUMENTS" shall mean the Guaranty, the Security Agreement, the Stock Pledge Agreement and the FF&E Pledge. 1.52 "INDEBTEDNESS" shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor's balance sheet as liabilities. 1.53 "INSURANCE REQUIREMENTS" shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National 20 Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant or the Leased Property. 1.54 "INTEREST RATE" shall mean ten percent (10%) per annum. 1.55 "LAND" shall have the meaning given such term in Section 2.1(a). 1.56 "LANDLORD" shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns. 1.57 "LANDLORD LIENS" shall mean liens on or against the Leased Property or any payment of Rent (a) which result from any act of, or any claim against, Landlord or any owner of a direct or indirect interest in the Leased Property, or which result from any violation by Landlord of any terms of this Agreement or the Purchase Agreement, or (b) which result from liens in favor of any taxing authority by reason of any tax owed by Landlord or any fee owner of a direct or indirect interest in the Leased Property; provided, however, that "Landlord Lien" shall not include any lien resulting from any tax for which Tenant is obligated to pay or indemnify Landlord against until such time as Tenant shall have already paid to or on behalf of Landlord the tax or the required indemnity with respect to the same. 1.58 "LEASE YEAR" shall mean any Fiscal Year or portion thereof, commencing with the 1998 Fiscal Year, during the Term. 1.59 "LEASED IMPROVEMENTS" shall have the meaning given such term in Section 2.1(b). 1.60 "LEASED INTANGIBLE PROPERTY" shall mean all hotel licensing agreements and other service contracts, equipment leases, booking agreements and other arrangements or agreements affecting the ownership, repair, maintenance, management, leasing or operation of the Leased Property to which Landlord is a party; all books, records and files relating to the leasing, maintenance, management or operation of the Leased Property belonging to Landlord; all transferable or assignable permits, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, rights to deposits, trade names, service marks, telephone exchange numbers identified with the Leased Property, and all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character belonging to Landlord with respect to the Leased Property other than liquor licenses. 1.61 "LEASED PERSONAL PROPERTY" shall have the meaning given such term in Section 2.1(e). 21 1.62 "LEASED PROPERTY" shall have the meaning given such term in Section 2.1. 1.63 "LEGAL REQUIREMENTS" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Leased Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, certificates and regulations necessary to operate any Property for its Permitted Use, and (b) all covenants, agreements, restrictions and encumbrances contained in any instruments at any time in force affecting any Property, including those which may (i) require material repairs, modifications or alterations in or to any Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord's status as a real estate investment trust. 1.64 "LIEN" shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors. 1.65 "MANAGEMENT AGREEMENT" shall mean any management agreement entered into by Tenant with respect to all or any portion of the Leased Property, together with all amendments, modifications and supplements thereto. 1.66 "MANAGER" shall mean any manager under a Management Agreement. 1.67 "MINIMUM RENT" shall mean an amount equal to One Million Seventy-Six Thousand Nine Hundred Twenty-Three Dollars ($1,076,923) per Accounting Period. 1.68 "NET WORTH" shall mean the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with GAAP. 1.69 "NOTICE" shall mean a notice given in accordance with Section 22.10. 1.70 "OFFICER'S CERTIFICATE" shall mean a certificate signed by an officer or other duly authorized individual of the certifying Entity duly authorized by the board of directors or other governing body of the certifying Entity. 22 1.71 "OVERDUE RATE" shall mean, on any date, a per annum rate of interest equal to the lesser of thirteen percent (13%) and the maximum rate then permitted under applicable law. 1.72 "PARENT" shall mean, with respect to any Person, any Person which owns directly, or indirectly through one or more Subsidiaries or Affiliated Persons, fifty percent (50%) or more of the voting or beneficial interest in, or otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person. 1.73 "PERMITTED ENCUMBRANCES" shall mean, with respect to any Property, all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner's or leasehold title insurance policy issued to Landlord in connection with the transactions contemplated by the Purchase Agreement with respect to such Property, plus any other encumbrances as may be "Permitted Encumbrances" under the Purchase Agreement or as may have been consented to in writing by Landlord and Tenant from time to time. 1.74 "PERMITTED LIENS" shall mean any Liens granted in accordance with Section 21.9(a). 1.75 "PERMITTED USE" shall mean, with respect to any Property, any use of such Property permitted pursuant to Section 4.1.1. 1.76 "PERSON" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. 1.77 "PROPERTY" shall have the meaning given such term in Section 2.1. 1.78 "PURCHASE AGREEMENT" shall mean the Purchase and Sale Agreement, dated as of October __, 1997, by and between Hospitality Properties Trust and ShoLodge and certain of its Subsidiaries, as it may be amended, restated, supplemented or otherwise modified from time to time. 1.79 "RECORDS" shall have the meaning given such term in Section 7.2. 1.80 "RENT" shall mean, collectively, the Minimum Rent, Additional Rent and Additional Charges. 1.81 "RETAINED FUNDS" shall mean a cash amount equal to Fourteen Million Dollars ($14,000,000). 1.82 "SEC" shall mean the Securities and Exchange Commission. 23 1.83 "SECURITY AGREEMENT" shall mean the Security Agreement, dated as of the date hereof, made by Tenant for the benefit of Landlord, as it may be amended, restated, supplemented or otherwise modified from time to time. 1.84 "SHOLODGE" shall mean ShoLodge, Inc., a Tennessee corporation, its successors and assigns. 1.85 "STATE" shall mean, with respect to any Property, the state, commonwealth or district in which the such Property is located. 1.86 "STOCK PLEDGE AGREEMENT" shall mean the Stock Pledge Agreement, dated as of the date hereof, made by ShoLodge to Landlord with respect to the stock of Tenant, as it may be amended, restated, supplemented or otherwise modified from time to time. 1.87 "SUBORDINATED CREDITOR" shall mean any creditor of Tenant which is a party to a Subordination Agreement in favor of Landlord. 1.88 "SUBORDINATION AGREEMENT" shall mean any agreement (and any amendments thereto) executed by a Subordinated Creditor pursuant to which the payment and performance of Tenant's obligations to such Subordinated Creditor are subordinated to the payment and performance of Tenant's obligations to Landlord under this Agreement. 1.89 "SUBSIDIARY" shall mean, with respect to any Person, any Entity (a) in which such Person owns directly, or indirectly through one or more Subsidiaries, twenty percent (20%) or more of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise). 1.90 "SUCCESSOR LANDLORD" shall have the meaning given such term in Section 20.2. 1.91 "TAMPA RENOVATION" shall mean the renovation of the Hotel located in Tampa, Florida in accordance with the plans and specifications and budget therefor attached hereto as Exhibit D. 1.92 "TENANT" shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns. 1.93 "TENANT'S PERSONAL PROPERTY" shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, movable walls and partitions, equipment and machinery and all other tangible personal property of Tenant, if 24 any, acquired by Tenant on and after the date hereof and located at the Leased Property or used in Tenant's business at the Leased Property and all modifications, replacements, alterations and additions to such personal property installed at the expense of Tenant, other than any items included within the definition of Fixtures or Leased Personal Property. 1.94 "TERM" shall mean, collectively, the Fixed Term and the Extended Terms, to the extent properly exercised pursuant to the provisions of Section 2.4, unless sooner terminated pursuant to the provisions of this Agreement. 1.95 "TOTAL HOTEL SALES" shall mean, with respect to each Property, for each Fiscal Year during the Term, all revenues and receipts of every kind derived by Tenant from operating such Property and parts thereof, including, but not limited to: income (from both cash and credit transactions), after deductions for bad debts, and discounts for prompt or cash payments and refunds, from rental of rooms, stores, offices, meeting, exhibit or sales space of every kind; license, lease and concession fees and rentals (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixture and equipment no longer necessary to the operation of any Hotel, which shall be deposited in the FF&E Reserve); service charges, to the extent not distributed to the employees at any Hotel as gratuities; and proceeds, if any, from business interruption or other loss of income insurance; provided, however, that Total Hotel Sales shall not include the following: gratuities to or collected on behalf of Hotel employees; federal, state or municipal excise, sales, use, occupancy or similar taxes collected directly from patrons or guests or included as part of the sales price of any goods or services; insurance proceeds (other than proceeds from business interruption or other loss of income insurance); Award proceeds (other than for a temporary Condemnation); any proceeds from any sale of such Property or from the refinancing of any debt encumbering such Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of any Hotel; interest which accrues on amounts deposited in the FF&E Reserve; and any security deposits and other advance deposits, until and unless the same are forfeited to Tenant or applied for the purpose for which they were collected; and interest income from any bank account or investment of Tenant. 1.96 "UNIFORM SYSTEM OF ACCOUNTS" shall mean A Uniform System of Accounts for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of New York City, as the same may be further revised from time to time. 25 1.97 "UNSUITABLE FOR ITS PERMITTED USE" shall mean, with respect to such Hotel, a state or condition of such Hotel such that (a) following any damage or destruction involving a Hotel, such Hotel cannot be operated in the good faith judgment of Tenant on a commercially practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to substantially the same condition as existed immediately before such damage or destruction, and as otherwise required by Section 10.2.4, within twelve (12) months following such damage or destruction or such shorter period of time as to which business interruption insurance is available to cover Rent and other costs related to the applicable Property following such damage or destruction, or (b) as the result of a partial taking by Condemnation, such Hotel cannot be operated, in the good faith judgment of Tenant, on a commercially practicable basis for its Permitted Use. 1.98 "WORK" shall have the meaning given such term in Section 10.2.4. ARTICLE 2 LEASED PROPERTY AND TERM 1.99 LEASED PROPERTY. Upon and subject to the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord all of Landlord's right, title and interest in and to all of the following (each of items (a) through (g) below which, as of the Commencement Date, relates to any single Hotel, a "Property" and, collectively, the "Leased Property"): (1) those certain tracts, pieces and parcels of land, as more particularly described in Exhibit A-1 through A-14, attached hereto and made a part hereof (the "Land"); (2) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the "Leased Improvements"); (3) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (4) all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, 26 ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); (5) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Leased Personal Property"); (6) all of the Leased Intangible Property; and (7) any and all leases of space in the Leased Improvements. 1.100 CONDITION OF LEASED PROPERTY. Tenant acknowledges receipt and delivery of possession of the Leased Property and Tenant accepts the Leased Property in its "as is" condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, reservations, mineral leases, easements and other matters of record or that are visible or apparent on the Leased Property, all applicable Legal Requirements, the lien of any financing instruments, mortgages and deeds of trust existing prior to the Commencement Date or permitted by the terms of this Agreement, and such other matters which would be disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. To the maximum extent permitted by law, however, Landlord hereby 27 assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Leased Property. Landlord shall fully cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, defend, and hold harmless Landlord from and against any loss, cost, damage or liability (including reasonable attorneys' fees) incurred by Landlord in connection with such cooperation. 1.101 FIXED TERM. The initial term of this Agreement (the "Fixed Term") shall commence on the Commencement Date and shall expire January 31, 2008. 1.102 EXTENDED TERM. Provided that no Event of Default shall have occurred and be continuing, the Term shall be automatically extended for five (5) consecutive renewal terms of ten (10) years each (collectively, the "Extended Terms"), unless Tenant shall give Landlord Notice, not later than eighteen (18) months prior to the scheduled expiration of the then current Term of this Agreement (Fixed or Extended, as the case may be), that Tenant elects not so to extend the term of this Agreement. Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be. All of the terms, covenants and provisions of this Agreement shall apply to each such Extended Term, except that Tenant shall have no right to extend the Term beyond the expiration of the Extended Terms. If Tenant shall give Notice that it elects not to extend the Term in accordance with this Section 2.4, this Agreement shall automatically terminate at the end of the Term then in effect and Tenant shall have no further option to extend the Term of this Agreement. Otherwise, the extension of this Agreement shall be automatically effected without the execution of any additional documents; it being understood and agreed, however, that Tenant and Landlord shall execute such documents and agreements as either party shall reasonably require to evidence the same. 28 ARTICLE 3 RENT 1.103 RENT. Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this Agreement), Minimum Rent and Additional Rent to Landlord and Additional Charges to the party to whom such Additional Charges are payable, during the Term. All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion. Rent for any partial Accounting Period shall be prorated on a per diem basis. 1.103.1 MINIMUM RENT. (1) PAYMENTS. Minimum Rent shall be paid in advance on the first Business Day of each Accounting Period; provided, however, that the first payment of Minimum Rent shall be payable on the Commencement Date (and, if applicable, such payment shall be prorated as provided in the last sentence of the first paragraph of Section 3.1). (2) ADJUSTMENTS OF MINIMUM RENT FOLLOWING DISBURSEMENTS UNDER SECTIONS 5.1.3(b), 10.2.3 AND 11.2. Effective on the date of each disbursement to pay for the cost of any repairs, maintenance, renovations or replacements pursuant to Sections 5.1.3(b), 10.2.3 or 11.2, the annual Minimum Rent shall be increased by a per annum amount equal to the Disbursement Rate times the amount so disbursed. If any such disbursement is made during any month on a day other than the first Business Day of an Accounting Period, Tenant shall pay to Landlord on the first Business Day of the immediately following Accounting Period (in addition to the amount of Minimum Rent payable with respect to such Accounting Period, as adjusted pursuant to this paragraph (b)) the amount by which Minimum Rent for the preceding Accounting Period, as adjusted for such disbursement on a per diem basis, exceeded the amount of Minimum Rent paid by Tenant for such preceding Accounting Period. (3) ADJUSTMENTS OF MINIMUM RENT FOLLOWING PARTIAL LEASE TERMINATION. If this Lease shall terminate with respect to any Property but less than all of the Leased Property, Minimum Rent shall be reduced by the affected Property's allocable share of Minimum Rent as set forth in Exhibit C. 29 1.103.2 ADDITIONAL RENT. (1) AMOUNT. Tenant shall pay additional rent ("Additional Rent") with respect to each Property with respect to each Lease Year beginning with the 1999 Lease Year, in an amount, not less than zero, equal to eight percent (8%) of Excess Total Hotel Sales for such Property. (2) ACCOUNTING PERIOD INSTALLMENTS. Installments of Additional Rent for each Lease Year or portion thereof shall be calculated and paid with respect to each Accounting Period in arrears on the first Business Day of each Accounting Period, based on Total Hotel Sales for the preceding year, together with an Officer's Certificate setting forth the calculation of Additional Rent due and payable for such Accounting Period. (3) RECONCILIATION OF ADDITIONAL RENT. On or before April 30, 1999, Tenant shall deliver to Landlord an Officer's Certificate setting forth Total Hotel Sales for each Property for the Base Year (other than with respect to the Hotels located in Tempe and Tucson), together with an audit thereof by Deloitte & Touche LLP or another firm of independent certified public accountants proposed by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, delayed or conditioned). On or before November 15, 1999, Tenant shall deliver to Landlord an Officer's Certificate setting forth Total Hotel Sales for the Base Year for each of the Tempe and Tucson Properties, together with an audit thereof by Deloitte & Touche LLP or another firm of independent certified public accountants proposed by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, delayed or conditioned). On or before April 30, of each year, commencing April 30, 2000, Tenant shall deliver to Landlord an Officer's Certificate setting forth the Total Hotel Sales for each Property for the preceding Lease Year and the Additional Rent payable with respect to such Property for such Lease Year, together with an audit thereof, by Deloitte & Touche LLP or another firm of independent certified public accountants proposed by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, delayed or conditioned). If the annual Additional Rent for such preceding Lease Year as shown in the Officer's Certificate exceeds the amount previously paid with respect thereto by Tenant, Tenant shall pay such excess to Landlord at such time as the Officer's Certificate is delivered, together with interest at the Interest Rate, which interest shall accrue from the close of such preceding Lease Year until the date that such certificate is required to be delivered and, thereafter, such interest shall accrue at the Overdue Rate, until the amount of such difference shall be paid or otherwise 30 discharged. If the annual Additional Rent for such preceding Lease Year as shown in the Officer's Certificate is less than the amount previously paid with respect thereto by Tenant, provided that no Event of Default shall have occurred and be continuing, Landlord shall grant Tenant a credit against the Rent next coming due in the amount of such difference, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date such credit is applied or paid, as the case may be. If such credit cannot be made because the Term has expired prior to application in full thereof, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment by Landlord. (4) CONFIRMATION OF ADDITIONAL RENT. Tenant shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with its usual and customary practices and in accordance with GAAP, which will accurately record all Total Hotel Sales and Tenant shall retain, for at least three (3) years after the expiration of each Lease Year, reasonably adequate records conforming to such accounting system showing all Total Hotel Sales for such Lease Year. Landlord, at its own expense, except as provided hereinbelow, shall have the right, exercisable by Notice to Tenant within one (1) year after receipt of the applicable Officer's Certificate, by its accountants or representatives, to audit the information set forth in the Officer's Certificate referred to in subparagraph (c) above and, in connection with such audits, to examine Tenant's books and records with respect thereto (including supporting data and sales and excise tax returns). If any such audit discloses a deficiency in the payment of Additional Rent and, either Tenant agrees with the result of such audit or the matter is otherwise compromised with Landlord, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest at the Interest Rate, from the date such payment should have been made to the date of payment thereof. If such deficiency, as agreed upon or compromised as aforesaid, is more than five percent (5%) of Additional Rent paid by Tenant for such Lease Year and, as a result, Landlord did not receive at least ninety-five percent (95%) of the Additional Rent payable with respect to such Lease Year, Tenant shall pay the reasonable cost of such audit and examination. If any such audit discloses that Tenant paid more Additional Rent for any Lease Year than was due hereunder, and either Landlord agrees with the result of such audit or the matter is otherwise determined, provided no Event of Default has occurred and is continuing, Landlord shall grant Tenant a credit equal to the amount of such overpayment against the Rent next coming due in the amount 31 of such difference, as finally agreed or determined, together with interest at the Interest Rate, which interest shall accrue from the time of payment by Tenant until the date such credit is applied or paid, as the case may be. If such a credit cannot be made because the Term has expired before the credit can be applied in full, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment from Landlord. Any proprietary information obtained by Landlord with respect to Tenant pursuant to the provisions of this Agreement shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties and except further that Landlord may disclose such information to its prospective lenders, provided that Landlord shall direct and obtain the agreement of such lenders to maintain such information as confidential. The obligations of Tenant and Landlord contained in this Section 3.1.2 shall survive the expiration or earlier termination of this Agreement. 1.103.3 ADDITIONAL CHARGES. In addition to the Minimum Rent and Additional Rent payable hereunder, Tenant shall pay to the appropriate parties and discharge as and when due and payable the following (collectively, "Additional Charges"): (1) IMPOSITIONS. Subject to Article 8 relating to permitted contests, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost (other than any opportunity cost as a result of a failure to take advantage of any discount for early payment) may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other reasonably satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by Applicable Law, prepare and file all tax returns and pay all taxes due in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by 32 Applicable Laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by Government Agencies. Provided no Event of Default shall have occurred and be continuing, if any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event Government Agencies classify any property covered by this Agreement as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns for property covered by this Agreement, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than the last date on which the same may be made without interest or penalty, subject to the provisions of Article 8. Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, that Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions, unless such failure continues for more than ninety (90) days after the date Landlord learned of such Imposition. (2) UTILITY CHARGES. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in connection with the Leased Property. (3) INSURANCE PREMIUMS. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (4) OTHER CHARGES. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations, including, without limitation, ground rents and other sums payable under the Ground Lease and all amounts payable under any equipment leases and all agreements to indemnify Landlord under Sections 4.3.2 and 9.7. (5) REIMBURSEMENT FOR ADDITIONAL CHARGES. If Tenant pays or causes to be paid property taxes or similar or other 33 Additional Charges attributable to periods after the end of the Term, whether upon expiration or sooner termination of this Agreement (other than termination by reason of an Event of Default), Tenant may, within a reasonable time after the end of the Term, provide Notice to Landlord of its estimate of such amounts. Landlord shall promptly reimburse Tenant for all payments of such taxes and other similar Additional Charges that are attributable to any period after the Term of this Agreement. 1.104 LATE PAYMENT OF RENT, ETC. If any installment of Minimum Rent, Additional Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Landlord) shall not be paid within ten (10) days after its due date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Tenant pays any Additional Charges directly to Landlord or any Hotel Mortgagee pursuant to any requirement of this Agreement, Tenant shall be relieved of its obligation to pay such Additional Charges to the Entity to which they would otherwise be due. If any payments due from Landlord to Tenant shall not be paid within ten (10) days after its due date, Landlord shall pay to Tenant, on demand, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment from the due date of such installment to the date of payment thereof. In the event of any failure by Tenant to pay any Additional Charges when due, Tenant shall promptly pay and discharge, as Additional Charges, every fine, penalty, interest and cost which is added for non-payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Minimum Rent and Additional Rent. 1.105 NET LEASE. The Rent shall be absolutely net to Landlord so that this Agreement shall yield to Landlord the full amount of the installments or amounts of the Rent throughout the Term, subject to any other provisions of this Agreement which expressly provide otherwise, including those provisions for adjustment or abatement of such Rent. 1.106 NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically provided in this Agreement, each of Landlord and Tenant, to the maximum extent permitted by law, shall remain bound by this Agreement in accordance with its terms and shall not take any action without the consent of the other to modify, surrender or terminate this Agreement. In addition, except as otherwise expressly provided in this Agreement, Tenant 34 shall not seek, or be entitled to, any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to or destruction of the Leased Property or any portion thereof from whatever cause or any Condemnation, (b) the lawful or unlawful prohibition of, or restriction upon, Tenant's use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any default (other than a monetary default) or breach of any warranty by Landlord under this Agreement or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing (other than a monetary default by Landlord); provided, however, that the foregoing shall not apply or be construed to restrict Tenant's rights in the event of any act or omission by Landlord constituting negligence or willful misconduct. Except as otherwise specifically provided in this Agreement, Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law (a) to modify, surrender or terminate this Agreement or quit or surrender the Leased Property or any portion thereof, or (b) which would entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement. In any instance where, after the occurrence of an Event of Default, Landlord retains funds which, but for the occurrence of such Event of Default, would be payable to Tenant, Landlord shall refund such funds to Tenant to the extent the amount thereof exceeds the amount necessary to compensate Landlord for any cost, loss or damage incurred in connection with such Event of Default. 1.107 RETAINED FUNDS. Pursuant to the Purchase Agreement, Landlord is holding the Retained Funds as security for the faithful observance and performance by Tenant of all the terms, covenants and conditions of this Lease by Tenant to be observed and performed. The Retained Funds shall not be mortgaged, assigned, transferred or otherwise encumbered by Tenant or any of its Affiliated Persons without the prior written consent of Landlord and any such act on the part of Tenant or any of its Affiliated Persons without first having obtained Landlord's consent shall be without force and effect and shall not be binding upon Landlord. 35 If an Event of Default shall occur and be continuing, Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply the entire Retained Funds or so much thereof as may be necessary to compensate Landlord toward the payment of Rent or other sums or loss or damage sustained by Landlord due to such breach on the part of Tenant. It is understood and agreed that the Retained Funds are not to be considered as prepaid rent, nor shall damages be limited to the amount of the Retained Funds. Provided no Event of Default shall have occurred and be continuing, any unapplied balance of the Retained Funds shall be paid to Tenant or its Affiliated Persons at the end of the Term or, in the event of any early termination of this Lease with respect to any Property, such portion thereof as is allocable to such Property (as reasonably determined by Landlord) upon such termination. Landlord shall have no obligation to pay interest on the Retained Funds and shall have the right to commingle the same with Landlord's other funds. If Landlord conveys Landlord's interest under this Lease, the Retained Funds, or any part thereof not previously applied, shall be turned over by Landlord to Landlord's grantee, and, if so turned over, Tenant, subject to the provisions of Section 22.7, shall look solely to such grantee for proper application of the Retained Funds in accordance with the terms of this Section 3.5 and the return thereof in accordance herewith. The holder of a mortgage on the Leased Property shall not be responsible to Tenant for the return or application of the Retained Funds, if it succeeds to the position of Landlord hereunder, unless the Retained Funds shall have been received in hand by such holder. In the event of bankruptcy or other creditor-debtor proceedings against Tenant, the Retained Funds shall be deemed to be applied first to the payment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings. ARTICLE 4 USE OF THE LEASED PROPERTY 1.108 PERMITTED USE. 1.108.1 PERMITTED USE. (a) Tenant shall, at all times during the Term, subject to temporary periods for the repair of damage caused by casualty or Condemnation, continuously use and operate each Property as an all suites hotel and any uses incidental thereto. Tenant shall not use or permit to be used any Property or any portion thereof for any other use without the prior written consent of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned. Tenant shall not change the brand of the Hotels without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, it being agreed that, on the Commencement 36 Date, the Hotels shall be operated under the "Sumner Suites" brand. No use shall be made or permitted to be made of any Property and no acts shall be done thereon which will cause the cancellation of any insurance policy covering such Property or any part thereof (unless another adequate policy is available), nor shall Tenant sell or otherwise provide or permit to be kept, used or sold in or about any Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. Tenant shall, at its sole cost, comply with all Insurance Requirements. (b) In the event that, in the reasonable determination of Tenant, it shall no longer be economically practical to operate the Leased Property as an all suites hotel, Tenant shall give Landlord Notice thereof, which Notice shall set forth in reasonable detail the reasons therefor. Thereafter, Landlord and Tenant shall negotiate in good faith to agree on an alternative use for the Property or a replacement property therefor (in which event the affected Leased Property shall be transferred to Tenant or Tenant's designee), appropriate adjustments to the Additional Rent and other related matters; provided, however, in no such event shall the Minimum Rent be reduced or abated. 1.108.2 NECESSARY APPROVALS. Tenant shall proceed with all due diligence and exercise reasonable efforts to obtain and maintain all approvals necessary to use and operate, for its Permitted Use, each Property and the Hotel located thereon under applicable law. 1.108.3 LAWFUL USE, ETC. Tenant shall not use or suffer or permit the use of the Leased Property or Tenant's Personal Property, if any, for any unlawful purpose. Tenant shall not, and shall direct the Manager not to, commit or suffer to be committed any waste on any Property, or in any Hotel, nor shall Tenant cause or permit any unlawful nuisance thereon or therein. Tenant shall not, and shall direct the Manager not to, suffer nor permit the Leased Property, or any portion thereof, to be used in such a manner as (i) may materially and adversely impair Landlord's title thereto or to any portion thereof, or (ii) may reasonably allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 1.109 COMPLIANCE WITH LEGAL/INSURANCE REQUIREMENTS, ETC. Subject to the provisions of Article 8 and Section 5.1.3(b), Tenant, at its sole expense, shall (i) comply with all material Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of the Leased Property and with the terms and conditions of the Ground Lease and/or any sublease affecting the Leased Property, (ii) perform all obligations of the landlord under any sublease affecting the Leased Property and (iii) procure, maintain and 37 comply with all material licenses, and other authorizations and agreements required for any use of the Leased Property and Tenant's Personal Property, if any, then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof. 1.110 ENVIRONMENTAL MATTERS. 1.110.1 RESTRICTION ON USE, ETC. During the Term and any other time that Tenant shall be in possession of the Leased Property, Tenant shall not store, spill upon, dispose of or transfer to or from the Leased Property any Hazardous Substance, except in compliance with all Applicable Laws. During the Term and any other time that Tenant shall be in possession of the Leased Property, Tenant shall maintain (and shall direct the Manager to maintain) the Leased Property at all times free of any Hazardous Substance (except in compliance with all Applicable Laws). Tenant shall promptly: (a) upon receipt of notice or knowledge and shall direct the Manager upon receipt of notice or knowledge promptly to, notify Landlord in writing of any material change in the nature or extent of Hazardous Substances at the Leased Property, (b) transmit to Landlord a copy of any report which is required to be filed with respect to the Leased Property pursuant to SARA Title III or any other Applicable Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or its agents or representatives with respect thereto (collectively, "Environmental Notice"), which Environmental Notice requires a written response or any action to be taken and/or if such Environmental Notice gives notice of and/or presents a material risk of any material violation of any Applicable Law and/or presents a material risk of any material cost, expense, loss or damage (an "Environmental Obligation"), (d), subject to the provisions of Article 8, observe and comply with all Applicable Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, treatment, containment or other disposition thereof, and (e) subject to the provisions of Article 8, pay or otherwise dispose of any fine, charge or Imposition related thereto. If, at any time prior to the termination of this Agreement, Hazardous Substances (other than those maintained in accordance with Applicable Laws) are discovered on the Leased Property, subject to Tenant's right to contest the same in accordance with Article 8, Tenant shall take all actions and incur any and all expenses, as are required by any Government Agency and by Applicable Law, (i) to clean up and remove from and about the Leased Property all Hazardous Substances thereon, (ii) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Leased Property and (iii) to use good 38 faith efforts to eliminate any further release or threat of release of Hazardous Substances on or about the Leased Property. 1.110.2 INDEMNIFICATION OF LANDLORD. Tenant shall protect, indemnify and hold harmless Landlord and each Hotel Mortgagee, their trustees, officers, agents, employees and beneficiaries, and any of their respective successors or assigns with respect to this Agreement (collectively, the "Indemnitees" and, individually, an "Indemnitee") for, from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, fines, penalties or expenses (including, without limitation, reasonable attorney's fees and expenses) imposed upon, incurred by or asserted against any Indemnitee resulting from, either directly or indirectly, the presence during the Term (or any other time Tenant shall be in possession of the Leased Property) in, upon or under the soil or ground water of the Leased Property or any properties surrounding the Leased Property of any Hazardous Substances in violation of any Applicable Law or otherwise, provided that any of the foregoing arises by reason of any failure by Tenant or any Person claiming by, through or under Tenant to perform or comply with any of the terms of this Section 4.3, except to the extent the same arise from the acts or omissions of Landlord or any other Indemnitee or during any period that Landlord or a Person designated by Landlord (other than Tenant) is in possession of the Leased Property. Tenant's duty herein includes, but is not limited to, costs associated with personal injury or property damage claims as a result of the presence prior to the expiration or sooner termination of the Term and the surrender of the Leased Property to Landlord in accordance with the terms of this Agreement of Hazardous Substances in, upon or under the soil or ground water of the Leased Property in violation of any Applicable Law. Upon Notice from Landlord and any other of the Indemnitees, Tenant shall undertake the defense, at Tenant's sole cost and expense, of any indemnification duties set forth herein, in which event, Tenant shall not be liable for payment of any duplicative attorneys' fees incurred by any Indemnitee. Tenant shall, upon demand, pay to Landlord, as an Additional Charge, any cost, expense, loss or damage (including, without limitation, reasonable attorneys' fees) reasonably incurred by Landlord and arising from a failure of Tenant to observe and perform the requirements of this Section 4.3, which amounts shall bear interest from the date ten (10) Business Days after written demand therefor is given to Tenant until paid by Tenant to Landlord at the Overdue Rate. 1.110.3 SURVIVAL. The provisions of this Section 4.3 shall survive the expiration or sooner termination of this Agreement. 39 ARTICLE 5 MAINTENANCE AND REPAIRS 1.111 MAINTENANCE AND REPAIR. 1.111.1 TENANT'S GENERAL OBLIGATIONS. Tenant shall, at its sole cost and expense (except as expressly provided in Section 5.1.3(b)), keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of the Leased Property or Tenant's Personal Property or any portion thereof), and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise). All repairs shall be made in a good, workmanlike manner, consistent with industry standards for like hotels in like locales, in accordance with all applicable federal, state and local statutes, ordinances, codes, rules and regulations relating to any such work. Tenant shall not take or omit to take any action, the taking or omission of which would materially and adversely impair the value or the usefulness of the Leased Property or any material part thereof for its Permitted Use. Tenant's obligations under this Section 5.1.1 shall be limited in the event of any casualty or Condemnation as set forth in Sections 10.2 and 11.2 and also as set forth in Section 5.1.3(b) and Tenant's obligations with respect to Hazardous Substances are as set forth in Section 4.3. 1.111.2 FF&E RESERVE. (1) Upon execution of this Agreement, Tenant has established a reserve account (the "FF&E Reserve") in a bank designated by Tenant and approved by Landlord. The purpose of the FF&E Reserve is to cover the cost of: (1) Replacements and renewals to any Hotel's furnishings, fixtures and equipment; (2) Certain routine repairs and maintenance to any Hotel building which are normally capitalized under GAAP such as exterior and interior repainting, resurfacing building walls, floors, roofs and parking areas, and replacing folding walls and the like; and (3) Major repairs, alterations, improvements, renewals or replacements to any Hotel's buildings' structure, roof, or exterior facade, or to its mechanical, 40 electrical, heating, ventilating, air conditioning, plumbing or vertical transportation systems. Tenant agrees that it will, from time to time, execute such reasonable documentation as may be requested by Landlord and any Hotel Mortgagee to assist Landlord and such Hotel Mortgagee in establishing or perfecting the Hotel Mortgagee's security interest in Landlord"s residual interest in the funds which are in the FF&E Reserve; provided, however, that no such documentation shall contain any amendment to or modification of any of the provisions of this Agreement. It is acknowledged and agreed that, during the Term, funds in the FF&E Reserve are the property of Tenant. (2) Throughout the Term, Tenant shall transfer (within ten (10) Business Days after the end of each Accounting Period during the Term) into the FF&E Reserve an amount equal to the Applicable Percentage of Total Hotel Sales for such Accounting Period. Together with the documentation provided to Landlord pursuant to Section 3.1.2(c), Tenant shall deliver to Landlord an Officer's Certificate setting forth the total amount of deposits made to and expenditures from the FF&E Reserve for the preceding Fiscal Year, together with a reconciliation of such expenditures with the applicable FF&E Estimate. (3) With respect to each Lease Year, Tenant shall prepare an estimate (the "FF&E Estimate") of FF&E Reserve expenditures necessary during the ensuing Fiscal Year, and shall submit such FF&E Estimate to Landlord, on or before December 1 of the preceding Lease Year, for its review and approval, which approval shall not be unreasonably withheld, delayed or conditioned. In the event that Landlord shall fail to respond within thirty (30) days after receipt of the FF&E Estimate, such FF&E Estimate shall be deemed approved by Landlord. All expenditures from the FF&E Reserve shall be (as to both the amount of each such expenditure and the timing thereof) both reasonable and necessary, given the objective that the Hotels will be maintained and operated to a standard comparable to competitive hotels. All amounts from the FF&E Reserve shall be paid to Persons who are not Affiliated Persons of Tenant without mark-up or allocated internal costs by Tenant or its Affiliated Persons except that Tenant may use Affiliated Persons to provide goods and services if Landlord has granted its prior written approval thereof or the cost is the lesser of (x) the lowest of two competitive bids therefor submitted by non-Affiliated Persons of Tenant and (y) fair market. (4) Tenant shall, consistent with the FF&E Estimate approved by Landlord, from time to time make expenditures from the FF&E Reserve as it deems necessary provided that 41 Tenant shall not materially deviate from the FF&E Estimate approved by Landlord without the prior approval of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned, except in the case of emergency where immediate action is necessary to prevent imminent harm to person or property. (5) Upon the expiration or sooner termination of this Agreement, funds in the FF&E Reserve and all property purchased with funds from the FF&E Reserve during the Term shall be paid, granted and assigned to Landlord as Additional Charges. (6) Upon execution of this Agreement, Tenant has deposited the FF&E Funded Amount into the FF&E Reserve. Notwithstanding anything to the contrary set forth in this Section 5.1.2, such funds may be used by Tenant solely for the purpose of completing the Tampa Renovation in accordance with Exhibit D, unless otherwise agreed by Landlord in writing. 1.111.3 LANDLORD'S OBLIGATIONS. (1) Except as otherwise expressly provided in this Agreement, Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto, or to maintain the Leased Property in any way. Except as otherwise expressly provided in this Agreement, Tenant hereby waives, to the maximum extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect on the date hereof or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. (1) (2) If, at any time, funds in the FF&E Reserve shall be insufficient for necessary and permitted expenditures thereof or, pursuant to the terms of this Agreement, Tenant is required to make any expenditures in connection with any repair, maintenance or renovation with respect to the Leased Property and the amount of such disbursements or expenditures exceeds the amount on deposit in the FF&E Reserve or such repair, maintenance or renovation is not a permitted expenditure from the FF&E Reserve as described in Section 5.1.2(a)(i), (ii) and (iii), Tenant may, at its election, give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required repair, renovation or replacement, the estimated cost 42 thereof and such other information with respect thereto as Landlord may reasonably require. Provided that no Event of Default shall have occurred and be continuing and Tenant shall otherwise comply with the applicable provisions of Article 6, Landlord shall, within ten (10) Business Days after such Notice, subject to and in accordance with the applicable provisions of Article 6, disburse such required funds to Tenant (or, if Tenant shall so elect, directly to any other Person performing the required work) and, upon such disbursement, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b); provided, however, that, in the event that Landlord shall elect not to disburse any funds pursuant to this Section 5.1.3(b), Tenant's sole recourse shall be to elect not to make the applicable repair, maintenance or renovation, and such failure shall, except with respect to the Tampa Renovation, not be deemed a Default or Event of Default. Tenant shall include a good faith projection of funds required pursuant to this Section 5.1.3(b) in the FF&E Estimate. 1.111.4 NONRESPONSIBILITY OF LANDLORD, ETC. All materialmen, contractors, artisans, mechanics and laborers and other persons contracting with Tenant with respect to the Leased Property, or any part thereof, are hereby charged with notice that liens on the Leased Property or on Landlord's interest therein are expressly prohibited and that they must look solely to Tenant to secure payment for any work done or material furnished by Tenant or for any other purpose during the term of this Agreement. Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to the Leased Property or any part thereof or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Leased Property or any part thereof nor to subject Landlord's estate in the Leased Property or any part thereof to liability under any mechanic's lien law of any State in any way, it being expressly understood Landlord's estate shall not be subject to any such liability. 1.112 TENANT'S PERSONAL PROPERTY. Tenant shall provide and maintain throughout the Term all such Tenant's Personal Property as shall be necessary in order to operate in compliance with applicable material Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Permitted Use, and all of such Tenant's Personal Property shall, upon the expiration or earlier termination of this Agreement, become the property of Landlord. 43 If, from and after the Commencement Date, Tenant acquires an interest in any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property which belongs to anyone other than Tenant, Tenant shall require the agreements permitting such use to provide that Landlord or its designee may assume Tenant's rights and obligations under such agreement upon the termination of this Agreement and the assumption of management or operation of the Hotel by Landlord or its designee. 1.113 YIELD UP. Upon the expiration or sooner termination of this Agreement, Tenant shall vacate and surrender the Leased Property to Landlord in substantially the same condition in which the Leased Property was in on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Agreement, reasonable wear and tear excepted (and casualty damage and Condemnation, in the event that this Agreement is terminated following a casualty or Condemnation in accordance with Article 10 or Article 11 excepted), and except for repairs Tenant elects not to make pursuant to Section 5.1.3(b). In addition, upon the expiration or earlier termination of this Agreement, Tenant shall, at Landlord's sole cost and expense, use its good faith efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental Entities which may be necessary for the use and operation of the Hotel as then operated. If requested by Landlord, Tenant will direct the Manager to continue, or if there is no Manager, Tenant shall continue to manage one or more of the Hotels after the expiration of the Term and for up to one (1) year, on such reasonable terms (which shall include a market rate management fee, customary royalty for non-exclusive license to use the trademarks then being used at the Leased Property and an agreement to reimburse the Manager or Tenant, as the case may be, for its reasonable out-of-pocket costs and expenses, and reasonable administrative costs), as Landlord shall reasonably request. 1.114 MANAGEMENT AGREEMENT. Tenant shall not, without Landlord's prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned), enter into, or amend or modify the provisions of any Management Agreement. Any Management Agreement shall be subordinate to this Agreement and shall provide, inter alia, that all amounts due from Tenant to the Manager shall be subordinate to all amounts due from Tenant to Landlord (provided that, as long as no Event of Default has occurred and is continuing, Tenant may pay all amounts due to a Manager pursuant to a Management Agreement) and for termination thereof, at Landlord's option, upon the termination of this 44 Agreement. Tenant shall not take any action, grant any consent or permit any action under any Management Agreement which might have a material adverse effect on Landlord, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. ARTICLE 6 IMPROVEMENTS, ETC. 1.115 IMPROVEMENTS TO THE LEASED PROPERTY. Tenant shall not make, construct or install any Capital Additions (other than Capital Additions of the type described in Section 5.1.2(a)(ii) or 5.1.2(a)(iii) and approved pursuant to Section 5.1.2(c)) without, in each instance, obtaining Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned provided that (a) construction or installation of the same would not adversely affect or violate any material Legal Requirement or Insurance Requirement applicable to the Leased Property and (b) Landlord shall have received an Officer's Certificate certifying as to the satisfaction of the conditions set out in clause (a) above; provided, however, that no such consent shall be required in the event immediate action is required to prevent imminent harm to person or property. Prior to commencing construction of any Capital Addition, Tenant shall submit to Landlord, in writing, a proposal setting forth, in reasonable detail, any such proposed improvement and shall provide to Landlord such plans and specifications, and such permits, licenses, contracts and such other information concerning the same as Landlord may reasonably request. Landlord shall have thirty (30) days to review all materials submitted to Landlord in connection with any such proposal. Failure of Landlord to respond to Tenant's proposal within such 30-day period shall be deemed approval thereof. Without limiting the generality of the foregoing, such proposal shall indicate the approximate projected cost of constructing such proposed improvement and the use or uses to which it will be put. No Capital Addition shall be made which would tie in or connect any Leased Improvements with any other improvements on property adjacent to the Leased Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities. Except as permitted herein, Tenant shall not finance the cost of any construction of such improvement by the granting of a lien on or security interest in the Leased Property or such improvement, or Tenant's interest therein, without the prior written consent of Landlord, which consent may be withheld by Landlord in Landlord's sole discretion. Any such improvements shall, upon the expiration or sooner termination of this Agreement, remain or pass to and become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances. 45 1.116 SALVAGE. All materials which are scrapped or removed in connection with the making of either Capital Additions or non-Capital Additions or repairs required by Article 5 shall be or become the property of the party that paid for such work. ARTICLE 7 LIENS 1.117 LIENS. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or Tenant's leasehold interest therein or any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is not required to pay hereunder, (d) subleases permitted by Article 16, (e) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet due and payable, or (ii) are being contested in accordance with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the ordinary course of business that are not yet due and payable or are for sums that are being contested in accordance with Article 8, (g) any Hotel Mortgages or other liens which are the responsibility of Landlord pursuant to the provisions of Article 20 and (h) Landlord Liens and any other voluntary liens created by Landlord. 1.118 LANDLORD'S LIEN. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto Landlord, to the maximum extent permitted by Applicable Law, a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles and liquor licenses and permits), and Tenant's interest in all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Hotels (the "Records") and all proceeds therefrom, subject to any Permitted Encumbrances; and such Tenant's Personal Property shall not be removed from the Leased Property at any time when an Event of Default has occurred and is continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord financing statements in form sufficient to perfect the security interest of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the State. During the continuance of an Event 46 of Default, Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim (collectively, "Claims") as to the Leased Property, by appropriate legal proceedings, conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property (Landlord agreeing that any such mortgage or deed of trust shall permit Tenant to exercise the rights granted pursuant to this Article 8) or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property (unless Tenant shall provide Landlord with a bond or other assurance reasonably acceptable to Landlord with respect to any such lien), (c) no part of the Leased Property nor any Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or reasonable expense, including reasonable attorneys' fees, incurred by Landlord in connection therewith or as a result thereof. Landlord agrees to join in any such proceedings if required legally to prosecute such contest, provided that Landlord shall not thereby be subjected to any liability therefor (including, without limitation, for the payment of any costs or expenses in connection therewith) unless Tenant agrees by agreement in form and substance reasonably satisfactory to Landlord, to assume and indemnify Landlord with respect to the same. Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord to the extent that Landlord has been fully reimbursed by Tenant. If Tenant shall fail (x) to pay or cause to be paid any Claims when finally determined, (y) to provide reasonable security therefor or (z) to prosecute or cause to be prosecuted any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice shall not be required if Landlord shall reasonably determine that the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges. 47 ARTICLE 9 INSURANCE AND INDEMNIFICATION 1.119 GENERAL INSURANCE REQUIREMENTS. Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of the Leased Property, keep the Leased Property and all property located therein or thereon, insured against the risks and in the amounts as follows and shall maintain, with respect to each Property, the following insurance: (1) "All-risk" property insurance, including insurance against loss or damage by fire, vandalism and malicious mischief, earthquake, explosion of steam boilers, pressure vessels or other similar apparatus, now or hereafter installed in the Hotel located at such Property, with the usual extended coverage endorsements, in an amount equal to one hundred percent (100%) of the then full Replacement Cost thereof (as defined in Section 9.2); (2) Business interruption insurance covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in subparagraph (a) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (3) Comprehensive general liability insurance, including bodily injury and property damage in a form reasonably satisfactory to Landlord (and including, without limitation, broad form contractual liability, independent contractor's hazard and completed operations coverage) in an amount not less than One Million Dollars ($1,000,000) per occurrence, Two Million Dollars ($2,000,000) in the aggregate and umbrella coverage of all such claims in an amount not less than Fifty Million Dollars ($50,000,000); (4) Flood (if such Property is located in whole or in part within an area identified as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, or the Flood Disaster Protection Act of 1973, as amended (or any successor acts thereto)) in such amounts as may be customary for comparable properties in the area; (5) Worker's compensation insurance coverage if required by applicable law for all persons employed by Tenant on such Property with statutory limits and otherwise with limits of and provisions in accordance with the 48 requirements of applicable local, State and federal law, and employer's liability insurance as is customarily carried by similar employers; and (6) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Hotel Mortgagee and which is customarily carried by comparable lodging properties in the area. 1.120 REPLACEMENT COST. "REPLACEMENT COST" as used herein, shall mean the actual replacement cost of the property requiring replacement from time to time, including an increased cost of construction endorsement, less exclusions provided in the standard form of fire insurance policy. In the event either party believes that the then full Replacement Cost has increased or decreased at any time during the Term, such party, at its own cost, shall have the right to have such full Replacement Cost redetermined by an independent accredited appraiser approved by the other, which approval shall not be unreasonably withheld or delayed. The party desiring to have the full Replacement Cost so redetermined shall forthwith, on receipt of such determination by such appraiser, give Notice thereof to the other. The determination of such appraiser shall be final and binding on the parties hereto until any subsequent determination under this Section 9.2, and Tenant shall forthwith conform the amount of the insurance carried to the amount so determined by the appraiser. 1.121 WAIVER OF SUBROGATION. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in any State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 1.122 FORM SATISFACTORY, ETC. All insurance policies and endorsements required pursuant to this Article 9 shall be fully paid for, nonassessable and be issued by insurance carriers authorized to do business in the State, having a general policy holder's rating of no less than B++ in Best's latest rating guide. All such policies described in Sections 9.1(a) through (d) shall include no deductible in excess of Two Hundred Fifty Thousand Dollars ($250,000) (with the exception of insurance described in Section 9.1(a) providing coverage for windstorm which may have a deductible not exceeding five percent (5%) of the policy amount for such insurance or such lesser amount as may 49 be usual and customary in the insurance industry for like properties) and, with the exception of the insurance described in Sections 9.1(e), shall name Landlord and any Hotel Mortgagee as additional insureds, as their interests may appear. All loss adjustments shall be payable as provided in Article 10, except that losses under Sections 9.1(c) and (e) shall be payable directly to the party entitled thereto. Tenant shall cause all insurance premiums to be paid and shall deliver policies or certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, prior to the expiration of the existing policy). All such policies shall provide Landlord (and any Hotel Mortgagee if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy. In the event Tenant shall fail to effect such insurance as herein required, to pay the premiums therefor or to deliver such policies or certificates to Landlord or any Hotel Mortgagee at the times required, Landlord shall have the right, upon Notice to Tenant, but not the obligation, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Charges, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid. 1.123 BLANKET POLICY. Notwithstanding anything to the contrary contained in this Article 9, Tenant's obligation to maintain the insurance herein required may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, provided, that (a) the coverage thereby afforded will not be reduced or diminished from that which would exist under a separate policy meeting all other requirements of this Agreement, and (b) the requirements of this Article 9 are otherwise satisfied. Without limiting the foregoing, the amounts of insurance that are required to be maintained pursuant to Section 9.1 shall be on a Hotel by Hotel basis, and shall not be subject to an aggregate limit, except for flood, earthquake and umbrella coverages. 1.124 NO SEPARATE INSURANCE. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9, or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including Landlord and all Hotel Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Agreement. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt Notice thereof. 1.124 INDEMNIFICATION OF LANDLORD. Notwithstanding the existence of any insurance provided for herein and without regard 50 to the policy limits of any such insurance, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Leased Property or adjoining sidewalks or rights of way, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant relating to the Leased Property or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions that are the obligations of Tenant to pay pursuant to the applicable provisions of this Agreement, and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Agreement. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord (and shall not be responsible for any duplicative attorneys' fees incurred by Landlord) or may compromise or otherwise dispose of the same, with Landlord's prior written consent (which consent may not be unreasonably withheld, delayed or conditioned). The obligations of Tenant under this Section 9.7 are in addition to the obligations set forth in Section 4.3 and shall survive the termination of this Agreement. 51 ARTICLE 10 CASUALTY 1.126 INSURANCE PROCEEDS. Except as provided in the last clause of this sentence, all proceeds payable by reason of any loss or damage to any Property, or any portion thereof, and insured under any policy of insurance required by Article 9 (other than the proceeds of any business interruption insurance) shall be paid directly to Landlord (subject to the provisions of Section 10.2) and all loss adjustments with respect to losses payable to Landlord shall require the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that, so long as no Event of Default shall have occurred and be continuing, all such proceeds less than or equal to Five Hundred Thousand Dollars ($500,000) shall be paid directly to Tenant and such losses may be adjusted without Landlord's consent. If Tenant is required to reconstruct or repair any Property as provided herein, such proceeds shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of such Property necessitated by such damage or destruction, subject to and in accordance with the provisions of Section 10.2.4. Provided no Default or Event of Default has occurred and is continuing, any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event that the provisions of Section 10.2.1 are applicable, the insurance proceeds shall be retained by the party entitled thereto pursuant to Section 10.2.1. 1.127 DAMAGE OR DESTRUCTION. 1.127.1 DAMAGE OR DESTRUCTION OF LEASED PROPERTY. If, during the Term, any Property shall be totally or partially destroyed and the Hotel located thereon is thereby rendered Unsuitable for Its Permitted Use, Tenant may, by the giving of Notice thereof to Landlord, within ninety (90) days after the date of casualty, terminate this Agreement with respect to such Property, in which event, Landlord shall be entitled to retain the insurance proceeds payable on account of such damage, except that Landlord shall pay to Tenant any net proceeds in excess of the replacement cost of such Property reasonably allocable to the value of Tenant's leasehold, Tenant's Personal Property and Capital Additions paid for by Tenant. 1.127.2 PARTIAL DAMAGE OR DESTRUCTION. If, during the Term, any Property shall be totally or partially destroyed but the Hotel is not rendered Unsuitable for Its Permitted Use, Tenant shall promptly restore such Hotel as provided in Section 10.2.4 unless this Agreement is terminated as to such Hotel as provided in Section 10.2.3. 52 1.127.3 INSUFFICIENT INSURANCE PROCEEDS. If this Agreement is not otherwise terminated pursuant to this Article 10 and the cost of the repair or restoration of the applicable Property exceeds the amount of insurance proceeds received by Landlord and Tenant pursuant to Section 9(a), (c), (d) or, if applicable, (f), Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that, if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement). In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord's sole election by Notice to Tenant, given within sixty (60) days after Tenant's notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property by Notice to the other, whereupon, this Agreement shall terminate and insurance proceeds shall be distributed as provided in Section 10.2.1. It is expressly understood and agreed, however, that, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall, upon any insurable loss, pay over the amount of such deductible to Landlord at the time and in the manner herein provided for payment of the applicable proceeds to Landlord. 1.127.4 DISBURSEMENT OF PROCEEDS. In the event Tenant is required to restore any Property pursuant to Section 10.2 and this Agreement is not terminated as to such Property pursuant to this Article 10, Tenant shall commence promptly and continue diligently to perform the repair and restoration of such Property (hereinafter called the "Work"), so as to restore such Property in material compliance with all Legal Requirements and so that such Property shall be, to the extent practicable, substantially equivalent in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds and any additional amounts payable by Landlord pursuant to Section 10.2.3 or otherwise deposited with Landlord to Tenant regularly during the repair and restoration period so as to permit payment for the cost of any such restoration and repair. Any such advances shall be made not more than monthly within ten (10) Business Days after Tenant submits to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord). Landlord may, at its option, 53 condition advancement of such insurance proceeds and other amounts on (i) the absence of any Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, if available, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (vii), if Tenant has elected to advance deficiency funds pursuant to Section 10.2.3, Tenant depositing the amount thereof with Landlord and (viii) such other certificates as Landlord may, from time to time, reasonably require. Landlord's obligation to disburse insurance proceeds under this Article 10 during the last two (2) years of the Term (including any automatic renewals thereof) shall be subject to the release of such proceeds by any Hotel Mortgagee to Landlord. If any Hotel Mortgagee shall be unwilling to disburse insurance proceeds in accordance with the terms of this Agreement, Tenant shall have the right, by the giving of Notice thereof to Landlord within ten (10) Business Days after Tenant learns of such unwillingness, to treat such Property as rendered Unsuitable for its Permitted Use for purposes of Section 10.2.1. Tenant's obligation to restore the applicable Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Hotel Mortgagee to Landlord or directly to Tenant. 1.128 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of Section 10.1 or 10.2 to the contrary, if damage to or destruction of any Property occurs during the last two (2) years of the Term (including any automatic Extended Terms) and if such damage or destruction cannot reasonably be expected to be fully repaired and restored prior to the date that is twelve (12) months prior to the end of the Term, the provisions of Section 10.2.1 shall apply as if such Property had been totally or partially destroyed and the Hotel thereon rendered Unsuitable for its Permitted Use. 1.129 TENANT'S PROPERTY. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property shall be paid to Tenant and, to the extent necessary to repair or replace Tenant's Personal Property in accordance with Section 10.5, Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property. 1.1 1.130 RESTORATION OF TENANT'S PROPERTY. If Tenant is required to restore any Property as hereinabove provided and this Agreement is not terminated as to such Property pursuant to the terms of Article 10, Tenant shall either (a) restore all alterations and improvements made by Tenant and Tenant's Personal 54 Property, or (b) replace such alterations and improvements and Tenant's Personal Property with improvements or items of the same or better quality and utility in the operation of such Property. If Tenant is not required to restore and does not, in fact, restore, Tenant shall pay over to Landlord the amount, if any, of insurance proceeds received by Tenant with respect to any of Tenant's Personal Property which was purchased with funds from the FF&E Reserve. 1.131 NO ABATEMENT OF RENT. Except as expressly provided herein, this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any damage involving the Leased Property (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder). The provisions of this Article 10 shall be considered an express agreement governing any cause of damage or destruction to the Leased Property and, to the maximum extent permitted by law, no local or State statute, laws, rules, regulation or ordinance in effect during the Term which provide for such a contingency shall have any application in such case. 1.132 WAIVER. Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property, or any portion thereof. ARTICLE 11 CONDEMNATION 1.133 TOTAL CONDEMNATION, ETC. If either (i) the whole of any Property shall be taken by Condemnation or (ii) a Condemnation of less than the whole of any Property renders any Property Unsuitable for Its Permitted Use, this Agreement shall terminate with respect to such Property, Tenant and Landlord shall seek the Award for their interests in the applicable Property as provided in Section 11.6 and, as the effective date of taking, the Minimum Rent payable hereunder shall be reduced by such Property's allocable share thereof as set forth in Exhibit C. 1.134 PARTIAL CONDEMNATION. In the event of a Condemnation of less than the whole of any Property such that such Property is still suitable for its Permitted Use, Tenant shall commence promptly and continue diligently to restore the untaken portion of the applicable Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as such 55 Leased Improvements existing immediately prior to such Condemnation, in material compliance with all Legal Requirements, subject to and unless this Agreement is terminated pursuant to the provisions of this Section 11.2. If the cost of the repair or restoration of the affected Property exceeds the amount of the Award, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement). In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord's sole election by Notice to Tenant given within sixty (60) days after Tenant's Notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property and the entire Award shall be allocated as set forth in Section 11.6. Subject to the terms hereof, Landlord shall contribute to the cost of restoration that part of the Award necessary to complete such repair or restoration, together with severance and other damages awarded for the taken Leased Improvements and any other amounts deposited with or payable by Landlord, to Tenant regularly during the restoration period so as to permit payment for the cost of such repair or restoration. Landlord may, at its option, condition advancement of such Award and other amounts on (i) the absence of any Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, if available, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required, (vii), if Tenant has elected to advance deficiency funds pursuant to the preceding paragraph, Tenant depositing the amount thereof with Landlord and (viii) such other certificates as Landlord may, from time to time, reasonably require. Landlord's obligation under this Section 11.2 to disburse the Award and such other amounts shall be subject to (x) the collection thereof by Landlord and (y) during the last two (2) years of the Term (including any exercised renewals thereof), the release of such Award by the applicable Hotel Mortgagee. If any Hotel Mortgagee shall be unwilling to disburse Award proceeds in accordance with the terms of this Agreement, Tenant shall have the right, by the giving of Notice thereof to Landlord within ten 56 (10) Business Days after Tenant learns of such unwillingness, to treat such Property as rendered Unsuitable for its Permitted Use for purposes of Section 11.1. Tenant's obligation to restore the Leased Property shall be subject to the release of the Award by the applicable Hotel Mortgagee to Landlord or directly to Tenant. 1.135 ABATEMENT OF RENT. Other than as specifically provided in this Agreement, this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Leased Property, or any portion thereof. The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving the Leased Property and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such a contingency shall have any application in such case. 1.136 TEMPORARY CONDEMNATION. In the event of any temporary Condemnation of any Property or Tenant's interest therein, this Agreement shall continue in full force and effect and Tenant shall continue to pay, in the manner and on the terms herein specified, the full amount of the Rent. Tenant shall continue to perform and observe all of the other terms and conditions of this Agreement on the part of the Tenant to be performed and observed. Provided no Event of Default has occurred and is continuing, the entire amount of any Award made for such temporary Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, promptly upon the termination of any such period of temporary Condemnation, at its sole cost and expense, restore the Leased Property to the condition that existed immediately prior to such Condemnation, in material compliance with all applicable Legal Requirements, unless such period of temporary Condemnation shall extend beyond the expiration of the Term, in which event Tenant shall not be required to make such restoration. 1.137 CONDEMNATION NEAR END OF TERM. Notwithstanding any provisions of Sections 11.2 or 11.3 to the contrary, if Condemnation of any Property occurs during the last two (2) years of the Term (including any automatic Extended Terms) and if restoration cannot reasonably be expected to be completed prior to the date that is twelve (12) months prior to the end of the Term, the provisions of Section 11.1 shall apply as if such Property had been totally or partially taken and the Hotel thereon rendered Unsuitable for its Permitted Use. 1.138 ALLOCATION OF AWARD. Except as provided in Section 11.4 and the second sentence of this Section 11.6, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of 57 Tenant's leasehold interest in the Leased Property, loss of business during the remainder of the Term, the taking of Tenant's Personal Property (other than any such property purchased with the FF&E Reserve), the taking of Capital Additions paid for by Tenant and Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant. In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. ARTICLE 12 DEFAULTS AND REMEDIES 1.139 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (1) should Tenant fail to make any payment of the Rent or any other sum (including, but not limited to, funding of the FF&E Reserve) payable hereunder when due; or (2) should Tenant fail to maintain the insurance coverages required under Article 9 and such failure shall continue for ten (10) Business Days after Notice thereof (except that no Notice shall be required if any such insurance coverages shall have lapsed); or (3) should Tenant default in the due observance or performance of any of the terms, covenants or agreements contained herein to be performed or observed by it (other than as specified in clauses (a) and (b) above) and such default shall continue for a period of thirty (30) days after Notice thereof from Landlord to Tenant; provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with due diligence within such period of time and if, in addition, Tenant commences to cure or cause to be cured such default within thirty (30) days after Notice thereof from Landlord and thereafter prosecutes the curing of such default with all due diligence, such period of time shall be extended to such period of time (not to exceed an additional one (1) year in the aggregate) as may be necessary to cure such default with all due diligence; or (4) should any obligation of Tenant in excess of One Million Dollars ($1,000,000) in respect of any Indebtedness for money borrowed or for any material property or services, or any guaranty relating thereto, be declared to be or become due and payable prior to the stated maturity thereof, or should there occur and be continuing with respect to any such Indebtedness any event of default under any instrument or agreement evidencing or securing the same, the effect of 58 which is to permit the holder or holders of such instrument or agreement or a trustee, agent or other representative on behalf of such holder or holders, to cause such any such obligations to become due prior to its stated maturity; or (5) should an event of default by ShoLodge or Tenant or any Affiliated Person as to ShoLodge or Tenant occur and be continuing beyond the expiration of any applicable cure period under any of the Incidental Documents or by the ShoLodge Parties (as defined therein) under the Purchase Agreement; or (6) should any material representation or warranty made by Tenant or the ShoLodge Parties (as defined in the Purchase Agreement) under or in connection with this Agreement or any Incidental Document or, for the period expiring on the first anniversary of the Commencement Date, the Purchase Agreement, or in any document, certificate or agreement delivered in connection herewith or therewith, prove to have been false or misleading in any material respect on the date when made or deemed made and the same shall continue for five (5) Business Days after Notice thereof from Landlord; or (7) should Tenant generally not be paying its debts as they become due or should Tenant make a general assignment for the benefit of creditors; or (8) should any petition be filed by or against Tenant under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Tenant seeking to adjudicate Tenant a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of Tenant's debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Tenant or for any substantial part of the property of Tenant and such proceeding is not dismissed within one hundred eighty (180) days after institution thereof; or (9) should Tenant cause or institute any proceeding for its dissolution or termination; or (10) should the estate or interest of Tenant in the Leased Property or any part thereof be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of (x) two hundred seventy (270) days after commencement thereof, unless the amount in dispute is less than $1,000,000, in which case Tenant shall give notice to Landlord of the dispute but Tenant may defend in any suitable way, and (y) two hundred seventy (270) days 59 after receipt by Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such lien or attachment in good faith in accordance with Article 8); or (11) should Tenant at any time cease to be a wholly owned, direct or indirect, Subsidiary of ShoLodge; then, and in any such event, Landlord, in addition to all other remedies available to it, may terminate this Agreement with respect to any or all of the Leased Property by giving Notice thereof to Tenant and upon the expiration of the time, if any, fixed in such Notice, this Agreement shall terminate with respect to all or the designated portion of the Leased Property and all rights of Tenant under this Agreement with respect thereto shall cease. Landlord shall have and may exercise all rights and remedies available at law and in equity to Landlord as a result of Tenant's breach of this Agreement. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property or any portion thereof and take possession of any and all of Tenant's Personal Property, if any, and the Records, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same at public or private sale, after giving Tenant reasonable Notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant's Personal Property, if any, unless otherwise prohibited by law. Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable Notice shall be met if such Notice is given at least ten (10) days before the date of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such property (including, reasonable attorneys' fees) shall be applied as a credit against the indebtedness which is secured by the security interest granted in Section 7.2. Any surplus shall be paid to Tenant or as otherwise required by law and Tenant shall pay any deficiency to Landlord, as Additional Charges, upon demand. 1.140 REMEDIES. None of (a) the termination of this Agreement pursuant to Section 12.1, (b) the repossession of the Leased Property or any portion thereof, (c) the failure of Landlord to re-let the Leased Property or any portion thereof, nor (d) the reletting of all or any of portion of the Leased Property, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such termination, repossession or re-letting. In the event of any such termination, Tenant shall forthwith pay to Landlord all Rent due and payable with respect to the Leased Property through and including the date of such termination. Thereafter, Tenant, until the end of what would have been the Term of this Agreement 60 in the absence of such termination, and whether or not the Leased Property or any portion thereof shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent (Additional Rent to be reasonably calculated by Landlord based on historical Total Hotel Sales) and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any re-letting of the Leased Property, after deducting all reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Agreement had not been so terminated with respect to such of the Leased Property. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages beyond the date of such termination, at Landlord's election, Tenant shall pay to Landlord an amount equal to the present value (discounted at the Interest Rate) of the excess, if any, of the Rent and other charges which would be payable hereunder from the date of such termination (assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Impositions and Additional Rent would be the same as payments required for the immediately preceding twelve calendar months, or if less than twelve calendar months have expired since the Commencement Date, the payments required for such lesser period projected to an annual amount) for what would be the then unexpired term of this Agreement if the same remained in effect, over the fair market rental for the same period. Nothing contained in this Agreement shall, however, limit or prejudice the right of Landlord to prove and obtain in proceedings for bankruptcy or insolvency an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above. In case of any Event of Default, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (a) relet the Leased Property or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option, be equal to, less than or exceed the period which would otherwise have constituted the balance of the Term and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to relet the same, and (b) may make such reasonable alterations, repairs and decorations in the Leased Property or any portion thereof as Landlord, in its sole and absolute discretion, considers advisable and necessary for the purpose of reletting the Leased Property; and the making of such alterations, repairs and 61 decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Subject to the last sentence of this paragraph and as long as Landlord uses reasonable efforts to mitigate its damages as provided in such sentence, Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Leased Property, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting. To the maximum extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the occurrence and continuation of an Event of Default hereunder. Landlord covenants and agrees, in the event of any termination of this Agreement as a result of an Event of Default, to use reasonable efforts to mitigate its damages. 1.141 TENANT'S WAIVER. IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT. 1.142 APPLICATION OF FUNDS. Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant's current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State. Any balance shall be paid to Tenant. 1.143 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If an Event of Default shall have occurred and be continuing, Landlord, after Notice to Tenant (which Notice shall not be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the maximum extent permitted by law, enter upon the Leased Property or any portion thereof for such purpose and take all such action thereon as, in Landlord's sole and absolute discretion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of Tenant. All reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection therewith, together with interest thereon (to the extent permitted by law) at the Overdue Rate from the date such sums are paid by Landlord until repaid, shall be paid by Tenant to Landlord, on demand. 62 ARTICLE 13 HOLDING OVER Any holding over by Tenant after the expiration or sooner termination of this Agreement shall be treated as a daily tenancy at sufferance at a rate equal to two (2) times the Minimum Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages (direct or indirect) sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Agreement, to the extent applicable. Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the expiration or earlier termination of this Agreement. ARTICLE 14 LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT 1.144 LANDLORD NOTICE OBLIGATION. Notwithstanding anything to the contrary contained herein, Landlord shall give prompt Notice to Tenant of any matters affecting the Leased Property of which Landlord receives written notice or actual knowledge and, to the extent Tenant otherwise has no notice or actual knowledge thereof, Landlord shall be liable for any liabilities arising from the failure to deliver such Notice to Tenant. 1.145 LANDLORD'S DEFAULT. If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Agreement or any obligation of Landlord, if any, under any agreement affecting the Leased Property, the performance of which is not Tenant's obligation pursuant to this Agreement, and any such default shall continue for a period of five (5) Business Days after Notice thereof with respect to monetary defaults and twenty (20) Business Days after Notice thereof with respect to non-monetary defaults from Tenant to Landlord and any applicable Hotel Mortgagee, or such additional period as may be reasonably required to correct the same, provided Landlord is proceeding with due diligence to correct the same, Tenant may declare the occurrence of a "Landlord Default" by a second Notice to Landlord and to such Hotel Mortgagee. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest thereon (to the extent permitted by law) from the date Landlord receives Tenant's invoice until paid, at the Overdue Rate, and/or offset such amounts against 63 Additional Rent due and payable hereunder. Tenant shall have no right to terminate this Agreement for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any Rent or other charges due hereunder, except with respect to Additional Rent as set forth in the preceding sentence. If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give Notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof; provided, however, that in the event of any such adverse determination, Landlord shall pay to Tenant interest on any disputed funds at the Interest Rate, from the date demand for such funds was made by Tenant until the date of final adverse determination and, thereafter, at the Overdue Rate until paid. If Tenant and Landlord shall fail, in good faith, to resolve any such dispute within ten (10) days after Landlord's Notice of dispute, either may submit the matter for resolution to a court of competent jurisdiction. 1.146 INDEMNIFICATION OF TENANT. Notwithstanding the existence of any insurance provided for herein and without regard to the policy limits of any such insurance, Landlord shall protect, indemnify and hold harmless Tenant for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Tenant by reason of: (a) any Impositions that are the obligations of Landlord to pay pursuant to the applicable provisions of this Agreement, and (b) any failure on the part of Landlord or anyone claiming under Landlord to perform or comply with any of the terms of this Agreement. Landlord, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Tenant (and shall not be responsible for any duplicative attorneys' fees incurred by Tenant) or may compromise or otherwise dispose of the same, with Tenant's prior written consent (which consent may not be unreasonably withheld, delayed or conditioned). The obligations of Landlord under this Section 14.3 shall survive termination of this Agreement. 64 ARTICLE 15 PURCHASE RIGHTS Landlord shall have the option to purchase Tenant's Personal Property, at the expiration or termination of this Agreement, for an amount equal to the then net market value thereof (current replacement cost as determined by agreement of the parties or, in the absence of such agreement, appraisal, less accumulated depreciation on Tenant's books pertaining thereto), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject (except that any such property purchased with the FF&E Reserve shall be transferred to Landlord as provided in Section 5.1.2(e)). Upon the expiration or sooner termination of this Agreement, Tenant shall use its reasonable efforts to transfer and assign to Landlord or its designee, or assist Landlord or its designee in obtaining, any contracts, licenses, and certificates required for the then operation of the Leased Property. ARTICLE 16 SUBLETTING AND ASSIGNMENT 65 1.147 SUBLETTING AND ASSIGNMENT. Except as provided in Section 16.3, Tenant shall not, without Landlord's prior written consent (which consent may be given or withheld in Landlord's sole and absolute discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or sublease (which term shall be deemed to include the granting of concessions, licenses and the like but shall not be deemed to include the lodging of hotel guests consistent with the Permitted Use), all or any part of the Leased Property or suffer or permit this Agreement or the leasehold estate created hereby or any other rights arising under this Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or operation of the Leased Property by anyone other than Tenant, or the Leased Property to be offered or advertised for assignment or subletting; provided, however, that an assignment to a wholly owned Subsidiary (direct or indirect) of ShoLodge shall be permitted without the consent of, but upon Notice to, Landlord. For purposes of this Section 16.1, an assignment of this Agreement shall be deemed to include any direct or indirect transfer of any interest in Tenant such that Tenant shall cease to be a wholly owned direct or indirect Subsidiary of ShoLodge or any transaction pursuant to which Tenant is merged or consolidated with another Entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other Entity, as if such change in control or transaction were an assignment of this Agreement, unless such Entity is a wholly owned Subsidiary (direct or indirect) of ShoLodge. If this Agreement is assigned or if the Leased Property or any part thereof are sublet (or occupied by anybody other than Tenant and their respective employees or hotel guests) Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 16.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Agreement. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder (unless Landlord and Tenant expressly otherwise agree that Tenant shall be released from all obligations hereunder), and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the prohibition set forth in this Section 16.1. No assignment, subletting or occupancy shall affect any Permitted Use. Any subletting, assignment or other transfer of Tenant's interest under this Agreement in contravention of this Section 16.1 shall be voidable at Landlord's option. 66 1.148 REQUIRED SUBLEASE PROVISIONS. Any sublease of all or any portion of the Leased Property entered into on or after the date hereof shall provide (a) that it is subject and subordinate to this Agreement and to the matters to which this Agreement is or shall be subject or subordinate; (b) that in the event of termination of this Agreement or reentry or dispossession of Tenant by Landlord under this Agreement, Landlord may, at its option, terminate such sublease or take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Hotel Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such mortgagee succeeds to that position, shall (i) be liable for any act or omission of Tenant under such sublease, (ii) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease not consented to in writing by Landlord or by any previous prepayment of more than one (1) month's rent, (iv) be bound by any covenant of Tenant to undertake or complete any construction of the Leased Property or any portion thereof, (v) be required to account for any Retained Funds of the subtenant other than any Retained Funds actually delivered to Landlord by Tenant, (vi) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease that are performed after the date of such attornment, (vii) be responsible for any monies owing by Tenant to the credit of such subtenant unless actually delivered to Landlord by Tenant, or (viii) be required to remove any Person occupying any portion of the Leased Property; and (c), in the event that such subtenant receives a written Notice from Landlord or any Hotel Mortgagee stating that an Event of Default has occurred and is continuing, such subtenant shall thereafter be obligated to pay all rentals accruing under such sublease directly to the party giving such Notice or as such party may direct. All rentals received from such subtenant by Landlord or the Hotel Mortgagee, as the case may be, shall be credited against the amounts owing by Tenant under this Agreement and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. An original counterpart of each such sublease and assignment and assumption, duly executed by Tenant and such subtenant or assignee, as the case may be, in form and substance reasonably satisfactory to Landlord, shall be delivered promptly to Landlord and (a) in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Agreement on the part of Tenant to be kept and performed and shall be, and become, jointly and severally liable with Tenant for the performance thereof and (b) in case of either an assignment or subletting, Tenant shall remain primarily 67 liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Tenant hereunder. The provisions of this Section 16.2 shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 16.1. 1.149 PERMITTED SUBLEASE. Notwithstanding the foregoing, including, without limitation, Section 16.2, but subject to the provisions of Section 16.4 and any other express conditions or limitations set forth herein, Tenant may, in each instance after Notice to Landlord, sublease space at any Property for newsstand, car rental agency, business services office, gift shop, parking garage, health club, restaurant, bar or commissary purposes or other concessions in furtherance of the Permitted Use, so long as such subleases do not demise, in the aggregate, in excess of two thousand (2,000) square feet per Property or, in the case of a restaurant or bar, four thousand (4,000) square feet per Property, will not violate or affect any Legal Requirement or Insurance Requirement, and Tenant shall provide such additional insurance coverage applicable to the activities to be conducted in such subleased space as Landlord and any Hotel Mortgagee may reasonably require. 1.150 SUBLEASE LIMITATION. For so long as Landlord or any Affiliated Person as to Landlord shall seek to qualify as a real estate investment trust, anything contained in this Agreement to the contrary notwithstanding, Tenant shall not sublet the Leased Property on any basis such that the rental to be paid by any sublessee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of such sublessee, any other formula such that any portion of such sublease rental would fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto or would otherwise disqualify Landlord for treatment as a real estate investment trust. ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 1.151 ESTOPPEL CERTIFICATES. At any time and from time to time, but not more than a reasonable amount of times per year, upon not less than ten (10) Business Days prior Notice by either party, the party receiving such Notice shall furnish to the other an Officer's Certificate certifying that this Agreement is unmodified and in full force and effect (or that this Agreement is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that no 68 Default or an Event of Default has occurred and is continuing or, if a Default or an Event of Default shall exist, specifying in reasonable detail the nature thereof, and the steps being taken to remedy the same, and such additional information as the requesting party may reasonably request. Any such certificate furnished pursuant to this Section 17.1 may be relied upon by the requesting party, its lenders and any prospective purchaser or mortgagee of the Leased Property or the leasehold estate created hereby. 1.152 FINANCIAL STATEMENTS. Tenant shall furnish or cause ShoLodge to furnish, as applicable, the following statements to Landlord: (1) within fifty (50) days after each of the first three fiscal quarters of any Fiscal Year, the most recent Consolidated Financials, accompanied by the Financial Officer's Certificate; (2) within one hundred (100) days after the end of each Fiscal Year, the most recent Consolidated Financials and financials of Tenant for such year, certified by an independent certified public accountant reasonably satisfactory to Landlord and accompanied by a Financial Officer's Certificate; (3) within thirty (30) days after the end of each month, an unaudited operating statement and statement of capital expenditures prepared on a Hotel by Hotel basis and a combined basis, including occupancy percentages and average rate, accompanied by a Financial Officer's Certificate; (4) at any time and from time to time upon not less than twenty (20) days Notice from Landlord or such additional period as may be reasonable under the circumstances, any Consolidated Financials, Tenant financials or any other audited or unaudited financial reporting information required to be filed by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court, governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; and (5) promptly, upon Notice from Landlord, such other information concerning the business, financial condition and affairs of Tenant and ShoLodge as Landlord reasonably may request from time to time. Landlord may at any time, and from time to time, provide any Hotel Mortgagee with copies of any of the foregoing statements, 69 subject to Landlord obtaining the agreement of such Hotel Mortgagee to maintain such statements and the information therein as confidential. ARTICLE 18 LANDLORD'S RIGHT TO INSPECT Tenant shall permit Landlord and its authorized representatives to inspect the Leased Property during usual business hours upon not less than forty-eight (48) hours' notice and to make such repairs as Landlord is permitted or required to make pursuant to the terms of this Agreement, provided that any inspection or repair by Landlord or its representatives will not unreasonably interfere with Tenant's use and operation of the Leased Property and further provided that in the event of an emergency, as determined by Landlord in its reasonable discretion, prior Notice shall not be necessary. ARTICLE 19 EASEMENTS 1.153 GRANT OF EASEMENTS. Provided no Event of Default has occurred and is continuing, Landlord will join in granting and, if necessary, modifying or abandoning such rights-of-way, easements and other interests as may be reasonably requested by Tenant for ingress and egress, and electric, telephone, gas, water, sewer and other utilities so long as: (1) the instrument creating, modifying or abandoning any such easement, right-of-way or other interest is satisfactory to and approved by Landlord (which approval shall not be unreasonably withheld, delayed or conditioned); and (2) Landlord receives an Officer's Certificate from Tenant stating (i) that such grant, modification or abandonment is not detrimental to the proper conduct of business on such Property, (ii) the consideration, if any, being paid for such grant, modification or abandonment (which consideration shall be paid by Tenant), (iii) that such grant, modification or abandonment does not impair the use or value of such Property for the Permitted Use, and (iv) that, for as long as this Agreement shall be in effect, Tenant will perform all obligations, if any, of Landlord under any such instrument. 1.154 EXERCISE OF RIGHTS BY TENANT. So long as no Event of Default has occurred and is continuing, Tenant shall have the right to exercise all rights of Landlord under the Easement 70 Agreements and, in connection therewith, Landlord shall execute and promptly return to Tenant such documents as Tenant shall reasonably request. Tenant shall perform all obligations of Landlord under the Easement Agreements. 1.155 PERMITTED ENCUMBRANCES. Any agreements entered into in accordance with Section 19.1 shall be deemed a Permitted Encumbrance. ARTICLE 20 HOTEL MORTGAGES 1.156 LANDLORD MAY GRANT LIENS. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 20.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Notwithstanding anything to the contrary set forth in Section 20.2, any such Encumbrance shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 20.2) that it is subject to the rights of Tenant under this Agreement. 1.157 SUBORDINATION OF LEASE. Subject to Section 20.1 and this Section 20.2, this Agreement and any and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Leased Property or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall be self-operative and no further instrument of subordination shall be required provided that Tenant has received a nondisturbance and attornment agreement from each Superior Mortgagee (as defined below), consistent with the provisions of this Section 20.2 and otherwise in form and substance reasonably satisfactory to Tenant. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Agreement is, at the time referred to, subject and subordinate is herein called "Superior 71 Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to is herein called "Superior Landlord" and any mortgage or deed of trust to which this Agreement is, at the time referred to, subject and subordinate is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is herein called "Superior Mortgagee". If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Agreement (any such person, "Successor Landlord"), whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, such Successor Landlord shall recognize Tenant's rights under this Agreement as herein provided and Tenant shall attorn to and recognize the Successor Landlord as Tenant's landlord under this Agreement and Tenant shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment (provided that such instrument does not alter the terms of this Agreement), whereupon, this Agreement shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Agreement, except that the Successor Landlord (unless formerly the landlord under this Agreement or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of any prior Landlord under this Agreement, (b) responsible for any monies owing by or on deposit with any prior Landlord to the credit of Tenant (except to the extent actually paid or delivered to the Successor Landlord), (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against any prior Landlord, (d) bound by any modification of this Agreement subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Rent for more than one (1) month in advance of the date due hereunder, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord's interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by the Landlord under this Agreement to render the Leased Property ready for occupancy by Tenant, or (g) required to remove any Person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid and Landlord agrees to provide Tenant with an instrument of nondisturbance and attornment from each such Superior Mortgagee and Superior Landlord in form and substance reasonably satisfactory to Tenant. Nothing contained in this Section 20.2 shall relieve Landlord from any liability to Tenant under this 72 Agreement following the exercise of remedies by a Superior Mortgagee. 1.158 NOTICE TO MORTGAGEE AND SUPERIOR LANDLORD. Subsequent to the receipt by Tenant of Notice from Landlord as to the identity of any Hotel Mortgagee or Superior Landlord under a lease with Landlord, as ground lessee, which includes the Leased Property as part of the demised premises and which complies with Section 20.1 and 20.2 (which Notice shall be accompanied by a copy of the applicable mortgage or lease), no Notice from Tenant to Landlord as to a default by Landlord under this Agreement shall be effective with respect to a Hotel Mortgagee or Superior Landlord unless and until a copy of the same is given to such Hotel Mortgagee or Superior Landlord at the address set forth in the above described Notice, and the curing of any of Landlord's defaults within the applicable notice and cure periods set forth in Section 14.2 by such Hotel Mortgagee or Superior Landlord shall be treated as performance by Landlord. ARTICLE 21 ADDITIONAL COVENANTS OF TENANT 1.159 PROMPT PAYMENT OF INDEBTEDNESS. Tenant shall (a) pay or cause to be paid when due all payments of principal of and premium and interest on Tenant's Indebtedness for money borrowed and shall not permit or suffer any such Indebtedness to become or remain in default beyond any applicable grace or cure period, (b) pay or cause to be paid when due all lawful claims for labor and rents with respect to the Leased Property, (c) pay or cause to be paid when due all trade payables and (d) pay or cause to be paid when due all other of Tenant's Indebtedness upon which it is or becomes obligated, except, in each case, other than that referred to in clause (a), to the extent payment is being contested in good faith by appropriate proceedings in accordance with Article 8 and if Tenant shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP, if appropriate, or unless and until foreclosure, distraint sale or other similar proceedings shall have been commenced. 1.160 CONDUCT OF BUSINESS. Tenant shall not engage in any business other than the leasing and operation of the Leased Property (including any incidental or ancillary business relating thereto) and shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and its rights and licenses necessary to conduct such business. 1.161 MAINTENANCE OF ACCOUNTS AND RECORDS. Tenant shall keep true records and books of account of Tenant in which full, true and correct entries will be made of dealings and transactions in relation to the business and affairs of Tenant in 73 accordance with GAAP. Tenant shall apply accounting principles in the preparation of the financial statements of Tenant which, in the judgment of and the opinion of its independent public accountants, are in accordance with GAAP, where applicable, except for changes approved by such independent public accountants. Tenant shall provide to Landlord either in a footnote to the financial statements delivered under Section 17.2 which relate to the period in which such change occurs, or in separate schedules to such financial statements, information sufficient to show the effect of any such changes on such financial statements. 1.162 NOTICE OF LITIGATION, ETC. Tenant shall give prompt Notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party of which Tenant has notice or actual knowledge which involves a potential liability equal to or greater than Five Hundred Thousand Dollars ($500,000) or which may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant. Forthwith upon Tenant obtaining knowledge of any Default, Event of Default or any default or event of default under any agreement relating to Indebtedness for money borrowed in an aggregate amount exceeding, at any one time, Five Hundred Thousand Dollars ($500,000), or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to Landlord specifying the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. 1.163 INDEBTEDNESS OF TENANT. Tenant shall not create, incur, assume or guarantee, or permit to exist, or become or remain liable directly or indirectly upon, any Indebtedness except the following: (1)Indebtedness of Tenant to Landlord; (2) Indebtedness of Tenant for Impositions, to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Article 8; (3) Indebtedness of Tenant in respect of judgments or awards (i) which have been in force for less than the applicable appeal period and in respect of which execution thereof shall have been stayed pending such appeal or review, or (ii) which are fully covered by insurance payable to Tenant, or (iii) which are for an amount not in excess of $500,000 in the aggregate at any one time outstanding and (x) which have been in force for not longer than the 74 applicable appeal period, so long as execution is not levied thereunder or (y) in respect of which an appeal or proceedings for review shall at the time be prosecuted in good faith in accordance with the provisions of Article 8, and in respect of which execution thereof shall have been stayed pending such appeal or review; (4) unsecured borrowings of Tenant from its Affiliated Persons which are by their terms expressly subordinate pursuant to a Subordination Agreement to the payment and performance of Tenant's obligations under this Agreement; or (5) Indebtedness for purchase money financing in accordance with Section 21.9(a) and other operating liabilities incurred in the ordinary course of Tenant's business. 1.164 FINANCIAL CONDITION OF TENANT. Tenant shall at all times maintain Net Worth (except as provided in the last clause of this sentence) in an amount at least equal to the aggregate of one year's Minimum Rent payable pursuant to this Agreement; it being expressly understood and agreed that the right to receive the Retained Funds, if assigned to Tenant, may for such purpose be counted as equity at the full amount thereof. 1.165 DISTRIBUTIONS, PAYMENTS TO AFFILIATED PERSONS, ETC. Tenant shall not declare, order, pay or make, directly or indirectly, any Distributions or any payment to any Affiliated Person of Tenant (including payments in the ordinary course of business and payments pursuant to Management Agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, any Event of Default shall have occurred and be continuing. Otherwise, as long as no Event of Default shall have occurred and be continuing, Tenant may make Distributions and payments to Affiliated Persons (other than from the FF&E Reserve which shall be governed by Section 5.1.2) without restriction. 1.166 PROHIBITED TRANSACTIONS. Tenant shall not permit to exist or enter into any agreement or arrangement whereby it engages in a transaction of any kind with any Affiliated Person as to Tenant, except on terms and conditions which are commercially reasonable. 1.167 LIENS AND ENCUMBRANCES. Except as permitted by Section 7.1 and Section 21.5, Tenant shall not create or incur or suffer to be created or incurred or to exist any Lien on this Agreement or any of Tenant's assets, properties, rights or income, or any of its interest therein, now or at any time hereafter owned, other than: 75 (1) Security interests securing the purchase price of equipment or personal property whether acquired before or after the Commencement Date; provided, however, that (i) such Lien shall at all times be confined solely to the asset in question and (ii) the aggregate principal amount of Indebtedness secured by any such Lien shall not exceed the cost of acquisition or construction of the property subject thereto; (2) Permitted Encumbrances; and (3) As permitted pursuant to Section 21.5. 1.168 MERGER; SALE OF ASSETS; ETC. Tenant shall not (i) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any material portion of its assets (including capital stock) or business to any Person, unless such Person is a wholly owned Subsidiary, direct or indirect, of ShoLodge (in which event Tenant shall give Landlord prior Notice thereof), (ii) merge into or with or consolidate with any other Entity, unless such Entity is a wholly owned Subsidiary, direct or indirect, of ShoLodge (in which event Tenant shall give Landlord prior Notice thereof), or (iii) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, any personal property or fixtures or any real property; provided, however, that, notwithstanding the provisions of clause (iii) preceding, Tenant may dispose of equipment or fixtures which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility (but not necessarily having the same function) have been provided. 76 ARTICLE 22 MISCELLANEOUS 1.169 LIMITATION ON PAYMENT OF RENT. All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under applicable law, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount. This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant. 1.170 NO WAIVER. No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the maximum extent permitted by law, no waiver of any breach shall affect or alter this Agreement, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 1.171 REMEDIES CUMULATIVE. To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord or Tenant, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant (as applicable) of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies. 1.172 SEVERABILITY. Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein. 77 1.173 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 1.174 NO MERGER OF TITLE. It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly this Agreement or the leasehold estate created hereby and the fee estate or ground landlord's interest in the Leased Property. 1.175 CONVEYANCE BY LANDLORD. If Landlord or any successor owner of all or any portion of the Leased Property shall convey all or any portion of the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of such of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer, Landlord or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Landlord under this Agreement with respect to such of the Leased Property arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner; provided, however, that, Landlord shall not be released from liability with respect to the Retained Funds unless such successor shall have a Net Worth equal to or greater than ten (10) times the unapplied balance of the Retained Funds. If such successor shall not satisfy the aforesaid Net Worth requirement, Landlord shall, in a guaranty in form and substance reasonably satisfactory to Tenant, guaranty payment of the Retained Funds in accordance with this Agreement and the Purchase Agreement. 1.176 QUIET ENJOYMENT. Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term, free of hindrance or molestation by Landlord or anyone claiming by, through or under Landlord, but subject to (a) any Encumbrance permitted under Article 20 or otherwise permitted to be created by Landlord hereunder provided that the holder of such Encumbrance has, to the extent appropriate, executed a nondisturbance agreement pursuant to Section 20.2 or a subordination agreement in form and substance reasonably acceptable to Tenant, (b) all Permitted Encumbrances, (c) liens as to obligations of Landlord that are either not yet due or which are being contested in good faith and by proper proceedings, provided the same do not materially interfere with 78 Tenant's ability to operate the Hotels and (d) liens that have been consented to in writing by Tenant. Except as otherwise provided in this Agreement, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Agreement or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Agreement (except as expressly provided in Section 14.2), or to fail to perform any other obligation of Tenant hereunder. 1.177 MEMORANDUM OF LEASE. Neither Landlord nor Tenant shall record this Agreement. However, Landlord and Tenant shall promptly, upon the request of the other, enter into a short form memorandum of this Agreement, in form suitable for recording under the laws of the State in which reference to this Agreement, and all options contained herein, shall be made. Tenant shall pay all costs and expenses of recording such memorandum. 1.178 NOTICES. (1) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (2) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. 79 (3)All such notices shall be addressed, if to Landlord: c/o Hospitality Properties Trust 400 Centre Street Newton, Massachusetts 02158 Attn: Mr. John G. Murray [Telecopier No. (617) 969-5730] with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attn: Jennifer B. Clark, Esq. [Telecopier No. (617) 338-2880] if to Tenant to: c/o ShoLodge, Inc. 130 Maple Drive North Hendersonville, Tennessee 37075 Attn: Mr. Leon L. Moore [Telecopier No. (615) 264-1758] with a copy to: Boult Cummings Conners & Berry, PLC 414 Union Street, Suite 1600 Nashville, Tennessee 37219 Attn: Patrick L. Alexander, Esq. [Telecopier No. (615) 252-6362] (4) By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America. 1.179 TRADE AREA RESTRICTION. Neither Tenant, ShoLodge nor any of their Affiliated Persons shall own, build, franchise, manage or operate all suite hotel of the same brand as the Hotels within the designated areas on Exhibit B, at any time during the Term. 1.180 CONSTRUCTION. Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration. 80 In no event shall Landlord be liable for any consequential damages suffered by Tenant as the result of a breach of this Agreement by Landlord. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition. Time is of the essence with respect to the provisions of this Agreement. Except as otherwise set forth in this Agreement, any obligations of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement. 1.181 COUNTERPARTS; HEADINGS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof. 1.182 APPLICABLE LAW, ETC. This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than Massachusetts; or (vii) any combination of the foregoing. Notwithstanding the foregoing, the laws of the State shall apply to the perfection and priority of liens upon and the disposition of any Property. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by law; and the parties consent to the jurisdiction of said court or courts located in Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law. 81 1.183 RIGHT TO MAKE AGREEMENT. Each party warrants, with respect to itself, that neither the execution of this Agreement, nor the consummation of any transaction contemplated hereby, shall violate any provision of any law, or any judgment, writ, injunction, order or decree of any court or governmental authority having jurisdiction over it; nor result in or constitute a breach or default under any indenture, contract, other commitment or restriction to which it is a party or by which it is bound; nor require any consent, vote or approval which has not been given or taken, or at the time of the transaction involved shall not have been given or taken. Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder. 1.184 NONRECOURSE. Nothing contained in this Agreement shall be construed to impose any liabilities or obligations on Tenant's shareholders, officers, directors, agents or employees (or any shareholders, officers, directors, agents or employees of any of the foregoing) for the performance of the obligations of Landlord or Tenant hereunder. 1.185 ATTORNEYS' FEES. If any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party's costs and expenses, including reasonable attorneys' fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein. 1.186 NONLIABILITY OF TRUSTEES. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HPT SUITE PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date above first written. LANDLORD: HPT SUITE PROPERTIES TRUST 82 By:___________________________ Its (Vice) President TENANT: SUITE TENANT, INC. By:___________________________ Its (Vice) President ShoLodge, Inc. hereby acknowledges and agrees to be bound by the provisions of Section 22.11 of the foregoing Lease Agreement. SHOLODGE, INC. By:_____________________________ Its (Vice) President Date: November __, 1997 83 EXHIBIT A-1 THROUGH A-14 THE LAND [See attached copies.] 84 EXHIBIT B DESIGNATED AREAS Property Area - -------- ---- Tampa, FL 3 miles San Antonio, Riverwalk, TX 3 miles Fort Wayne, IN 10 miles Albuquerque, NM 3 miles El Paso, TX 3 miles Hendersonville, TN 5 miles Cumberland, GA 3 miles Gwinett, GA 3 miles Columbus, OH 3 miles Atlanta Airport, GA 3 miles Dallas, Galleria, TX 3 miles Austin, TX 5 miles Tempe, AZ 3 miles Tucson, AZ 3 miles 85 EXHIBIT C ALLOCABLE RENTS
Property Allocable Rent Per Accounting Period - -------- ------------------------------------ Tampa, FL $ 33,168 San Antonio, Riverwalk, TX 108,706 Fort Wayne, IN 74,560 Albuquerque, NM 88,600 El Paso, TX 70,376 Tempe, AZ 77,446 Tucson, AZ 65,657 Hendersonville, TN 57,782 Cumberland, Smyrna, GA 73,835 Gwinett, Duluth, GA 87,156 Columbus, OH 103,195 Atlanta Airport, GA 79,360 Dallas, Galleria, TX 86,074 Austin, TX 71,008
86 EXHIBIT D TAMPA RENOVATION PLANS AND BUDGET [See attached copies.] EX-2.L 4 y47030ex2-l.txt FIRST AMENDMENT TO LEASE AGREEMENT 1 FIRST AMENDMENT TO LEASE AGREEMENT THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is entered into as of this ___ day of ________, l999, by and between (i) HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord") and (ii) SUITE TENANT, INC., a Tennessee corporation, as tenant ("Tenant"). W I T N E S S E TH: WHEREAS, pursuant to a Lease Agreement, dated as of November 19, 1997 (the "Lease"), Landlord leased certain property to Tenant and Tenant leased certain property from Landlord, subject to and upon the terms and conditions set forth in the Lease; and WHEREAS, the parties hereto wish to amend certain provisions of the Lease Agreement as hereinafter provided; NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Lease Agreement is hereby amended by deleting the Exhibit A Property Description for Tempe, AZ attached thereto and substituting therefor the Exhibit A Property Description for Tempe, AZ attached hereto. 2. Landlord represents and warrants that no Landlord Default, as defined under Section 14.2 of the Lease, has occurred or is continuing under the Lease and Tenant represents and warrants that no Default or Event of Default has occurred or is continuing under the Lease. 3. As amended hereby, the Lease Agreement is and shall remain in full force and effect in accordance with its terms and provisions. 4. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS HEREOF, the parties hereto have executed this Amendment under seal as of the date above first written. HPT SUITE PROPERTIES TRUST By:___________________________ Its (Vice) President SUITE TENANT, INC. 2 By:___________________________ Its (Vice) President ACKNOWLEDGED AND AGREED: GUARANTOR: SHOLODGE, INC. By:_____________________________ Its:_______________________ -2- 3 Exhibit A The Premises [See attached copy.] -3- 4 PARCEL NO. 1 Lot 1 on Amended Subdivision of Lot 16 of SKY HARBOR COMMERCE CENTER, according to the plat of record in the office of the County Recorder of Maricopa County, Arizona, in Book 472 of Maps, page 02. PARCEL NO. 2 An Easement for ingress and egress as recorded in Document No. 96-336483 and in Document No. 96-426379 over the following described property: That portion of the Northeast quarter of Section 17, Township 1 North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa County, Arizona, being described by metes and bounds as follows; COMMENCING at the East quarter corner of said Section 17, being marked by a brass cap flush with the surface of a concrete sidewalk; THENCE North 89 degrees 04 minutes 45 seconds West along the East-West midsection line of said Section 17, a distance of 25.02 feet to the Northeast corner of Lot 16 of SKY HARBOR COMMERCE CENTER, a subdivision recorded at Book 302 of Maps, page 29, official records of Maricopa County; THENCE continuing North 89 degrees 04 minutes 45 seconds West along said East-West midsection line and along the North line of said Lot 16, a distance of 264.58 feet to the TRUE POINT OF BEGINNING of the herein described easement parcel; THENCE continuing North 89 degrees 04 minutes 45 seconds West along said East-West midsection line and along said North line of Lot 16, a distance of 150.00 feet; THENCE North 00 degrees 55 minutes 15 seconds East, a distance of 45.61 feet to a point on the Southerly 65.00 feet right of way line of Rio Salado Parkway; THENCE Easterly along said Southerly right of way line of Rio Salado Parkway and along the arc of a curve concave Northerly, the center of which curve bears North 12 degrees 08 minutes 45 seconds East, a distance of 683.00 feet, through a central angle of 13 degrees 32 minutes 35 seconds and an arc distance of 150.81 feet; THENCE leaving said Southerly 65.00 feet right of way of Rio Salado Parkway on a bearing of South 00 degrees 55 minutes 15 seconds West, a distance of 33.93 feet to the TRUE POINT OF BEGINNING. PARCEL NO. 3 Non-exclusive easement for ingress and egress as recorded in Document No. _______ over the portion of the following described property and included in Parcel No. 1 above: -4- 5 See Exhibit A-1 attached hereto. -5- 6 Exhibit A-1 -6- EX-2.M 5 y47030ex2-m.txt SECOND AMENDMENT TO LEASE AGREEMENT 1 SECOND AMENDMENT TO LEASE AGREEMENT AND FIRST AMENDMENT TO INCIDENTAL DOCUMENTS THIS SECOND AMENDMENT TO LEASE AGREEMENT AND FIRST AMENDMENT TO INCIDENTAL DOCUMENTS (this "Amendment") is entered into as of June 29, 1999, by and among (i) HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust ("HPT"); (ii) HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust (the "Landlord"); (iii) SHOLODGE, INC., a Tennessee corporation, ("Sho"); and (iv) SUITE TENANT, INC., a Tennessee corporation (the "Tenant"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to a Purchase and Sale Agreement, dated as of October 24, 1997 (the "Original Purchase Agreement"), and an Agreement to Lease, dated as of October 24, 1997 (the "Original Agreement to Lease"), HPT acquired from Sho and certain of its affiliates certain hotel properties and the Landlord and the Tenant entered into a Lease Agreement, dated as of November 19, 1997, as amended by First Amendment to Lease Agreement, dated as of March 5, 1999 (as so amended, the "Lease"); and WHEREAS, the obligations of the Tenant under the Lease are secured and guaranteed by certain undertakings and agreements of Sho and the Tenant pursuant to the Incidental Documents (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in the Lease); and WHEREAS, on the date hereof, the Landlord is acquiring from Sho and certain of its affiliates six additional Sumner Suites hotels pursuant to a Purchase and Sale Agreement dated as of the date hereof (the "New Purchase Agreement"); and WHEREAS, pursuant to the New Purchase Agreement and an Agreement to Lease, dated as of the date hereof (the "New Agreement to Lease"), the parties wish to amend certain terms and conditions of the Lease and Incidental Documents to subject such additional Sumner Suites hotel properties to the terms and conditions thereof, all as more particularly set forth herein; and WHEREAS, the transactions contemplated by this Amendment are of direct substantial and material benefit to Sho; NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, 2 -2- the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The definition of "Applicable Percentage" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "Applicable Percentage" shall mean (i) with respect to the Properties described in Exhibit A-1 through A-14, (a) three percent (3%) with respect to the 1998 Fiscal Year; (b) four percent (4%) with respect to the 1999 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term; (ii) with respect to the Properties located in Colorado Springs, Colorado and Overland Park, Kansas, (a) four percent (4%) with respect to any portion of the 1999 Fiscal Year occurring during the Term and (c) five percent (5%) with respect to each Fiscal year thereafter during the Term; and (iii) with respect to the Properties located in Charlotte, North Carolina, Alpharetta, Georgia, Irving, Texas and Dulles/Sterling, Virginia, (a) three percent (3%) with respect to any portion of the 1999 Fiscal Year occurring during the Term; (b) four percent (4%) with respect to the 2000 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term. 2. The definition of "Base Year" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "BASE YEAR" shall mean (i) with respect to each Property described in Exhibit A-1 through A-14 other than any Property located in Arizona, the 1998 Fiscal Year; (ii) with respect to each Property described in Exhibit A-1 through A-14 and located in Arizona, the thirteen (13) Accounting Periods commencing July 13, 1998; and (iii) with respect to each Property described in Exhibit A-15 through A-20, the 2000 Fiscal Year. 3. The definition of "Minimum Rent" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: 3 -3- "MINIMUM RENT" shall mean an amount equal to One Million Six Hundred Thirty-Six Thousand Nine Hundred Twenty-Three Dollars ($1,636,923) per Accounting Period. 4. The definition of "Purchase Agreement" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "PURCHASE AGREEMENT" shall mean, collectively, the Purchase and Sale Agreement, dated as of October 24, 1997, and the Purchase and Sale Agreement, dated as of June 29, 1999, as they may be amended, restated, supplemented or otherwise modified from time to time. 5. The definition of "Retained Funds" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "RETAINED FUNDS" shall mean a cash amount equal to Twenty-One Million Two Hundred Eighty Thousand Dollars ($21,280,000). 6. Section 2.3 of the Lease is hereby amended by deleting the date "January 31, 2008" appearing therein and inserting the date "June 30, 2011" in its place. 7. Section 3.1.2.(c) of the Lease is hereby amended by deleting the name "Deloitte & Touche LLP" appearing therein and inserting the name "Ernst & Young LLP" in its place. 8. Exhibit A to the Lease is hereby amended by adding Exhibits A-15 through A-20 attached hereto as Exhibit A at the end thereof and all references in the Lease to "Exhibit A-1 through A-14" are hereby amended to refer to "Exhibit A-1 through A-20". 9. Exhibit B to the Lease is hereby deleted in its entirety and Exhibit B to this Amendment inserted in its place. 10. Exhibit C to the Lease is hereby deleted and Exhibit C to this Amendment inserted in its place. 11. Notwithstanding anything to the contrary set forth in the Lease, the first Officer"s Certificate and audit of the properties under the New Purchase Agreement shall not be required until April 30, 2001. 4 -4- 12. Section 10(b) of the Guaranty is hereby amended by deleting the dollar amount "Eighteen Million Five Hundred Thousand Dollars ($18,500,000)" appearing therein and inserting the dollar amount "Twenty-Eight Million Five Hundred Thousand Dollars ($28,500,000)" in its place. 13. The Security Agreement is hereby amended by adding Exhibits A-15 through A-20 attached hereto as Exhibit A at the end thereof and all references in the Security Agreement to "Exhibit A-1 through A-14" are hereby amended to refer to "Exhibit A-1 through A-20". 14. All references in the Lease to the Incidental Documents are hereby amended to refer to the Incidental Documents as amended by this Amendment. 15. Each of the Incidental Documents is hereby amended so that each reference therein to the Lease, the Original Purchase Agreement, the Original Agreement to Lease or to any other Incidental Document shall mean the Lease, such Original Agreement and such Incidental Document as amended by this Amendment and shall include the New Purchase Agreement and the New Agreement to Lease. 16. The Tenant and Sho represent and warrant that no Default or Event of Default has occurred and is continuing under the Lease or any other Incidental Document. 17. As amended hereby the Lease and the Incidental Documents shall remain in full force and effect in accordance with their respective terms and provisions. 18. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. Tenant and Sho agree, jointly and severally, to reimburse HPT and Landlord for all reasonable fees and expenses, including without limitation, legal fees and expenses, incurred by HPT and Landlord in connection with the execution and delivery of this Amendment and the consummation of the transactions contemplated hereby. IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the date above first written. HOSPITALITY PROPERTIES TRUST By:______________________________ Its (Vice) President 5 -5- HPT SUITE PROPERTIES TRUST By:______________________________ Its (Vice) President SHOLODGE, INC. By:______________________________ Its (Vice) President SUITE TENANT, INC. By:______________________________ Its (Vice) President 6 EXHIBIT A EXHIBITS A-15 THROUGH A-20 OF THE LEASE [See attached copies.] 7 EXHIBIT B RESTRICTED TRADE AREA
Property Area - -------- ---- Tampa, FL 3 miles San Antonio, Riverwalk, TX 3 miles Fort Wayne, IN 10 miles Albuquerque, NM 3 miles El Paso, TX 3 miles Hendersonville, TN 5 miles Cumberland, GA 3 miles Gwinett, GA 3 miles Columbus, OH 3 miles Atlanta Airport, GA 3 miles Dallas, Galleria, TX 3 miles Austin, TX 5 miles Tempe, AZ 3 miles Tucson, AZ 3 miles Overland Park, KS 3 miles Dulles Airport/Sterling, VA 3 miles Charlotte, NC 5 miles Colorado Springs, CO 5 miles Las Colinas/Irving, TX 5 miles Alpharetta, GA 3 miles
8 EXHIBIT C ALLOCATION OF MINIMUM RENT
Property Allocable Rent Per Accounting Period - -------- ------------------------------------ Tampa, FL $ 33,168 San Antonio, Riverwalk, TX 108,706 Fort Wayne, IN 74,560 Albuquerque, NM 88,600 El Paso, TX 70,376 Tempe, AZ 77,446 Tucson, AZ 65,657 Hendersonville, TN 57,782 Cumberland, Smyrna, GA 73,835 Gwinett, Duluth, GA 87,156 Columbus, OH 103,195 Atlanta Airport, GA 79,360 Dallas, Galleria, TX 86,074 Austin, TX 71,008 Overland Park, KS 95,631 Dulles Airport/Sterling, VA 98,215 Charlotte, NC 87,877 Colorado Springs, CO 94,769 Las Colinas/Irving, TX 94,769 Alpharetta, GA 88,739
EX-2.N 6 y47030ex2-n.txt THIRD AMENDMENT TO LEASE AGREEMENT 1 THIRD AMENDMENT TO LEASE AGREEMENT THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Amendment") is entered into as of this ___ day of March, 2000, by and between (i) HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord") and (ii) SUITE TENANT, INC., a Tennessee corporation, as tenant ("Tenant"). W I T N E S S E TH: WHEREAS, pursuant to a Lease Agreement, dated as of November 19, 1997 (the "Lease"), Landlord leased certain property to Tenant and Tenant leased certain property from Landlord, subject to and upon the terms and conditions set forth in the Lease; and WHEREAS, the parties hereto wish to amend certain provisions of the Lease Agreement as hereinafter provided; NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Lease Agreement is hereby amended by deleting the Exhibit A Property Description for Albuquerque, NM attached thereto and substituting therefor the Exhibit A Property Description for Albuquerque, NM attached hereto. 2. Landlord represents and warrants that no Landlord Default, as defined under Section 14.2 of the Lease, has occurred or is continuing under the Lease and Tenant represents and warrants that no Default or Event of Default has occurred or is continuing under the Lease. 3. As amended hereby, the Lease Agreement is and shall remain in full force and effect in accordance with its terms and provisions. 4. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 2 IN WITNESS HEREOF, the parties hereto have executed this Amendment under seal as of the date above first written. HPT SUITE PROPERTIES TRUST By:____________________________ Its (Vice) President SUITE TENANT, INC. By:____________________________ Its (Vice) President ACKNOWLEDGED AND AGREED: GUARANTOR: SHOLODGE, INC. By:_____________________________ Its:_______________________ -2- 3 Exhibit A The Premises [See attached copy.] -3- 4 LEGAL DESCRIPTION A-1 Tract A-1 as shown on Plat Tracts A-1 & A-2 (Formerly Tract A), Sandia Foundation-A.M.A.F.C.A. Subdivision, Section 10, Township 10 North, Range 3 East, N.M.P.M. Albuquerque, Bernalillo County, New Mexico, said plat being filed in the office of the County Clerk of Bernalillo County, New Mexico on August 26, 1999 in Book 99C, Page 247. Subject to and together with all easements and other matters shown on the plat. -4- EX-2.O 7 y47030ex2-o.txt FOURTH AMENDMENT TO LEASE AGREEMENT 1 FOURTH AMENDMENT TO LEASE AGREEMENT AND AMENDMENT TO INCIDENTAL DOCUMENTS THIS FOURTH AMENDMENT TO LEASE AGREEMENT AND AMENDMENT TO INCIDENTAL DOCUMENTS (this "Amendment") is entered into as of May 11, 2000, by and among (i) HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust ("HPT"); (ii) HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust (the "Landlord"); (iii) SHOLODGE, INC., a Tennessee corporation, ("Sho"); and (iv) SUITE TENANT, INC., a Tennessee corporation (the "Tenant"). W I T N E S S E T H: WHEREAS, pursuant to a Purchase and Sale Agreement, dated as of October 24, 1997 (the "Original Purchase Agreement"), and an Agreement to Lease, dated as of October 24, 1997 (the "Original Agreement to Lease"), HPT acquired from Sho and certain of its affiliates certain hotel properties and the Landlord and the Tenant entered into a Lease Agreement, dated as of November 19, 1997 (the "Original Lease"); and WHEREAS, pursuant to a Purchase and Sale Agreement dated June 29, 1999 (the "Second Purchase Agreement") and an Agreement to Lease of even date therewith (the "Second Agreement to Lease"), Landlord acquired from Sho and certain of its affiliates certain hotel properties and Landlord and Tenant amended the Original Lease to, inter alia, add such properties to the Leased Property; and WHEREAS, the obligations of the Tenant under the Original Lease, as amended by the First Amendment to Lease Agreement, dated as of March 5, 1999, the Second Amendment to Lease and First Amendment to Incidental Documents, dated as of June 29, 1999 (the "Second Amendment"), and the Third Amendment to Lease Agreement dated as of March 3, 2000 (as so amended, the "Lease") are secured and guaranteed by certain undertakings and agreements of Sho and the Tenant pursuant to the Incidental Documents (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in the Lease); and WHEREAS, on the date hereof, the Landlord is acquiring from Sho and certain of its affiliates four additional Sumner Suites hotels pursuant to a Purchase and Sale Agreement dated as of the date hereof (the "New Purchase Agreement"); and WHEREAS, pursuant to the New Purchase Agreement and an Agreement to Lease, dated as of the date hereof (the "New Agreement to Lease"), the parties wish to amend certain terms and conditions of the Lease and Incidental Documents to subject such additional Sumner Suites hotel properties to the terms and conditions thereof, all as more particularly set forth herein; and WHEREAS, the transactions contemplated by this Amendment are of direct substantial and material benefit to Sho; NOW, THEREFORE, in consideration of the mutual covenants herein contained and -1- 2 for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The definition of "Applicable Percentage" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "Applicable Percentage" shall mean (i) with respect to the Properties described in Exhibit A-1 through A-14, (a) three percent (3%) with respect to the 1998 Fiscal Year; (b) four percent (4%) with respect to the 1999 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term; (ii) with respect to the Properties located in Colorado Springs, Colorado and Overland Park, Kansas, (a) four percent (4%) with respect to any portion of the 1999 Fiscal Year occurring during the Term and (c) five percent (5%) with respect to each Fiscal year thereafter during the Term; (iii) with respect to the Properties located in Charlotte, North Carolina, Alpharetta, Georgia, Irving, Texas and Dulles/Sterling, Virginia, (a) three percent (3%) with respect to any portion of the 1999 Fiscal Year occurring during the Term; (b) four percent (4%) with respect to the 2000 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term; (iv) with respect to the Properties located in Pine Knoll Shores, North Carolina and Indianapolis, Indiana, (a) four percent (4%) with respect to any portion of the 2000 Fiscal Year occurring during the Term; and (b) (5%) with respect to any portion of a Fiscal Year occurring thereafter during the Term; and (v) with respect to the Properties located in Kansas City, Missouri and Orlando, Florida, (a) three percent (3%) with respect to any portion of the 2000 Fiscal Year occurring during the Term; (b) four percent (4%) with respect to the 2001 Fiscal Year; and (c) five percent (5%) with respect to each Fiscal Year thereafter during the Term. 2. The definition of "Base Year" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "BASE YEAR" shall mean (i) with respect to each Property described in Exhibit A-1 through A-14 other than any Property located in Arizona, the 1998 Fiscal Year; (ii) with respect to each Property described in Exhibit A-1 through A-14 and located in Arizona, the thirteen (13) Accounting Periods commencing July 13, 1998; (iii) with respect to each Property described in Exhibit A-15 through A-20, the 2000 Fiscal Year, and (iv) with respect to each Property described in Exhibit A-21 through A-24, the twelve (12) months, commencing July 1, 2000. 3. The definition of "Minimum Rent" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "MINIMUM RENT" shall mean an amount equal to One Million Nine Hundred Sixty-Seven Thousand Three Hundred Twenty-Three Dollars ($1,967,323) per Accounting Period. -2- 3 4. The definition of "Purchase Agreement" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "PURCHASE AGREEMENT" shall mean, collectively, the Purchase and Sale Agreement, dated as of October 24, 1997, the Purchase and Sale Agreement, dated as of June 29, 1999, and the Purchaser and Sale Agreement, dated as of May 11, 2000, as they may be amended, restated, supplemented or otherwise modified from time to time. 5. The definition of "Retained Funds" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "RETAINED FUNDS" shall mean a cash amount equal to Twenty-Five Million Five Hundred Seventy-Five Thousand Two Hundred Dollars ($25,575,200). 6. Exhibit A to the Lease is hereby amended by adding Exhibits A-21 through A-24 attached hereto as Exhibit A at the end thereof and all references in the Lease to "Exhibit A-1 through A-20" are hereby amended to refer to "Exhibit A-1 through A-24". 7. Exhibit B to the Lease is hereby deleted in its entirety and Exhibit B to this Amendment inserted in its place. 8. Exhibit C to the Lease is hereby deleted and Exhibit C to this Amendment inserted in its place. 9. Notwithstanding anything to the contrary set forth in the Lease, the first Officer's Certificate and audit of the properties under the New Purchase Agreement shall not be required until April 30, 2001. 10. Section 10(b) of the Guaranty is hereby amended by deleting the dollar amount "Twenty-Eight Million Five Hundred Thousand Dollars ($28,500,000)" appearing therein and inserting the dollar amount "Thirty-Four Million Fifteen Thousand Dollars ($34,015,000)" in its place. 11. The Security Agreement is hereby amended by adding Exhibits A-21 through A-24 attached hereto as Exhibit A at the end thereof and all references in the Security Agreement to "Exhibit A-1 through A-20" are hereby amended to refer to "Exhibit A-1 through A-24". -3- 4 12. All references in the Lease to the Incidental Documents are hereby amended to refer to the Incidental Documents as amended from time to time in accordance with their terms. 13. Each of the Incidental Documents is hereby amended so that each reference therein to the Lease, the Original Purchase Agreement, the Second Purchase Agreement, the Original Agreement to Lease, the Second Agreement to Lease or to any other Incidental Document shall mean the Lease, such Original Purchase Agreement, such Second Purchase Agreement and such Incidental Document as amended by this Amendment and shall include the New Purchase Agreement and the New Agreement to Lease. 14. The Tenant and Sho represent and warrant that no Default or Event of Default has occurred and is continuing under the Lease or any other Incidental Document. 15. As amended hereby the Lease and the Incidental Documents shall remain in full force and effect in accordance with their respective terms and provisions. 16. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Tenant and Sho agree, jointly and severally, to reimburse HPT and Landlord for all reasonable fees and expenses, including without limitation, legal fees and expenses, incurred by HPT and Landlord in connection with the execution and delivery of this Amendment and the consummation of the transactions contemplated hereby. -4- 5 IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the date above first written. HOSPITALITY PROPERTIES TRUST By:______________________________ Its (Vice) President HPT SUITE PROPERTIES TRUST By:______________________________ Its (Vice) President SHOLODGE, INC. By:______________________________ Its (Vice) President SUITE TENANT, INC. By:______________________________ Its (Vice) President -5- 6 EXHIBIT A EXHIBITS A-21 THROUGH A-24 OF THE LEASE [See attached copies.] -6- 7 EXHIBIT B RESTRICTED TRADE AREA
Property Area - -------- ---- Tampa, FL 3 miles San Antonio, Riverwalk, TX 3 miles Fort Wayne, IN 10 miles Albuquerque, NM 3 miles El Paso, TX 3 miles Hendersonville, TN 5 miles Cumberland, GA 3 miles Gwinett, GA 3 miles Columbus, OH 3 miles Atlanta Airport, GA 3 miles Dallas, Galleria, TX 3 miles Austin, TX 5 miles Tempe, AZ 3 miles Tucson, AZ 3 miles Overland Park, KS 3 miles Dulles Airport/Sterling, VA 3 miles Charlotte, NC 5 miles Colorado Springs, CO 5 miles Las Colinas/Irving, TX 5 miles Alpharetta, GA 3 miles Pine Knoll Shores, NC 5 miles Indianapolis, IN 5 miles Kansas City, MO 5 miles Orlando, FL 5 miles
-7- 8 EXHIBIT C ALLOCATION OF MINIMUM RENT
Property Allocable Rent Per Accounting Period - -------- ------------------------------------ Tampa, FL $ 33,168 San Antonio, Riverwalk, TX 108,706 Fort Wayne, IN 74,560 Albuquerque, NM 88,600 El Paso, TX 70,376 Tempe, AZ 77,446 Tucson, AZ 65,657 Hendersonville, TN 57,782 Cumberland, Smyrna, GA 73,835 Gwinett, Duluth, GA 87,156 Columbus, OH 103,195 Atlanta Airport, GA 79,360 Dallas, Galleria, TX 86,074 Austin, TX 71,008 Overland Park, KS 95,631 Dulles Airport/Sterling, VA 98,215 Charlotte, NC 87,877 Colorado Springs, CO 94,769 Las Colinas/Irving, TX 94,769 Alpharetta, GA 88,739 Pine Knoll Shores, NC 73,231 Indianapolis, IN 81,415 Kansas City, MO 84,431 Orlando, FL 91,323
-1- EX-2.P 8 y47030ex2-p.txt CONSENT TO ASSIGNMENT, FIFTH AMENDMENT TO LEASE AG 1 CONSENT TO ASSIGNMENT, FIFTH AMENDMENT TO LEASE AGREEMENT AND AMENDMENT TO INCIDENTAL DOCUMENTS THIS CONSENT TO ASSIGNMENT, FIFTH AMENDMENT TO LEASE AGREEMENT AND AMENDMENT TO INCIDENTAL DOCUMENTS (this "AGREEMENT") is entered into as of the 9th day of July, 2000, by and among HPT SUITE PROPERTIES TRUST, a Maryland real estate investment trust ("LANDLORD"), SUITE TENANT, INC., a Tennessee corporation ("ASSIGNOR") and GLEN ROCK HOLDING CORP., a Delaware corporation ("ASSIGNEE"). W I T N E S S E T H: WHEREAS, Landlord and Assignor entered into a Lease Agreement, dated as of November 19, 1997, as amended by two (2) letters dated November 19, 1997, the First Amendment to Lease Agreement, dated as of March 5, 1999, the Second Amendment to Lease Agreement and First Amendment to Incidental Documents (the "SECOND AMENDMENT"), dated as of June 29, 1999, a letter dated June 29, 1999, the Third Amendment to Lease Agreement dated as of March 3, 2000 and the Fourth Amendment to Lease Agreement and Amendment to Incidental Documents (the "FOURTH AMENDMENT"), dated as of May 11, 2000 (as so amended, the "LEASE"), a copy of which Lease is attached hereto as Exhibit A hereto; WHEREAS, Assignor simultaneously herewith has assigned, and Assignee has assumed, the Lease, and Landlord is willing to consent to such assignment and assumption subject to and upon the terms and conditions set forth in this Agreement; and WHEREAS, Assignee and Landlord desire to amend the Lease as herein after provided (the Lease as amended by this Agreement, the "AMENDED LEASE"). NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. ASSIGNMENT AND ASSUMPTION. (a)Each of Assignor and Assignee represents and warrants to Landlord that pursuant to a separate instrument (i) Assignor has irrevocably and absolutely assigned all of Assignor's right, title and interest in, to and under the Lease to Assignee effective as of the date hereof, (ii) except as may be expressly provided herein, Assignee has irrevocably and absolutely (A) assumed and agreed to discharge all of Assignor's obligations under the Lease arising from and after the date hereof and (B) agreed to be bound by all of the terms, covenants and conditions of the Lease binding upon the Tenant thereunder from and after the date hereof and (iii) such assignment and assumption are effective as of the date hereof. (b) Each of Assignee and Assignor also warrants and represents that simultaneously herewith, (i) ShoLodge has assigned to Prime Hospitality Corp. ("PRIME") all of ShoLodge's right, title and interest in and to the Guaranty Deposit held under that certain Limited Guaranty Agreement, dated as of November 19, 1997, made by ShoLodge for the benefit of Landlord and Hospitality Properties Trust as amended and supplemented by two (2) letters dated November 19,1999, the Second Amendment and the Fourth Amendment (as so amended and supplemented, 2 the "GUARANTY") and (ii) Prime has contributed to Assignee all of Prime's right to receive interest on the Guaranty Deposit pursuant to the terms of this Agreement attributable to the Term. (c) Landlord hereby consents to the such assignments and assumption. This consent does not constitute consent to any further assignment, mortgage, pledge, hypothecation, encumbrance or other transfer of the Guaranty Deposit or the Amended Lease or any subletting or by Assignee, which shall, in each case, require Landlord's further consent except to the extent such consent is expressly not required pursuant to the terms of Section 16.3 of the Amended Lease. Assignor and Assignee acknowledge and agree that other than for a copy of the instruments of such assignment and assumption, Landlord has not been provided with, reviewed or consented to any of the transactions between Assignor (and its affiliates) and Assignee (and its affiliates). Accordingly, Landlord shall in no way be deemed to have consented to, approved, bound by or subject to such transactions or the terms thereof. 2. REPRESENTATIONS OF ASSIGNEE ETC. As an inducement to Landlord to enter into this Agreement, Assignee represents and warrants to Landlord and Assignor, as of the date hereof: (a) STATUS AND AUTHORITY OF ASSIGNEE, ETC. Assignee is a corporation duly organized and validly existing under the laws of its state of incorporation and has all requisite power and authority (corporate and other) under the laws of such state and its respective charter documents to own its property and assets, to enter into and perform its obligations under the Amended Lease and this Agreement and to transact the business in which it is engaged or presently proposes to engage. Assignee is duly qualified in each jurisdiction in which the nature of the business conducted or to be conducted by it requires such qualification, except where failure to do so could not reasonably be expected to have a material adverse effect. (b) CORPORATE ACTION OF ASSIGNEE, ETC. Assignee has taken all necessary action (corporate or other) under its charter documents to authorize the assumption and performance of the Amended Lease and the execution, delivery and performance of this Agreement, and the Amended Lease and this Agreement constitute the valid and binding obligations and agreements of Assignee enforceable in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors. (c) NO VIOLATIONS OF OTHER AGREEMENTS, ETC. None of the assumption of the Amended Lease, the execution and delivery of this Agreement by Assignee, and compliance with the terms and provisions thereof and 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 Assignee pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness, agreement or other instrument to which Assignee may be a party or by which it or its property is bound, or violate any provisions of laws, or any applicable order, writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency. -2- 3 (d) JUDGMENTS; LITIGATION. There are no judgments presently outstanding and unsatisfied against Assignee or any of its properties, and none of Assignee or any of its properties are involved in any material litigation at law or in equity, or any proceeding before any court, or by or before any governmental or administrative agency, which litigation or proceeding could materially and adversely affect Assignee, and no such material litigation or proceeding is, to the knowledge of Assignee, threatened against Assignee, and no investigation looking toward such a proceeding has begun or is contemplated. (e) DISCLOSURE. To the knowledge of Assignee, neither this Agreement nor any other document, certificate or statement furnished to Landlord or its affiliates, by or on behalf of Assignee, in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the knowledge of Assignee, there is no fact or condition which materially and adversely affects the business, operations, affairs, properties or condition of Assignee which has not been set forth in this Agreement or in the other documents, certificates or statements furnished to Landlord in connection with the transactions contemplated hereby. (f) BROKERAGE. Assignee dealt with no broker, finder or like agent in connection with this Agreement or the transactions contemplated hereby. (g) SALE. Simultaneously with the execution and delivery hereof, Assignee has acquired from Assignor all of Assignor's right, title and interest in and to all tangible personal property used or useful in connection with the operation of the Properties, the FF&E Reserve and the Retained Funds, free and clear of all liens, claims and encumbrances other than those in favor of Landlord. (h) PRIME. All of the issued and outstanding stock of Assignee is held by Prime, free and clear of all liens, claims, assertions and encumbrances other than those in favor of Landlord. Assignee shall not have any other outstanding stock. (i) BANKRUPTCY REMOTE. Assignee has (i) not sought or consented to any dissolution, winding up, liquidation, consolidation, merger or sale of all or substantially all of its assets, (ii) not failed to correct any known misunderstanding regarding its separate identity, (iii) maintained its accounts, books and records separate from any other Person, (iv) maintained its books, records, resolutions and agreements as official records, (v) not commingled its funds or assets with those of any other Person and has held its assets in its own name, (vi) conducted its business in its own name, (vii) maintained its financial statements, accounting records and other entity documents separate from any other Person, (viii) paid its own liabilities out of its own funds and assets, (ix) observed all organizational formalities, (x) not assumed or guaranteed or become obligated for the debts of any other Person or held out its credit as being available to satisfy the obligations of any other Person, (xi) not acquired obligations or securities of its members or shareholders, (xii) allocated fairly and reasonably any overhead for shared office space and used separate stationery, invoices and checks, (xiii) not pledged any of its assets for the benefit of any other Person, (xiv) held and identified itself as a separate and distinct entity under its own name and not as a division or part of any other Person, (xv) not made any loans to any Person, (xvi) not -3- 4 identified its members or shareholders, or any of its Affiliates as a division or part of it, or (xvii) not entered into or become a party to any transaction with its members or shareholders, or its Affiliates except the Amended Lease, this Agreement and the Incidental Documents or in the ordinary course of its business and, in each case, on terms which are fair and are no less favorable to it than would be obtained in a comparable arm's length transaction with an unrelated third party, (xviii) not filed a bankruptcy or insolvency petition or otherwise instituted insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest, (xix) paid the salaries of its own employees and maintained a sufficient number of employees in light of its business operations, (xx) maintained adequate capital in light of its contemplated business operations or (xxi) not engaged in any business activity other than the leasing, operating and owning of the Leased Premises for its Permitted Use as stated in its organizational documents. Assignee's liability with respect to the representations and warranties set forth in this Agreement shall survive the execution and delivery hereof. 3. REPRESENTATIONS OF ASSIGNOR ETC. As an inducement to Landlord to enter into this Agreement, Assignor represents and warrants to Landlord and Assignee, as of the date hereof: (a) STATUS AND AUTHORITY OF ASSIGNOR , ETC. Assignor is a corporation duly organized and validly existing under the laws of its state of incorporation and has all requisite power and authority (corporate and other) under the laws of such state and its respective charter documents to own its property and assets, to enter into and perform its obligations under this Agreement and to transact the business in which it is engaged or presently proposes to engage. Assignor is duly qualified in each jurisdiction in which the nature of the business conducted or to be conducted by it requires such qualification, except where failure to do so could not reasonably be expected to have a material adverse effect. (b) CORPORATE ACTION OF ASSIGNOR, ETC. Assignor has taken all necessary action (corporate or other) under its charter documents to authorize the execution, delivery and performance of this Agreement, and this Agreement constitutes the valid and binding obligation and agreement of Assignor enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors. (c) NO VIOLATIONS OF OTHER AGREEMENTS, ETC. Neither the execution and delivery of this Agreement by Assignor, 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 Assignor pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness, agreement or other instrument to which Assignor may be a party or by which it or its property is bound, or violate any provisions of laws, or any applicable order, writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency. -4- 5 (d) JUDGMENTS; LITIGATION. There are no judgments presently outstanding and unsatisfied against Assignor or any of its properties, and none of Assignor or any of its properties are involved in any material litigation at law or in equity, or any proceeding before any court, or by or before any governmental or administrative agency, which litigation or proceeding could materially and adversely affect Assignor, and no such material litigation or proceeding is, to the knowledge of Assignor, threatened against Assignor, and no investigation looking toward such a proceeding has begun or is contemplated. (e) DISCLOSURE. To the knowledge of Assignor, neither this Agreement nor any other document, certificate or statement furnished to Landlord or its affiliate by or on behalf of Assignor, in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the knowledge of Assignor, there is no fact or condition which materially and adversely affects the business, operations, affairs, properties or condition of Assignor which has not been set forth in this Agreement or in the other documents, certificates or statements furnished to Landlord in connection with the transactions contemplated hereby. (f) BROKERAGE. Assignor dealt with no broker, finder or like agent in connection with this Agreement or the transactions contemplated hereby. (g) SALE. Simultaneously with the execution and delivery hereof, Assignee has acquired from Assignor all of Assignor's right, title and interest in and to all tangible personal property used or useful in connection with the operation of the Properties, the FF&E Reserve, and the Retained Funds, free and clear of all liens, claims and encumbrances other than those in favor of Landlord. (h) THE LEASE. The Lease (a true, correct and complete copy of which is attached to this Agreement as Exhibit A) is in full force and effect, there is no Event of Default thereunder, there are no facts or circumstances which with the giving of notice, the lapse of time or both would constitute such an Event of Default and, to the knowledge of Assignor, Landlord has fully and faithfully performed all of its obligations under the Lease and is not in default or breach thereof. The amount of Retained Funds under the Lease is $25,575,200.00 and the amount of the Guaranty Deposit is $14,000,000. Assignor's liability with respect to the representations and warranties set forth in this Agreement shall survive the execution and delivery hereof and shall not be assumed by Assignee. 4. REPRESENTATIONS OF LANDLORD. Landlord represents and warrants to Assignee as of the date hereof that: (a) STATUS AND AUTHORITY OF LANDLORD. Landlord is a Maryland real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland, and has all requisite power and authority under the laws of such state and under its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. Landlord has duly qualified and is in good -5- 6 standing as a trust or unincorporated business association in each jurisdiction in which the nature of the business conducted by it requires such qualification, except where failure to do so could not reasonably be expected to have a material adverse effect. (b) ACTION OF LANDLORD. Landlord has taken all necessary action to authorize the execution, delivery and performance of the Amended Lease and this Agreement, and each of them constitutes the valid and binding obligation and agreement of Landlord, enforceable against Landlord in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. (c) NO VIOLATIONS OF AGREEMENTS. None of the execution, delivery and performance of the Lease and this Agreement by Landlord, and compliance with the terms and provisions hereof or thereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of Landlord pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Landlord or its property is bound, or violate any provisions of laws, or any applicable order, writ, injunction, judgment or decree of any court, or any order or other public regulation of any governmental commission, bureau or administrative agency. (d) JUDGMENTS; LITIGATION. There are no judgments presently outstanding and unsatisfied against Landlord or any of its properties, and neither Landlord nor any of its properties are involved in any material litigation at law or in equity, or any proceeding before any court, or by or before any governmental or administrative agency, which litigation or proceeding could materially and adversely affect Landlord, and no such material litigation or proceeding is, to the knowledge of Landlord, threatened against Landlord, and no investigation looking toward such a proceeding has begun or is contemplated. (e) THE LEASE. A true and complete copy of the Lease is attached hereto as Exhibit A. Except as set forth in Exhibit A, the Lease has not been modified or amended. Landlord has no knowledge of any Event of Default under the Lease or of other circumstance which with notice, the lapse of time or both would constitute such an Event of Default or the Lease not being in full force and effect. The amount of Retained Funds is $25,575,200.00, and the amount of the Guaranty Deposit is $14,000,000. Neither HPT nor Landlord has offset any obligations of Assignor under the Lease against the Retained Funds or Guaranty Deposit. Landlord's liability with respect to the representations and warranties set forth in this Agreement shall survive the execution and delivery hereof. 5. ADDITIONAL ASSIGNEE OBLIGATIONS. Simultaneously with the execution and delivery hereof, Assignee shall cause each of the following to be delivered to Landlord, each of which shall be satisfactory in form and substance to Landlord: (a) A security agreement with respect to all tangible personal property owned or used by Assignee and used in connection with the operation of the Properties, such security agreement -6- 7 to create a first lien and security interest in such property and to be otherwise in form and substance satisfactory to Landlord (the "SECURITY AGREEMENT"); (b) Such financing statements as Landlord may reasonably require; (c) An assignment and security agreement with respect to the FF&E Reserve, such assignment and security agreement to create a first lien in the FF&E Reserve (the "FF&E PLEDGE"); (d) A stock pledge agreement with respect to all of the issued and outstanding stock of Assignee, together with such stock and a stock power in blank, each executed and delivered by Prime, such stock pledge and security agreement to create a first lien and security interest in such shares (the "STOCK PLEDGE"); (e) A subordination agreement from Prime for the benefit of, and in form and substance satisfactory to, Landlord (the "SUBORDINATION AGREEMENT"); (f) A Deposit Account Control Agreement in form and substance satisfactory to the Landlord executed and delivered by Assignee and the bank at which the FF&E Reserve is maintained; (g) An opinion of Willkie Farr & Gallagher with respect to the bankruptcy remoteness of Assignee and the due execution, delivery and enforceability of this Agreement and the other instruments and documents executed in connection herewith by and against Assignee and Prime; (h) Evidence regarding the due transfer of any liquor and other licenses from Assignor to Assignee or, if any such transfer is still pending, other evidence and assurances that the operations of the Properties and the values thereof will not be adversely affected by reason of the pendency of such transfer; (i) Insurance Certificates evidencing that the insurance required under the Lease is in full force and effect; (j) Copies of all management agreements affecting the Properties not previously delivered to Landlord; (k) Tax lien and judgment searches with respect to Assignee and Prime satisfactory to Landlord; (l) Copies of Assignee's Charter or Certificate of Incorporation, certified by the Secretary of State of the state of its incorporation; (m) Evidence of the due execution and delivery hereof and the documents executed in connection hereunder by Assignee and Prime (including certified by-laws and incumbency certificates); -7- 8 (n) Evidence that Assignee is duly qualified to do business in each jurisdiction in which any of the Properties is located; (o) An Exchange Option Agreement to exchange the Property located in Las Colinas, Texas (the "PRIME EXCHANGE PROPERTY"), for a new AmeriSuites property currently under development in Utica, Michigan (the "MI OPTION"); and (p) An amount equal to the Minimum Rent, Additional Rent and other amounts payable under the Lease with respect to the month in which this Agreement is executed which are not yet due and payable under the terms of the Lease (without giving effect to the terms hereof). Assignee acknowledges and agrees that "Total Hotel Sales" for the current Fiscal Year shall include all revenue and receipt of every kind derived by Assignor or Assignee from operating the Properties and the parts thereof. 6. ADDITIONAL ASSIGNOR OBLIGATIONS. Simultaneously with the execution and delivery hereof, Assignor shall cause each of the following to be delivered to Landlord, each of which shall be satisfactory in form and substance to Landlord: (a) Evidence that all management agreements between Assignor and its affiliates with respect to any of the Properties have been terminated; (b) An Exchange Option Agreement to exchange the property located in Alpharetta, Georgia for a new AmeriSuites property to be built in Chantilly, Virginia (the "VA OPTION"); (c) An Exchange Option Agreement to exchange the Property located in Albuquerque, New Mexico for a new AmeriSuites property to be built in Mt. Laurel, New Jersey (the "NJ OPTION"; the NJ Option, the MI Option and the VA Option, each an "EXCHANGE OPTION", and collectively, the "EXCHANGE OPTIONS"); (d) A supplemental guaranty from Sholodge for the benefit of Landlord (the "SUPPLEMENTAL GUARANTY"); and (e) An opinion of Assignor's counsel with respect to the due execution, delivery and enforceability of this Agreement, the VA Option, the NJ Option and such supplemental guaranty. 7. ADDITIONAL OBLIGATIONS OF LANDLORD. Simultaneous herewith, Landlord shall execute and deliver a partial release in favor of Assignor, in form and substance satisfactory to Landlord. 8. CERTAIN AMENDMENTS. (a) The following definitions are hereby inserted in Article 1 of the Lease: "Independent Director" shall mean a natural person who is not at the time of initial appointment and has not been at any time during the preceding five (5) years: (a) a stockholder, director (other than independent director for other Affiliates that are bankruptcy remote single -8- 9 purpose entities), officer, employee, partner, member, trustee or beneficial-interest holder of Tenant or any of its Affiliates; (b) a customer, supplier or other Person who derives in any twelve month period in excess of $50,000 of its purchases or revenues from its activities with Tenant or any of its Affiliates, stockholders, directors, officers, employees, partners, managers, members, trustees or beneficial-interest holders of any such customer, supplier or other Person s; (c) a Person controlling or under common control with any Person described in clause (a) or (b) above; or (d) a member of the immediate family of any Person described in clause (a), (b) or (c) above. For the purpose of this definition alone, an "Affiliate" of a Person is any other Person (i) which owns beneficially, directly or indirectly, more than 5% of the outstanding shares of the common stock or other voting securities of such first Person or which is otherwise in control of such first Person, (ii) of which more than 5% of the outstanding voting securities are owned beneficially, directly or indirectly, by any Person described in clause (i) above, or (iii) which is controlled by, or under common control with, any Person described in clause (i) above; the terms "control" and "controlled by" shall have the meanings assigned to them in Rule 405 under the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. "Single Purpose Entity" shall mean a corporation, which, at all times since its formation and thereafter, (i) was organized solely for the purpose of (x) leasing the Leased Property for its Permitted Use or (y) guaranteeing the Amended Lease, (ii) has not and will not engage in any business unrelated to leasing the Leased Property for its Permitted Use or guaranteeing the Amended Lease, (iii) has not and will not have any assets other than those related to leasing the Leased Property for its Permitted Use or guaranteeing the Amended Lease, (iv) except as otherwise expressly permitted by this Agreement, has not and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale, or amendment of its articles of incorporation , (v) has and will have at least one Independent Director, (vi) the board of directors of such corporation may not take any action requiring the unanimous affirmative vote of 100% of the members of the board of directors unless all of the directors, including an Independent Director shall have participated in such vote, (vii) has not and will not fail to correct any known misunderstanding regarding the separate identity of such corporation, (viii) without the unanimous consent of all of the directors and has not and will not with respect to itself or to any other Person which it has a direct or indirect legal or beneficial ownership interest (a) file or consent to a bankruptcy, insolvency or reorganization petition or otherwise institute or consent to insolvency proceedings or otherwise seek or consent to any relief under any laws relating to the relief from debts or the protection of debtors generally; (b) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such Person or all or any portion of such Person's properties; (c) make any assignment for the benefit of such Person's creditors or (d) take any action that might cause such Person to become insolvent, (ix) has maintained and will maintain its accounts, books and records separate from any other Person, (x) has maintained and will maintain its books, records, resolutions and agreements as official records, (xi) has not and will not commingle its funds or assets with those of any other Person, (xii) has held and will hold its assets in its own name, (xiii) has conducted and will conduct its business in its name other than to operate, own or lease the Leased Property using a service mark and/or under a trade name including the name "AmeriSuites", (xiv) has maintained and will maintain its financial statements, accounting records, and other entity documents separate from any other person, (xv) has paid and will pay its liabilities, including salaries of any employees, out of its own funds and assets, -9- 10 (xvi) has observed and will observe all corporate formalities, (xvii) has maintained and will maintain an arms-length relationship with its affiliates, (xviii) has no Indebtedness other than (1) amounts due under the Amended Lease and (2) unsecured trade payables incurred in the ordinary course of business relating to owning, leasing and operating the Leased Property which do not exceed, at any time, a maximum amount of $1,000,000 and that are paid within sixty (60) days of the date incurred, (xix) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person, (xx) will not acquire obligations or securities of its partners, members or shareholders, (xxi) has established and maintains an office though which it conducts its business separate and apart from that of any of its Affiliates or has allocated and will allocate fairly and reasonably shared expenses, including, without limitation, shared office space and uses separate stationary, invoices and checks, (xxii) except pursuant hereto and the Incidental Documents, has not and will not pledge its assets for the benefit of any other Person, (xxiii) has held and identified itself and will hold itself and its own name and not as a division or part of any other Person and has not failed to correct any known misunderstanding regarding its separate identity, (xxiv) has not made and will not make loans to any Person, (xxv) has not and will not identify its partners, members or shareholders, or any Affiliates of any of them as a division or part of it, (xxvi) has not entered and will not enter into or be a party to, any transaction with its partners, members, shareholders or its Affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arms-length transaction with an unrelated third party, and (xxvii) has maintained and will maintain adequate capital in light of its contemplated business operations. (b) The terms "Amended Lease" and "Prime" as used in the Lease shall each have the meanings ascribed to each such term in this Agreement. The term "Consent" as used in the Lease shall mean this Agreement. (c) Section 2.3 of the Lease is hereby amended by deleting the date "June 30, 2011" appearing therein and inserting the date "June 30, 2013" in its place. (d) Section 2.4 of the Lease is hereby amended by deleting "five (5)" on the third line thereof and replacing it with "three (3)", and by deleting "ten (10)" on that line and inserting "fifteen (15)" in its place. (e) If any of the representations or warranties made herein by Assignee shall be false or misleading in any material respect, the same shall constitute a Event of Default under the Lease. (f) All notices required or desired to be given under the Lease to Assignee shall be addressed as follows: c/o Prime Hospitality Corp. 700 Route 46 East Fairfield, NJ 07007 Attention: Mr. Douglas W. Vicari, Senior Vice President Telecopy: (973) 882-7635 -10- 11 with a copy to: Prime Law Department 700 Route 46 East Fairfield, NJ 07007 Attention: Joseph Bernadino, Esq., General Counsel Telecopy: (973) 882-1787 (g) The term "Incidental Documents" as used in the Lease shall mean the MI Option, the Guaranty, the Security Agreement, the FF&E Pledge, Subordination Agreement and the Stock Pledge, as each of them may be amended from time to time. (h) The term "ShoLodge" as used in Sections 1.19, 12.1(k), 16.1, 17.2, 21.10 and 22.11 of the Lease shall mean Prime, and the term "ShoLodge" as used in Section 12.1(e) of the Lease shall mean Prime or Guarantor. (i) The term "ShoLodge Parties" as used in Section 12.1(f) of the Lease shall mean Prime and/or Guarantor and the parenthetical "(as defined in the Purchase Agreement)" in said Section is deleted. (j) There is inserted in the Lease new Sections 12.1(l), 12.1(m), 12(n) and (o) as follows: (l) should Tenant fail to fully and faithfully observe the terms of Section 21.11; or (m) should there occur any other event of circumstance which constitutes an Event of Default under this Agreement pursuant to the terms of the Amended Lease; or (n) should any petition be filed by or against the guarantor under the Guaranty (the "Guarantor") under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Guarantor seeking to adjudicate Guarantor a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of Guarantor's debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Guarantor or for any substantial part of the property of Guarantor unless, in each instance, within 30 days thereafter, Prime assumes the obligations of the Guarantor under the Guaranty subject to (x) the limitation that the Guarantor's liability thereunder is limited to $14,000,000 and (y) the non-recourse provisions thereof; or (o) should any petition be filed by or against Prime under the Federal bankruptcy laws, or should any other proceeding be -11- 12 instituted by or against Prime seeking to adjudicate Prime a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of Prime's debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Prime or for any substantial part of the property of Prime and such proceeding is not dismissed within one hundred eighty (180) days after institution thereof; (k) On or before the later of March 31, 2001 and the date that is nine (9) months after the date hereof, Assignee, at its own cost and expense, shall cause the Leased Properties to be re-flagged as "AmeriSuites" hotels. All costs and expenses of this re-flagging including, without limitation, new signage, marketing materials and any new front desk system shall be paid by Prime. No portion of such cost shall be paid for with funds from the FF&E Reserve. With respect to each Property, upon such Property being so re-flagged: (i) the phrase "Sumner Suites" in Section 4.1.1(a) of the Lease shall be deemed deleted and "AmeriSuites" is inserted in its place; and (ii) the third sentence of Section 4.1.1(a) of the Lease shall be deemed deleted and replaced with: Tenant shall operate the Leased Properties under the brand name which Tenant and its Affiliated Persons operate most of the other hotels owned, leased or otherwise operated by them which are similar to the Leased Properties, which brand name, as of the date of the Consent, is "AmeriSuites". Tenant shall not change the brand of the Hotels without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, it being agreed that, it shall be reasonable for Landlord to withhold its consent to a brand name that is generally associated with lower prices than the brand name under which the Hotels are then currently being operated. (l) There is inserted in the Lease a new Section 21.11 as follows: 21.11 Negative Covenants. Except as expressly permitted in this Agreement, Tenant shall not, without the prior written consent of the Landlord: a) purchase or lease any real property other than the Leased Property, have any assets or liabilities other than assets or liabilities derived from or related to the Leased Property or engage in any business or undertake any activity other than as permitted herein, including, without limitation, the operation, as a lessee or otherwise, of any property other than the Leased Property; b) have any subsidiaries; -12- 13 c) amend, supplement or otherwise modify its governing instruments with respect to (i) bankruptcy remoteness, (ii) being a Single Purpose Entity or (iii) the Independent Director or remove or otherwise cease to have an Independent Director as a director; d) fail to do all things necessary to keep in full force and effect its valid existence as a corporation and as a Single Purpose Entity and to qualify to do business in each jurisdiction in which such qualification is necessary to the conduct of its business or to protect the validity and enforceability of the Amended Lease and the Incidental Documents, as the same may be amended or modified from time to time; e) fail to keep proper books of account and records in which full, true and correct entries in accordance with GAAP shall be made of all dealings and transactions in relation to its business and activities; f) fail to generally pay its debts as they become due; g) take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth above. (m) Landlord hereby approves of Ernst & Young as Assignee's firm of independent certified public accountants. (n) The definition of "Accounting Period" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "ACCOUNTING PERIOD" shall mean each calendar month. (o) The definition of "Base Year" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "BASE YEAR" shall mean (i) with respect to each Property described in Exhibit A-1 through A-14 other than any Property located in Arizona, the 1998 Fiscal Year; (ii) with respect to each Property described in Exhibit A-1 through A-14 and located in Arizona, the twelve (12) Accounting Periods commencing July 13, 1998; (iii) with respect to each Property described in Exhibit A-15 through A-20, the 2000 Fiscal Year, and (iv) with respect to each Property described in Exhibit A-21 through A-24, the twelve (12) Accounting Periods commencing July 1, 2000. (o) The definition of "Fiscal Year" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "FISCAL YEAR" shall mean each calendar year. -13- 14 (p) The definition of "Minimum Rent" set forth in the Lease is hereby deleted in its entirety and the following inserted in its place: "MINIMUM RENT" shall mean an amount equal to Two Million One Hundred Thirty One Thousand Two Hundred Sixty Seven Dollars ($2,131,267) per Accounting Period. (q) Exhibit C to the Lease is hereby deleted and Exhibit B to this Agreement inserted in its place. 9. TRADE AREA RESTRICTIONS. Assignee acknowledges that currently there are violations of Section 22.11 of the Lease with respect to the Properties in Gwinnet, Georgia; Overland Park, Kansas; Charlotte, North Carolina; Orlando, Florida; Las Colinas, Texas; Alpharetta, Georgia; Austin, Texas; and Albuquerque, New Mexico. Landlord agrees to forbear from exercising its rights and remedies in connection with such violations subject to the following terms and conditions: (a) On or before the earlier of March 31, 2001 and the date that is nine (9) months after the date hereof, Assignee shall cause the now existing AmeriSuites hotel in the trade area of the Property in Gwinnet, Georgia to be re-flagged as a "Wellesley Inn" and at all times thereafter cause such hotel to be operated in a manner and fashion which is not in violation of Section 22.11 of the Lease. Provided Assignee so timely re-flags such Property and causes the same to be so operated, the violation of Section 22.11 with respect to such Property resulting from such now existing AmeriSuites hotel shall be deemed cured. If such property is not timely re-flagged as herein required, (i) the same shall constitute an Event of Default under the Lease and (ii) the Landlord's obligation to forbear from exercising its rights and remedies in connection with such violations Section 22.11 pertaining to the Property in Gwinnet, Georgia shall terminate. (b) Landlord waives the violations of Section 22.11 of the Lease resulting from the now existing AmeriSuite hotels in the designated areas for the Properties located in: Overland Park, Kansas; Charlotte, North Carolina; Austin Texas; and Orlando, Florida; provided, however, such waiver shall not alter or otherwise effect the Amended Lease which shall continue in full force and effect with respect to any other violations of its terms; and (c) If after December 31, 2001 there shall be (x) an Event of Default (as defined in the applicable Exchange Options) or (y) other event or circumstances which with the passage of time, the giving of notice or both would constitute such an Event of Default (other than the failure to achieve Completion (as defined in the applicable Exchange Option), in either case, on or before the date initially specified as the Outside Date under the applicable Exchange Options provided that Completion is achieved by the date to which Outside Date may be extended pursuant to the terms of the applicable Exchange Options) under any of the Exchange Options then the following shall apply: (i) Landlord shall have the option (each, a "PUT OPTION") at its election, in addition such rights and remedies as may be available to it under the Amended Lease, the Exchange Options, at law, in equity or otherwise, to require that Assignor, Assignee, Prime and ShoLodge purchase, and each of them (jointly, -14- 15 severally and collectively, the "PURCHASER") agrees to purchase the Property or Properties (each, A "SALE PROPERTY") which were to be disposed of by Landlord pursuant to the terms of the applicable Exchange Option (assuming Landlord had exercised its option thereunder) without recourse or representation on the part of Landlord except for those, if any, contained in the applicable Exchange Option. (ii) Landlord shall exercise such Put Option no later than the later of (x) March 31, 2002 and (y) the date that is ninety (90) days after Landlord has notice from Assignee that such Event of Default or other event or circumstance has occurred. Such Put Option shall be exercisable by Landlord if Assignee has given such notice to Landlord regardless of any dispute by Assignor or ShoLodge regarding whether such Event of Default or other event or circumstances has occurred. (iii) Notwithstanding the foregoing, neither Assignor nor ShoLodge shall be obligated to purchase the Prime Exchange Property. (iv) The consummation of such sale of a Sale Property shall take place on or before the day that is thirty (30) days after the day on which notice is given by Landlord to Assignee and Assignor that Landlord has elected to exercise the applicable Put Option at 10:00 a.m. at the offices of Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts. (v) The purchase price for each Sale Property shall be as specified in Exhibit C hereto which amount shall be paid by wire transfer. (vi) Simultaneously with such sale, the Amended Lease shall be appropriately amended to eliminate from the Amended Lease the Sale Property (and the rent attributed thereto) being disposed of by the Landlord and to pro-rate the rents and other charges due under the Amended Lease as of the date of the closing of such sale with respect to such Sale Property. (vii) In addition, simultaneously with such sale, (A) Assignee and Purchaser shall make appropriate adjustment on account of amounts contributed to, and expended from, the FF&E Reserve with respect to the applicable Sale Property (and the references to such Sale Property shall be deleted from the FF&E Pledge), (B) Landlord shall return to Assignee a portion of the Retained Funds equal to the annual Minimum Rent allocable to the Sale Property as set forth in Exhibit C hereto, (C) Landlord shall release from the lien of the Security Agreement the tangible personal property of Assignee located at the Sale Property and (D) Landlord shall execute and deliver appropriate Uniform Commercial Code terminations. (viii) Upon the consummation of the sale of the Sale Property or if Landlord fails to timely exercise a Put Option, Landlord shall be deemed to have waived (x) the applicable violation(s) of Section 22.11 of the Lease and (y) all Events of Default and Defaults resulting from violations or defaults under the Exchange Option Agreement(s). -15- 16 (ix) If the sale of a Sale Property is not consummated as herein required, (A) the same shall constitute an Event of Default under the Lease, (B) the Landlord's obligation to forbear from exercising its rights and remedies in connection with such violations Section 22.11 pertaining to such Sale Property shall terminate, and (C) such violation shall also constitute an Event of Default under the Lease. (x) The terms of Section 11.7 of the Exchange Options are incorporated herein by this reference and shall apply with equal force to the Put Options, mutatis mutandis. 10. THE GUARANTY AND THE GUARANTY DEPOSIT. (a) Except as expressly provided in Section 10(b) below, upon the expiration of the Amended Lease and the payment and performance of each and every obligation of the Tenant to Landlord and HPT under the Lease and Incidental Documents, provided no Event of Default shall have occurred and be continuing, any unapplied balance of the Guaranty Deposit shall be paid to Prime together with any accrued and unpaid interest with respect thereto. In the event HPT and Landlord shall fail to so pay any unapplied balance of the Guaranty Deposit and accrued interest to Prime on the date due, HPT and Landlord shall thereafter pay Prime interest thereon at the Overdue Rate until paid. Landlord shall credit accrued interest on the Guaranty Deposit against the monthly Minimum Rent. Under no circumstance shall ShoLodge or any of its Affiliated Persons be entitled to any of the Guaranty Deposit or interest thereon. (b) Provided that no (i) monetary Default, (ii) Default as to which Notice thereof has been given to Tenant or (iii) Event of Default shall have occurred and be continuing under the Amended Lease, (iv) Cash Flow (as defined below) for a period of twelve (12) full consecutive Accounting Periods equals or exceeds Thirty-Four Million Fifteen Thousand Dollars ($34,015,000) with respect to such period, and (v) HPT and Landlord shall receive a schedule evidencing the foregoing, in form and substance reasonably satisfactory to HPT and Landlord prepared by a, so-called, "Big-Five" accounting firm or such other certified public accountants as are approved by HPT and Landlord (such approval not to be unreasonably withheld, delayed or conditioned), the Guaranty shall terminate ten (10) Business Days after delivery to HPT and Landlord of the financial statements described in clause (v) preceding, and HPT and Landlord shall, within ten (10) Business Days after the written request of Prime, pay any unapplied balance of the Guaranty Deposit to Prime, together with any accrued and unpaid interest thereon. (c) As used herein, "CASH FLOW" shall mean the net income (or loss) of Tenant in connection with the operation of the Hotels before income taxes, calculated in accordance with GAAP, plus (a) all extraordinary expense items, (b) depreciation and amortization, (c) interest expense on Indebtedness permitted under the Lease, (d) base management fees, incentive management fees, trade name fees, franchise fees, royalty fees and central marketing fees paid to the Manager to the extent subordinate to payment of rent pursuant to the Lease from and after the occurrence of an Event of Default minus (e) required contributions to the FF&E Reserve and (f) all extraordinary income items. -16- 17 (d) Landlord and HPT hereby confirm that their recourse against ShoLodge under the Guaranty shall be limited to the Guaranty Deposit and interest thereon. ShoLodge hereby ratifies and confirms it obligations under the Guaranty, and acknowledges and agrees that its obligations thereunder will not be affected or impaired by: (i) the existence or invalidity of any other guarantee or security or by any waiver, amendment, release or modification thereof; (ii) any assignment or transfer in whole or in part of any of the Guaranteed Obligations (as defined in the Guaranty) without notice to the ShoLodge; (iii) waiver by HPT or Landlord or any holder of any of the Guaranteed Obligations or by the holders of all of the Guaranteed Obligations of the performance or observance by the Tenant or any other guarantor of any of the agreements, covenants, terms or conditions contained in the Guaranteed Obligations or the Transaction Documents (as defined in the Guaranty); (iv) any indulgence in or the extension of the time for payment by the Tenant or any other guarantor of any amounts payable under or in connection with the Guaranteed Obligations or the Transaction Documents or any other instrument or agreement relating to the Guaranteed Obligations or of the time for performance by the Tenant or any other guarantor of any other obligations under or arising out of any of the foregoing or the extension or renewal thereof; (v) the modification or amendment (whether material or otherwise) of any duty, agreement or obligation of the Tenant or any other guarantor set forth in any of the foregoing including, without limitations, the modifications contemplated by this Agreement, the Options or in any other document executed in connection herewith or the Amended Lease; (vi) the voluntary or involuntary sale or other disposition of all or substantially all the assets of the Tenant or any other guarantor or insolvency, bankruptcy, or other similar proceedings affecting the Tenant or any other guarantor or any assets of the Tenant or any such other guarantor; or (vii) the release or discharge of the Tenant or any such other guarantor from the performance or observance of any agreement, covenant, term or condition contained in any of the foregoing without the consent of the holders of the Guaranteed Obligations by operation of law. Landlord, HPT, Assignee and Prime acknowledge and agree that under no circumstance shall ShoLodge or Assignor ever be obligated to contribute additional funds hereunder or under the Guaranty to be added to or to replenish the Guaranty Deposit, including, without limitation, upon any use of the Guaranty Deposit, any portion thereof or any interest thereon to cure any default under the Amended Lease or any failure by HPT, Landlord or any successor holder of the Guaranty Deposit to deliver the Guaranty Deposit or any interest thereon as required herein. Nothing contained in the foregoing shall diminish or reduce Sholodge's obligations under the Supplemental Guaranty. (e) Sholodge, Landlord and HPT shall not amend or modify the Guaranty without Prime's prior written consent; provided that the terms thereof as modified hereby may be ratified and confirmed from time to time. Sholodge hereby agreeing to execute and deliver such confirmations of the Guaranty as Landlord may reasonably require in connection with the closings under the Exchange Options and/or the Put Options. Further, Sholodge shall execute and deliver such amendments to the Guaranty as Prime and Landlord shall request provided that no such amendment modifies or diminishes the non-recourse nature of the Guaranty as set forth in Section 10(d) above. (f) If, in connection with the assignment in whole or in part of the Amended Lease, HPT and Landlord or any successor holder of the Guaranty Deposit shall transfer the Guaranty Deposit to a someone having a Net Worth of not less than ten (10) times the unapplied balance -17- 18 thereof, Landlord and HPT or any such successor shall be relieved of all of their obligations with respect to the Guaranty Deposit and interest thereon. If such successor shall not satisfy the aforesaid Net Worth requirement, Landlord and HPT shall, in a guaranty in form and substance reasonably satisfactory to Prime, guaranty the payment of the Guaranty Deposit and interest thereon in accordance with this Agreement. At the time of any such assignment, Landlord and HPT shall cause such successor to acknowledge in writing to ShoLodge and Assignor such successor's agreement to the continued applicability of the provisions of Section 10(d). (g) Provided that no Event of Default shall have occurred and be continuing, in lieu of the interest otherwise due under the Guaranty during the Term, HPT shall credit the Tenant with interest on any unapplied balance of the Guaranty Deposit at a rate of 11.11% per annum. Such interest shall be credited against the rent and other charges due under the Lease in arrears and pro rated with respect to any partial month. 11. ADDITIONAL DEPOSIT. (a) Simultaneously with the execution and delivery hereof, Prime has (i) deposited with Landlord the sum (the "ADDITIONAL DEPOSIT") of Two Million Five Hundred Thousand Dollars ($2,500,000) as security the payment and performance of each and every obligation of the Tenant to Landlord under the Amended Lease and the Incidental Documents, whether now existing or hereafter arising, and including, without limitation, the payment of the full amount of the Rent payable under the Amended Lease and (ii) contributed to Assignee the right to receive any interest due on the Additional Deposit during the Term pursuant to the terms hereof. Landlord shall have no obligation to hold the Additional Deposit in a segregated account and may commingle the same with its general funds. Provided that no Event of Default shall have occurred and be continuing, Landlord shall credit the Tenant with interest on any unapplied balance of the Additional Deposit at a rate of 9% per annum. Such interest shall be credited against the rent and other charges due under the Amended Lease in arrears and pro rated with respect to any partial month. Upon the earlier of the expiration of the Amended Lease and the payment and performance of each and every obligation of the Tenant to Landlord and HPT under the Lease and Incidental Documents and the termination of Prime's obligation to keep the Additional Deposit with Landlord pursuant to Section 11(b) below, provided no Event of Default shall have occurred and be continuing, Landlord shall refund any unapplied balance of the Additional Deposit, together with any accrued and unpaid (or uncredited) interest with respect thereto, to Prime. In the event Landlord shall fail to refund any unapplied balance of the Additional Deposit and accrued interest to Prime on the date due, Landlord shall thereafter pay Prime interest thereon at the Overdue Rate until paid. (b) Provided that no (i) monetary Default, (ii) Default as to which Notice thereof has been given to Tenant or (iii) Event of Default shall have occurred and be continuing under the Amended Lease, (iv) Cash Flow for a period of twelve (12) full consecutive Accounting Periods equals or exceeds Thirty-Four Million Fifteen Thousand Dollars ($34,015,000) with respect to such period and (v) Landlord shall receive a schedule evidencing the foregoing, in form and substance reasonably satisfactory to Landlord prepared by a, so-called, "Big-Five" accounting firm or such other certified public accountants as are approved by Landlord (such approval not to be unreasonably withheld, delayed or conditioned), the obligation of Prime to keep the -18- 19 Additional Deposit with Landlord shall terminate ten (10) Business Days after delivery to Landlord of the financial statements described in clause (v) preceding, and Landlord shall, within ten (10) Business Days after the written request of Prime, pay any unapplied balance of the Additional Deposit to Prime, together with any accrued and unpaid interest thereon. (c) If, in connection with the assignment in whole or in part of the Amended Lease, Landlord or any successor holder of the Additional Deposit shall transfer the Additional Deposit to someone having a Net Worth of not less than ten (10) times the unapplied balance thereof, Landlord or any such successor shall be relieved of all of their obligations with respect to the Additional Deposit and interest thereon. If such successor shall not satisfy the aforesaid Net Worth requirement, Landlord shall, in a guaranty in form and substance reasonably satisfactory to Prime, guaranty the payment of the Additional Deposit and interest thereon in accordance with this Agreement. 12. MISCELLANEOUS. (a) EXPENSES. Assignor and Assignee shall pay their and Landlord's expenses incident to the negotiation, preparation and carrying out of this Agreement, including, without limitation, all reasonable fees and expenses of Landlord's counsel (collectively, "LANDLORD'S EXPENSES"). Assignor and Assignee shall also pay the cost of all recording fees, transfer fees and other like costs and expenses incident to this Agreement and the assignment of the Lease. As between Assignor and Assignee, Landlord's Expenses shall be paid as they have or may agree. (b) BROKERAGE. Assignor and Assignee agree that Landlord is not responsible for the payment of any commission or fees in connection with this Agreement and they each jointly and severally agree to indemnify and hold harmless Landlord from and against any claims, liabilities, losses or expenses, including reasonable attorneys" fees, incurred by Landlord in connection with any claims for commissions or fees by any broker or agent in connection with this Agreement. (c) PUBLICITY. The parties agree that no party shall, with respect to this Agreement and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public pronouncements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated to any third party without the consent of the other party, which consent shall not be unreasonably withheld, delayed or conditioned, except as required by law or unless such action is taken based on advice of counsel given in good faith. No party or its employees shall trade in the securities of the parties hereto or their affiliates until a public announcement of the transactions contemplated by this Agreement has been made. (d) PERFORMANCE ON BUSINESS DAYS. In the event the date on which performance or payment of any obligation of a party required hereunder is other than a Business Day, the time for payment or performance shall automatically be extended to the first Business Day following such date. -19- 20 13. APPLICABLE LAW, ETC. This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by law; and the parties consent to the jurisdiction of said court or courts located in The Commonwealth of Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law. 14. MODIFICATION OF AGREEMENT. No modification or waiver of any provision of this Agreement, nor any consent to any departure by any party therefrom, shall in any event be effective unless the same shall be in writing and signed by the others, and such modification, waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. By a separate instrument of even date herewith, Landlord has released Assignor with respect to its obligations arising after the date hereof under the Amended Lease to the extent assumed by Assignee. Accordingly, notwithstanding anything contained to the contrary, the consent of Assignor shall not be required for any further modifications of the Lease. 15. WAIVER OF RIGHTS. Neither any failure nor any delay on the part of any party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any right, power or privilege. 16. SEVERABILITY. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and this Agreement shall thereupon be reformed and construed and enforced to the maximum extent permitted by law. 17. ENTIRE CONTRACT. This Agreement, including all annexes and exhibits hereto, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the transactions contemplated hereby, including, without limitation, any letter of intent or commitment letter. -20- 21 18. COUNTERPARTS; HEADINGS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof. 19. BINDING EFFECT. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 20. NONLIABILITY OF TRUSTEES, ETC. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HPT SUITE PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL PERSONS DEALING WITH LANDLORD, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF LANDLORD FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 21. AMENDMENT. Except as amended hereby, the Lease remains unmodified. Landlord and Assignee hereof ratify and confirm the terms of the Lease. 22. DEFINITIONS. Each capitalized term used but not defined in this Agreement shall have the meaning ascribed thereto in the Amended Lease. -21- 22 IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the date above first written. HPT SUITE PROPERTIES TRUST By:______________________________ Its (Vice) President SUITE TENANT, INC. By:______________________________ Its (Vice) President GLEN ROCK HOLDING, CORP. By:___________________________ Name: Title: -22- 23 PRIME HOSPITALITY CORP. hereby acknowledges it agrees to be bound by the provisions of Section 22.11 of the Lease (as defined above), as amended by the foregoing and the terms of Section 9 and Section 10(d) above. PRIME HOSPITALITY CORP. By:___________________________ Name: Title: Dated: July 9, 2000 SHOLODGE, INC. hereby agrees to be bound by the terms of Section 9 above. SHOLODGE, INC. By:___________________________ Name: Title: Dated: July 9, 2000 HOSPITALITY PROPERTIES TRUST hereby (I)consents to the assignment of the Guaranty Deposit to Prime and the contribution of the right to receive interest with respect thereto pursuant to the terms of this Agreement during the Term to Assignee, but such consent does not constitute consent to any further assignment, mortgage, pledge, hypothecation, encumbrance or other transfer of the Guaranty Deposit, which shall, in each case, require the further consent of Hospitality Properties Trust and (ii) agrees to be bound by the provisions of Section 10 above. HOSPITALITY PROPERTIES TRUST By:______________________________ Name: Title: Dated: July 9, 2000 -23- 24 EXHIBIT A The Lease [See attached copy.] -24- 25 EXHIBIT B ALLOCATION OF MINIMUM RENT
LOCATION STATE ALLOCABLE RENT PER ACCOUNTING - -------- ----- PERIOD ---------------------------- Tampa FL 35,932 San Antonio Riverwalk TX 117,765 Fort Wayne IN 80,773 Albuquerque NM 95,984 El Paso TX 76,240 Hendersonville TN 62,597 Smyrna/Cumberland GA 79,988 Gwinett/Duluth GA 94,419 Columbus OH 111,794 College Part (Atlanta AP) GA 85,973 Dallas Galleria TX 93,247 Austin TX 76,926 Tucson AZ 71,129 Tempe AZ 83,900 ------- Alpharetta GA 96,133 Las Colinas/Irving TX 102,667 Overland Park KS 103,600 Charlotte NC 95,200 Colorado Springs CO 102,667 Louddon Tech Ctr/Sterling VA 106,400 ------- Pine Knoll Shores NC 79,333 Indianapolis IN 88,200 Kansas City MO 91,467 Orlando FL 98,933 -------
-25- 26 EXHIBIT C SALE PROPERTY PURCHASE PRICES
Allocable Annual Property Purchase Price Minimum Rent Alpharetta, GA $10,815,000 $ 1,153,600 Albuquerque, NM 12,093,955 1,151,805 Las Colinas/Irving, TX 11,550,000 1,232,000
EX-23 9 y47030ex23.txt CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 dated October 7, 1993 pertaining to the 1992 Prime Hospitality Corp. Employee Stock Option Plan; Form S-8, file number 033-54995 pertaining to the Prime Hospitality Corp. 1992 Performance Incentive Plan; Form S-8, file number 033-03361 of Prime Hospitality Corp. pertaining to the 1995 Employee Stock Option Plan and the 1995 Non-employee Director Stock Option Plan; Form S-8, file number 333-44287 pertaining to the Prime Hospitality Corp. 1995 Employee Stock Option Plan and the 1995 Non-employee Director Stock Option Plan; and Form S-8, file number 333-60911, pertaining to the Prime Hospitality Corp. 1995 Employee Stock Option Plan) of our report dated February 8, 2001 with respect to the consolidated financial statements of Prime Hospitality Corp. included in this Annual Report (Form 10-K) for the year ended December 31, 2000. New York, New York March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----