-----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, IDaxTHwWtqbfg/zTZQkvFYXauqBM1SsDU8bNcPuCgrsvaYDjX/VyzfqzkplpU7WL ofCmxFM1MnXRYWhNO8ZIIg== 0000908737-98-000352.txt : 19980401 0000908737-98-000352.hdr.sgml : 19980401 ACCESSION NUMBER: 0000908737-98-000352 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOSPITALITY PROPERTIES TRUST CENTRAL INDEX KEY: 0000945394 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043262075 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11527 FILM NUMBER: 98582286 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6179648389 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 Commission File Number 1-11527 HOSPITALITY PROPERTIES TRUST Maryland 04-3262075 (State of incorporation) (IRS Employer Identification No.) 400 Centre Street, Newton, Massachusetts 02158 617-964-8389 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Class on which registered - ------------------------------------ ----------------------- Common Shares of Beneficial Interest New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock of the registrant held by non-affiliates was $1,286,258,190 based on the $35.00 closing price per share for such stock on the New York Stock Exchange on March 11, 1998. For purposes of this calculation, 280,526 Common Shares of Beneficial Interest, $0.01 par value ("Shares") held by HRPT Advisors, Inc. ("Advisors"), 4,000,000 Shares held by Health and Retirement Properties Trust ("HRP"), and an aggregate of 10,037 shares held by the trustees and officers of the registrant, have been included in the number of shares held by affiliates. Number of the registrant's Shares, outstanding as of March 11, 1998: 41,040,797 DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K is incorporated herein by reference from the definitive Proxy Statement of Hospitality Properties Trust (the "Company") dated March 31, 1998 for its annual meeting of shareholders currently scheduled to be held on May 19, 1998. --------------- CERTAIN IMPORTANT FACTORS The Company's Annual Report on Form 10-K contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief or expectations of the Company, its Trustees or its officers with respect to the declaration or payment of dividends, the consummation of additional acquisitions, policies and plans of the Company regarding investments, dispositions, financings, conflicts of interest or other matters, the Company's qualification and continued qualification as a real estate investment trust or trends affecting the Company's or any hotel's financial condition or results of operations. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contained in the forward looking statement as a result of various factors. Such factors include without limitation changes in financing terms, the Company's ability or inability to complete acquisitions and financing transactions, results of operations of the Company's hotels and general changes in economic conditions not presently contemplated. The accompanying information contained in this Form 10-K, including the information under the headings "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", identifies other important factors that could cause such differences. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21, 1995 A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. HOSPITALITY PROPERTIES TRUST 1997 FORM 10-K ANNUAL REPORT
Table of Contents Part I Page Items 1. & 2. Business and Properties...................................................... 1 Item 3. Legal Proceedings............................................................ 21 Item 4. Submission of Matters to a Vote of Security Holders.......................... 21 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters... 21 Item 6. Selected Financial Data...................................................... 23 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition.................................................................... 24 Item 8. Financial Statements and Supplementary Data.................................. 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................... 28 Part III To be incorporated by reference from the Company's definitive Proxy Statement for the annual meeting of shareholders currently scheduled to be held on May 19, 1998, which is expected to be filed not later than 120 days after the end of the Company's fiscal year. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 29
Items 1. and 2. Business and Properties The Company. Hospitality Properties Trust (the "Company") is a real estate investment trust ("REIT") formed in 1995 to acquire, own and lease hotels to unaffiliated hotel operators. At December 31, 1997, the Company owned or had commitments to acquire 135 hotels with 18,497 rooms or suites located in 35 states, for approximately $1,375 million. The Company is organized as a Maryland real estate investment trust; its principal place of business is 400 Centre Street, Newton, Massachusetts 02158, and its telephone number is (617) 964-8389. The Company's principal growth strategy is to expand its investments in hotels and to set minimum rents which produce income in excess of the Company's cost of raising capital. The Company seeks to provide capital to unaffiliated hotel operators who wish to divest their properties while remaining in the hotel business as tenants and in doing so, ensure stability of cash flow through dependable and diversified revenue sources. The Company believes that its operating philosophy affords it opportunities to find high quality hotel investment opportunities on attractive terms. In addition, the Company's internal growth strategy is to participate through percentage rents in increases in total hotel sales (including gross revenues from room rentals, food and beverage sales and other services) at the Company's hotels.
Properties As of December 31, 1997, the Company owned or had commitments to purchase 135 hotels, located in 35 states. No. of No. of Investment No. of No. of Investment State Hotels Rooms (in thousands) State Hotels Rooms (in thousands) ----- ------ ----- -------------- ----- ------ ----- -------------- Alabama 3 340 $ 25,312 Nebraska 1 131 $ 6,201 Arizona 12 1,669 104,641 Nevada 1 120 9,093 California 14 1,982 151,254 New Jersey 4 572 47,767 Colorado 1 130 6,670 New Mexico 2 237 23,433 Delaware 1 152 12,100 New York 3 403 28,500 Florida 4 504 42,017 North Carolina 5 657 41,684 Georgia 11 1,473 106,971 Ohio 3 308 24,943 Illinois 3 514 38,076 Oklahoma 1 122 10,414 Indiana 2 271 18,523 Pennsylvania 7 911 71,210 Iowa 1 108 7,800 Rhode Island 1 148 10,200 Kansas 2 188 9,674 South Carolina 1 108 5,800 Kentucky 1 77 5,305 Tennessee 4 499 39,054 Louisiana 1 231 27,663 Texas 13 1,780 143,527 Maryland 4 526 44,851 Utah 3 601 58,278 Massachusetts 8 1,072 69,700 Virginia 7 936 77,349 Michigan 3 402 20,784 Washington 3 522 43,529 Minnesota 2 358 18,086 Wisconsin 1 147 8,500 ---- ------ ----------- Missouri 2 298 16,200 Total (35 states) 135 18,497 $1,375,109 === ====== ==========
Upon completion of the acquisitions described below, which include six hotels which have not been acquired as of March 11, 1998, the Company will have investments totaling $1,375 million in 135 hotels, with 18,479 rooms, located in 35 states. The Company's hotels are leased to and managed by special purpose subsidiaries of unaffiliated public companies. Each of the Company's tenants are herein referred to as "Lessees" and each of the Company's operators are herein referred to as "Managers." The annual rent payable to the Company for its 135 hotels ("Hotels") totals $137.8 million in base rent plus percentage rent ranging from 5% to 10% of increases in total hotel sales over a base year level. In addition, a percentage (generally 5%) of total hotel sales is required to be escrowed periodically by the Lessee or the Manager as a reserve for renovations and refurbishment of the Hotels. 1 Under the leases and management agreements, the Hotels are currently operated as Courtyard by Marriott(R), Residence Inn by Marriott(R), Wyndham Garden(R), Wyndham(R), Sumner Suites(R) or Candlewood(R) hotels. COURTYARD BY MARRIOTT(R) HOTELS Courtyard by Marriott(R) hotels are designed to attract both business and leisure travelers. A typical Courtyard by Marriott(R) hotel has 145 guest rooms. The guest rooms are larger than those in most other moderately priced hotels and predominately offer king sized beds. Most Courtyard by Marriott(R) hotels are situated on well landscaped grounds and typically are built around a courtyard containing a patio, pool and socializing area that may be glass enclosed depending upon location. Most of these hotels have lounges or lobbies, meeting rooms, an exercise room, a small laundry room available to guests and a restaurant or coffee shop. Generally, the guest rooms are similar in size and furnishings to guest rooms in full service Marriott(R) hotels. In addition, many of the same amenities as would be available in full service Marriott(R) hotels are available in Courtyard by Marriott(R) hotels, except that restaurants may be open only for breakfast buffets or serve limited menus, room service may not be available and meeting and function rooms are limited in size and number. According to Marriott, as of December 31, 1997, 330 Courtyard by Marriott(R) hotels were open and operating nationally. The Company believes that the Courtyard by Marriott(R) brand is a leading brand in the limited service segment of the United States hotel industry. The Company has invested or agreed to invest a total of $621 million in 63 Courtyard by Marriott(R) hotels which have 8,982 rooms. As of March 11, 1998 three of these hotels with an acquisition cost of $37 million have not been purchased but are expected to be purchased periodically throughout the remainder of 1998. The 1997 average daily rate ("ADR"), occupancy and revenue per available room ("RevPAR') for the Company's 53 Courtyard by Marriott(R) hotels which were open throughout 1997 were as follows: ADR............................................ $84.29 Occupancy...................................... 81.1% RevPAR......................................... $68.36 RESIDENCE INN BY MARRIOTT(R) HOTELS Residence Inn by Marriott(R) hotels are designed to attract business, governmental and family travelers who stay more than five consecutive nights. Residence Inn by Marriott(R) hotels generally have between 80 to 130 studios, one-bedroom and two-bedroom suites. Most Residence Inn by Marriott(R) hotels are designed as a cluster of residential style buildings with landscaped walkways, courtyards and recreational areas. Residence Inn by Marriott(R) hotels do not have restaurants. All offer complimentary continental breakfast and most provide a complimentary evening hospitality hour. In addition, each suite contains a fully equipped kitchen and many have fireplaces. Most Residence Inn by Marriott(R) hotels also contain swimming pools, exercise rooms, business centers and guest laundries. According to Marriott, as of December 31, 1997, 248 Residence Inn by Marriott(R) hotels were open and operating nationally. The Company believes that the Residence Inn by Marriott(R) brand is the leading brand in the extended stay segment of the United States hotel industry. The Company has invested or agreed to invest a total of $335 million in 31 Residence Inn by Marriott(R) hotels which have 3,961 suites. As of March 11, 1998 two of these hotels with an acquisition cost of $44 million have not been purchased but are expected to be purchased periodically throughout the remainder of 1998. The 1997 ADR, occupancy and RevPAR for the Company's 18 Residence Inn by Marriott(R) hotels which were open through 1997 were as follows: ADR............................................ $99.96 Occupancy...................................... 83.3% RevPAR......................................... $83.27 WYNDHAM GARDEN(R) HOTELS Wyndham Garden(R) hotels are mid-size, full service hotels located primarily near suburban business centers and airports which are designed to attract business travelers and small business groups in suburban markets. Each 2 hotel contains 140 to 250 rooms and approximately 1,500 to 5,000 square feet of meeting space. The amenities and services provided at these hotels are designed to meet the needs of the upscale business traveler. Amenities and services in each room include desks large enough to accommodate personal computers, longer phone cords, high wattage light bulbs for reading, room service and access to 24-hour telecopy and mail/package service. The meeting facilities at Wyndham Garden(R) hotels generally can accommodate groups of between 10 and 200 people and include a flexible meeting room design, exterior views, additional phone lines and audiovisual equipment. Wyndham Garden(R) hotels also feature a lobby lounge, most of which have a fireplace, a library typically overlooking a landscaped garden and a swimming pool. In addition, many Wyndham Garden(R) hotels contain a whirlpool and an exercise facility. Each Wyndham Garden(R) hotel contains a cafe restaurant that serves a full breakfast, lunch and dinner menu. The Company believes that the Wyndham Garden(R) brand is one of the leading brands in the full service suburban segment of the United States hotel industry. The one additional Wyndham(R) hotel owned by the Company is a full service hotel located in downtown Salt Lake City adjacent to the Salt Lake City Salt Palace Convention Center. This hotel includes 381 rooms, 14,469 square feet of meeting space and two restaurants/lounges. The Company believes this hotel is a leading convention hotel in Salt Lake City. The 11 Wyndham Garden(R) hotels owned by the Company represent a total investment of $135 million and contain 1,940 rooms. These hotels had 1997 ADR, occupancy and RevPAR as follows: ADR............................................ $90.07 Occupancy...................................... 77.1% RevPAR......................................... $69.44 The Company purchased the Wyndham(R) hotel in Salt Lake City in January 1997 for $44.0 million and in January 1998 provided $3.3 million for renovations to this hotel. The ADR, occupancy and RevPAR for this hotel in 1997 were $94.75, 70.8% and $67.08, respectively. SUMNER SUITES(R) HOTELS Sumner Suites(R) hotels are all suite hotels that cater to value-oriented business travelers. Sumner Suites(R) hotels compete in the all suite segment of the lodging industry against such brands as Embassy Suites(R), Hampton Inns and Suites(R) and Amerisuites(R). Each Sumner Suites(R) guest room offers an efficient space for working which includes two phones with data ports and voice mail, a living area which includes a coffee maker, microwave, mini-refrigerator, sleeper-sofa and 25-inch television, and a separate bedroom area with either one king or two double beds. Each Sumner Suites(R) hotel has an attractive lobby lounge where free continental breakfast is provided in the mornings and cocktails are generally available in the early evening. In addition, all Sumner Suites(R) hotels have meeting rooms that can accommodate up to 150 persons, fitness facilities and a pool. Sumner Suites(R) hotels are generally high-rise hotels of six or seven stories and are of masonry construction. The Company has invested $140 million in its 14 Sumner Suites(R) hotels which include 1,641 guest suites. Twelve of these hotels were built and opened between April 1996 and August 1997, one of these hotels opened in late 1995 and one recently re-flagged hotel has recently undergone extensive renovations. The Company believes that the current performance of its Sumner Suites(R) hotels is not indicative of their operating potential because of their recent development or renovation; the ADR, occupancy and RevPAR for the 12 Sumner Suites(R) hotels which were open for at least six months of 1997 were $72.81, 60.8% and $44.27, respectively during 1997. CANDLEWOOD(R) HOTELS Candlewood(R) hotels are extended stay hotels which offer studio and one bedroom suites that cater to business travelers expecting to stay five or more days. Candlewood(R) hotels compete in the mid-priced extended stay segment of the lodging industry against such other brands as Sierra Suites by Summerfield(R), Towne Place Suites by Marriott(R) and MainStay Suites(R). Each Candlewood(R) suite contains a kitchen area, combination living and work area and a sleeping area. The kitchen includes a full-size microwave, full-size refrigerator, stove, dishwasher and coffee maker. The living area contains a convertible sofa, recliner, 25-inch television, videocassette player and compact disc player. The work area includes an oversized desk and executive chair, two phone lines, voice mail and a speaker phone. Each Candlewood(R) suite contains a king size bed. Other amenities offered at each 3 Candlewood(R) hotel include a fitness center, free guest laundry facilities and a Candlewood Cupboard area where guests can purchase light meals, snacks and other refreshments. The Company believes that Candlewood(R) will become one of the leading brands in the mid-priced, extended stay segment of the United States hotel industry. The Company has agreed to invest $100 million to acquire 15 Candlewood hotels which include 1,592 suites. One of these hotels was opened during 1998, 13 of these hotels were opened during 1997 and one was opened in May 1996. As of March 11, 1998 one of these hotels with an acquisition cost of approximately $8 million has not been purchased but is expected to be purchased during the first half of 1998. The Company believes that the current performance of the Candlewood hotels is not indicative of their operating potential because of their recent development; the ADR, occupancy and RevPAR for the three Candlewood hotels acquired by the Company which were open for at least three quarters of 1997 were $50.62, 66.1% and $33.46, respectively during the fourth quarter of 1997. PRINCIPAL LEASE FEATURES The principal features of the Company's leases for the 135 Hotels are as follows: o In the event a lease for any Hotel is defaulted, the Company may declare all of the leases with such Lessee to be in default. o The initial lease terms expire between 2008 and 2014. o At the end of the initial lease terms, each Lessee has 2 to 5 consecutive 10 to 15 year renewal options totaling 20 to 50 years. Renewal options may be exercised only on an all or none basis for all Hotels leased to a particular Lessee. o The leases require minimum rent payments aggregating $137.5 million per year. o In addition to minimum rents, the leases of the Hotels require percentage rents equal to 5% to 10% of total hotel sales in excess of total hotel sales established in a base year. o The leases for the Hotels require that a percentage (generally 5%) of total hotel sales be escrowed periodically to fund refurbishments and renovations to these Hotels ("FF&E Reserves"). Funds in the FF&E Reserves are pooled for all Hotels leased to a particular Lessee and generally may be withdrawn only for capital improvements. o A security deposit equal to a full year's minimum rent is retained by the Company as security for each Lessee's obligations under the leases of the Hotels. Provided that the Lessee does not default under any of such leases, the Company must repay the security deposit to the Lessee at the expiration of the leases, including renewal terms, if any. No interest will be paid by the Company on security deposits, and such deposits are not escrowed. o The leases of the Hotels are net leases requiring the Lessee to pay all operating expenses, including taxes and insurance and any applicable ground rent. Certain Lessees, under the management agreements for the Hotels, have delegated substantially all of the Lessees' operating responsibilities to the Managers. o Management fees payable to the Managers for operation of the Hotels are subordinated to minimum rents due to the Company. The right to occupy the land underlying 10 of the Hotels was acquired by an assignment of leasehold interest under long-term ground leases. In each case, the remaining term of the ground lease (including renewal options) is in excess of 41 years, and the ground lessors are unrelated to the sellers and the Company. Ground rent payable under the 10 ground leases is the responsibility of the Company's Lessees and is generally calculated as a percentage of hotel revenues. Eight of the 10 ground leases require minimum annual rent 4 ranging from approximately $90,000 to $502,900 per year. If a ground lease terminates, the lease with respect to the hotel on such ground-leased land will also terminate. If a Lessee does not perform such obligations under the ground lease or elects not to renew any ground lease, the Company must perform such obligations under the ground lease or renew such ground lease in order to protect its investments in the affected hotel. Any pledge of the Company's interests in a ground lease may also require the consent of the applicable ground lessor and its lenders. INVESTMENT AND OPERATING POLICY In order to benefit from potential property appreciation, the Company generally prefers to own and lease properties rather than make mortgage investments. The Company may invest in real estate joint ventures if it concludes that by doing so it may benefit from the participation of coventurers or that the opportunity of the Company to participate in the investment is contingent on the use of a joint venture structure. The Company may invest in participating, convertible or other types of mortgages if it concludes that by doing so it may benefit from the cash flow or any appreciation in the value of the subject property. Convertible mortgages are similar to equity participation because they permit the lender to either participate in increasing revenues from the property or convert some or all of that mortgage into equity ownership interests. At December 31, 1997, all of the Company's investments were in owned properties. The Company provides capital to unaffiliated hotel operators who wish to divest their properties while remaining in the hotel business as tenants. Most other public hotel REITs seek to control the operations of hotels in which they invest by leasing their properties to affiliated tenants. These other hotel REITs generally design their affiliated leases to capture substantially all net operating revenues from their hotels as rent. The Company's leases are designed so that net operating revenues from its Hotels exceed its rents by considerable coverage margins. The Company believes that these differences in operating philosophy afford it a competitive advantage over other hotel REITs in finding high quality hotel investment opportunities on attractive terms and increase the dependability of the Company's cash flows used to pay dividends. The Company's investment objectives include increasing per share dividends and cash available for distribution ("CAD") from dependable and diverse resources. To achieve these objectives, the Company seeks to operate as follows: maintain a strong capital base of shareholders' equity; invest in high quality properties operated by unaffiliated hotel operating companies; use moderate debt leverage to fund additional investments which increase CAD per Share because of positive spreads between the Company's cost of investment capital and rent yields; design leases which require minimum rents and provide an opportunity to participate in a percentage of increases in gross revenues at the Company's Hotels; when market conditions permit, refinance debt with additional equity or long term debt; and pursue diversification so that the Company's CAD is received from diverse properties and operators. The Company's day-to-day operations are conducted by REIT Management and Research, Inc. ("RMR"), the Company's investment advisor. RMR originates and presents investment opportunities to the Company's Board of Trustees. As a REIT, the Company may not operate hotels. The Company has entered into arrangements for operation of the Hotels. The Company's leases require the Lessee to pay all operating expenses, including taxes and insurance and to pay to the Company minimum rents plus percentage rents based upon increases in gross revenues at the Hotels. ACQUISITION POLICY The Company is committed to pursuing growth through the acquisition of additional hotels and intends to pursue acquisition opportunities. Generally, the Company prefers to purchase and lease multiple hotels in one transaction because the Company believes cross default covenants and all or none renewal rights for multiple hotels enhance the credit characteristics of its leases and the security of its investments. In implementing its acquisition strategy, the Company considers a range of factors relating to proposed hotel purchases including: (i) historical and projected cash flows; (ii) the competitive market environment and the current or potential market position of each proposed hotel; (iii) the availability of a qualified lessee; (iv) the physical condition of the proposed hotel and its potential for redevelopment or expansion; (v) the estimated replacement cost and proposed acquisition price of the proposed hotel; (vi) the price segment in which the proposed hotel is operated; and (vii) the strength of the 5 particular national hotel management organization, if any, with which the proposed hotel is or may become affiliated; and (viii) the hotel brand under which the hotel operates or is expected to operate. In determining the competitive position of a prospective hotel, the Company examines the proximity of the proposed hotel to business, retail, academic and tourist attractions and transportation routes, the number and characteristics of competitive hotels within the proposed hotel's market and the existence of any barriers to entry within that market, including zoning restrictions and financing constraints. While the Company focuses on the acquisition of upscale limited service, extended stay and full service hotel properties, it also considers acquisitions in all segments of the hospitality industry. An important part of the Company's acquisition strategy is to identify and select qualified and experienced hotel lessees. The Company intends to continue to select hotels for acquisition which will enhance the diversity of its portfolio in respect to location, brand name, and lessee/operator. DISPOSITION POLICIES The Company has no current intention to dispose of any Hotels, although it reserves the right to do so. The Company currently anticipates that disposition decisions, if any, will be made by the Company based on (but not limited to) factors such as the following: (i) potential opportunities to increase revenues and property values by reinvesting sale proceeds; (ii) the proposed sale prices; (iii) the strategic fit of the hotel with the rest of the Company's portfolio; (iv) the potential for, or the existence of, any environmental or regulatory problems; (v) the existence of alternative uses or needs for capital; and (vi) the maintenance of the Company's qualification as a REIT. For a description of certain tax consequences arising from disposition of hotels, see "Federal Income Tax Considerations." FINANCING POLICIES The Company currently intends to employ conservative financial policies in pursuit of its growth strategies. Although there are no limitations in the Company's organizational documents on the amount of indebtedness it may incur, the Company currently intends to pursue its growth strategies while maintaining a capital structure under which its debt will not exceed 50% of its total market capitalization. The Company may from time to time re-evaluate and modify its current borrowing policies in light of then current economic conditions, relative availability costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors and may increase or decrease its ratio of debt to total market capitalization accordingly. The Board of Trustees (the "Trustees") of the Company may determine to obtain a replacement for its current credit facilities or to seek additional capital through additional equity offerings, debt financings, retention of cash flow (subject to satisfying the Company's distribution requirements under the REIT rules) or a combination of these methods. To the extent that the Board of Trustees decides to obtain additional debt financing, the Company may do so on an unsecured basis (or a secured basis, subject to limitations which may be present in existing financing or other arrangements) and may seek to obtain other lines of credit or to issue securities senior to the Shares, including preferred shares of beneficial interest and debt securities (either of which may be convertible into Shares or be accompanied by warrants to purchase Shares) or to engage in transactions which may involve a sale or other conveyance of the Company's Hotels to subsidiaries or to unaffiliated special purpose entities. The Company may finance acquisitions through an exchange of properties or through the issuance of additional Shares or other securities. The proceeds from any financings by the Company may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and expansions of existing or new properties. Investment Advisor. Prior to January 1, 1998 the Company had an agreement with HRPT Advisors, Inc. ("Advisors") whereby Advisors provided investment and administrative services to the Company. Effective January 1, 1998, the Company entered into an agreement with REIT Management & Research, Inc. ("RMR") whereby RMR provides investment and administrative services to the Company. Advisors and RMR are Delaware corporations owned by Barry M. Portnoy and Gerard M. Martin. Advisors' principal place of business is 400 Centre Street, Newton, Massachusetts and its telephone number is (617) 332-3990. Advisors also acted and RMR acts as the investment advisor to Health and Retirement Properties Trust (NYSE:"HRP"), the holder of 4,000,000 Shares and has other business interests. The directors of RMR are Gerard M. Martin, Barry M. Portnoy and David J. 6 Hegarty. The officers of RMR are David J. Hegarty, President and Secretary, John G. Murray, Executive Vice President, John A. Mannix, Vice President, Thomas M. O'Brien, Vice President, Ajay Saini, Vice President, John C. Popeo, Treasurer, and David M. Lepore, Vice President. Mr. Murray and Mr. O'Brien are also officers of the Company. Employees. The Company is an advised REIT and has no employees. Services which would otherwise be provided by employees are provided by RMR pursuant to the Advisory Agreement (described below) and by the Managing Trustees and officers of the Company. RMR, which administers the day-to-day operations of the Company, has 125 full-time employees and three active directors. Competition. The hotel industry is highly competitive. Each of the Hotels is located in an area that includes other hotels. Increases in the number of hotels in a particular area could have a material adverse effect on occupancy rates and average daily rates of the hotels located in that area. Agreements with the operators of the Hotels restrict the right of each operator and its affiliates for a limited period of time to own, build, operate, franchise or manage any other hotel of the same brand within various specified areas around the Company's Hotels. Neither the operator nor its affiliates are restricted from operating other branded hotels in the market areas of any of the Hotels, and after such limited period of time, the operators and their affiliates may also compete with the Hotels by opening, managing or franchising additional hotels under the same brand name in direct competition with the Company's Hotels. The Company expects to compete for hotel acquisition and financing opportunities with entities which may have substantially greater financial resources than the Company, including, without limitation, other publicly owned REITs, banks, insurance companies, pension plans and public and private partnerships. These entities may be able to accept more risk than the Company can prudently manage, including risks with respect to the creditworthiness of hotel operators. Such competition may reduce the number of suitable hotel acquisition or financing opportunities available to the Company and increase the bargaining power of hotel owners seeking to sell or finance their properties. Seasonality. The effects of seasonality, if any, are discussed in Management's Discussion and Analysis. FEDERAL INCOME TAX CONSIDERATIONS The Company has elected to be taxed as a REIT commencing with its taxable year ending December 31, 1995. As used in this discussion of "Federal Income Tax Consequences" and in "Erisa Plans, Keogh Plans and Individual Retirement Accounts" below, "REIT" means a Real Estate Trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended and in effect from time to time (the "Code"). The Company believes it has been organized and has operated in a manner that qualifies it to be taxed under the Code as a REIT commencing with that taxable year, and the Company intends to continue to operate in a manner to so qualify. No assurance can be given, however, that the manner in which the Company has operated or will operate qualified or will qualify the Company to be taxed as a REIT. The Company has obtained legal opinions from its counsel Sullivan & Worcester LLP that the Company has been organized in conformity with the requirements for qualification as a REIT, has qualified as a REIT for its 1995, 1996 and 1997 taxable years, and that its current and anticipated investments and its plan of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. These opinions are conditioned upon the assumption that the leases, the Declaration and the Company's Bylaws, and all other legal documents to which the Company is or has been a party have been and will be complied with by all parties thereto, upon the accuracy and completeness of the factual matters described in this Annual Report, and upon representations made by the Company as to certain factual matters relating to the Company's organization and operations and its expected manner of operation. In addition, such opinions are based on the law then existing and in effect on the date thereof. Opinions of counsel are not binding on the Internal Revenue Service ("IRS"), or a court and there can be no assurance that the IRS or a court will not take a position different from that expressed by counsel. 7 The Company's actual qualification and taxation as a REIT will depend upon the Company's ability to meet on a continuing basis, through actual operating results, asset composition, distribution levels, and diversity of stock ownership, the various REIT qualification tests imposed under the Code, discussed below. While the Company has represented that it has operated and will operate in a manner so as to satisfy on a continuing basis the various REIT qualification tests, Sullivan & Worcester LLP has not reviewed and will not review compliance with these tests on a continuing basis, and no assurance can be given that the Company has satisfied or will satisfy such tests on a continuing basis. If the Company fails to qualify as a REIT in any year, it will be subject to federal income taxation as if it were a domestic corporation, and its shareholders will be taxed in the same manner as shareholders of ordinary corporations. In such an event, the Company could be subject to potentially significant tax liabilities, and therefore the amount of cash available for distribution to its shareholders would be reduced or eliminated. The following summary is based on existing law, is limited to investors who will hold the Shares as "capital assets" within the meaning of Section 1221 of the Code (generally, property held for investment), is not exhaustive of all possible tax considerations, and does not discuss any state, local, or foreign tax considerations. Additionally, the following summary does not discuss the particular tax consequences that might be relevant to holders of Shares who may be subject to special rules under the federal income tax law, such as life insurance companies, regulated investment companies, financial institutions, brokers or dealers in securities or foreign currency, persons that have a functional currency other than the U.S. dollar, persons who acquired Shares or options to acquire Shares in connection with their employment or other performance of services, persons subject to alternative minimum tax, persons who hold Shares as part of a straddle, hedging transaction, or conversion transaction or, except as specifically described herein, tax-exempt entities and foreign persons. The sections of the Code that govern the federal income tax qualification and treatment of a REIT and its shareholders are highly technical and complex. The following summary is thus qualified in its entirety by the applicable Code provisions, the rules and regulations promulgated thereunder, and the administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. Thus, no assurance can be given that future legislative, judicial, or administrative actions or decisions will not affect the accuracy of any statements in this summary. In addition, no ruling has been or is expected to be sought from the IRS with respect to any matter discussed herein, and there can be no assurance that the IRS or a court will agree with the statements made herein. Accordingly, each shareholder is urged to consult his own tax advisor with respect to the federal income tax and other tax consequences of the purchase, holding and sale of Shares. Taxation of the Company. If the Company qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its "real estate investment trust taxable income" (determined by excluding any net capital gain and before taking into account any dividends paid deduction), it generally will not be subject to federal corporate income taxes on the amount distributed. This deduction for dividends paid to shareholders substantially eliminates the federal "double taxation" on earnings (once at the corporate level and again at the shareholder level) that generally results from an investment in a corporation. However, even if the Company qualifies for federal income taxation as a REIT, it may be subject to federal tax in certain circumstances. First, the Company will be taxed at regular corporate rates on any undistributed "real estate investment trust taxable income," including undistributed net capital gains. Second, under certain circumstances, the Company may be subject to the corporate "alternative minimum tax" on its items of tax preference, if any. Third, if the Company has (i) net income from the sale or other disposition of "foreclosure property" (generally, property acquired by the Company through foreclosure or otherwise after a default on a loan secured by the property or on a lease of the property) that is held primarily for sale to customers in the ordinary course of business or (ii) other nonqualifying income from foreclosure property, then the Company will be subject to tax on such income at the highest regular corporate rate (currently 35%). Fourth, if the Company has net income from prohibited transactions (generally, certain sales or other dispositions of inventory or property held primarily for sale to customers in the ordinary course of business, other than foreclosure property), such income will be subject to tax at a 100% rate. Fifth, if the Company should fail to satisfy the 75% gross income test or the 95% gross income test (discussed below), but nonetheless maintains its qualification as a REIT because certain other requirements are met, the Company will be subject to tax at a 100% rate on the greater of the amount by which the Company fails the 75% or the 95% test, multiplied by a fraction intended to reflect the Company's profitability. Sixth, if the Company should fail to distribute for any calendar year at least the sum of (i) 85% of its REIT ordinary 8 income for such year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, the Company will be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. Seventh, if the Company acquires any asset from a C corporation (generally, a corporation subject to full corporate level tax) in a transaction in which the basis of the asset in the Company's hands is determined by reference to the basis of the asset in the hands of the C corporation, and if the Company subsequently recognizes gain on the disposition of such asset during the ten-year period beginning on the date on which the asset was acquired by the Company, then the Company will pay tax at the highest regular corporate tax rate (currently 35%) on the lesser of (i) the excess of the fair market value of the asset over the Company's basis in the asset on the date acquired by the Company and (ii) the gain recognized by the Company. If the Company should invest in properties in foreign countries, the Company's profits from such investments will generally be subject to tax in the countries where such properties are located. The nature and amount of any such taxation will depend on the laws of the countries where the properties are located. If the Company satisfies the annual distribution requirements for federal income tax qualification as a REIT and is therefore not subject to federal corporate income tax on that portion of its ordinary income and capital gain that is currently distributed to its shareholders, the Company will generally not be able to recover the cost of any foreign tax imposed on profits from its foreign investments by claiming foreign tax credits against its federal income tax liability on such profits. Moreover, a REIT is not able to pass through to its shareholders any foreign tax credits. The Company's Wholly-Owned Subsidiaries. Section 856(i) of the Code provides that a corporation that is a qualified REIT subsidiary (defined as any corporation 100% of whose stock is held by the REIT at all times during the period the corporation is in existence) shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary shall be treated as assets, liabilities and items of income, deduction, and credit of the REIT. (For the Company's taxable years commencing on or after January 1, 1998, a wholly-owned corporation qualifies as a qualified REIT subsidiary even though there was a period of time during which the Company did not own 100% of its stock; such corporation will be treated for federal income tax purposes as though liquidated into the Company at the time the Company acquired 100% ownership, and then reincorporated by the Company as a qualified REIT subsidiary.) The Company believes that each of its direct and indirect wholly-owned subsidiaries qualifies either as a qualified REIT subsidiary within the meaning of Section 856(i) of the Code, or as a noncorporate entity that for federal income tax purposes is not treated as separate from its owner pursuant to Treasury Regulations under Section 7701 of the Code. Thus, in applying all the federal income tax REIT qualification requirements discussed herein, the Company's direct and indirect wholly-owned subsidiaries are ignored, and all assets, liabilities, and items of income, deduction and credit of those subsidiaries are treated as assets, liabilities and items of income, deduction and credit of the Company. The Company's Investments through Partnerships. The Company in the future may invest in real estate through one or more limited or general partnerships or limited liability companies that is treated as a partnership for federal income tax purposes. In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that for purposes of the REIT qualification requirements regarding income and assets discussed below, the REIT is deemed to own its proportionate share of the assets of the partnership corresponding to the REIT's proportionate capital interest in such partnership and is deemed to be entitled to the income of the partnership attributable to such proportionate share. In addition, for these purposes, the character of the assets and gross income of the partnership generally retain the same character in the hands of the REIT. Accordingly, the Company's proportionate share of the assets, liabilities, and items of income of each partnership in which it is a partner are treated as assets, liabilities, and items of income of the Company for purposes of the income tests and asset tests discussed below. However, for purposes of the REIT's distribution requirement discussed below, a REIT must take into account as a partner its distributive share of the partnership's income as determined under the general federal income tax rules governing partners and partnerships under Sections 701 et seq. of the Code. REIT Qualification Requirements--Generally. Section 856(a) of the Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable, but for Sections 856 through 859 of the Code, as a domestic corporation; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) which is not "closely held" as determined under the personal holding 9 company stock ownership test (as applied with modifications); and (7) which meets certain other tests regarding income, assets, and distributions, as described below. Section 856(b) of the Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. It is the Company's belief and expectation that it has had and will have at least 100 shareholders during the requisite period for each of its taxable years since its election to be taxed as a REIT. There can, however, be no assurance in this connection and, if the Company has fewer than 100 shareholders during the requisite period, condition (5) described above will not be satisfied, and the Company would not qualify as a REIT during such taxable year. By reason of the "closely held" condition (6) above, the Company will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding Shares is owned directly or indirectly by five or fewer individuals. To help maintain conformity with condition (6), the Declaration contains certain provisions restricting transfers of Shares and giving the Trustees the power to redeem Shares involuntarily. For its taxable years commencing on or after January 1, 1998, if the Company complies with Treasury Regulations for ascertaining the ownership of its outstanding Shares and does not know or, exercising reasonable diligence would not have known, whether it failed condition (6), then the Company will be treated as satisfying condition (6). Also, for its taxable years commencing on or after January 1, 1998, the Company's failure to comply with the Treasury Regulations for ascertaining ownership of its outstanding Shares may result in a penalty of $25,000 ($50,000 for intentional violations). Accordingly, the Company will, pursuant to the Treasury Regulations, request annually from record holders of certain significant percentages of its Shares certain information regarding the ownership of such Shares. Under the Declaration, shareholders are required to respond to such requests for information. The rule that an entity will fail to qualify as a REIT for a taxable year if at any time during the last half of such year more than 50% in value of its outstanding shares is owned directly or indirectly by five or fewer individuals is relaxed in the case of certain pension trusts owning shares in a REIT. Shares in a REIT held by such a pension trust are treated as held directly by its beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing its federal income tax qualification as a REIT. However, as discussed below, if the REIT is a "pension-held REIT," each pension trust holding more than 10% of its shares (by value) generally will be taxable on a portion of the dividends it receives from the REIT, based on the ratio of the REIT's gross income for the year which would be unrelated trade or business income if the REIT were a qualified pension trust to the REIT's total gross income for the year. To qualify as a REIT under the Code, the Company must elect to be so treated and must meet other requirements, certain of which are summarized below, including percentage tests relating to the sources of its gross income, the nature of its assets, and the distribution of its income to shareholders. The Company made such an election for 1995 and such election, assuming continuing compliance with the federal income tax qualification tests discussed herein, continues in effect for subsequent years. Income Tests. There are three gross income requirements, only two of which apply to the Company for its taxable years commencing on or after January 1, 1998. First, at least 75% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived directly or indirectly from investments relating to real property (including "rents from real property"), mortgages on real property, or shares in other REITs. When the Company receives new capital in exchange for its Shares (other than dividend reinvestment amounts) or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of such new capital in stock or a debt instrument, if received or accrued within one year of the Company's receipt of the new capital, is qualifying income under the 75% test. Second, at least 95% of the Company's gross income (excluding gross income from certain sales of property held primarily for sale) must be derived from such real property investments, dividends, interest, certain payments under interest rate swap or cap agreements (and for the Company's taxable years commencing on or after January 1, 1998, certain payments under options, futures contracts, forward rate agreements, or similar financial instruments), and gain from the sale or disposition of stock, securities, or real property, or from any combination of the foregoing. Third, for the Company's taxable years ending on or before December 31, 1997, short-term gain from the sale or other disposition of stock or securities (including, without limitation, stock in other REITs), dispositions of interest rate swap or cap 10 agreements, and gain from certain prohibited transactions or other dispositions of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must have represented less than 30% of the Company's gross income. For purposes of these three gross income rules, income derived from a "shared appreciation provision" in a mortgage loan is generally treated as gain recognized on the sale of the property to which it relates. Even though the Company does not own mortgage loans that contain shared appreciation provisions, the Company may in the future make such mortgage loans. The Company temporarily invests working capital in short-term investments, including shares in other REITs. Although the Company will use its best efforts to ensure that the income generated by its investments will be of a type which satisfies the 75% and 95% gross income tests, there can be no assurance in this regard. In order to qualify as "rents from real property," several requirements must be met. First, the amount of rent received generally must not be determined from the income or profits of any person, but may be based on receipts or sales. Second, the Code provides that rents will not qualify as "rents from real property" in satisfying the gross income tests if the REIT owns 10% or more of the tenant, whether directly or under certain attribution rules. The Company intends not to lease property to any party if rents from such property would not so qualify. Application of the 10% ownership rule is, however, dependent upon complex attribution rules and upon circumstances beyond the control of the Company. Ownership, directly or by attribution, by an unaffiliated third party of more than 10% of the Shares and more than 10% of the stock of a lessee would result in lessee rents not qualifying as "rents from real property." The Declaration provides that transfers or purported acquisitions, directly or by attribution, of Shares that could result in disqualification of the Company as a REIT are null and void and permits the Trustees to repurchase Shares to the extent necessary to maintain the Company's status as a REIT. Nevertheless, there can be no assurance such provisions in the Declaration will be effective to prevent the Company's REIT status from being jeopardized under the 10% lessee affiliate rule. Furthermore, there can be no assurance that the Company will be able to monitor and enforce such restrictions, nor will shareholders necessarily be aware of shareholdings attributed to them under the attribution rules. Third, in order for its rents to qualify as "rents from real property," the Company must not manage the property or furnish or render services to the tenants of such property, except through an independent contractor from whom the Company derives no income. There is an exception to this rule permitting a REIT to perform certain customary tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of "unrelated business taxable income." For the Company's taxable years commencing on or after January 1, 1998, a de minimis amount of noncustomary services will not disqualify income as rents from real property so long as the value of the impermissible services does not exceed 1% of the gross income of the property. Fourth, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." The portion of rental income treated as attributable to personal property is determined according to the ratio of the tax basis of the personal property to the total tax basis of the property which is rented. Substantially all of the gross income of the Company has been and is expected to be attributable to rental income. The Company believes that all or substantially all such rents have qualified and will continue to qualify as "rents from real property" for purposes of Section 856 of the Code, but if for some reason a significant amount of such rents do not so qualify, it may be difficult or impossible for the Company to meet the 95% or 75% gross income tests and to qualify as a REIT for federal income tax purposes. In order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan. Any gain realized by the Company on the sale of any property held as inventory or other property held primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate. This prohibited transaction income also may have an adverse effect upon the Company's ability to satisfy the 75% and 95% gross income tests for federal income tax qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. The Company intends to hold its real estate assets for 11 investment with a view to long-term appreciation, to engage in the business of developing, owning and operating its existing real estate assets and acquiring, developing, owning and operating other real estate assets, and to make occasional dispositions of real estate assets as is consistent with the Company's investment objectives. There can be no assurance, however, that the IRS might not contend that one or more dispositions is subject to the 100% penalty tax. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if (i) the Company's failure to meet such test was due to reasonable cause and not due to willful neglect, (ii) the Company reported the nature and amount of each item of its income included in the 75% or 95% gross income tests (as the case may be) for such taxable year on a schedule attached to its return, and (iii) any incorrect information on the schedule was not due to fraud with intent to evade tax. No similar provision provides relief if the Company failed the 30% gross income test for the taxable years such test was applicable, and it is not possible to state whether in all circumstances the Company would be entitled to the benefit of the relief provisions for the 75% and 95% gross income tests. As discussed above, even if these relief provisions do apply, a special tax equal to 100% is imposed upon the greater of the amount by which the Company failed the 75% test or the 95% test, multiplied by a fraction intended to reflect the Company's profitability. Asset Tests. At the close of each quarter of the Company's taxable year, it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must consist of real estate assets (which for this purpose includes stock or debt instruments held for not more than one year purchased with proceeds of a stock offering or a long-term (at least five years) debt offering of the Company), cash, cash items, shares in other REITs, and government securities. Second, not more than 25% of the Company's total assets may be represented by securities (other than those includible in the foregoing 75% asset class). Third, of the investments included in the foregoing 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities. President Clinton has proposed legislation that would expand this last prohibition so that the Company would not be permitted to own more than 10%, either by vote or by value, of any one issuer's outstanding securities. Where a failure to satisfy the foregoing asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of such quarter. The Company intends to maintain adequate records of the value of its assets to maintain compliance with the foregoing asset tests, and to take such action as may be required to cure any failure to satisfy the tests within 30 days after the close of any quarter. Annual Distribution Requirements. In order to qualify as a REIT, the Company is required to distribute dividends (other than capital gain dividends) to its shareholders each year in an amount at least equal to the excess of (A) the sum of (i) 95% of the Company's "real estate investment trust taxable income" (computed without regard to the dividends paid deduction and net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, over (B) the sum of certain noncash income (e.g., certain imputed rental income or certain income from transactions inadvertently failing to qualify as like-kind exchanges). Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before the Company timely files its tax return for such earlier taxable year and if paid on or before the first regular dividend payment after such declaration. Also, dividends declared in October, November, or December and paid during the following January will be treated as having been paid and received on December 31. A distribution which is not pro rata within a class of beneficial interest in the Company entitled to a dividend, or which is not consistent with the rights to distributions between classes of beneficial interests in the Company, is a preferential dividend that is not taken into consideration for purposes of the distribution requirement, and accordingly the payment of a preferential dividend could affect the Company's ability to meet the distribution requirement. Taking into account the Company's distribution policies (including its dividend reinvestment plan), the Company believes that it has not made and expects that it will not make any such preferential dividend. The distribution requirements may be waived by the IRS if the REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that the Company does not distribute all of its net capital gain and all of its "real estate investment trust taxable income," as adjusted, it will be subject to tax thereon. 12 In addition, the Company will be subject to a 4% excise tax to the extent it fails within a calendar year to make "required distributions" to its shareholders of 85% of its ordinary income and 95% of its capital gain net income plus the excess, if any, of the "grossed up required distribution" for the preceding calendar year over the amount treated as distributed for such preceding calendar year. For this purpose, the term "grossed up required distribution" for any calendar year is the sum of the taxable income of the Company for the calendar year (without regard to the deduction for dividends paid) and all amounts from earlier years that are not treated as having been distributed under the provision. It is possible that the Company, from time to time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirements due to timing differences between (i) the actual receipt of income and actual payment of deductible expenses or distributions and (ii) the inclusion of such income and deduction of such expenses or distributions in arriving at "real estate investment trust taxable income" of the Company. The problem of inadequate cash to make required distributions could also occur as a result of the repayment in cash of principal amounts due on the Company's outstanding debt, particularly in the case of "balloon" repayments or as a result of capital losses on short-term investments of working capital. Therefore, the Company might find it necessary to arrange for short-term or possibly long-term borrowing, or for new equity financing, to provide funds for required distributions, or else its REIT status for federal income tax purposes could be jeopardized. There can be no assurance that such borrowing or financing would be available on favorable terms. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to shareholders in a later year, which may be included in the Company's deduction for dividends paid for the earlier year, although an interest charge would be imposed upon the Company for the delay in distribution. Although the Company may thus be able to avoid being taxed on amounts distributed as deficiency dividends, the Company may in certain circumstances remain liable for the 4% excise tax discussed above. For its taxable years ending on or before December 31, 1997, the Company was required to request annually from record holders of certain significant percentages of its Shares certain information regarding the ownership of such Shares, in order to qualify for the deduction for dividends paid to its shareholders. As discussed above, for taxable years commencing on or after January 1, 1998, the Company will continue to request such information in order to comply with the REIT qualification requirement regarding ownership concentration of its Shares. Federal Income Tax Treatment of Leases. The availability to the Company of, among other things, depreciation deductions with respect to the facilities owned and leased by the Company will depend upon the treatment of the Company as the owner of the facilities and the classification of the leases of the facilities as true leases, rather than as sales or financing arrangements, for federal income tax purposes. As to the approximately 10% of the Company's leased facilities which constitutes personal property, it is not entirely clear that the Company will be treated as the owner of such personal property and that the leases will be treated as true leases with respect to such property. The Company plans to insure its compliance with the 95% distribution requirement (and the excise tax "required distribution" requirement) by making distributions on the assumption that it is not entitled to depreciation deductions for the 10% of the leased facilities which constitute personal property, but to perform all its tax reporting by taking into account such depreciation. In the case of certain sale-leaseback arrangements, the IRS could assert that the Company realized prepaid rental income in the year of purchase to the extent that the value of a leased property exceeds the purchase price paid by the Company for that property. In litigated cases involving sale-leasebacks which have considered this issue, courts have concluded that buyers have realized prepaid rent where both parties acknowledged that the purported purchase price for the property was substantially less than fair market value and the purported rents were substantially less than the fair market rentals. Because of the lack of clear precedent, complete assurance cannot be given that the IRS could not successfully assert the existence of prepaid rental income. Additionally, Section 467 of the Code applies to a lease which provides for rents that increase from one period to the next. Section 467 of the Code provides that in the case of a so-called "disqualified leaseback agreement," rental income must be accrued at a constant rate. If such constant rent accrual were required, the 13 Company could recognize rental income in excess of cash rents and, as a result, may fail to meet the 95% dividend distribution requirement. "Disqualified leaseback agreements" include leaseback transactions where a principal purpose for providing increasing rent under the agreement is the avoidance of federal income tax. Because Section 467 of the Code directs the Treasury to issue regulations providing that rents will not be treated as increasing for tax avoidance purposes where the increases are based upon a fixed percentage of lessee receipts, and because regulations proposed to be effective for "disqualified leaseback agreements" entered into after June 3, 1996 adopt this rule, the additional rent provisions of the Company's leases generally should not cause the leases to be "disqualified leaseback agreements." In addition, the legislative history of Section 467 of the Code indicates that the Treasury should issue regulations under which leases providing for fluctuations in rents by no more than a reasonable percentage from the average rent payable over the term of the lease will be deemed not motivated by tax avoidance, and the proposed regulations permit a 10% fluctuation. Depreciation of Properties. For federal income tax purposes, the Company generally depreciates its real property on a straight-line basis over 40 years and its personal property over 9 years. Failure to Qualify. If the Company fails to qualify for federal income taxation as a REIT in any taxable year, and any potentially applicable relief provisions do not apply, the Company will be subject to tax on its taxable income at regular corporate rates (plus any applicable minimum tax). Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company nor will they be required to be made. In such event, to the extent of the Company's current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary income, and subject to certain limitations in the Code will be eligible for the dividends received deduction for corporations. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from federal income taxation as a REIT for the following four taxable years. It is not possible to state whether in all circumstances the Company would be entitled to statutory relief from such disqualification. Failure to qualify for even one year could result in the Company's incurring substantial indebtedness (to the extent borrowings are feasible) or liquidating substantial investments in order to pay the resulting taxes. Taxation of U.S. Shareholders--Generally. As used herein, the term "U.S. Shareholder" means a beneficial holder of Shares that is for federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation or partnership (or other entity treated as a corporation or partnership for federal income tax purposes) created or organized in or under the laws of the United States or of any political subdivision thereof (unless otherwise provided by Treasury Regulations), (iii) an estate the income of which is subject to federal income taxation regardless of its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust (or certain electing trusts in existence on August 20, 1996 to the extent provided in Treasury Regulations). As used herein, the term "Non-U.S. Shareholder" means a beneficial holder of Shares that is not a U.S. Shareholder. As long as the Company qualifies as a REIT for federal income tax purposes, distributions (including reinvestments pursuant to the Company's dividend reinvestment plan) made to the Company's U.S. Shareholders out of current or accumulated earnings and profits will be taken into account by them as ordinary income (but will not be eligible for the dividends received deduction for corporations). Distributions that are properly designated by the Company as capital gain dividends will be taxed as long-term capital gains (as discussed below) to the extent they do not exceed the Company's actual net capital gain for the taxable year, although corporate U.S. Shareholders may be required to treat up to 20% of any such capital gain dividend as ordinary income pursuant to Section 291 of the Code. For the Company's taxable years commencing on or after January 1, 1998, the Company may elect to retain amounts representing its net capital gain income. In that case, the Company will be taxed at regular corporate capital gains tax rates on such amounts, each U.S. Shareholder will be taxed on its proportionate share of the net capital gains retained by the Company as though such amount were distributed and designated a capital gain dividend, and each such U.S. Shareholder will receive a credit for a proportionate share of the tax paid by the Company. Additionally, each U.S. Shareholder will increase the adjusted basis in its Shares by the excess of the amount of its proportionate share of these net capital gains over its proportionate share of the tax paid by the Company, and both the Company and its corporate U.S. Shareholders will make commensurate adjustments in their respective earnings and profits for federal income tax purposes. If the Company should elect to retain its net capital 14 gain in this fashion, it will notify each U.S. Shareholder of the relevant tax information within 60 days after the close of the Company's taxable year. For certain noncorporate U.S. Shareholders, long-term capital gains taken into account after May 7, 1997 are taxed at varying maximum rates of 20%, 25%, or 28%, depending upon the type of property disposed of and the holding period in such property at the time of disposition. If the Company designates a dividend as a capital gain dividend for any taxable year of the Company ending after May 7, 1997 (or elects to retain a portion of its net capital gain and have such amount treated as a distributed and designated capital gain dividend in the manner described above), the Company may also designate the portion of such capital gain dividend which is taxed to certain noncorporate U.S. Shareholders at the varying maximum rates of 20%, 25%, or 28%, based upon the type and holding period of the property disposed of by the Company. If the Company does not make such a designation, the entire capital gain dividend will be treated as long-term capital gain subject to the maximum 28% rate to the noncorporate U.S. Shareholders (without regard to the period for which the U.S. Shareholder held its Shares). For purposes of computing the Company's earnings and profits, depreciation on real estate is generally computed on a straight-line basis over 40 years. Distributions in excess of current or accumulated earnings and profits will not be taxable to a U.S. Shareholder to the extent that they do not exceed the adjusted basis of the U.S. Shareholder's Shares, but will reduce the U.S. Shareholder's basis in such Shares. To the extent that such distributions exceed the adjusted basis of a U.S. Shareholder's Shares, they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for not more than one year), with such long-term gain taxed to certain noncorporate U.S. Shareholders at varying maximum rates of 20% or 28% depending upon the U.S. Shareholder's holding period in the Shares. U.S. Shareholders may not include in their respective income tax returns any net operating losses or capital losses of the Company. Dividends declared by the Company in October, November or December of a taxable year to shareholders of record on a date in such month, will be deemed to have been received by such shareholders on December 31, provided the Company actually pays such dividends during the following January. For tax purposes, the Company's dividends paid in 1995, 1996 and 1997 aggregated $.79, $2.34 and $2.45 respectively, of which $.000, $.344 and $.341, respectively, represented a return of capital. The sale or exchange of Shares will result in recognition of gain or loss to the U.S. Shareholder in an amount equal to the difference between the amount realized and its adjusted basis in the Shares sold or exchanged. Such a gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Shareholder's holding period in the Shares exceeded one year. Long-term capital gains may be taxed to certain noncorporate U.S. Shareholders at varying maximum rates of 20% or 28% depending upon the U.S. Shareholder's holding period in the Shares. In addition, any loss upon a sale or exchange of Shares by a U.S. Shareholder who has held such Shares for not more than six months (after applying certain rules), will generally be treated as a long-term capital loss to the extent of distributions from the Company required to be treated by such U.S. Shareholders as long-term capital gain (including, for this purpose, amounts constructively distributed as long-term capital gain by the Company electing to retain its net capital gain in the manner described above). U.S. Shareholders (other than certain corporations) who borrow funds to finance their acquisition of Shares in the Company could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred in such an arrangement. Under Section 163(d) of the Code, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor's net investment income. A U.S. Shareholder's net investment income will include dividend distributions and, if an appropriate election is made, capital gain dividend distributions it receives from the Company; however, distributions treated as a nontaxable return of the U.S. Shareholder's basis will not enter into the computation of net investment income. Under Section 469 of the Code, U.S. Shareholders (other than certain corporations) generally will not be entitled to deduct losses from so-called passive activities except to the extent of their income from passive activities. For purposes of these rules, distributions received by a U.S. Shareholder from the Company will not be treated as income from a passive activity and thus will not be available to offset a U.S. Shareholder's passive activity losses. 15 Tax preference and other items which are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under regulations which are to be prescribed. It is possible that these regulations would require tax preference items to be allocated to the Company's shareholders with respect to any accelerated depreciation claimed by the Company; however, the Company has not claimed accelerated depreciation with respect to its existing properties. Taxation of Certain Tax-Exempt U.S. Shareholders. In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees' pension trust did not constitute "unrelated business taxable income," even though the REIT may have financed certain of its activities with acquisition indebtedness. Although Revenue Rulings are interpretive in nature and subject to revocation or modification by the IRS, based upon Revenue Ruling 66-106 and the analysis therein, distributions made by the Company to U.S. Shareholders that are qualified pension plans (including individual retirement accounts) or certain other tax-exempt entities should not constitute unrelated business taxable income, unless such U.S. Shareholder has financed the acquisition of its Shares with "acquisition indebtedness" within the meaning of the Code, or the Shares are otherwise used in an unrelated trade or business conducted by the U.S. Shareholder. Special rules apply to certain tax-exempt pension trusts (including so-called 401(k) plans but excluding individual retirement accounts or government pension plans) that own more than 10% by value of a "pension-held REIT" at any time during a taxable year commencing after December 31, 1993. Such a pension trust may be required to treat a certain percentage of all dividends received from the pension-held REIT during the year as unrelated business taxable income. Such percentage is equal to the ratio of the pension-held REIT's gross income (less direct expenses related thereto) derived from the conduct of unrelated trades or businesses (determined as if the pension-held REIT were a tax-exempt pension fund), to the pension-held REIT's gross income (less direct expenses related thereto) from all sources, except that such percentage shall be deemed to be zero unless it would otherwise equal or exceed 5%. A REIT will be treated as a pension-held REIT only if (i) the REIT is "predominantly held" by tax-exempt pension trusts, and (ii) the REIT would otherwise fail to satisfy the "closely held" ownership condition discussed above if the stock or beneficial interests in the REIT held by such tax-exempt pension trusts were viewed as held by such tax-exempt pension trusts rather than their respective beneficiaries. A REIT is predominantly held by tax-exempt pension trusts if at least one tax-exempt pension trust holds more than 25% by value of the REIT's stock or beneficial interests, or if one or more tax-exempt pension trusts (each owning more than 10% by value of the REIT's stock or beneficial interests) own in the aggregate more than 50% by value of the REIT's stock or beneficial interests. Given the restrictions in its Declaration regarding ownership of its Shares, the Company believes that it has not been, and expects that it will not be, a pension-held REIT. However, because the Shares of the Company will be publicly traded, no assurance can be given that the Company will not become a pension-held REIT. Taxation of Non-U.S. Shareholders. The rules governing the federal income taxation of Non-U.S. Shareholders (generally, nonresident alien individuals, foreign corporations, foreign partnerships, and foreign trusts and estates) are highly complex, and the following discussion is intended only as a summary of such rules. Non-U.S. Shareholders should consult with their own tax advisors to determine the impact of federal, state, local, and foreign tax laws, including any reporting requirements, with respect to their investment in the Company. In general, a Non-U.S. Shareholder will be subject to regular federal income tax in the same manner as a U.S. Shareholder with respect to its investment in Shares if such investment is "effectively connected" with the Non-U.S. Shareholder's conduct of a trade or business in the United States. In addition, a corporate Non-U.S. Shareholder that receives income that is (or is deemed) effectively connected with a trade or business in the United States may also be subject to the 30% branch profits tax under Section 884 of the Code, which is payable in addition to regular federal corporate income tax. The following discussion addresses only Non-U.S. Shareholders whose investment in Shares is not effectively connected with the conduct of a trade or business in the United States. A distribution by the Company to a Non-U.S. Shareholder that is not attributable to gain from the sale or exchange by the Company of a United States real property interest and that is not designated by the Company as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. Generally, such a dividend will be subject to federal income withholding tax on the gross amount thereof at the rate of 30%, or such lower rate that may be specified by treaty if the Non-U.S. Shareholder has in the manner prescribed by the IRS demonstrated to the Company its entitlement to treaty benefits. 16 A distribution of cash in excess of the Company's earnings and profits will be treated first as a nontaxable return of capital that will reduce a Non-U.S. Shareholder's basis in its Shares (but not below zero) and then as gain from the disposition of such Shares, the tax treatment of which is discussed below. A distribution in excess of the Company's earnings and profits may be subject to 30% (or lower treaty rate) withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of the Company's current and accumulated earnings and profits. If it is subsequently determined that such distribution is, in fact, in excess of current and accumulated earnings and profits, the Non-U.S. Shareholder may seek a refund from the IRS. The Company expects to withhold federal income withholding tax at the rate of 30% on the gross amount of any distributions on Shares made to a Non-U.S. Shareholder unless a lower tax treaty applies and the required IRS form evidencing eligibility for that reduced rate is filed with the Company. For any year in which the Company qualifies as a REIT, distributions by the Company that are attributable to gain from the sale or exchange of a United States real property interest are taxed to a Non-U.S. Shareholder as if such distributions were gains "effectively connected" with a trade or business in the United States conducted by the Non-U.S. Shareholder. Accordingly, a Non-U.S. Shareholder will be taxed on such amounts at the normal capital gain rates applicable to a U.S. Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Such distributions may also be subject to a 30% branch profits tax under Section 884 of the Code in the hands of a corporate Non-U.S. Shareholder that is not entitled to treaty relief or exemption. The Company will be required to withhold from distributions to Non-U.S. Shareholders, and remit to the IRS, 35% of the maximum amount of any distribution that could be designated as a capital gain dividend. In addition, for purposes of this withholding rule, if the Company designates prior distributions as capital gain distributions, then subsequent distributions, up to the amount of such prior distributions, will be treated as capital gain dividends. The amount of any tax withheld is creditable against the Non-U.S. Shareholder's federal income tax liability, and any amount of tax withheld in excess of that tax liability may be refunded provided that an appropriate claim for refund is filed with the IRS. Tax treaties may reduce the Company's withholding obligations. Under certain treaties, however, rates below 30% generally applicable to dividends from United States corporations may not apply to dividends from a REIT. If the amount of tax withheld by the Company with respect to a distribution to a Non-U.S. Shareholder exceeds such shareholder's federal income tax liability with respect to such distribution, the Non-U.S. Shareholder may file for a refund of such excess from the IRS. In this regard, it should be noted that the 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporate Non-U.S. Shareholders but is higher than the 20%, 25%, and 28% maximum rates on capital gains generally applicable to noncorporate Non-U.S. Shareholders. Treasury Regulations issued on October 6, 1997 (the "New Regulations") alter the withholding rules on dividends paid to a Non-U.S. Shareholder, generally effective with respect to dividends paid after December 31, 1999. Under the New Regulations, to obtain a reduced rate of withholding under an income tax treaty, a Non-U.S. Shareholder generally will be required to provide an Internal Revenue Service Form W-8 certifying such Non-U.S. Shareholder's entitlement to benefits under the treaty. The New Regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a Non-U.S. Shareholder that is an entity should be treated as paid to the entity or to those holding an interest in that entity, and whether such entity or such holders in the entity are entitled to benefits under the tax treaty. The New Regulations also alter the information reporting and backup withholding rules applicable to Non-U.S. Shareholders and, among other things, provide certain presumptions under which a Non-U.S. Shareholder is subject to backup withholding and information reporting until the Company receives certification from such shareholder of its Non-U.S. Shareholder status. If the Shares fail to constitute a "United States real property interest" within the meaning of Section 897 of the Code, gain on sale of the Shares by a Non-U.S. Shareholder generally will not be subject to federal income taxation unless (i) investment in the Shares is effectively connected with the Non-U.S. Shareholder's United States trade or business, in which case, as discussed above, the Non-U.S. Shareholder would be subject to the same treatment as U.S. Shareholders on such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on such gain. 17 The Shares will not constitute a United States real property interest if the Company is a "domestically controlled REIT." A domestically controlled REIT is a REIT in which at all times during the preceding five-year period less than 50% in value of its shares is held directly or indirectly by foreign persons. It is believed that the Company has been and will continue to be a domestically controlled REIT, and therefore that the sale of Shares by a Non-U.S. Shareholder will not be subject to federal income taxation. However, because the Shares are publicly traded, no assurance can be given that the Company has been and will continue to be a domestically controlled REIT. If the Company is not a domestically controlled REIT, whether a Non-U.S. Shareholder's gain on sale of Shares would be subject to federal income tax as a sale of a United States real property interest would depend upon whether the Shares were "regularly traded" (as defined by applicable Treasury Regulations) on an established securities market (e.g., the New York Stock Exchange, on which the Shares are listed) and upon the size of the selling Non-U.S. Shareholder's interest in the Company. If the gain on the sale of the Shares were subject to federal income taxation, the Non-U.S. Shareholder would be subject to the same treatment as a U.S. Shareholder with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In any event, a purchaser of Shares from a Non-U.S. Shareholder will not be required to withhold on the purchase price if the purchased Shares are "regularly traded" on an established securities market or if the Company is a domestically controlled REIT. Otherwise, the purchaser of Shares may be required to withhold 10% of the purchase price paid to the Non-U.S. Shareholder and to remit such amount to the IRS. Shares owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Requirements. The Company will report to its U.S. Shareholders and to the IRS the amount of dividends paid during each calendar year and the amount of tax withheld, if any. Under the backup withholding rules, a U.S. Shareholder may be subject to backup withholding at the rate of 31% with respect to dividends paid unless the U.S. Shareholder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding rules and otherwise complies with applicable requirements of the backup withholding rules. A U.S. Shareholder that does not provide the Company with its correct taxpayer identification number may be subject to penalties imposed by the IRS. In addition, the Company may be required to withhold a portion of capital gain distributions to any U.S. Shareholder that fails to certify its non-foreign status to the Company. Any amounts withheld under the foregoing rules will be creditable against the U.S. Shareholder's federal income tax liability provided that the required information is furnished to the IRS. The Company will report to its Non-U.S. Shareholders and to the IRS the amount of dividends paid during each calendar year and the amount of tax withheld, if any. These information reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-U.S. Shareholder resides. As discussed above, withholding tax rates of 30% and 35% may apply to distributions on Shares to Non-U.S. Shareholders, and the New Regulations will when effective alter the information reporting and withholding rules applicable to Non-U.S. Shareholders. Among other things, the New Regulations provide certain presumptions under which a Non-U.S. Shareholder would be subject to backup withholding and information reporting until the Company receives certification from such shareholder of its Non-U.S. Shareholder status. As noted, the New Regulations are generally effective with respect to dividends paid after December 31, 1999. The payment of the proceeds from the disposition of Shares to or through the United States office of a broker will generally be subject to information reporting and backup withholding at a rate of 31% unless the owner, under penalties of perjury, certifies, among other things, its status as a Non-U.S. Shareholder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Shares to or through a non-United States office of a broker generally will not be subject to backup withholding and information reporting. In the case of proceeds from a disposition of Shares paid to or through a non-United States office of a United States broker or paid to or through a non-United States office of a non-United States broker that is (i) a "controlled foreign corporation" for federal income tax purposes or (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (a) backup 18 withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the broker has documentary evidence in its files that the beneficial owner is a Non-U.S. Shareholder unless the broker has actual knowledge to the contrary. Under the New Regulations (generally effective for payments made after December 31, 1999), in the case of proceeds from a disposition of Shares paid to or though a non-United States office of a United States broker or paid to or through a non-United States office of a non-United States broker that is (i) a "controlled foreign corporation" for federal income tax purposes, (ii) a person 50% or more of whose gross income from all sources for a certain three-year period was effectively connected with a United States trade or business, (iii) a foreign partnership with one or more partners who are United States persons and who in the aggregate hold more than 50% of the income or capital interest in the partnership, or (iv) a foreign partnership engaged in the conduct of a trade or business in the United States, (a) backup withholding will not apply unless the broker has actual knowledge that the owner is not a Non-U.S. Shareholder, and (b) information reporting will not apply if the Non-U.S. Shareholder certifies its status as a Non-U.S. Shareholder and further certifies that it has not been, and at the time the certificate is furnished reasonably expects not to be, present in the United States for a period aggregating 183 days or more during each calendar year to which the certification pertains. Any amounts withheld from a payment to a Non-U.S. Shareholder will generally be refunded (or credited against the Non-U.S. Shareholder's United States federal income tax liability, if any), provided that the required information is furnished to the IRS. Other Tax Considerations. Holders of Shares should recognize that the present federal income tax treatment of the Company may be modified by future legislative, judicial, or administrative actions at any time, which may be retroactive in effect, and, as a result, any such action or decision may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the Treasury Department, resulting in statutory changes as well as promulgation of new regulations, revisions to existing regulations, and revised interpretations of established concepts. No prediction can be made as to the likelihood of passage of any new tax legislation or other provisions either directly or indirectly affecting the Company or its shareholders. Revisions in federal income tax laws and interpretations thereof could adversely affect the tax consequences of investment in the Shares. The Company and its shareholders may also be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. The state and local tax treatment of the Company and its shareholders may not conform to the federal income tax consequences discussed above. Consequently, holders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in the Shares. THE FOREGOING IS A SUMMARY DESCRIPTION OF CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS, WITHOUT CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR SHAREHOLDER. IN PARTICULAR, IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE COMPANY AND ITS SHAREHOLDERS MAY ALSO BE SUBJECT TO STATE OR LOCAL TAXATION IN VARIOUS STATE OR LOCAL JURISDICTIONS, INCLUDING THOSE IN WHICH IT OR THEY TRANSACT BUSINESS OR RESIDE. EACH HOLDER OF SHARES OF THE COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE TAXATION OF THE COMPANY AND ITS SHAREHOLDERS, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS 19 General Fiduciary Obligations. Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") ("ERISA Plan") must consider whether their investment in the Company's Shares satisfies the diversification requirements of ERISA, whether the investment is prudent in light of possible limitations on the marketability of the Shares, whether such fiduciaries have authority to acquire such Shares under the appropriate governing instrument and Title I of ERISA, and whether such investment is otherwise consistent with their fiduciary responsibilities. Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper delegation of control over or responsibility for "plan assets." Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, such fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of such a violation (the "Fiduciary Penalty"). Fiduciaries of any Individual Retirement Account ("IRA") Keogh Plan or other qualified retirement plan not subject to Title I of ERISA because it does not cover common law employees ("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is inconsistent with any of the foregoing criteria. Prohibited Transactions. Fiduciaries of ERISA Plans and persons making the investment decision for an IRA or other Non-ERISA Plan should also consider the application of the prohibited transaction provisions of ERISA and the Code in making their investment decision. Sales and certain other transactions between an ERISA Plan, IRA, or other Non-ERISA Plan and certain persons related to it are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA Plan, IRA, or other Non-ERISA Plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA Plans, may also result in the imposition of an excise tax under the Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the ERISA or Non-ERISA Plan or IRA. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to such individual in a taxable distribution (and no excise tax will be imposed) on account of the prohibited transaction. Fiduciary shareholders should consult their own legal advisers if they have any concern as to whether the investment is a prohibited transaction. Special Fiduciary and Prohibited Transactions Considerations. The Department of Labor ("DOL"), which has certain administrative responsibility over ERISA Plans as well as over IRAs and other Non-ERISA Plans, has issued a regulation defining "plan assets." The regulation generally provides that when an ERISA or Non-ERISA Plan or IRA acquires a security that is an equity interest in an entity and that security is neither a "publicly offered security" nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant. The regulation defines a publicly offered security as a security that is "widely held," "freely transferable" and either part of a class of securities registered under the Securities Exchange Act of 1934, or sold pursuant to an effective registration statement under the Securities Act of 1933 (provided the securities are registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Shares have been registered under the Securities Exchange Act of 1934. The regulation provides that a security is "widely held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be "widely held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. The regulation provides that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on 20 transfer enumerated in the regulation as not affecting that finding include: any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification of the Company for Federal or state tax purposes, or would otherwise violate any state or Federal law or court order; any requirement that advance notice of a transfer or assignment be given to the Company and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence; any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and any limitation or restriction on transfer or assignment which is not imposed by the issuer or a person acting on behalf of the issuer. The Company believes that the restrictions imposed under the Declaration on the transfer of Shares do not result in the failure of the Shares to be "freely transferable." Furthermore, the Company believes that at present there exist no other facts or circumstances limiting the transferability of the Shares which are not included among those enumerated as not affecting their free transferability under the regulation, and the Company does not expect or intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transfer which would not be among the enumerated permissible limitations or restrictions. However, the final regulation only establishes a presumption in favor of a finding of free transferability, and no guarantee can be given that the DOL or the Treasury Department will not reach a contrary conclusion. Assuming that the Shares will be "widely held" and that no other facts and circumstances exist which restrict transferability of the Shares, the Company has received an opinion of counsel that the Shares should not fail to be "freely transferable" for purposes of the regulation due to the restrictions on transfer of the Shares under the Declaration and that under the regulation the Shares are publicly offered securities and the assets of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or other Non-ERISA Plan that invests in the Shares. If the assets of the Company are deemed to be plan assets under ERISA, (i) the prudence standards and other provisions of Part 4 of Title I of ERISA would be applicable to investments made by the Company; (ii) the person or persons having investment discretion over the assets of ERISA Plans which invest in the Company would be liable under the aforementioned Part 4 of Title I of ERISA for investments made by the Company which do not conform to such ERISA standards unless the Advisor registers as an investment adviser under the Investment Advisers Act of 1940 and certain other conditions are satisfied; and (iii) certain transactions that the Company might enter into in the ordinary course of its business and operation might constitute "prohibited transactions" under ERISA and the Code. Item 3. Legal Proceedings Although in the ordinary course of business the Company is or may become involved in legal proceedings, the Company has a limited operating history and is not aware of any material pending legal proceeding affecting the Company or any of the Hotels for which it might become liable. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Shares are traded on the New York Stock Exchange (symbol: HPT). The following table sets forth for the periods indicated the high and low closing sale prices for the Shares as reported in the New York Stock Exchange Composite Transactions reports since the Company's initial public offering. 21 1995 High Low ---- ---- --- August 22 to September 30 $ 27 $ 24 1/2 Fourth Quarter 26 3/4 24 3/8 1996 High Low ---- ---- --- First Quarter $ 27 7/8 $ 25 1/2 Second Quarter 27 24 5/8 Third Quarter 26 7/8 25 Fourth Quarter 29 1/2 25 1997 High Low ---- ---- --- First Quarter $ 33 $ 28 3/8 Second Quarter 32 1/8 29 3/8 Third Quarter 35 15/16 30 7/16 Fourth Quarter 38 5/16 33 1/16 The closing price of the Shares on the New York Stock Exchange on March 11, 1998, was $35.00 per Share. As of March 6, 1998, there were 1,007 Shareholders of record and the Company estimates that as of such date there was an excess of 75,000 beneficial owners of the Shares. Information about the Company's dividends paid is summarized in the table below. Dividends are generally paid in the quarter following the quarter to which they relate. Dividend Annualized Per Share Dividend Rate --------- ------------- 1995 ---- Third Quarter $0.24 $2.20 Fourth Quarter 0.55 2.20 1996 ---- First Quarter $0.58 $2.32 Second Quarter 0.58 2.32 Third Quarter 0.59 2.36 Fourth Quarter 0.59 2.36 1997 ---- First Quarter $0.59 $2.36 Second Quarter 0.61 2.44 Third Quarter 0.62 2.48 Fourth Quarter 0.63 2.52 All dividends declared have been paid. The Company intends to continue to declare and pay future dividends on a quarterly basis. In order to qualify for the beneficial tax treatment accorded to REITs by Sections 856 through 860 of the Code, the Company is required to make distributions to shareholders which annually will be at least 95% of the Company's "real estate investment trust taxable income" (as defined in the Code). All distributions will be made by the Company at the discretion of the Board of Trustees and will depend on the earnings of the Company, cash available for distribution, the financial condition of the Company and such other factors as the Board of Trustees 22 deems relevant. The Company intends to distribute substantially all of its "real estate investment trust taxable income" to its shareholders. Item 6. Selected Financial Data The following table sets forth selected financial and operating data on an historical and a pro forma basis for the Company for the years ended December 31, 1997, 1996 and 1995. The pro forma data for 1995 is unaudited and presented as if the Company's formation transactions, primarily the acquisition and leasing of the 37 hotels acquired in 1995, the Company's initial public offering of Shares, and certain other transactions described below had been consummated as of the date or for the period presented. The pro forma data is not necessarily indicative of what the actual financial position or results of operations would have been, nor do they purport to represent the financial position or results of operations for future periods.
Historical Historical Historical Pro Forma --------------------------------------------------------------------------------- February 7, 1995 Year Ended Year Ended (Inception) to Year Ended December 31, 1997 December 31, 1996 December 31, 1995 (1) December 31, 1995 (In thousands, except per Share data) Operating Data: Revenues: Rental income $ 98,561 $ 69,514 $ 19,531 $ 33,308 FF&E reserve income 14,643 12,169 4,037 6,424 Interest income 928 946 74 144 ---------- ---------- ---------- ---------- Total revenues 114,132 82,629 23,642 39,876 Expenses: Interest 15,534 5,646 5,063 -- Depreciation and amortization 31,949 20,398 5,820 9,229 General and administrative 7,496 4,921 1,410 2,616 ---------- ---------- ---------- ---------- Total expenses 54,979 30,965 12,293 11,845 ---------- ---------- ---------- ---------- Net income $ 59,153 $ 51,664 $ 11,349 $ 28,031 ========== ========== ========== ========== Per Share Data: Net income per Share $ 2.15 $ 2.23 $ 2.51 $ 2.22 Weighted average Shares outstanding 27,530 23,170 4,515 12,601 Balance Sheet Data (as of December 31): Real estate properties, net $1,207,868 $ 816,469 $ 326,752 $ 326,752 Total assets 1,313,256 871,603 338,947 338,947 Total debt 125,000 125,000 -- -- Shareholders' equity 1,007,893 645,208 297,951 297,951 - --------- (1) From inception on February 7, 1995, until completion of its initial public offering on August 22, 1995, the Company was a 100% owned subsidiary of HRP. The Company was initially capitalized with $1.0 million of equity and $163.3 million of debt. The debt was provided by HRP at rates which were lower than the market rates which the Company would have paid on a stand alone basis. Accordingly, the Company does not believe that its results of operations while it was a wholly-owned subsidiary are comparable to subsequent periods.
23 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Overview The Company was organized on February 7, 1995 and commenced operations on March 24, 1995 with the acquisition of its first 21 hotels. The Company completed its initial public offering of shares and acquired an additional 16 hotels on August 22, 1995. Because the Company did not operate for the entire year 1995, the Company believes it is meaningful to an understanding of its operations to discuss the Company's 1995 pro forma results of operations as well as its historical results of operations. The following discussion should be read in conjunction with the financial statements and the notes thereto included elsewhere herein. Pro forma results and percentage relationships set forth herein may not be indicative of the future operations of the Company. Historical and Pro Forma Results of Operations Year Ended December 31, 1997 versus Year Ended December 31, 1996 The Company's assets increased to $1,313 million as of December 31, 1997 from $872 million as of December 31, 1996. The increase resulted primarily from hotel acquisitions completed in 1997. In January 1997 the Company purchased a full service hotel in Salt Lake City, Utah for $44.0 million. In March 1997 the Company agreed to acquire 10 Residence Inn by Marriott(R) hotels (1,276 suites) and four Courtyard by Marriott(R) hotels (543 rooms) for $149 million and acquired all these properties in 1997 after they opened. In September 1997 the Company agreed to acquire from Marriott six Courtyard by Marriott(R) hotels (829 rooms) and three Residence Inn by Marriott(R)) hotels (507 suites) for $129 million. As of March 11, 1998, four of these hotels have been acquired; the remaining five are expected to be acquired periodically during the remainder of 1998. In November 1997 the Company acquired 14 Sumner Suites(R) hotels (1,641 suites) for $140 million. In November 1997 the Company agreed to acquire 15 Candlewood(R) hotels for $100 million. Five of these 15 Candlewood(R) hotels were acquired in 1997. An additional nine properties were acquired in January and March 1998. The remaining hotel is expected to be acquired during 1998. These acquisitions were funded through the use of cash on hand, borrowings on the Company's line of credit, and the net proceeds from the offering of 12,000,000 common shares of beneficial interest ("Shares") in December 1997. Total revenues in 1997 were $114.1 million versus 1996 revenues of $82.6 million. Total revenues were comprised principally of base and percentage rent of $98.6 million and FF&E reserve income of $14.6 million in 1997 versus $69.5 million and $12.2 million, respectively, in the 1996 period. The Company's results are reflective of the full year impact of 45 hotels acquired in 1996 and the impact of the 1997 completion of 37 of the 53 hotel acquisitions announced in 1997. During 1997 the Company earned percentage rent revenue of $2.5 million ($0.09/Share) versus $1.1 million ($0.05/Share) in 1996, as a result of increases in gross hotel revenues at the Company's hotels. Total expenses in 1997 were $55.0 million (including interest expense and depreciation and amortization of real estate assets of $15.5 and $31.9 million, respectively) versus 1996 expenses of $31.0 million (including interest expense and depreciation and amortization of $5.6 million and $20.4 million, respectively). A portion of the hotels purchased in 1997 were temporarily financed with proceeds from the Company's line of credit which was ultimately repaid with the proceeds of the Company's 12,000,000 Share offering in December 1997. These line of credit proceeds, plus the amounts outstanding on certain prepayable mortgage notes issued by a subsidiary of the Company, gave rise to interest expense of $15.5 million in 1997 versus $5.6 million in 1996 when amounts outstanding under the Company's line of credit were smaller, were outstanding for shorter periods and during which the Company's mortgage notes were not in place for the entire period. The substantial increase in the number of hotels owned by the Company has also proportionately increased the Company's general expense levels, including depreciation and general and administrative expenses. The Company incurred $713,000 of costs in 1997 in connection with a terminated acquisition attempt. 24 Net income in 1997 was $59.2 million ($2.15/Share) and cash available for distribution ("CAD") was $79.3 million ($2.88/Share) versus $51.7 million ($2.23 per Share) and CAD of $60.8 million ($2.62/Share). Growth in net income and CAD is primarily related to the effects of acquisitions in 1996 and 1997. Cash flow provided by (used for) operating, investing and financing activities was $81.2 million, ($347.3 million) and $309.7 million, respectively, for the year ended December 31, 1997. Year Ended December 31, 1996 versus Pro Forma Year Ended December 31, 1995 The Company's assets increased to $871.6 million as of December 31, 1996 from $338.9 million at December 31, 1995. The increase primarily resulted from three hotel portfolio acquisitions completed during 1996. In March and April of 1996, the Company acquired 16 Courtyard by Marriott(R) hotels for $176.4 million and 18 Residence Inn(R) by Marriott hotels for $172.2 million. In May 1996, the Company acquired 11 Wyndham Garden(R) hotels for $135.3 million. These acquisitions were funded through the use of cash on hand, borrowings on the Company's line of credit, and the net proceeds from the offering of 14,250,000 Shares in April 1996. Total revenues in 1996 were $82.6 million versus pro forma 1995 revenue of $39.9 million. Total revenues were comprised principally of base and percentage rent of $69.5 million and FF&E reserve income of $12.2 million in 1996 versus $33.3 million and $6.4 million, respectively, in the pro forma period. The Company's results of operations in 1996 are reflective of the growth in the number of owned hotels to 82, from 37 at year end 1995. The leases for the Company's 82 hotels at December 31, 1996 call for base rent of $81.3 million annually, versus $32.9 million for the 37 hotels owned at December 31, 1995. During 1996, the Company earned revenue of approximately $1.1 million ($0.05/Share) in percentage rents from its portfolio of 53 Courtyard hotels, reflective of continued increases in Total Hotel Sales at these properties. Total expenses in 1996 were $31.0 million, including interest expense and depreciation and amortization of $5.6 million and $20.4 million, respectively, versus pro forma 1995 expenses of $11.8 million, including depreciation and amortization of $9.2 million. A portion of the hotels purchased in 1996 were financed with proceeds from the Company's line of credit which was ultimately repaid with prepayable floating rate mortgages. Such debt financing in 1996 gave rise to the $5.6 million of interest expense referred to above, versus zero for pro forma 1995, when the Company did not use third-party debt. The substantial increase in the number of hotels owned by the Company has also proportionately increased the Company's general expense levels, including depreciation and amortization and general and administrative expenses. Net income in 1996 was $51.7 million ($2.23 per Share) and CAD for the period was $60.8 million ($2.62 per Share), based in both cases on average outstanding Shares for the period of 23,170,000. This compares with pro forma 1995 net income of $28.0 million ($2.22 per Share) and CAD of $30.8 million ($2.45 per Share), based in both cases upon 12,600,900 outstanding Shares. This 7% growth in CAD is primarily related to the effects of the Company's 1996 hotel acquisitions and related financing activity as well as growth in percentage rent to $1.1 million in 1996 from $0.4 million in the 1995 pro forma period. During April 1996, the Company completed an offering of 14,250,000 Shares raising net proceeds of approximately $358 million to fund its acquisitions and more than doubling its equity capitalization and shares outstanding. Cash flow provided by (used for) operating, investing and financing activities was $61.7 million, ($448.7 million) and $422.9 million, respectively, for the year ended December 31, 1996. February 7, 1995 (Inception) Through December 31, 1995 Total revenues from Inception through December 31, 1995 were $23.6 million, which included base and percentage rent of $19.5 million and FF&E reserve income of $4.0 million. Total expenses for the period were $12.3 million, including interest expense and depreciation and amortization of $5.0 million and $5.8 million, respectively. Net income for the period was $11.3 million ($2.51 per Share) and CAD for the period was $13.2 million ($2.91 per Share), based in both cases on average outstanding Shares for the period of 4,515,000. 25 From Inception until completion of its initial public offering on August 22, 1995, the Company was a 100% owned subsidiary of Health and Retirement Properties Trust ("HRP") and was initially capitalized with $1 million of equity and $163.3 million of debt. The debt was provided by HRP at rates which were lower than the market rates which the Company would have paid on a stand alone basis. Accordingly, the Company does not believe that its results of operations while it was a wholly owned subsidiary of HRP are comparable to subsequent periods. Cash flow provided by (used for) operating, investing and financing activities was $14.1 million, ($303.7 million) and $291.6 million, respectively, for the year ended December 31, 1996. Pro Forma Year Ended December 31, 1995 The pro forma results of operations assume that the Company's formation transactions, the initial public offering of Shares and the acquisition and leasing of the 37 hotels and related transactions all occurred on January 1, 1995. On this pro forma basis, total revenues would have been $39.9 million (principally base and percentage rents of $33.3 million and FF&E reserve income of $6.4 million). Total expenses would have been $11.8 million (including depreciation and amortization of $9.2 million and general and administrative expenses of $2.6 million). Net income would have been $28.0 million or $2.22 per Share, and CAD would have been $30.8 million or $2.45 per Share, based in both cases upon 12,600,900 Shares outstanding. Liquidity and Capital Resources The Company's primary source of cash to fund its dividends, interest and day to day operations is the base and percentage rent it receives. Base rent is paid monthly in advance and percentage rent is paid either monthly or quarterly in arrears. This flow of funds from rent has historically been sufficient for the Company to pay dividends, interest and meet day to day operating expenses. The Company believes that its operating cash flow will be sufficient to meet its operating expenses, interest and dividend payments. In order to fund acquisitions and to accommodate occasional cash needs which may result from timing differences between the receipt of rents and the need to pay dividends or operating expenses, the Company has entered into a line of credit arrangement with DLJ Mortgage Capital, Inc. ("DLJMC"). The line of credit (the "DLJMC Line of Credit") is for up to $200 million, all of which was available at December 31, 1997. During 1997 the Company expanded its credit facilities with DLJMC temporarily to provide up to $455 million. Drawings under the DLJMC Line of Credit are secured by first mortgage liens on certain of the Company's hotels. Funds may be drawn, repaid and redrawn until maturity, and no principal repayment is due until maturity. The DLJMC Line of Credit matures on December 31, 1998. Interest on borrowings under the DLJMC Line of Credit are payable until maturity at a spread above LIBOR; and interest during the extended term, if any, will be set at market rates at the time the loan is extended. During 1996, subsidiaries of the Company issued $125 million of mortgage notes (the "Secured Notes") secured by such subsidiaries' assets, including 18 Residence Inn by Marriott(R) and 11 Wyndham Garden(R) hotels. The mortgage loan was financed by the issuance of $125 million commercial mortgage pass-through certificates through a trust created by another of the Company's subsidiaries. The certificates were sold in a Rule 144A private placement to institutional investors. The Secured Notes carried interest that floated with one-month LIBOR plus a spread and were due December 1, 2001, but could be prepaid by the Company at any time without penalty. In connection with this issuance of the Secured Notes, the Company entered into interest rate cap agreements for $125 million (notional amount) with a major financial institution which limit the Company's maximum interest rate exposure to 7.6925% on this debt. On March 2, 1998, the Secured Notes were prepaid in full. The Company expects to use existing cash balances, borrowings under the DLJMC Line of Credit or other lines of credit and/or net proceeds of offerings of equity or debt securities to fund future hotel acquisitions. To the extent the Company borrows on a line of credit, the Company will explore various alternatives in both the timing and method of repayment of such amounts. Such alternatives may include incurring long term debt. On January 15, 1997, the Company's shelf registration statement for up to $2 billion of securities, including debt securities, was declared effective by the Securities and Exchange Commission (the "SEC"). An effective shelf registration statement enables the 26 Company to issue specific securities to the public on an expedited basis by filing a prospectus supplement with the SEC. In February 1998 the Company issued $150 million of 7.0% senior unsecured notes due 2008. Net proceeds to the Company of approximately $148 million were used for general business purposes and, on March 2, 1998 to repay the Secured Notes in full. Also in February 1998 the Company issued an aggregate 2,146,571 Shares in connection with three separate unit investment trust arrangements established by investment banks. These Shares were sold at market prices less an underwriting discount. The aggregate net proceeds of these Shares offerings ($71.1 million) will be used for the acquisition of additional hotels and for general business purposes. At March 11, 1998 the Company had total commitments to purchase property of $88.7 million. Also at March 11, 1998 the Company had cash and cash equivalents of approximately $110 million. The Company is in the process of negotiating with a commercial bank for an unsecured revolving credit facility. The Company expects to conclude negotiations and documentation during the first half of 1998, enter into a new unsecured revolving line of credit and terminate the DLJMC Line of Credit. No assurance can be given that a new credit facility will be available to the Company on acceptable terms. Although there can be no assurance that the Company will consummate any debt or equity security offerings or other financings, the Company believes it will have access to various types of financing in the future, including debt or equity securities offerings, with which to finance future acquisitions. Recent Developments On March 19, 1998 the Company closed a new unsecured revolving credit facility of $250 million, arranged and fully underwritten by a commercial bank. The facility has a 4 year term and bears interest at LIBOR plus a spread based on the Company's senior debt ratings. The facility contains financial covenants requiring the Company to, among other things, maintain a debt to Asset Value (as defined) of no more than 50% and meet certain debt service coverage ratios (as defined). On March 20, 1998 the Company completed a $240 million acquisition of 15 Summerfield Suites(R) hotels, containing 1,822 suites (2,766 rooms). These hotels are leased to the seller under a lease with an initial term through 2015 and four renewal terms of 12 years each. The lease requires base rent of $25 million annually and additional rent equal to a percentage of gross revenue increases beginning in 1999. The acquisition was funded with a $125 million borrowing under the Company's unsecured credit line discussed above and cash on hand. Seasonality The Company's Hotels have historically experienced seasonal differences typical of the hotel industry with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters. This seasonality is not expected to cause fluctuations in the Company's rental income because the Company believes that the revenues generated by its Hotels will be sufficient for the lessees to pay rents on a regular basis notwithstanding seasonal fluctuations. Inflation The Company believes that inflation should not have a material adverse effect on the Company. Although increases in the rate of inflation may tend to increase interest rates which the Company may be required to pay for borrowed funds, the Company has a policy of obtaining interest rate caps in appropriate circumstances to protect it from interest rate increases. In addition, the Company's leases provide for the payment of percentage rent to the Company based on increases in total sales, and such rent should increase with inflation. 27 Certain Considerations The discussion and analysis of the Company's financial condition and results of operations requires the Company to make certain estimates and assumptions and contains certain statements of the Company's beliefs, intent or expectation concerning projections, plans, future events and performance. The estimates, assumptions and statements, such as those relating to the Company's ability to expand its portfolio, performance of its assets, the ability to pay dividends, its tax status as a "real estate investment trust," the ability to appropriately balance the use of debt and equity and to access capital markets, depend upon various factors over which the Company and/or the Company's lessees have or may have limited or no control. Those factors include, without limitation, the status of the economy, capital markets (including prevailing interest rates), compliance with the changes to regulations within the hospitality industry, competition, changes to federal, state and local legislation and other factors. The Company cannot predict the impact of these factors, if any. However, these factors could cause the Company's actual results for subsequent periods to be different from those stated, estimated or assumed in this discussion and analysis of the Company's financial condition and results of operations. The Company believes that its estimates and assumptions are reasonable and prudent at this time. Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to the consolidated financial statements and schedule of Hospitality Properties Trust included in Item 7 of the Company's Current Report on Form 8-K dated February 11, 1998. The financial statements for HMH HPT Courtyard, Inc., a significant lessee as of January 3, 1997 and January 2, 1998 and for the two fiscal years ended January 2, 1998 and the period from March 24, 1995 (inception) to December 29, 1995, begin on Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III The information in Part III (Items, 10, 11, 12 and 13) is incorporated by reference to the Company's definitive Proxy Statement, which is expected to be filed not later than 120 days after the end of the Company's fiscal year. 28 PART IV Item 14. Exhibits, Financial Statements, Schedule and Reports on Form 8-K. (a) Index to Financial Statements and Financial Statement Schedules
The following financial statements HMH HPT Courtyard, Inc. a significant lessee of Company assets are included herein on the pages indicated. Page Report of Independent Public Accountants......................................... F-1 Balance Sheet as of January 3, 1997 and January 2, 1998.......................... F-2 Statement of Income for the period from inception through December 29, 1995 and the fiscal years ended January 3, 1997 and January 2, 1998................... F-3 Statement of Shareholder's Equity for the period from inception to December 29, 1995 and the fiscal years ended January 3, 1997 and January 2, 1998.......... F-4 Statement of Cash Flows for the period from inception to December 29, 1995 and the fiscal years ended January 3, 1997 and January 2, 1998.................................................................. F-5 Notes to Financial Statements.................................................... F-6 The following consolidated financial statements and schedule of Hospitality Properties Trust are incorporated herein by reference to the Company's Current Report on Form 8-K dated February 11, 1998, page references are to such Current Report: Report of Independent Public Accountants......................................... F-2 Consolidated Balance Sheet as of December 31, 1997 and December 31, 1996......... F-3 Consolidated Statement of Income for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995............ F-4 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995................................................................ F-5 Consolidated Statement of Cash Flows for the for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995................................................................ F-6 Notes to Consolidated Financial Statements....................................... F-7 Report of Independent Public Accountants on Schedule III......................... F-11 Schedule III - Real Estate and Accumulated Depreciation.......................... F-12 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
29 Exhibits: 3.1 Conformed Amended and Restated Declaration of Trust dated August 21, 1995 (Filed herewith) 3.2 Conformed Amendment dated June 2, 1997 (Filed herewith) 3.3 Conformed Articles Supplementary dated June 2, 1997 (Filed herewith) 3.4 Bylaws of the Registrant (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 4.1 Form of Share Certificate (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 4.2 Rights Agreement, dated as of May 20, 1997, between Hospitality Properties Trust and State Street Bank and Trust Company, as Rights Agent (including the form of Rights Certificate and the form of Articles Supplementary designating the Junior Participating Preferred Shares) (Incorporated by reference to the Company's Current Report on Form 8-K dated May 20, 1997) 4.3 Indenture dated as of February 25, 1998, between the Company and State Street Bank and Trust Company (Filed herewith) 4.4 Supplemental Indenture No. 1 dated as of February 25, 1998, between the Company and State Street Bank and Trust Company (Filed herewith) 8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters (Filed herewith) 10.1 Advisory Agreement(+) (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.2 Advisory Agreement by and between REIT Management & Research, Inc. and Hospitality Properties Trust dated January 1, 1998 (+) (Incorporated by reference to the Company's Current Report on Form 8-K dated February 11, 1998) 10.3 Hospitality Properties Trust 1995 Incentive Share Award Plan(+) (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.4 Form of Revolving Credit Agreement by and between the Company and DLJ Mortgage Capital, Inc., as amended and restated on December 29, 1995, as further amended by Amendment No. 1, dated February 26, 1996 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996) 10.5 Amendment, dated November 25, 1996 to the Revolving Credit Agreement, amended and restated on December 29, 1995, by and between the Company and DLJ Mortgage Capital, Inc. 1996 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996) 10.6 Amendment No. 3, dated November 14, 1997, to the Amended and Restated Credit Agreement, dated as of December 29, 1995, as amended, between the Company and DLJ Mortgage Capital, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.7 First Supplemental Credit Agreement, dated as of November 14, 1997, between the Company, as borrower, and DLJ Mortgage Capital, Inc. as lender (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.8 Second Supplemental Credit Agreement, dated as of November 14, 1997, between the Company, as borrower, and DLJ Mortgage Capital, Inc., as lender (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.9 Promissory Note in the amount of $125,000,000 dated as of November 25, 1996 from HPTRI Corporation and HPTWN Corporation to Column Financial Inc. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 4, 1996) 10.10 Loan Agreement dated as of November 25, 1996 by and between HPTRI Corporation and HPTWN Corporation, as borrowers, and Column Financial Inc., as lender. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 4, 1996) 10.11 Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement from HPTRI Corporation, as Trustor, to Chicago Title Insurance Company, as Trustee, for benefit of Column Financial, Inc. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 4, 1996) 30 10.12 Trust and Servicing agreement dated as of November 25, 1996 by and among Hospitality Properties Mortgage Acceptance Corp., as Depositor, AMRESCO Management, Inc., as Servicer, and The Chase Manhattan Bank, as Trustee (Incorporated by reference to the Company's Current Report on Form 8-K dated December 4, 1996) 10.13 Revolving Credit Agreement, dated as of March 19, 1998, among the Company, as borrower, the institutions party thereto from time to time as lenders, and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent (Filed herewith) 10.14 Investment Manager's Subordination Agreement, dated as of March 19, 1998, among REIT Management & Research, Inc., the Company and Dresdner Bank AG, New York Branch and Grand Cayman Branch (Filed herewith) 10.15 Purchase-Sale and Option Agreement dated as of February 3, 1995 by and among HMH Courtyard Properties, Inc., HMH Properties, Inc. and Hospitality Properties, Inc., as amended (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.16 Fifth Amendment to Purchase-Sale and Option Agreement dated February 26, 1996, by and between IIIT and IIMII Properties, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-1433)) 10.17 Form of Courtyard Management Agreement between HMH Courtyard Properties, Inc., d/b/a HMH Properties, Inc. and Courtyard Management Corporation (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.18 Form of First Amendment to Courtyard Management Agreement between Courtyard Management Corporation and Hospitality Properties, Inc. and Consolidation Letter Agreement by and between Courtyard Management Corporation and Hospitality Properties, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.19 Form of Lease Agreement between Hospitality Properties, Inc. and HMH HPT Courtyard, Inc. (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 33-92330)) 10.20 Form of Lease Agreement between HMH HPT Residence Inn, Inc. and Hospitality Properties Trust (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-1433)) 10.21 Form of Residence Inn Management Agreement between HMH Properties, Inc. and Residence Inn by Marriott(R), Inc. (Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-1433)) 10.22 Lease Agreement by and between HPTSLC Corporation, as landlord, and WIIC Salt Lake Corporation, as tenant, dated January 1996 (Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996) 10.23 Purchase and Sale Agreement by and among Residence Inn by Marriott, Inc. and Courtyard Management Corporation, as sellers, and Hospitality Properties Trust, as purchaser, dated April 3, 1997 (Incorporated by reference to the Company's Current Report on Form 8-K dated April 3, 1997) 10.24 Form of Courtyard Lease Agreement by and between HPTMI Corporation and CR14 Corporation (Incorporated by reference to the Company's Current Report on Form 8-K dated April 3, 1997) 10.25 Form of Residence Inn Lease Agreement by and between HPTMI Corporation and CR14 Corporation (Incorporated by reference to the Company's Current Report on Form 8-K dated April 3, 1997) 10.26 Limited Rent Guaranty, dated April 3, 1997, by and among Marriott International, Inc., as guarantor, and Hospitality Properties Trust and HPTMI Corporation, as landlord (Incorporated by reference to the Company's Current Report on Form 8-K dated April 3, 1997) 10.27 Purchase and Sale Agreement, dated November 19, 1997, by and among Candlewood Hotel Company, Inc. and certain of its affiliates, as sellers, and the Company, as purchaser (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.28 Form of Candlewood Lease Agreement by and between a subsidiary of the Company, as landlord, and Candlewood Leasing No. 1 Inc., as tenant (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 31 10.29 Form of Guaranty Agreement by and among Candlewood Hotel Company, Inc., a subsidiary of the Company and the Company (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.30 Purchase and Sale Agreement, dated as of October 24, 1997, by and among ShoLodge, Inc. and certain of its affiliates, as sellers, and the Company, as purchaser (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.31 Lease Agreement, dated as of November 19, 1997, by and between HPT Suite Properties Trust, as landlord, and Suite Tenant, Inc., as tenant (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.32 Limited Guaranty Agreement, dated as of November 19, 1997, by and among Sholodge, Inc., HPT Suite Properties Trust and the Company (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.33 Purchase Agreement, dated as of October 10, 1997, by and among Residence Inn by Marriott, Inc. and Courtyard management Corporation, as sellers, and the Company, as purchaser (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.34 Form of Residence Inn Lease Agreement by and between HPTMI II Properties Trust and CR9 Tenant Corporation (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.35 Form of Courtyard Lease Agreement by and Between HPTMI II Properties Trust and CR9 Tenant Corporation (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.36 Limited Rent Guaranty, dated as of October 10, 1997, by and among Marriott International, Inc., the Company and HPTMI II Properties Trust (Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1997) 10.37 Agreement of Purchase and Sale, dated as of March 18, 1998, between Patriot American Hospitality Partnership, L.P. and Chatsworth Summerfield Associates, L.P. (Filed herewith) 10.38 Assignment of Rights under Agreements of Purchase and Sale, dated as of March 18, 1998, by Patriot American Hospitality Partnership, L.P. to and for the benefit of HPTSHC Properties Trust (Filed herewith) 10.39 Agreement to Lease dated as of March 20, 1998 by and between HPTSHC Properties Trust and Summerfield HPT Lease Company, L.P. (Filed herewith) 12 Ratio of Earnings to Fixed Charges (Filed herewith) 21 Subsidiaries of the Registrant (Filed herewith) 23.1 Consents of Arthur Andersen LLP (Filed herewith) 23.2 Consent of Sullivan & Worcester LLP (included in Exhibit 8.1 to this Annual Report) 99 The Company's Current Report on Form 8-K dated February 11, 1998 (Filed herewith) - ------------------ (+) Management contract or compensatory plan or agreement. (b) During the fourth quarter of 1997, the Company filed the following Current Reports on Form 8-K: (i) Current Report on Form 8-K dated November 11, 1997 relating to an agreement to acquire fifteen hotels (Items 5 and 7) (ii) Current Report on Form 8-K dated December 12, 1997 relating to (a) certain financial statements, (b) an underwriting agreement and (c) an opinion of counsel relating to certain tax matters (Item 7) 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To HMH HPT Courtyard, Inc.: We have audited the accompanying balance sheets of HMH HPT Courtyard, Inc. (the "Company") as of January 2, 1998 and January 3, 1997, and the related statements of operations, shareholder's equity and cash flows for the fiscal years ended January 2, 1998 and January 3, 1997 and for the period March 24, 1995 (inception) through December 29, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of January 2, 1998 and January 3, 1997, and the results of its operations and its cash flows for the fiscal years ended January 2, 1998 and January 3, 1997 and for the period March 24, 1995 (inception) through December 29, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Washington, D.C. February 27, 1998 F-1
HMH HPT COURTYARD, INC. BALANCE SHEETS January 2, 1998 and January 3, 1997 (in thousands, except share data) 1997 1996 ---- ---- ASSETS Advances to manager $ 5,100 $ 5,100 Due from Marriott International, Inc. 3,233 3,481 Security deposit 50,540 50,540 -------- -------- Total assets $ 58,873 $ 59,121 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Due to Host Marriott Corporation $ 5,888 $ 4,793 Deferred gain 36,670 39,570 -------- -------- Total liabilities 42,558 44,363 -------- -------- Shareholder's equity Common stock, no par value 100 shares authorized, issued and outstanding -- -- Additional paid-in capital 15,295 15,478 Retained earnings (deficit) 1,020 (720) -------- -------- Total shareholder's equity 16,315 14,758 -------- -------- $ 58,873 $ 59,121 ======== ========
See Notes to Financial Statements. F-2
HMH HPT COURTYARD, INC. STATEMENTS OF OPERATIONS For the Fiscal Years Ended January 2, 1998 and January 3, 1997 and for the Period from March 24, 1995 (inception) through December 29, 1995 (in thousands) Period from March 24, 1995 (inception) Fiscal Year through December 29, 1995 ---------------------- ------------------------- 1997 1996 ---- ---- REVENUES $ 108,416 $ 94,161 $ 37,813 --------- --------- --------- EXPENSES: Rent 52,335 46,495 19,379 FF&E contribution expense 10,595 9,289 3,810 Base and incentive management fees paid to Marriott International, Inc. 23,323 18,318 5,156 Property taxes 7,491 6,287 2,597 Other expenses 4,583 3,390 3,262 --------- --------- --------- Total operating expenses 98,327 83,779 34,204 --------- --------- --------- OPERATING PROFIT BEFORE AMORTIZATION OF DEFERRED GAIN AND CORPORATE EXPENSES 10,089 10,382 3,609 Amortization of deferred gain 2,900 2,351 675 Corporate expenses (1,991) (2,235) (1,059) --------- --------- --------- INCOME BEFORE INCOME TAXES 10,998 10,498 3,225 Provision for income taxes (4,400) (4,199) (1,322) --------- --------- --------- NET INCOME $ 6,598 $ 6,299 $ 1,903 ========= ========= =========
See Notes to Financial Statements. F-3
HMH HPT COURTYARD, INC. STATEMENTS OF SHAREHOLDER'S EQUITY For the Fiscal Years Ended January 2, 1998 and January 3, 1997 and for the Period from March 24, 1995 (inception) through December 29, 1995 (in thousands) Additional Retained Common Paid-In Earnings Stock Capital (Deficit) ----- ------- --------- Net assets contributed by Host Marriott Corporation $ -- $ 25,406 $ -- Dividend to Host Marriott Corporation -- -- (2,623) Net income -- -- 1,903 -------- -------- -------- Balance, December 29, 1995 -- 25,406 (720) Net liabilities contributed by Host Marriott Corporation -- (9,928) -- Dividend to Host Marriott Corporation -- -- (6,299) Net income -- -- 6,299 -------- -------- -------- Balance, January 3, 1997 -- 15,478 (720) Adjustment to 1996 capital contribution by Host Marriott Corporation -- (183) -- Dividend to Host Marriott Corporation -- -- (4,858) Net income -- -- 6,598 -------- -------- -------- Balance at January 2, 1998 $ -- $ 15,295 $ 1,020 ======== ======== ========
See Notes to Financial Statements. F-4
HMH HPT COURTYARD, INC. STATEMENTS OF CASH FLOWS Fiscal Years Ended January 2, 1998 and January 3, 1997 and for the Period from March 24, 1995 (inception) through December 29, 1995 (in thousands) Period from March 24, 1995 (inception) Fiscal Year through December 29, 1995 ---------------------- ------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net income $ 6,598 $ 6,299 $ 1,903 Adjustments to reconcile net income to cash provided by operating activities: Amortization of deferred gain (2,900) (2,351) (675) Changes in operating accounts: Increase in due to Host Marriott Corporation 1,095 3,285 1,082 Decrease in prepaid rent -- 329 2,531 Decrease (increase) in due from Marriott International, Inc. 65 (1,263) (2,218) ------- ------- ------- Cash provided by operations 4,858 6,299 2,623 ------- ------- ------- FINANCING ACTIVITIES: Dividend to Host Marriott Corporation (4,858) (6,299) (2,623) ------- ------- ------- CASH AND CASH EQUIVALENTS, end of year $ -- $ -- $ -- ======= ======= ======= SUPPLEMENTAL INFORMATION, NONCASH ACTIVITY Balances transferred to the Company by Host Marriott Corporation upon commencement of leases Advances to manager $ 1,116 $ 3,984 Prepaid rent 329 2,531 Security deposits 17,640 32,900 Accrued expenses -- (426) Deferred gain (29,013) (13,583) -------- -------- Net (liabilities) assets contributed by Host Marriott Corporation $ (9,928) $ 25,406 ======== ========
See Notes to Financial Statements. F-5 HMH HPT COURTYARD, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation HMH HPT Courtyard, Inc. (the "Company") was incorporated in Delaware on February 7, 1995 as a whollyowned indirect subsidiary of Host Marriott Corporation ("Host Marriott"). The Company had no operations prior to March 24, 1995 (the "Commencement Date"). On the Commencement Date, affiliates of Host Marriott (the "Sellers") sold 21 Courtyard properties to Hospitality Properties Trust ("HPT"). On August 22, 1995, HPT purchased an additional 16 Courtyard properties from the Sellers. On March 22, 1996 and April 4, 1996, a total of 16 additional Courtyard properties were purchased by HPT for a total of 53 Courtyard hotels (the "Hotels"). The Sellers contributed the assets and liabilities related to the operations of such properties to the Company, including working capital advances to the manager, prepaid rent under leasing arrangements and rights to other assets as described in Note 2. Such assets have been accounted for at the historical cost. Fiscal Year The Company's fiscal year ends on the Friday nearest to December 31. Full year results for 1996 include 53 weeks versus 52 weeks for 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenues Revenues represent house profit from the Hotels because the Company has delegated substantially all of the operating decisions relating to the generation of house profit from the Hotels to Marriott International, Inc. (the "Manager" or "Marriott International"). House profit reflects the net revenues flowing to the Company as lessee and represents total hotel sales less property level expenses excluding depreciation and amortization, real and personal property taxes, lease payments, insurance, contributions to the property improvement fund and management fees. On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board reached a consensus on EITF 97-2, "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements." EITF 97-2 addresses the circumstances in which a management entity may include the revenues and expenses of a managed entity in its financial statements. The Company is assessing the impact of EITF 97-2 on its policy of excluding the property-level revenues and operating expenses of its hotels from its statements of operations (see Note 6). If the Company concludes that EITF 97-2 should be applied to its hotels, it would include operating results of those managed operations in its financial statements. Application EITF 97-2 to financial statements as of and for the 52 weeks ended January 2, 1998, would have increased both revenues and operating expenses by approximately $103 million and would have had no impact on operating profit or net income. F-6 Corporate Expenses The Company operates as a unit of Host Marriott, utilizing Host Marriott's employees, centralized system for cash management, insurance and administrative services. The Company has no employees. All cash received by the Company is deposited in and commingled with Host Marriott's general corporate funds. Operating expenses and other cash requirements of the Company are paid by Host Marriott and charged directly or allocated to the Company. Certain general and administrative costs of Host Marriott are allocated to the Company, principally based on Host Marriott's specific identification of individual cost items and otherwise based upon estimated levels of effort devoted by its general and administrative departments to individual entities. In the opinion of management, the methods for allocating corporate, general and administrative expenses and other direct costs are reasonable. It is not practicable to estimate the costs that would have been incurred by the Company if it had been operated on a stand-alone basis, however, management believes that these expenses are comparable to the expected allocations by Host Marriott of general and administrative costs on a forward-looking basis. Concentration of Credit Risk The Company's largest asset is the security deposit (see Note 3) which constitutes 86% of the Company's total assets as of January 2, 1998. The security deposit is not collateralized and is due from HPT at the termination of the Lease. Deferred Gain Host Marriott contributed to the Company deferred gains relating to the sale of the 53 Courtyard properties to HPT in 1995 and 1996. The Company is amortizing the deferred gain over the initial term of the Lease, as defined below. NOTE 2. LEASE COMMITMENTS On the Commencement Date, the Company entered into a lease for 21 Courtyard properties. On August 22, 1995, the Company entered into a lease for an additional 16 Courtyard properties. On March 22, 1996 and April 4, 1996, the Company entered into a lease for an additional 16 Courtyard properties (collectively, the "Lease"). The initial term of the Lease expires in 2012. Thereafter, the Lease automatically renews for consecutive twelveyear terms at the option of the Company. The Company is required to pay rents equal to aggregate minimum annual rent of $50,635,000 ("Base Rent"), and percentage rent equal to 5% of the excess of total hotel sales over base year total hotel sales ("Percentage Rent"). A pro rata portion of Base Rent is due and payable in advance on the first day of thirteen predetermined accounting periods. Percentage Rent is due and payable quarterly in arrears. Additionally, the Company is required to make payments when due on behalf of HPT for real estate taxes and other taxes, assessments and similar charges arising from or related to the Hotels and their operation, utilities, premiums on required insurance coverage, rents due under ground and equipment leases and all amounts due under the terms of the management agreements described below. The Company is also required to provide the Manager with working capital to meet the operating needs of the Hotels. The Sellers had previously made advances related to the Hotels and transferred their interest in such amounts to the Company in the amount of $3,984,000 and $1,116,000 in 1995 and 1996, respectively. The Lease also requires the Company to escrow, or cause the Manager to escrow, an amount equal to 5% of the annual total hotel sales into an HPTowned furniture, fixture and equipment reserve (the "FF&E Reserve"), which is available for the cost of required replacements and renovation. Any requirements for funds in excess of amounts in the FF&E Reserve shall be provided by HPT ("HPT Fundings") at the request of the Company. In the event of HPT Fundings, Base Rent shall be adjusted upward by an amount equal to 10% of HPT Fundings. The Company is required to maintain a minimum net worth equal to one year's base rent. For purposes of this covenant, net worth is defined as shareholder's equity plus the deferred gain. As of January 2, 1998, future minimum annual rental commitments for the Lease on the Hotels and other noncancelable leases, including the ground leases described below, are as follows (in thousands): F-7 Operating Other Lease Leases ----- ------ 1998 $ 50,635 $ 304 1999 50,635 151 2000 50,635 68 2001 50,635 30 2002 50,635 15 Thereafter 506,350 6 -------- -------- Total minimum lease payments $759,525 $ 574 ======== ======== The land under eight of the Hotels is leased from third parties. The ground leases have remaining terms (including all renewal options) expiring between the years 2039 and 2067. The ground leases provide for rent based on specific percentages of certain sales subject to minimum amounts. The minimum rentals are adjusted at various anniversary dates throughout the lease terms, as defined in the agreements. Total minimum lease payments exclude Percentage Rent which was $1,771,000, $716,000 and $271,000 for 1997 and 1996 and the period March 24, 1995 through December 29, 1995, respectively. NOTE 3. SECURITY DEPOSIT HPT holds $50,540,000 as a security deposit for the obligations of the Company under the Leases (the "Security Deposit"). The Security Deposit is due upon termination of the Lease. NOTE 4. INCOME TAXES The Company and Host Marriott are members of a consolidated group for federal income tax purposes. Host Marriott has contributed the Security Deposit and deferred gain without contributing their related tax attributes and have agreed that the Company will not be responsible for any tax liability or benefit associated with the Security Deposit or deferred gain. Accordingly, no deferred tax balances are reflected in the accompanying balance sheets. There is no difference between the basis of assets and liabilities for income tax and financial reporting purposes other than for the Security Deposit and the deferred gain. The components of the Company's effective income tax rate follow: 1997 1996 1995 ---- ---- ---- Statutory Federal tax rate 35.0% 35.0% 35.0% State income tax, net of Federal tax benefit 5.0 5.0 6.0 ----- ----- ----- 40.0% 40.0% 41.0% ===== ===== ===== The provision for income taxes consists of the following (in thousands): 1997 1996 1995 ---- ---- ---- Current - Federal $ 3,849 $ 3,674 $ 1,129 - State 551 575 193 ------- ------- ------- $ 4,400 $ 4,199 $ 1,322 ======= ======= ======= All current tax provision amounts are included in due to Host Marriott Corporation on the accompanying balance sheets. F-8 NOTE 5. MANAGEMENT AGREEMENTS The Sellers' rights and obligations under management agreements (the "Agreements") with the Manager, were transferred to HPT and then through the Leases to the Company. The Agreement has an initial term expiring in 2013 with an option to extend the Agreement on all of the Hotels for up to 30 years. The Agreements provide that the Manager be paid a system fee equal to 3% of hotel sales, a base management fee of 2% of hotel sales ("Base Management Fee") and an incentive management fee equal to 50% of available cash flow, not to exceed 20% of operating profit, as defined ("Incentive Management Fee"). In addition, the Manager is reimbursed for each Hotel's pro rata share of the actual costs and expenses incurred in providing certain services on a central or regional basis to all Courtyard by Marriott hotels operated by the Manager. Base Rent is to be paid prior to payment of Base Management Fees and Incentive Management Fees. To the extent Base Management Fees are so deferred, they must be paid in future periods. If available cash flow is insufficient to pay Incentive Management Fees, no Incentive Management Fees are earned by the Manager. Pursuant to the terms of the Agreements, the Manager is required to furnish the hotels with certain services ("Chain Services") which are generally provided on a central or regional basis to all hotels in the Marriott International hotel system. Chain Services include central training, advertising and promotion, a national reservation system, computerized payroll and accounting services, and such additional services as needed which may be more efficiently performed on a centralized basis. Costs and expenses incurred in providing such services are allocated among all domestic hotels managed, owned or leased by Marriott International or its subsidiaries. In addition, the Hotels participate in Marriott Rewards and Marriott's Courtyard Club programs. The cost of these programs are charged to all hotels in the system. The Company is obligated to provide the Manager with sufficient funds to cover the cost of (a) certain non-routine repairs and maintenance to the Hotels which are normally capitalized; and (b) replacements and renewals to the Hotels' property and improvements. Under certain circumstances, the Company will be required to establish escrow accounts for such purposes under terms outlined in the Agreements. Pursuant to the terms of Agreements, the Company is required to provide Marriott International with funding for working capital to meet the operating needs of the hotels. Marriott International converts cash advanced by the Company into other forms of working capital consisting primarily of operating cash, inventories and trade receivables. Under the terms of the Agreements, Marriott International maintains possession of and sole control over the components of working capital and accordingly, the Company reports the total amounts so advanced to Marriott International as advances to manager in the accompanying balance sheet. Upon termination of the Agreements, the working capital will be returned to the Company. NOTE 6. REVENUES As discussed in Note 1, hotel revenues reflect house profit from the Company's hotel properties. House profit reflects the net revenues flowing to the Company as lessee and represents all gross hotel operating revenues, less all gross property-level expenses, excluding depreciation, management fees, real and personal property taxes, lease payments, insurance, contributions to the property improvement fund and certain other costs, which are classified as operating costs and expenses. F-9 The following table presents the detail of house profit for 1997, 1996 and from March 24, 1995 (inception) through December 29, 1995 (in thousands): 1997 1996 1995 ---- ---- ---- Hotel Sales: Rooms $189,426 $164,738 $ 66,968 Food and beverage 14,789 14,167 6,225 Other 7,674 7,138 2,999 -------- -------- -------- Total Hotel Sales 211,889 186,043 76,192 -------- -------- -------- Expenses: Rooms (A) 39,280 34,858 14,713 Food and beverage (B) 12,657 12,133 5,044 Other operating departments (C) 2,245 1,904 827 General and administrative (D) 22,536 19,956 7,768 Utilities (E) 8,046 7,200 2,955 Repairs, maintenance and accidents (F) 8,613 6,930 2,899 Marketing and sales (G) 2,281 2,290 1,121 Chain services (H) 7,815 6,611 3,052 -------- -------- -------- Total expenses 103,473 91,882 38,379 -------- -------- -------- Revenues (House Profit) $108,416 $ 94,161 $ 37,813 ======== ======== ======== (A) Includes expenses for linen, cleaning supplies, laundry, guest supplies, reservations costs, travel agents' commissions, walked guest expenses and wages, benefits and bonuses for employees of the rooms department. (B) Includes costs of food and beverages sold, china, glass, silver, paper, and cleaning supplies and wages, benefits and bonuses for employees of the food and beverage department. (C) Includes expenses related to operating the telephone department. (D) Includes management and hourly wages, benefits and bonuses, credit and collection expenses, employee relations, guest relations, bad debt expenses, office supplies and miscellaneous other expenses. (E) Includes electricity, gas and water at the properties. (F) Includes cost of repairs and maintenance and the cost of accidents at the properties. (G) Includes management and hourly wages, benefits and bonuses, promotional expense and local advertising. (H) Includes charges from the Manager for Chain Services as allowable under the Agreements. F-10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOSPITALITY PROPERTIES TRUST By: /s/John G. Murray John G. Murray President and Chief Operating Officer Dated: March 30, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, or by their attorney-in-fact, in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/John G. Murray President and March 30, 1998 John G. Murray Chief Operating Officer /s/Thomas M. O'Brien Treasurer and Chief March 30, 1998 Thomas M. O'Brien Financial Officer Trustee March __, 1998 John L. Harrington /s/Arthur G. Koumantzelis Trustee March 30, 1998 Arthur G. Koumantzelis /s/William J. Sheehan Trustee March 30, 1998 William J. Sheehan /s/Gerard M. Martin Trustee March 30, 1998 Gerard M. Martin /s/Barry M. Portnoy Trustee March 30, 1998 Barry M. Portnoy EX-3.1 2 EXHIBIT 3.1 HOSPITALITY PROPERTIES TRUST Amended and Restated Declaration of Trust May 12, 1995 As Amended and Restated on August 21, 1995
INDEX Page ARTICLE I THE TRUST; DEFINITIONS 1.1 Name......................................................................... 2 1.2 Places of Business........................................................... 2 1.3 Nature of Trust.............................................................. 2 1.4 Definitions.................................................................. 3 ARTICLE II TRUSTEES 2.1 Number, Term of Office and Qualifications of Trustees................................................................ 6 2.2 Compensation and Other Remuneration.......................................... 7 2.3 Resignation, Removal and Death of Trustees................................... 8 2.4 Vacancies.................................................................... 8 2.5 Successor and Additional Trustees............................................ 8 2.6 Actions by Trustees.......................................................... 9 2.7 Committees................................................................... 9 ARTICLE III TRUSTEES' POWERS 3.1 Power and Authority of Trustees.............................................. 10 3.2 Specific Powers and Authority................................................ 10 3.3 Bylaws....................................................................... 16 ARTICLE IV INVESTMENT POLICY AND POLICIES WITH RESPECT TO CERTAIN DISTRIBUTIONS TO SHAREHOLDERS 4.1 Statement of Policy.......................................................... 16 4.2 Prohibited Investments and Activities........................................ 17 4.3 Change in Investment Policies................................................ 17 ARTICLE V THE SHARES AND SHAREHOLDERS 5.1 Description of Shares........................................................ 17 5.2 Certificates................................................................. 19 5.3 Fractional Shares............................................................ 20 -ii- 5.4 Legal Ownership of Trust Estate.............................................. 20 5.5 Shares Deemed Personal Property.............................................. 20 5.6 Share Record; Issuance and Transferability of Shares.................................................................. 20 5.7 Dividends or Distributions to Shareholders................................... 21 5.8 Transfer Agent, Dividend Disbursing Agent and Registrar........................................................ 22 5.9 Shareholders' Meetings....................................................... 22 5.10 Proxies...................................................................... 23 5.11 Reports to Shareholders...................................................... 23 5.12 Fixing Record Date........................................................... 24 5.13 Notice to Shareholders....................................................... 24 5.14 Shareholders' Disclosure; Restrictions on Share Transfer; Limitation on Holdings..................................... 24 5.15 Special Voting Provisions relating to Certain Business Combinations and Control Shares................................... 28 ARTICLE VI LIABILITY OF TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES AND AGENTS, AND OTHER MATTERS 6.1 Limitation of Liability of Shareholders, Trustees, Officers, Employees and Agents for Obligations of the Trust............................................... 29 6.2 Express Exculpatory Clauses and Instruments.................................. 29 6.3 Limitation of Liability of Trustees, Officers, Employees and Agents to the Trust and to Shareholders for Acts and Omissions........................................ 30 6.4 Indemnification and Reimbursement of Trustees, Officers, Employees, Agents and Certain Other Persons...................................................... 30 6.5 Indemnification and Reimbursement of Shareholders............................................................... 31 6.6 Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business............................................ 31 6.7 Transactions Between Trustees, Officers, Employees or Agents and the Trust.......................................... 32 6.8 Persons Dealing with Trustees, Officers, Employees or Agents........................................................ 33 6.9 Reliance..................................................................... 33 -iii- ARTICLE VII DURATION, AMENDMENT AND TERMINATION OF TRUST 7.1 Duration of Trust............................................................ 34 7.2 Termination of Trust......................................................... 34 7.3 Amendment Procedure.......................................................... 35 7.4 Amendments Effective......................................................... 35 7.5 Transfer to Successor........................................................ 35 ARTICLE VIII MISCELLANEOUS 8.1 Applicable Law............................................................... 36 8.2 Index and Headings for Reference Only........................................ 36 8.3 Successors in Interest....................................................... 36 8.4 Inspection of Records........................................................ 36 8.5 Counterparts................................................................. 37 8.6 Provisions of the Trust in Conflict with Law or Regulations; Severability........................................... 37 8.7 Certifications............................................................... 37
AMENDED AND RESTATED DECLARATION OF TRUST OF HOSPITALITY PROPERTIES TRUST May 12, 1995 As Amended and Restated on August 21, 1995 -------------------------------------- The Declaration of Hospitality Properties Trust, as filed with the Maryland Department of Assessments and Taxation on May 12, 1995 is hereby amended and restated as follows: DECLARATION OF TRUST made as of the date set forth above by the undersigned Trustees. WITNESSETH: WHEREAS, the Trustees desire to create a trust for the principal purpose of investing in real property and interests therein; and WHEREAS, the Trustees desire that such trust qualify as a "qualified REIT subsidiary" as long as it shall remain wholly owned by Health and Retirement Properties Trust ("HRP") and, thereafter, as a "real estate investment trust" under the REIT Provisions of the Internal Revenue Code, and as a "real estate investment trust" under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland; and WHEREAS, in furtherance of such purpose the Trustees intend to acquire certain real property and interests therein and to hold, manage and dispose of all such property as Trustees in the manner hereinafter stated; and WHEREAS, it is proposed that the beneficial interest in the Trust be divided into transferable Shares of Beneficial Interest, evidenced by certificates therefor, as hereinafter provided; NOW, THEREFORE, it is hereby agreed and declared that the Trustees will hold any and all property of every type and description which they are acquiring or may hereafter acquire as Trustees, together with the proceeds thereof, in trust, to manage and dispose of the same for the benefit of the holders from time -2- to time of the Shares of Beneficial Interest being issued and to be issued hereunder in the manner and subject to the stipulations contained herein. ARTICLE I THE TRUST; DEFINITIONS 1.1 Name. The name of the Trust created by this Declaration of Trust shall be "Hospitality Properties Trust" and so far as may be practicable the Trustees shall conduct the Trust's activities, execute all documents and sue or be sued under that name, which name (and the word "Trust" wherever used in this Declaration of Trust, except where the context otherwise requires) shall refer to the Trustees collectively but not individually or personally nor to the officers, agents, employees or Shareholders of the Trust or of such Trustees. Under circumstances under which the Trustees determine that the use of such name is not practicable or under circumstances in which the Trustees are contractually bound to change that name, they may use such other designation or they may adopt another name under which the Trust may hold property or conduct its activities. 1.2 Places of Business. The Trust shall maintain an office in Maryland at The Prentice-Hall Corporation System, Maryland, 11 East Chase Street, Baltimore City, Maryland, 21202 or such other place in Maryland as the Trustees may determine from time to time. The Resident Agent of the Trust at such office shall be The Prentice-Hall Corporation System, Maryland. The Trust may change such Resident Agent from time to time as the Trustees shall determine. The Trust may have such other offices or places of business within or without the State of Maryland as the Trustees may from time to time determine. 1.3 Nature of Trust. The Trust shall be a real estate investment trust within the meaning of Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland. It is also intended that the Trust shall carry on a business as a "qualified REIT subsidiary" as described in the REIT Provisions of the Internal Revenue Code for so long as it is wholly owned by HRP and thereafter shall qualify and carry on business as a "real estate investment trust" as described therein. The Trust is not intended to be, shall not be deemed to be, and shall not be treated as a general partnership, limited partnership, joint venture, corporation or joint stock company (but nothing herein shall preclude the Trust from being treated -3- for tax purposes as an association under the Internal Revenue Code); nor shall the Trustees or Shareholders or any of them for any purpose be, nor be deemed to be, nor be treated in any way whatsoever as, liable or responsible hereunder as partners or joint venturers. The relationship of the Shareholders to the Trustees shall be solely that of beneficiaries of the Trust in accordance with the rights conferred upon them by this Declaration. 1.4 Definitions. The terms defined in this Section 1.4, wherever used in this Declaration, shall, unless the context otherwise requires, have the respective meanings hereinafter specified. Whenever the singular number is used in this Declaration and when permitted by the context, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders, and vice versa. Where applicable, calculations to be made pursuant to any such definition shall be made in accordance with generally accepted accounting principles as in effect from time to time except as otherwise provided in such definition. (a) Advisor. "Advisor" shall mean HRPT Advisors, Inc., a Delaware corporation, or such other Person as the Trustees shall from time to time engage to supervise the operation of the Trust and to provide the Trust with a program of investments. (b) Affiliate. "Affiliate" shall mean, as to any Person, (i) any other Person who, at the time of determination, is directly or indirectly controlling, controlled by or under common control with such Person, (ii) any other Person who, at such time, owns beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any Person who is at the time of determination an officer, director, employee, general partner or trustee of any such Person or of any Person who, at such time, is controlling, controlled by or under common control with such Person (excluding any trustee who is not otherwise an Affiliate of such Person). (c) Annual Meeting of Shareholders. "Annual Meeting of Shareholders" shall mean the meeting described in the first sentence of Section 5.9. (d) Annual Report. "Annual Report" shall have the meaning set forth in Section 5.11(a). -4- (e) Book Value. "Book Value" of an asset or assets shall mean the value of such asset or assets of the Trust on the books of the Trust, without deduction for depreciation or other asset valuation reserves and without deduction for mortgages or other security interests to which such asset or assets are subject, except that no asset shall be valued at more than its fair market value as determined by or under procedures adopted by the Trustees, and the underlying assets of a partnership, joint venture or other form of indirect ownership, to the extent of the Trust's interest therein, shall be valued as if owned directly by the Trust. (f) Bylaws. "Bylaws" shall have the meaning set forth in Section 3.3. (g) Declaration. "Declaration" or "this Declaration" shall mean this Declaration of Trust, as amended, restated or modified from time to time. The use in this Declaration of "herein" and "hereunder" shall be deemed to refer to this Declaration and shall not be limited to the particular text, article or section in which such words appear. (h) Independent Trustee: "Independent Trustee" shall mean a Trustee who is not then an officer of the Trust or an Affiliate of either HRP or the Advisor. (i) Internal Revenue Code. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as now enacted or hereafter amended, or successor statutes and applicable rules and regulations thereunder. (j) Invested Assets. "Invested Assets" shall mean the Book Value of all the Real Estate Investments of the Trust. (k) Mortgage Loans. "Mortgage Loans" shall mean notes, debentures, bonds and other evidences of indebtedness or obligations, whether negotiable or non-negotiable, which are secured or collateralized by Mortgages. (l) Mortgages. "Mortgages" shall mean mortgages, deeds of trust or other security interests in Real Property. (m) Person. "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business -5- trusts and other entities and governments and agencies and political subdivisions thereof. (n) Real Estate Investment. "Real Estate Investment" shall mean any direct or indirect investment in any interest in Real Property or in any Mortgage Loan, or in any Person whose principal purpose is to make any such investment. (o) Real Property. "Real Property" shall mean and include land, leasehold interests (including but not limited to interests of a lessor or lessee therein), rights and interests in land, and in any buildings, structures, improvements, furnishings and fixtures located on or used in connection with land or interests therein, but does not include investments in Mortgages, Mortgage Loans or interests therein. (p) REIT. "REIT" shall mean a real estate investment trust as defined in the REIT Provisions of the Internal Revenue Code. (q) REIT Provisions of the Internal Revenue Code. "REIT Provisions of the Internal Revenue Code" shall mean Parts II and III of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code or any successor provision. (r) Securities. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing. (s) Shareholders. "Shareholders" shall mean as of any particular time all holders of record of outstanding Shares at such time. (t) Shares. "Shares" or, as the context may require, "shares" shall mean the shares of beneficial interest of the Trust as described in Section 5.1 hereof. (u) Trust. "Trust" shall mean the Trust created by this Declaration. (v) Trustees. "Trustees" shall mean, as of any particular time, the original signatories hereto as long as they hold office hereunder and additional and successor Trustees, and shall not include the officers, employees or agents of the Trust or the -6- Shareholders. Nothing herein shall be deemed to preclude the Trustees from also serving as officers, employees or agents of the Trust or owning Shares. (w) Trust Estate. "Trust Estate" shall mean as of any particular time any and all property, real, personal or otherwise, tangible or intangible, which is transferred, conveyed or paid to or purchased by the Trust or Trustees and all rents, income, profits and gains therefrom and which at such time is owned or held by or for the Trust or the Trustees. ARTICLE II TRUSTEES 2.1 Number, Term of Office and Qualifications of Trustees. (a)(i) The number of Trustees initially need not be more than one (1). (ii) If a Person other than HRP acquires any Shares of Beneficial Interest of the Trust, the number of Trustees shall thenceforth be no fewer than three (3) and no more than seven (7). Upon acquisition by a Person other than HRP of any such Shares, the exact number of Trustees shall be five (5) until changed by a two-thirds (2/3) vote of the Trustees or by an amendment of this Declaration duly adopted by holders of two-thirds (2/3) of the outstanding Shares entitled to vote. Any vacancies in the Board of Trustees created thereby shall be filled by a majority of the Trustees then in office. The Board of Trustees thus constituted shall be classified into three groups, with two (2) Trustees in Group I, two (2) Trustees in Group II, and one (1) Trustee in Group III. The Trustee in Group III shall serve for a term ending at the next annual meeting of Shareholders after such acquisition of Shares by a Person other than HRP; each Trustee in Group II shall serve for a term ending at the following annual meeting of Shareholders; and each Trustee in Group I shall serve for a term ending at the second following annual meeting of Shareholders. After the respective terms of the groups indicated, each such group of Trustees shall be elected for successive terms ending at the annual meeting of Shareholders held during the third year after election. A majority of the Trustees holding office subject to the foregoing provisions of this paragraph (ii) shall at all times be Independent Trustees; provided, however, that upon a failure to -7- comply with this requirement as a result of the creation of a vacancy which must be filled by an Independent Trustee, whether as a result of enlargement of the Board of Trustees or the resignation, removal or death of a Trustee who is an Independent Trustee, such requirement shall not be applicable for a period of ninety (90) days. (b) The names and business addresses of the initial Trustees, who shall serve as Trustees until the first annual meeting of Shareholders (unless their terms shall be otherwise classified pursuant to Section 2.1(a)(ii)) and until their successors shall have been elected and qualified are as follows: Name Address ---- ------- Barry M. Portnoy Sullivan & Worcester One Post Office Square Boston, MA 02109 Gerard M. Martin M & P Partners Limited Partnership 400 Centre Street Newton, MA 02158 The initial Trustees shall be the signatories hereto. No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his term. Subject to the provisions of Section 2.3, each Trustee shall hold office until the election and qualification of his successor. There shall be no cumulative voting in the election of Trustees. A Trustee shall be an individual at least twenty-one (21) years of age who is not under legal disability. Unless otherwise required by law, no Trustee shall be required to give bond, surety or security in any jurisdiction for the performance of any duties or obligations hereunder. The Trustees in their capacity as Trustees shall not be required to be Shareholders or to devote their entire time to the business and affairs of the Trust. 2.2 Compensation and Other Remuneration. The Trustees shall be entitled to receive such reasonable compensation for their services as Trustees as the Trustees may determine from time to time. The Trustees and Trust officers shall be entitled to receive remuneration for services rendered to the Trust in any other capacity. Subject to Sections 6.6 and 6.7, such services may include, without limitation, services as an officer of the Trust, legal, accounting or other professional services, or -8- services as a broker, transfer agent or underwriter, whether performed by a Trustee or any Person affiliated with a Trustee. 2.3 Resignation, Removal and Death of Trustees. A Trustee may resign at any time by giving written notice to the remaining Trustees at the principal office of the Trust. Such resignation shall take effect on the date specified in such notice, without need for prior accounting. A Trustee may be removed at any time with or without cause by the affirmative vote either of all the remaining Trustees or of the holders of Shares representing two-thirds of the total votes authorized to be cast by Shares then outstanding and entitled to vote thereon, voting as a single class. A Trustee judged incompetent or for whom a guardian or conservator has been appointed shall be deemed to have resigned as of the date of such adjudication or appointment. Upon the resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver such documents as the remaining Trustees shall require for the conveyance of any Trust property held in his name, shall account to the remaining Trustees as they require for all property which he holds as Trustee and shall thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee, his legal representative shall perform the acts set forth in the preceding sentence and the discharge mentioned therein shall run to such legal representative and to the incapacitated Trustee or the estate of the deceased Trustee, as the case may be. 2.4 Vacancies. If any or all the Trustees cease to be Trustees hereunder, whether by reason of resignation, removal, incapacity, death or otherwise, such event shall not terminate the Trust or affect its continuity. Until vacancies are filled, the remaining Trustee or Trustees (even though fewer than three (3)) may exercise the powers of the Trustees hereunder. Vacancies (including vacancies created by increases in number) may be filled by the remaining Trustee or by a majority of the remaining Trustees. If at any time there shall be no Trustees in office, successor Trustees shall be elected by the Shareholders as provided in Section 5.9. Any Trustee elected to fill a vacancy created by the resignation, removal or death of a former Trustee shall hold office for the unexpired term of such former Trustee. 2.5 Successor and Additional Trustees. The right, title and interest of the Trustees in and to the Trust Estate shall also vest in successor and additional Trustees upon their qualification, and they shall thereupon have all the rights and obligations of Trustees hereunder. Such right, title and interest shall vest in the Trustees whether or not conveyancing -9- documents have been executed and delivered pursuant to Section 2.3 or otherwise. Appropriate written evidence of the election and qualification of successor and additional Trustees shall be filed with the records of the Trust and in such other offices or places as the Trustees may deem necessary, appropriate or desirable. 2.6 Actions by Trustees. The Trustees may act with or without a meeting. A quorum for all meetings of the Trustees shall be a majority of the Trustees; provided, however, that, whenever pursuant to Section 6.7 or otherwise the vote of a majority of a particular group of Trustees is required at a meeting, a quorum for such meeting shall be a majority of the Trustees which shall include a majority of such group. Unless specifically provided otherwise in this Declaration, any action of the Trustees may be taken at a meeting by vote of a majority of the Trustees present (a quorum being present) or without a meeting by written consents of a majority of the Trustees, which consents shall be filed with the records of meetings of the Trustees. Any action or actions permitted to be taken by the Trustees in connection with the business of the Trust may be taken pursuant to authority granted by a meeting of the Trustees conducted by a telephone conference call, and the transaction of Trust business represented thereby shall be of the same authority and validity as if transacted at a meeting of the Trustees held in person or by written consent. The minutes of any Trustees' meeting held by telephone shall be prepared in the same manner as a meeting of the Trustees held in person. The acquisition or disposition of any investment (other than investments in short-term investment Securities described in Section 4.1) shall require the approval of a majority of Trustees, except as otherwise provided in Section 6.7. Any agreement, deed, mortgage, lease or other instrument or writing executed by one or more of the Trustees or by any authorized Person shall be valid and binding upon the Trustees and upon the Trust when authorized or ratified by action of the Trustees or as provided in the Bylaws. With respect to the actions of the Trustees, Trustees who have, or are Affiliates of Persons who have, any direct or indirect interest in or connection with any matter being acted upon may be counted for all quorum purposes under this Section 2.6 and, subject to the provisions of Section 6.7, may vote on the matter as to which they or their Affiliates have such interest or connection. -10- 2.7 Committees. The Trustees may appoint an audit committee and such other standing committees as the Trustees determine. Each standing committee shall consist of two (2) or more members; provided, however, that the Trustees may appoint a standing committee consisting of at least one Trustee and two non- Trustees. Each committee shall have such powers, duties and obligations as the Trustees may deem necessary or appropriate. The standing committees shall report their activities periodically to the Trustees. ARTICLE III TRUSTEES' POWERS 3.1 Power and Authority of Trustees. The Trustees, subject only to the specific limitations contained in this Declaration, shall have, without further or other authorization, and free from any power or control on the part of the Shareholders, full, absolute and exclusive power, control and authority over the Trust Estate and over the business and affairs of the Trust to the same extent as if the Trustees were the sole owners thereof in their own right, and may do all such acts and things as in their sole judgment and discretion are necessary for or incidental to or desirable for carrying out or conducting the business of the Trust. Any construction of this Declaration or any determination made in good faith by the Trustees as to the purposes of the Trust or the existence of any power or authority hereunder shall be conclusive. In construing the provisions of this Declaration, the presumption shall be in favor of the grant of powers and authority to the Trustees. The enumeration of any specific power or authority herein shall not be construed as limiting the aforesaid powers or the general powers or authority or any other specified power or authority conferred herein upon the Trustees. 3.2 Specific Powers and Authority. Subject only to the express limitations contained in this Declaration and in addition to any powers and authority conferred by this Declaration or which the Trustees may have by virtue of any present or future statute or rule or law, the Trustees without any action or consent by the Shareholders shall have and may exercise at any time and from time to time the following powers and authorities which may or may not be exercised by them in their sole judgment and discretion and in such manner and upon such terms and conditions as they may from time to time deem proper: -11- (a) to retain, invest and reinvest the capital or other funds of the Trust in, and to acquire, purchase, or own, real or personal property of any kind, whether tangible or intangible, wherever located in the world, and make commitments for such investments, all without regard to whether any such property is authorized by law for the investment of trust funds or produces or may produce income; to possess and exercise all the rights, powers and privileges appertaining to the ownership of the Trust Estate; and to increase the capital of the Trust at any time by the issuance of any additional authorized Shares or other Securities of the Trust for such consideration as they deem advisable; (b) without limitation of the powers set forth in subsection (a) above, to invest in, purchase or otherwise acquire for such consideration as they deem proper, in cash or other property or through the issuance of shares or through the issuance of notes, debentures, bonds or other obligations of the Trust, and to hold for investment, the entire or any participating interests in any Mortgage Loans or interest in Real Property, including ownership of, or participations in the ownership of, or rights to acquire, equity interests in Real Property or in Persons owning, developing, improving, operating or managing Real Property, which interests may be acquired independently of or in connection with other investment activities of the Trust and, in the latter case, may include rights to receive additional payments based on gross income or rental or other income from the Real Property or improvements thereon; and to invest in loans secured by the pledge or transfer of Mortgage Loans; (c) to sell, rent, lease, hire, exchange, release, partition, assign, mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate, convey, transfer or otherwise dispose of any and all the Trust Estate by deeds (including deeds in lieu of foreclosure), trust deeds, assignments, bills of sale, transfers, leases, mortgages, financing statements, security agreements and other instruments for any of such purposes executed and delivered for and on behalf of the Trust or the Trustees by one or more of the Trustees or by a duly authorized officer, employee, agent or nominee of the Trust; (d) to issue Shares, bonds, debentures, notes or other evidences of indebtedness, which may be secured or unsecured -12- and may be subordinated to any indebtedness of the Trust, to such Persons for such cash, property or other consideration (including Securities issued or created by, or interests in, any Person) at such time or times and on such terms as the Trustees may deem advisable and to list any of the foregoing Securities issued by the Trust on any securities exchange and to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any of such Securities, and to cause the instruments evidencing such Securities to bear an actual or facsimile imprint of the seal of the Trust (if the Trustees shall have adopted such a seal) and to be signed by manual or facsimile signature or signatures (and to issue such Securities, whether or not any Person whose manual or facsimile signature shall be imprinted thereon shall have ceased to occupy the office with respect to which such signature was authorized), provided that, where only facsimile signatures for the Trust are used, the instrument shall be countersigned manually by a transfer agent, registrar or other authentication agent; and to issue any of such Securities of different types in combinations or units with such restrictions on the separate transferability thereof as the Trustees shall determine; (e) to enter into leases of real and personal property as lessor or lessee and to enter into contracts, obligations and other agreements for a term, and to invest in obligations having a term, extending beyond the term of office of the Trustees and beyond the possible termination of the Trust, or having a lesser term; (f) to borrow money and give negotiable or non negotiable instruments therefor; or guarantee, indemnify or act as surety with respect to payment or performance of obligations of third parties; to enter into other obligations on behalf of the Trust; and to assign, convey, transfer, mortgage, subordinate, pledge, grant security interest in, encumber or hypothecate the Trust Estate to secure any indebtedness of the Trust or any other of the foregoing obligations of the Trust; (g) to lend money, whether secured or unsecured; (h) to create reserve funds for any purpose; (i) to incur and pay out of the Trust Estate any charges or expenses, and to disburse any funds of the Trust, which charges, expenses or disbursements are, in the opinion -13- of the Trustees, necessary or incidental to or desirable for the carrying out of any of the purposes of the Trust or conducting the business of the Trust, including without limitation taxes and other governmental levies, charges and assessments, of whatever kind or nature, imposed upon or against the Trustees in connection with the Trust or the Trust Estate or upon or against the Trust Estate or any part hereof, and for any of the purposes herein; (j) to deposit funds of the Trust in banks, trust companies, savings and loan associations and other depositories, whether or not such deposits will draw interest, the same to be subject to withdrawal on such terms and in such manner and by such Person or Persons (including any one or more Trustees or officers, employees or agents, of the Trust) as the Trustees may determine; (k) to possess and exercise all the rights, powers and privileges pertaining to the ownership of all or any Mortgages or Securities issued or created by, or interests in, any Person, forming part of the Trust Estate, to the same extent that an individual might do so, and, without limiting the generality of the foregoing, to vote or give any consent, request or notice, or waive any notice, either in person or by proxy or power of attorney, with or without power of substitution, to one or more Persons, which proxies and powers of attorney may be for meetings or action generally or for any particular meeting or action, and may include the exercise of discretionary powers; (l) to cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire the Trust Estate or any part or parts thereof or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer the Trust Estate or any part or parts thereof to or with any such Person or any existing Person in exchange for the Securities thereof or otherwise, and to merge or consolidate the Trust with or into any Person or merge or consolidate any Person into the Trust, and to lend money to, subscribe for the Securities of, and enter into any contracts with, any Person in which the Trust holds or is about to acquire Securities or any other interest; (m) to enter into joint ventures, general or limited partnerships, participation or agency arrangements and any -14- other lawful combinations or associations, and to act as a general or limited partner; (n) to elect, appoint, engage or employ such officers for the Trust as the Trustees may determine, who may be removed or discharged at the discretion of the Trustees, such officers to have such powers and duties, and to serve such terms, as may be prescribed by the Trustees or by the Bylaws; to engage or employ any Persons (including, subject to the provisions of Sections 6.6 and 6.7, any Trustee or officer, agent or employee of the Trust and any Person in which any Trustee, officer or agent is directly or indirectly interested or with which he is directly or indirectly connected) as agents, representatives, employees, or independent contractors (including without limitation real estate advisors, investment advisors, transfer agents, registrars, underwriters, accountants, attorneys at law, real estate agents, managers, appraisers, brokers, architects, engineers, construction managers, general contractors or otherwise) in one or more capacities, and to pay compensation from the Trust for services in as many capacities as such Person may be so engaged or employed; and to delegate any of the powers and duties of the Trustees to any one or more Trustees, agents, representatives, officers, employees, independent contractors or other Persons; (o) to determine or cause to be determined from time to time the value of all or any part of the Trust Estate and of any services, Securities, property or other consideration to be furnished to or acquired by the Trust, and from time to time to revalue or cause to be revalued all or any part of the Trust Estate in accordance with such appraisals or other information as are, in the Trustees' sole judgment, necessary and/or satisfactory; (p) to collect, sue for and receive all sums of money coming due to the Trust, and to engage in, intervene in, prosecute, join, defend, compromise, abandon or adjust, by arbitration or otherwise, any actions, suits, proceedings, disputes, claims, controversies, demands or other litigation relating to the Trust, the Trust Estate or the Trust's affairs, to enter into agreements therefor, whether or not any suit is commenced or claim accrued or asserted and, in advance of any controversy, to enter into agreements regarding arbitration, adjudication or settlement thereof; -15- (q) to renew, modify, release, compromise, extend, consolidate or cancel, in whole or in part, any obligation to or of the Trust or participate in any reorganization of obligors to the Trust; (r) to self-insure or to purchase and pay for out of the Trust Estate insurance contracts and policies, including contracts of indemnity, insuring the Trust Estate against any and all risks and insuring the Trust and/or all or any of the Trustees, the Shareholders, or the officers, employees or agents of the Trust or Persons who may directly or indirectly control the Trust against any and all claims and liabilities of every nature asserted by any Person arising by reason of any action alleged to have been taken or omitted by the Trust or by the Trustees, Shareholders, officers, employees agents or controlling Persons whether or not the Trust would have the power to indemnify such Person or Persons against any such claim or liability; (s) to cause legal title to any of the Trust Estate to be held by and/or in the name of the Trustees, or, except as prohibited by law, by and/or in the name of the Trust or one or more of the Trustees or any other Person, on such terms, in such manner and with such powers in such Person as the Trustees may determine, and with or without disclosure that the Trust or Trustees are interested therein; (t) to adopt a fiscal year for the Trust, and from time to time to change such fiscal year; (u) to adopt and use a seal (but the use of a seal shall not be required for the execution of instruments or obligations of the Trust); (v) to the extent permitted by law, to indemnify or enter into agreements with respect to indemnification with any Person with which the Trust has dealings, including without limitation any broker/dealer, investment bank, investment advisor or independent contractor, to such extent as the Trustees shall determine; (w) to confess judgment against the Trust; (x) to discontinue the operations of the Trust; (y) to repurchase or redeem Shares and other Securities issued by the Trust; -16- (z) to declare and pay dividends or distributions, consisting of cash, property or Securities, to the holders of Shares of the Trust out of any funds legally available therefor; and (aa) to do all other such acts and things as are incident to the foregoing, and to exercise all powers which are necessary or useful to carry on the business of the Trust and to carry out the provisions of this Declaration. 3.3 Bylaws. The Trustees may make or adopt and from time to time amend or repeal Bylaws (the "Bylaws") not inconsistent with law or with this Declaration, containing provisions relating to the business of the Trust and the conduct of its affairs and in such Bylaws may define the duties of the officers, employees and agents of the Trust. ARTICLE IV INVESTMENT POLICY AND POLICIES WITH RESPECT TO CERTAIN DISTRIBUTIONS TO SHAREHOLDERS 4.1 Statement of Policy. It shall be the general objectives of the Trust (i) to provide current income for distribution to Shareholders through investments in income-producing hotels and hospitality-related facilities and other real estate investments and (ii) to provide Shareholders with the opportunity for additional returns from a percentage of gross revenues generated by the investment properties. The Trust may make secured borrowings to make permitted additional Real Estate Investments and secured or unsecured borrowings for normal working capital needs, including the repair and maintenance of properties in which it has invested, tenant improvements and leasing commissions. The Trust may make such borrowings from third parties or from Affiliates of the Advisor. Interest and other financing charges or fees to be paid on loans from such Affiliates will not exceed the interest and other financing charges or fees which would be charged by third party financing institutions on comparable loans for the same purpose in the same geographic area. To the extent that the Trust Estate has assets not otherwise invested in accordance with this Section 4.1, it shall be the -17- policy of the Trustees to invest such assets in investments selected by the Trustees or the Advisor which are consistent with the Trust's intention to qualify as a REIT under the Internal Revenue Code. It shall be the policy of the Trustees to make investments and to conduct the business of the Trust in such manner as to qualify as a REIT and to comply with the requirements of the Internal Revenue Code with respect to the composition of investments and the derivation of the income of a real estate investment trust as defined in the REIT Provisions of the Internal Revenue Code; provided, however, that no Trustee, officer, employee or agent of the Trust shall be liable for any act or omission resulting in the loss of tax benefits under the Internal Revenue Code, except for that arising from his own wilful misfeasance, bad faith, gross negligence or reckless disregard of duty. 4.2 Prohibited Investments and Activities. The Trustees shall not: (a) engage in any undertaking or activity that would disqualify the Trust as a real estate investment trust under the provisions of the Internal Revenue Code as long as a real estate investment trust is accorded substantially the same treatment or benefits under the United States tax laws from time to time in effect as under Sections 856-860 of the Internal Revenue Code at the date of adoption of this Declaration; and/or (b) use or apply land for farming, agriculture, horticulture or similar purposes in violation of Section 8-302(b) of the Corporations and Associations Article of the Annotated Code of Maryland. 4.3 Change in Investment Policies. The investment policies set out in this Article IV may be changed by a vote of a majority of the Trustees. ARTICLE V THE SHARES AND SHAREHOLDERS 5.1 Description of Shares. The interest of the Shareholders shall be divided into 200,000,000 shares of beneficial interest which shall be known collectively as "Shares", all of which shall be validly issued, fully paid and -18- non-assessable by the Trust upon receipt of full consideration for which they have been issued or without additional consideration if issued by way of share dividend or share split. There shall be two classes of Shares: 100,000,000 shares of one such class shall be known as "Common Shares", $.01 par value per share, and 100,000,000 shares of the other such class shall be known as "Preferred Shares". Each holder of Shares shall as a result thereof be deemed to have agreed to and be bound by the terms of this Declaration. The Shares may be issued for such consideration as the Trustees shall deem advisable. The Trustees are hereby expressly authorized at any time, and from time to time, to provide for issuance of Shares upon such terms and conditions and pursuant to such arrangements as the Trustees may determine. The Trustees are hereby expressly authorized at any time, and from time to time, without Shareholder approval, to set (or change if such class has previously been established) the par value, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms, or conditions of redemption, of the Preferred Shares, and such Preferred Shares may further be divided by the Trustees into classes or series. Except as otherwise determined by the Trustees with respect to any class or series of Preferred Shares, the holders of Shares shall be entitled to the rights and powers hereinafter set forth in this Section 5.1: The holders of Shares shall be entitled to receive, when and as declared from time to time by the Trustees out of any funds legally available for the purpose, such dividends or distributions as may be declared from time to time by the Trustees. In the event of the termination of the Trust pursuant to Section 7.1 or otherwise, or upon the distribution of its assets, the assets of the Trust available for payment and distribution to Shareholders shall be distributed ratably among the holders of Shares at the time outstanding in accordance with Section 7.2. All Shares shall have equal non-cumulative voting rights at the rate of one vote per Share, and equal dividend, distribution, liquidation and other rights, and shall have no preference, conversion, exchange, sinking fund or redemption rights. Absent a contrary written agreement of the Trust authorized by the Trustees, and notwithstanding any other determination by the Trustees with respect to any class or series of Preferred Shares, no holder of Shares or Preferred Shares shall be entitled as a matter of right to subscribe for or purchase any part of any new or additional issue of Shares of any class whatsoever of the Trust, or of securities convertible into -19- any shares of any class whatsoever of the Trust, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. 5.2 Certificates. Ownership of Shares shall be evidenced by certificates. Every Shareholder shall be entitled to receive a certificate, in such form as the Trustees shall from time to time approve, specifying the number of Shares of the applicable class held by such Shareholder. Subject to Sections 5.6 and 5.14(c) hereof, such certificates shall be treated as negotiable and title thereto and to the Shares represented thereby shall be transferred by delivery thereof to the same extent in all respects as a stock certificate, and the Shares represented thereby, of a Maryland business corporation. Unless otherwise determined by the Trustees, such certificates shall be signed by the Chairman, if any, and the President and shall be countersigned by a transfer agent, and registered by a registrar if any, and such signatures may be facsimile signatures in accordance with Section 3.2(d) hereof. There shall be filed with each transfer agent a copy of the form of certificate so approved by the Trustees, certified by the Chairman, President, or Secretary, and such form shall continue to be used unless and until the Trustees approve some other form. In furtherance of the provisions of Sections 5.1 and 5.14(c) hereof, each Certificate evidencing Shares shall contain a legend imprinted thereon to substantially the following effect or such other legend as the Trustees may from time to time adopt: REFERENCE IS MADE TO THE DECLARATION OF TRUST OF THE TRUST FOR A STATEMENT OF ALL THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF EACH CLASS OR SERIES OF SHARES THAT THE TRUST IS AUTHORIZED TO ISSUE, THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES OF ANY PREFERRED OR SPECIAL CLASS OF SHARES IN SERIES, TO THE EXTENT THEY HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE TRUSTEES TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. ANY SUCH STATEMENT SHALL BE FURNISHED WITHOUT CHARGE ON REQUEST TO THE TRUST AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. IF NECESSARY TO EFFECT COMPLIANCE BY THE TRUST WITH REQUIREMENTS OF THE INTERNAL REVENUE CODE RELATING TO REAL ESTATE INVESTMENT TRUSTS, THE PURPORTED TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE PROHIBITED -20- AND/OR INVALIDATED UPON THE TERMS AND CONDITIONS SET FORTH IN THE DECLARATION OF TRUST. THE TRUST WILL FURNISH A COPY OF SUCH TERMS AND CONDITIONS TO THE REGISTERED HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE. 5.3 Fractional Shares. In connection with any issuance of Shares, the Trustees may issue fractional Shares or may adopt provisions for the issuance of scrip including, without limitation, the time within which any such scrip must be surrendered for exchange into full Shares and the rights, if any, of holders of scrip upon the expiration of the time so fixed, the rights, if any, to receive proportional distributions, and the rights, if any, to redeem scrip for cash, or the Trustees may in their discretion, or if they see fit at the option of, each holder, provide in lieu of scrip for the adjustment of the fractions in cash. The provisions of Section 5.2 hereof relative to certificates for Shares shall apply so far as applicable to such scrip, except that such scrip may in the discretion of the Trustees be signed by a transfer agent alone. 5.4 Legal Ownership of Trust Estate. The legal ownership of the Trust Estate and the right to conduct the business of the Trust are vested exclusively in the Trustees (subject to Section 3.2(s)), and the Shareholders shall have no interest therein (other than beneficial interest in the Trust conferred by their Shares issued hereunder) and they shall have no right to compel any partition, division, dividend or distribution of the Trust or any of the Trust Estate. 5.5 Shares Deemed Personal Property. The Shares shall be personal property and shall confer upon the holders thereof only the interest and rights specifically set forth or provided for in this Declaration. The death, insolvency or incapacity of a Shareholder shall not dissolve or terminate the Trust or affect its continuity nor give his legal representative any rights whatsoever, whether against or in respect of other Shareholders, the Trustees or the Trust Estate or otherwise, except the sole right to demand and, subject to the provisions of this Declaration, the Bylaws and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such Shareholder. 5.6 Share Record; Issuance and Transferability of Shares. Records shall be kept by or on behalf of and under the direction of the Trustees, which shall contain the names and addresses of the Shareholders, the number of Shares held by them respectively, -21- and the numbers of the certificates representing the Shares, and in which there shall be recorded all transfers of Shares. The Trust, the Trustees and the officers, employees and agents of the Trust shall be entitled to deem the Persons in whose names certificates are registered on the records of the Trust to be the absolute owners of the Shares represented thereby for all purposes of the Trust; but nothing herein shall be deemed to preclude the Trustees or officers, employees or agents of the Trust from inquiring as to the actual ownership of Shares. Until a transfer is duly effected on the records of the Trust, the Trustees shall not be affected by any notice of such transfer, either actual or constructive. Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing upon delivery to the Trustees or a transfer agent of the certificate or certificates therefor, properly endorsed or accompanied by duly executed instruments of transfer and accompanied by all necessary documentary stamps together with such evidence of the genuineness of each such endorsement, execution or authorization and of other matters as may reasonably be required by the Trustees or such transfer agent. Upon such delivery, the transfer shall be recorded in the records of the Trust and a new certificate for the Shares so transferred shall be issued to the transferee and in case of a transfer of only a part of the Shares represented by any certificate, a new certificate for the balance shall be issued to the transferor. Any Person becoming entitled to any Shares in consequence of the death of a Shareholder or otherwise by operation of law shall be recorded as the holder of such Shares and shall receive a new certificate therefor but only upon delivery to the Trustees or a transfer agent of instruments and other evidence required by the Trustees or the transfer agent to demonstrate such entitlement, the existing certificate for such Shares and such releases from applicable governmental authorities as may be required by the Trustees or transfer agent. In case of the loss, mutilation or destruction of any certificate for shares, the Trustees may issue or cause to be issued a replacement certificate on such terms and subject to such rules and regulations as the Trustees may from time to time prescribe. Nothing in this Declaration shall impose upon the Trustees or a transfer agent a duty, or limit their rights, to inquire into adverse claims. 5.7 Dividends or Distributions to Shareholders. Subject to Section 5.1, the Trustees may from time to time declare and pay to Shareholders such dividends or distributions in cash, property or assets of the Trust or Securities issued by the Trust, out of -22- current or accumulated income, capital, capital gains, principal, interest, surplus, proceeds from the increase or financing or refinancing of Trust obligations, or from the sale of portions of the Trust Estate or from any other source as the Trustees in their discretion shall determine. Shareholders shall have no right to any dividend or distribution unless and until declared by the Trustees. The Trustees shall furnish the Shareholders with a statement in writing advising as to the source of the funds so distributed not later than ninety (90) days after the close of the fiscal year in which the distribution was made. 5.8 Transfer Agent, Dividend Disbursing Agent and Registrar. The Trustees shall have power to employ one or more transfer agents, dividend disbursing agents and registrars (including the Advisor or its Affiliates) and to authorize them on behalf of the Trust to keep records to hold and to disburse any dividends or distributions and to have and perform, in respect of all original issues and transfers of Shares, dividends and distributions and reports and communications to Shareholders, the powers and duties usually had and performed by transfer agents, dividend disbursing agents and registrars of a Maryland business corporation. 5.9 Shareholders' Meetings. There shall be an annual meeting of the Shareholders, at such time and place as shall be determined by or in the manner prescribed in the Bylaws, at which the Trustees shall be elected and any other proper business may be conducted. The Annual Meeting of Shareholders shall be held no fewer than 30 days after delivery to the Shareholders of the Annual Report and within six (6) months after the end of each fiscal year, commencing with the fiscal year ending December 31, 1995. Special meetings of Shareholders may only be called by a majority of the Trustees. If there shall be no Trustees, the officers of the Trust shall promptly call a special meeting of the Shareholders entitled to vote for the election of successor Trustees. No business shall be transacted by the Shareholders at a special meeting other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Trustees (or any duly authorized committee thereof) or (ii) otherwise properly brought before the Shareholders by or at the direction of the Trustees. The holders of Shares entitled to vote at the meeting representing a majority of the total number of votes authorized to be cast by Shares then outstanding and entitled to vote on any -23- question present in person or by proxy shall constitute a quorum at any such meeting for action on such question. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, without regard to class, whether or not a quorum is present, and, except as otherwise provided in the Bylaws, the meeting may be reconvened without further notice. At any reconvened session of the meeting at which there shall be a quorum, any business may be transacted at the meeting as originally noticed. Except as otherwise clearly indicated in this Declaration or the Bylaws, whenever any action is to be taken by the Shareholders, it shall be authorized by the affirmative vote of the holders of Shares representing a majority of the total number of votes authorized to be cast by shares then outstanding and entitled to vote thereon. At all elections of Trustees, voting by Shareholders shall be conducted under the non-cumulative method and the election of Trustees shall be by the affirmative vote of the holders of Shares representing a majority of the total number of votes authorized to be cast by shares then outstanding and entitled to vote thereon. Whenever Shareholders are required or permitted to take any action by a vote at a meeting of Shareholders, at any time any of the outstanding Shares are held by a Person other than HRP, such action shall not be taken except by such a vote at such a meeting of Shareholders and the Shareholders shall have no power or right to take any action by executing written consents in lieu thereof. 5.10 Proxies. Whenever the vote or consent of a Shareholder entitled to vote is required or permitted under this Declaration, such vote or consent may be given either directly by such Shareholder or by a proxy in the form prescribed in, and subject to the provisions of, the Bylaws. The Trustees may solicit such proxies from the Shareholders or any of them entitled to vote in any matter requiring or permitting the Shareholders' vote or consent. 5.11 Reports to Shareholders. Not later than ninety (90) days after the close of each fiscal year of the Trust following the end of fiscal year 1995, the Trustees shall mail or deliver a report of the business and operations of the Trust during such fiscal year to the Shareholders, which report shall constitute the accounting of the Trustees for such fiscal year. Subject to Section 8-401 of the Annotated Code of Maryland, the report (the "Annual Report") shall be in such form and have such content as the Trustees deem proper. The Annual Report shall include a -24- balance sheet, an income statement and a surplus statement, each prepared in accordance with generally accepted accounting principles. Such financial statements shall be certified by an independent public accountant based on a full examination of the books and records of the Trust conducted in accordance with generally accepted auditing procedure. Manually signed copies of the Annual Report and of the auditor's certificate will be filed with the Maryland Department of Assessments and Taxation. A manually signed copy of the accountant's report shall be filed with the Trustees. 5.12 Fixing Record Date. The Bylaws may provide for fixing or, in the absence of such provision, the Trustees may fix, in advance, a date as the record date for determining the Shareholders entitled to notice of or to vote at any meeting of Shareholders or to express consent to any proposal without a meeting or for the purpose of determining Shareholders entitled to receive payment of any dividend or distribution (whether before or after termination of the Trust) or any Annual Report or other communication from the Trustees, or for any other purpose. The record date so fixed shall be not less than ten (10) days nor more than sixty (60) days prior to the date of the meeting or event for the purposes of which it is fixed. 5.13 Notice to Shareholders. Any notice of meeting or other notice, communication or report to any Shareholder shall be deemed duly delivered to such Shareholder when such notice, communication or report is deposited, with postage thereon prepaid, in the United States mail, addressed to such Shareholder at his address as it appears on the records of the Trust or is delivered in person to such Shareholder. 5.14 Shareholders' Disclosure; Restrictions on Share Transfer; Limitation on Holdings. At such time as any Person other than HRP shall hold any Shares of Beneficial Interest and thereafter: (a) Every Shareholder shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of any Shares as the Trustees deem necessary or appropriate, in their discretion, to comply with the REIT Provisions of the Internal Revenue Code, or to comply with the requirements of any taxing authority or governmental agency. (b) Whenever in good faith the Trustees deem it reasonably necessary to protect the status of the Trust as a REIT under the Internal Revenue Code, they may require a statement or affidavit -25- from each Shareholder or proposed transferee of Shares setting forth the number of Shares already owned, directly or indirectly, by such Shareholder or proposed transferee and any related Person specified in the form prescribed by the Trustees for that purpose. If, in the opinion of the Trustees, which shall be binding upon any Shareholder and any proposed transferee of Shares, but subject to subsection (i) of this Section 5.14, any proposed transfer of Shares would jeopardize the status of the Trust as a REIT under the Internal Revenue Code, the Trustees shall have the right, but not the duty, to refuse to permit such transfer. (c) As a condition to the transfer (including, without limitation, any sale, transfer, gift, assignment, devise or other disposition of Shares, whether voluntary or involuntary, whether beneficially or of record, and whether effected constructively, by operation of law or otherwise) and/or registration of transfer of any Shares ("Excess Shares") which could in the opinion of the Trustees result in (i) direct or indirect ownership (as hereafter defined) of Shares representing more than 9.8% in number, value or voting power of the total Shares outstanding becoming concentrated in the hands of one owner other than an Excepted Person (as such term is defined hereafter), (ii) the outstanding Shares of the Trust being owned by fewer than one hundred (100) persons or (iii) the Trust being "closely held" within the meaning of Section 856(h) of the Internal Revenue Code, such potential owner (a "Proposed Transferee") shall file with the Trust the statement or affidavit described in subsection (b) of this Section 5.14 no later than the fifteenth (15th) day prior to any proposed transfer, registration of transfer or transaction which, if consummated, would have any of the results set forth above; provided, however, that the Trustees may waive such requirement of prior notice upon determination that such waiver is in the best interests of the Trust. Subject to the subsection (i) of this Section 5.14, the Trustees shall have the power and right (i) to refuse to transfer or issue Excess Shares or share certificates to any Proposed Transferee whose acquisition of such Excess Shares would, in the opinion of the Trustees, result in the direct or indirect beneficial ownership of any Excess Shares by a Person other than an Excepted Person and (ii) to treat such Excess Shares as having been transferred not to the Proposed -26- Transferee but rather to a trustee, who shall be designated by the Trustees but unaffiliated with either the Trust or the Proposed Transferee, for the benefit of one or more organizations described in Sections 170(b)(1)(a) and 170(c) of the Internal Revenue Code (each such organization being referred to herein as a "Charitable Beneficiary") that have been designated by the Trustees. Any such trust shall be deemed to have been established by the Shareholder for the benefit of the Charitable Beneficiary on the day prior to the date of the purported transfer to the Proposed Transferee, which purported transfer shall be void ab initio and the Proposed Transferee shall be deemed never to have acquired any interest in or with respect to the Excess Shares purportedly transferred. Any dividends paid or other distributions made with respect to any Excess Shares prior to the Trust discovering that such Excess Shares have been transferred into trust for the Charitable Beneficiary as set forth above shall be repaid and disgorged by the Proposed Transferee to the Trust and any dividend or other distribution declared but still unpaid or unmade shall be rescinded as void ab initio with respect to the Proposed Transferee. Any dividends or other distributions so repaid, disgorged or rescinded shall then be paid over to the trustee and held in trust for the Charitable Beneficiary. Any vote cast by the Proposed Transferee prior to the Trust discovering that such Excess Shares had been transferred to the trustee shall be rescinded as being void ab initio and the Proposed Transferee shall be deemed to have given an irrevocable proxy to the trustee to vote the Excess Shares held for the benefit of the Charitable Beneficiary. All Excess Shares shall be deemed to be offered by the trustee for sale to the Trust or a Person or Persons designated by the Trust for a period of ninety (90) days following the receipt by the Trust of notice of the event that has caused the Excess Shares to be transferred into trust as set forth above at a price equal to the lesser of (i) the price that was paid for the Excess Shares by the Proposed Transferee and (ii) the market price of the Excess Shares on the date that the Trust or its designee accepts the trustee's offer to sell. At the direction of the Trust, the trustee of any such trust shall sell any Excess Shares held by the trust to a Person whose ownership of such shares will not, in the judgment of the Trustees, jeopardize the Trust's status as a REIT (a "Permitted Transferee"). If such a transfer is made, the interests of the Charitable Beneficiary with respect to the Excess Shares shall -27- cease and the proceeds of the sale to the Permitted Transferee shall be payable to the Proposed Transferee and to the Charitable Beneficiary as follows: The Proposed Transferee shall be entitled to receive the lesser of (i) the price paid by the Proposed Transferee for the Excess Shares or, if the Proposed Transferee did not give value for the Excess Shares, the market price of the Excess Shares on the day of the event that resulted in the Excess Shares being transferred into trust as set forth above, and (ii) the price received by the trustee from the sale of the Excess Shares. Any proceeds from the sale of Excess Shares in excess of the amount payable to the Proposed Transferee as set forth above shall be payable to the Charitable Beneficiary. The following Persons are "Excepted Persons": (i) HRP, (ii) HRPT Advisors, Inc., a Delaware corporation ("Advisors"), (iii) Affiliates of HRP or Advisors, (iv) Persons to whom HRP's or Advisor's share ownership is attributable or whose share ownership is attributable to HRP or Advisors and (v) other Persons approved by the Trustees, at their option and in their sole discretion; provided, however, that such approval shall not be granted to any Person (and shall not extend to any Person described in clause (iii) above) whose ownership of more than 9.8% (individually or by attribution) in number or value of the total Shares outstanding would result, directly, indirectly or as a result of attribution of ownership, in termination of the status of the Trust as a REIT under the Internal Revenue Code. If the foregoing provisions shall be determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the Proposed Transferee of such Excess Shares shall be deemed, at the option of the Trust, to have acted as agent on behalf of the Trust in acquiring such Excess Shares and to hold such Excess Shares on behalf of the Trust. (d) Notwithstanding any other provision of this Declaration to the contrary, but subject to subsection (i) of this Section 5.14, any purported acquisition of shares of the Trust (whether such purported acquisition results from the direct or indirect acquisition or ownership (as hereafter defined) of Shares) which would result in the disqualification of the Trust as a REIT shall be null and void. Any such shares may be treated by the Trustees in the manner prescribed for Excess Shares in subsection (c) of this Section 5.14. (e) Subject only to subsection (i) of this Section 5.14, nothing contained in this Section 5.14 or in any other provision of this Declaration shall limit the authority of the Trustees to -28- take such other action as they deem necessary or advisable to protect the Trust and the interests of the Shareholders by preserving the Trust's status as a REIT. (f) If any provision of this Section 5.14 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provision shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. To the extent this Section 5.14 may be inconsistent with any other provision of this Declaration, this Section 5.14 shall be controlling. (g) It shall be the policy of the Trustees to consult with the appropriate officials of any stock exchange on which the relevant Shares of the Trust are listed as far as reasonably possible in advance of the final exercise (at any time when the shares are listed on such exchange) of any powers granted by sections (b) or (c) of this Section 5.14. (h) For purposes of this Declaration, Shares not owned directly shall be deemed to be owned indirectly by a Person if that Person or a group including that Person would be the beneficial owner of such shares, as defined as of May 1, 1995, in Rule 13d-3 under the Securities Exchange Act of 1934 and/or would be considered to own such shares by reason of the attribution rules of Section 544 or Section 856(h) of the Internal Revenue Code. (i) Nothing in this Section 5.14 shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. 5.15 Special Voting Provisions relating to Certain Business Combinations and Control Shares. The Trust elects not to be governed by the provisions of Subtitles 6 and 7 of Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland. -29- ARTICLE VI LIABILITY OF TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES AND AGENTS, AND OTHER MATTERS 6.1 Limitation of Liability of Shareholders, Trustees, Officers, Employees and Agents for Obligations of the Trust. The Trustees and the officers, employees and agents (including the Advisor) of the Trust, in incurring any debts, liabilities or obligations or in taking or omitting any other actions for or in connection with the Trust, are, and shall be deemed to be, acting as trustees, officers, employees or agents of the Trust and not in their own individual capacities. Except as otherwise provided in Sections 6.3 hereof with respect to liability of Trustees or officers, agents or employees of the Trust to the Trust or to Shareholders, no Shareholder, Trustee or officer, employee or agent (including the Advisor) of the Trust shall be liable for any debt, claim, demand, judgment decree, liability or obligation of any kind (in tort, contract or otherwise) of, against or with respect to the Trust or arising out of any action taken or omitted for or on behalf of the Trust, and the Trust shall be solely liable therefor and resort shall be had solely to the Trust Estate for the payment or performance thereof, and no Shareholder, Trustee or officer, employee or agent (including the Advisor) of the Trust shall be subject to any personal liability whatsoever, in tort, contract or otherwise, to any other Person or Persons in connection with the Trust Estate or the affairs of the Trust (or any actions taken or omitted for or on behalf of the Trust), and all such other Persons shall look solely to the Trust Estate for satisfaction of claims of any nature arising in connection with the Trust Estate or the affairs of the Trust (or any action taken or omitted for or on behalf of the Trust). 6.2 Express Exculpatory Clauses and Instruments. Any written instrument creating an obligation of the Trust shall, to the extent practicable, include a reference to this Declaration and provide that neither the Shareholders nor the Trustees nor any officers, employees or agents (including the Advisor) of the Trust shall be liable thereunder and that all Persons shall look solely to the Trust Estate for the payment of any claim thereunder or for the performance thereof; however, the omission of such provision from any such instrument shall not render the Shareholders, any Trustee, or any officer, employee or agent (including the Advisor) of the Trust liable nor shall the Shareholders, any Trustee or any officer, employee or agent (including the Advisor) of the Trust be liable to any one for such omission. -30- 6.3 Limitation of Liability of Trustees, Officers, Employees and Agents to the Trust and to Shareholders for Acts and Omissions. To the fullest extent permitted by Maryland statutory and decisional law, as amended or interpreted, no Trustee, officer, employee or agent of the Trust (a) shall be personally liable to the Trust or its Shareholders and (b) shall have any greater duties than those established by this Declaration of Trust or, in cases as to which such duties are not so established, than those to which the directors, officers, employees and agents of a Maryland business corporation are subject from time to time. No amendment of this Declaration or repeal of any of its provisions shall limit or eliminate the limitation on liability provided to Trustees, officers, employees and agents of the Trust hereunder with respect to any act or omission occurring prior to such amendment or repeal. 6.4 Indemnification and Reimbursement of Trustees, Officers, Employees, Agents and Certain Other Persons. (a) The Trust shall indemnify (i) its Trustees and officers, whether serving the Trust or at its request any other entity, to the full extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the full extent permitted by law and (ii) other employees and agents to such extent as shall be authorized by the Trustees of the Trust or the Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Trustees may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of this Declaration of Trust or repeal of any of its provisions shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal. (b) Notwithstanding anything herein to the contrary, and to the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no Trustee or officer of the Trust shall be personally liable to the Trust or its shareholders for money damages. No amendment of this Declaration or repeal of any of its provisions shall limit -31- or eliminate the limitation on liability provided to Trustees and officers hereunder with respect to any act or omission occurring prior to such amendment or repeal. 6.5 Indemnification and Reimbursement of Shareholders. Any Shareholder made a party to any action, suit or proceeding or against him a claim or liabilities asserted by reason of the fact that he, his testate or intestate was or is a Shareholder shall be indemnified and held harmless by the Trust against judgments, fines, amounts paid on account thereof (whether in settlement or otherwise) and reasonable expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense of such action, suit, proceeding, claim or alleged liability or in connection with any appeal therein, whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion; provided, however, that such Shareholder gives prompt notice thereof, executes such documents and takes such action as will permit the Trust to conduct the defense or settlement thereof and cooperates therein. In the event that the assets of the Trust Estate are insufficient to satisfy the Trust's indemnity obligations hereunder, each Shareholder shall be entitled to such indemnification pro rata from the Trust Estate. 6.6 Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business. Any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Shares in the Trust, for his individual account, and may exercise all rights of a Shareholder to the same extent and in the same manner as if he were not a Trustee or officer, employee or agent of the Trust. Any Trustee or officer, employee or agent of the Trust may, in his personal capacity or in the capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person or otherwise, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his own account, or for the account of such Person or others, of interests in Mortgages, interests in Real Property, or interests in Persons engaged in the real estate business. Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him in any capacity other than solely as Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to -32- the Trust, could be taken by the Trust. Subject to the provisions of Section 6.8, any Trustee or officer, employee or agent of the Trust may be interested as trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation as Trustee, officer, employee or agent or otherwise hereunder. None of these activities shall be deemed to conflict with his duties and powers as Trustee or officer, employee or agent of the Trust. 6.7 Transactions Between Trustees, Officers, Employees or Agents and the Trust. Except as otherwise provided by this Declaration, and in the absence of fraud, a contract, act or other transaction between the Trust and any other Person in which the Trust is interested, shall be valid, and no Trustee or officer, employee or agent of the Trust shall have any liability as a result of entering into any such contract, act or transaction, even though (a) one or more of the Trustees or officers, employees or agents of the Trust are directly or indirectly interested in or connected with or are trustees, partners, directors, employees, officers or agents of such other Person, or (b) one or more of the Trustees or officers, employees or agents of the Trust individually or jointly with others, is a party or are parties to, or are directly or indirectly interested in or connected with, such contract, act or transaction; provided that in each such case (i) such interest or connection is disclosed or known to the Trustees and thereafter the Trustees authorize or ratify such contract, act or other transaction by affirmative vote of a majority of the Trustees who are not so interested or (ii) such interest or connection is disclosed or known to the Shareholders, and thereafter such contract, act or transaction is approved by Shareholders holding a majority of the Shares then outstanding and entitled to vote thereon. Notwithstanding any other provision of this Declaration, the Trust may engage in a transaction with (a) any Trustee, officer, employee or agent of the Trust (acting in his individual capacity), (b) any director, trustee, partner, officer, employee or agent (acting in his individual capacity) of the Advisor or any other investment advisor of the Trust, (c) the Advisor or any other investment advisor of the Trust or (d) an Affiliate of any of the foregoing, provided that such transaction has, after disclosure of such affiliation, been approved or ratified by the affirmative vote of a majority of the Trustees not having any interest in such transaction and not Affiliates of any party to -33- the transaction after a determination by them that such transaction is fair and reasonable to the Trust and the Shareholders. This Section 6.7 shall not prevent any sale of Shares issued by the Trust for the public offering thereof in accordance with a registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933. The Trustees are not restricted by this Section 6.7 from forming a corporation, partnership, trust or other business association owned by any Trustee, officer, employee or agent or by their nominees for the purpose of holding title to property of the Trust or managing property of the Trust, provided that the Trustees make a determination that the creation of such entity for such purpose is in the best interest of the Trust. 6.8 Persons Dealing with Trustees, Officers, Employees or Agents. Any act of the Trustees or of the officers, employees or agents of the Trust purporting to be done in their capacity as such, shall, as to any Persons dealing with such Trustees, officers, employees or agents, be conclusively deemed to be within the purposes of this Trust and within the powers of such Trustees or officers, employees or agents. No Person dealing with the Trustees or any of them or with the officers, employees or agents of the Trust shall be bound to see to the application of any funds or property passing into their hands or control. The receipt of the Trustees or any of them, or of authorized officers, employees or agents of the Trust, for moneys or other consideration, shall be binding upon the Trust. 6.9 Reliance. The Trustees and the officers, employees and agents of the Trust may consult with counsel (which may be a firm in which one or more of the Trustees or the officers, employees or agents of the Trust is or are members) and the advice or opinion of such counsel shall be full and complete personal protection to all the Trustees and the officers, employees and agents of the Trust in respect of any action taken or suffered by them in good faith and in reliance on or in accordance with such advice or opinion. In discharging their duties, Trustees or officers, employees or agents of the Trust, when acting in good faith, may rely upon financial statements of the Trust represented to them to fairly present the financial position or results of operations of the Trust by the chief financial officer of the Trust or the officer of the Trust having charge of its books of account, or stated in a written report by an independent certified public accountant fairly to present the financial position or results of operations of the Trust. The Trustees and -34- the officers, employees and agents of the Trust may rely, and shall be personally protected in acting, upon any instrument or other document believed by them to be genuine. ARTICLE VII DURATION, AMENDMENT AND TERMINATION OF TRUST 7.1 Duration of Trust. The duration of the Trust shall be perpetual; provided, however, the Trust may be terminated at any time by the affirmative vote at a meeting of Shareholders of the holders of Shares representing two-thirds of the total number of Shares then outstanding and entitled to vote thereon. 7.2 Termination of Trust. (a) Upon the termination of the Trust: (i) the Trust shall carry on no business except for the purpose of winding up its affairs; (ii) the Trustees shall proceed to wind up the affairs of the Trust and all the powers of the Trustees under this Declaration shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Estate to one or more Persons at public or private sale (for consideration which may consist in whole or in part of cash, Securities or other property of any kind), discharge or pay its liabilities, and do all other acts appropriate to liquidate its business; and (iii) after paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements, as they deem necessary for their protection, the Trustees may distribute the remaining Trust Estate (in cash or in kind or partly each) among the Shareholders according to their respective rights. -35- (b) After termination of the Trust and distribution of the Trust Estate to the Shareholders as herein provided, the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination and such distribution, a copy of which instrument shall be filed with the Maryland Department of Assessments and Taxation, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder and the rights and interests of all Shareholders shall thereupon cease. 7.3 Amendment Procedure. This Declaration may be amended (except that the provisions governing the personal liability of the Shareholders, Trustees and of the officers, employees and agents of the Trust and the prohibition of assessments upon Shareholders may not be amended in any respect that could increase the personal liability of such Shareholders, Trustees or officers, employees and agents of the Trust) at a meeting of Shareholders by holders of Shares representing a majority (or, with respect to amendments of Article IV, the second paragraph of Section 5.1, Section 7.1 or this Section 7.3, and amendments inconsistent with Sections 2.1 and 5.14, at least two-thirds (2/3)) of the total number of votes authorized to be cast in respect of Shares then outstanding and entitled to vote thereon. The approval of a two-thirds (2/3) majority of the Trustees shall also be required for any such amendment. A two-thirds (2/3) majority of the Trustees may, after fifteen (15) days written notice to the Shareholders, also amend this Declaration without the vote or consent of Shareholders if in good faith they deem it necessary to conform this Declaration to the requirements of the REIT Provisions of the Internal Revenue Code, but the Trustees shall not be liable for failing to do so. Actions by the Trustees pursuant to Section 5.1 or pursuant to Section 8.6(a) that result in an amendment to this Declaration shall be effected without vote or consent of Shareholders. 7.4 Amendments Effective. Any amendment pursuant to any Section of this Declaration shall not become effective until it is duly filed with the Maryland Department of Assessments and Taxation. 7.5 Transfer to Successor. The Trustees, with the affirmative vote, at a meeting approving a plan for this purpose, of the holders of Shares representing two-thirds (2/3) of all votes cast at a meeting at which a quorum is present, may (a) cause the organization of a limited partnership, partnership, corporation, association, trust or other organization to take -36- over the Trust Estate and carry on the affairs of the Trust, (b) merge the Trust into, or sell, convey and transfer the Trust Estate to, any such limited partnership, partnership, corporation, association, trust or organization in exchange for Securities thereof, or beneficial interests therein, and the assumption by such transferee of the liabilities of the Trust and (c) thereupon terminate this Declaration and deliver such shares, Securities or beneficial interests among the Shareholders in accordance with such plan. ARTICLE VIII MISCELLANEOUS 8.1 Applicable Law. This Declaration is executed and acknowledged by the Trustees with reference to the statutes and laws of the State of Maryland, and the rights of all parties and the construction and effect of every provision hereof shall be subject to and construed according to the statutes and laws of such State. 8.2 Index and Headings for Reference Only. The index and headings preceding the text, articles and sections hereof have been inserted for convenience and reference only and shall not be construed to affect the meaning, construction or effect of this Declaration. 8.3 Successors in Interest. This Declaration and the Bylaws shall be binding upon and inure to the benefit of the undersigned Trustees and their successors, assigns, heirs, distributees and legal representatives, and every Shareholder and his successors, assigns, heirs, distributees and legal representatives. 8.4 Inspection of Records. Trust records shall be available for inspection by Shareholders at the same time and in the same manner and to the extent that comparable records of a Maryland business corporation would be available for inspection by shareholders under the laws of the State of Maryland. Except as specifically provided for in this Declaration or in Title 8 of the Annotated Code of Maryland, Shareholders shall have no greater right than shareholders of a Maryland business corporation to require financial or other information from the Trust, Trustees or officers of the Trust. Any Federal or state securities administrator or the Maryland Department of Assessments and Taxation shall have the right, at reasonable -37- times during business hours and for proper purposes, to inspect the books and records of the Trust. 8.5 Counterparts. This Declaration may be simultaneously executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart. 8.6 Provisions of the Trust in Conflict with Law or Regulations; Severability. (a) The provisions of this Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the "Conflicting Provisions") are in conflict with the REIT Provisions of the Internal Revenue Code, the Conflicting Provisions shall be deemed never to have constituted a part of the Declaration; provided, however, that such determination by the Trustees shall not affect or impair any of the remaining provisions of this Declaration or render invalid or improper any action taken or omitted (including but not limited to the election of Trustees) prior to such determination. An amendment in recordable form signed by a majority of the Trustees setting forth any such determination and reciting that it was duly adopted by the Trustees, or a copy of this Declaration, with the Conflicting Provisions removed pursuant to such a determination, in recordable form, signed by a majority of the Trustees, shall be conclusive evidence of such determination when filed with the Maryland Department of Assessments and Taxation. The Trustees shall not be liable for failure to make any determination under this Section 8.6(a). Nothing in this Section 8.6(a) shall in any way limit or affect the right of the Trustees to amend this Declaration as provided in Section 7.3. (b) If any provision of this Declaration shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Declaration, and this Declaration shall be carried out as if any such invalid or unenforceable provision were not contained herein. 8.7 Certifications. The following certifications shall be final and conclusive as to any Persons dealing with the Trust: -38- (a) a certification of a vacancy among the Trustees by reason of resignation, removal, increase in the number of Trustees, incapacity, death or otherwise, when made in writing by a majority of the remaining Trustees; (b) a certification as to the individuals holding office as Trustees or officers at any particular time, when made in writing by the secretary of the Trust; (c) a certification that a copy of this Declaration or of the Bylaws is a true and correct copy thereof as then in force, when made in writing by the secretary of the Trust; (d) a certification as to any actions by Trustees, other than the above, when made in writing by the secretary of the Trust or by any Trustee. -------------------------------------------------------------- These amendments do not affect the total number of common shares of beneficial interest, $.01 par value ("Common Shares"), authorized or issued by the Trust. The amendment and restatement of the Declaration was authorized by the Board of Trustees of the Trust acting by unanimous written consent on August 18, 1995 and by at least two-thirds of the stockholders of the Trust by means of unanimous written consent obtained on August 18, 1995. -39- IN WITNESS WHEREOF, the undersigned have caused this Declaration of Trust to be executed as of the day and year first written above. /s/ Barry M. Portnoy Name: Barry M. Portnoy Address: Sullivan & Worcester One Post Office Square Boston, MA 02109 ACKNOWLEDGEMENT Commonwealth of Massachusetts August 18, 1995 ss. County of Suffolk There personally appeared the above-named Barry M. Portnoy and acknowledged the foregoing instrument to be his free act and deed. Before me, /s/ Mary Louise Larkin Notary Public My commission expires: 2/10/2000 -40- /s/ Gerard M. Martin Name: Gerard M. Martin Address: M&P Partners Limited Partnership 400 Centre Street Newton, MA 02158 ACKNOWLEDGEMENT Commonwealth of Massachusetts August 18, 1995 ss. County of Middlesex There personally appeared the above-named Gerard M. Martin and acknowledged the foregoing instrument to be his free act and deed. Before me, /s/ Notary Public My commission expires: EX-3.2 3 EXHIBIT 3.2 HOSPITALITY PROPERTIES TRUST AMENDMENT TO AMENDED AND RESTATED DECLARATION OF TRUST DATED AUGUST 21, 1995 The undersigned, being at least a majority of the Trustees of Hospitality Properties Trust, a Maryland real estate investment trust having its principal office in Baltimore City, Maryland (hereinafter called the "Trust"), hereby certify to the Maryland State Department of Assessments and Taxation that: FIRST: The Trust desires to amend its Amended and Restated Declaration of Trust as currently in effect (the "Declaration of Trust"). SECOND: Article D of the Declaration of Trust is hereby amended by adding the following sentence at the end of the first paragraph of Section 5.1 thereof. The Trustees are hereby expressly authorized at any time, and from time to time, without Shareholder approval, to amend this Declaration to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has the authority to issue. THIRD: The above amendment does not affect the total number of common shares of beneficial interest, $.01 par value per share, authorized or issued by the Trust. FOURTH: The Board of Trustees of the Trust, at a meeting duly called and held on February 5, 1997, adopted a resolution which set forth said amendment to the Declaration of Trust and directed that said amendment be submitted for approval by the shareholders of the Trust. FIFTH: The shareholders of the Trust, voting at a meeting duly called and held May 20, 1997, adopted a resolution which approved said amendment by a vote of the holders of a majority of the issued and outstanding shares of beneficial interest in the Trust. - 2 - IN WITNESS WHEREOF, Hospitality Properties Trust has caused these presents to be signed in its name and on its behalf by the undersigned, being a majority of the Trustees of the Trust who executed this instrument as of May 20, 1997. /s/ Gerard M. Martin /s/ Barry M. Portnoy Gerard M. Martin Barry M. Portnoy /s/ William J. Sheehan William J. Sheehan - 3 - COMMONWEALTH OF MASSACHUSETTS ) ) COUNTY OF SUFFOLK ) On May 28, 1997 before me, Doreen A. Vozzella, a Notary Public in and for said Commonwealth, personally appeared Gerard M. Martin and Barry M. Portnoy, known to me or proved to me on the basis of satisfactory evidence, to be the persons whose names are subscribed to the within instrument and acknowledged that each of them executed the same. WITNESS my hand and official seal. Signature: /s/ Doreen A. Vozzella [OFFICIAL SEAL] Notary Public - 4 - STATE OF NEW YORK ) ) COUNTY OF NEW YORK ) On May 27, 1997 before me, Nessa Karney Langer, a Notary Public in and for said State, personally appeared William J. Sheehan, known to me or proved to me on the basis of satisfactory evidence, to be the person whose name is subscribed to the within instrument and acknowledged that he executed the same. WITNESS my hand and official seal. Signature: /s/ Nessa Karney Langer [OFFICIAL SEAL] Notary Public EX-3.3 4 EXHIBIT 3.3 HOSPITALITY PROPERTIES TRUST ARTICLES SUPPLEMENTARY HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust, having its principal office in Baltimore City, Maryland (hereinafter called the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Trustees by Article V, Section 5.1 of the Amended and Restated Declaration of Trust of the Trust, dated August 21, 1995, as amended, (the "Declaration"), the Board of Trustees has duly reclassified 1,000,000 unissued Preferred Shares, of the Trust (from among the 100,000,000 Preferred Shares, without par value, of the Trust which are authorized) into 1,000,000 Junior Participating Preferred Shares, par value $.01 per share, of the Trust. SECOND: The terms (including preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption) of the Junior Participating Preferred Shares, par value $.01 per share, are as follows: 1. Designation and Amount. The shares of such series shall be designated as "Junior Participating Preferred Shares" and the number of shares constituting such series shall be 1,000,000. 2. Dividends and Distributions. (a) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Shares ranking prior and superior to the Junior Participating Preferred Shares with respect to dividends (if any), the holders of Junior Participating Preferred Shares shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Junior Participating Preferred Share or fraction thereof, in an amount per share (rounded to the nearest cent) equal to the greater of (X) $5 or (Y) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, plus 100 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions, other than a dividend payable in common shares of beneficial interest, par value $.01 per share, of the Trust (the "Common Shares") or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Junior Participating Preferred Share or fraction thereof. In the event the Trust shall at any time after May 20, 1997 (the "Rights Declaration Date") (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the amount to which holders of shares of Junior Participating Preferred Shares were entitled immediately prior to such event under clause (Y) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (b) The Board shall declare a dividend or distribution on the Junior Participating Preferred Shares as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares); provided that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $5 per share on the Junior Participating Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding Junior Participating Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Junior Participating Preferred Shares unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Junior Participating Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Junior Participating Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of Junior Participating Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not less than 10 and not more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of Junior Participating Preferred Shares shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each Junior Participating Preferred Share shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Trust. In the event that the Board shall at any time after the Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the number of votes per share to which holders of Junior Participating Preferred Shares were entitled immediately prior to such event shall be adjusted by multiplying such number by a -2- fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (b) Except as otherwise provided herein or by law, the holders of Junior Participating Preferred Shares and the holders of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of the Trust. (c) (i) If at any time dividends on any Junior Participating Preferred Shares shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (a "Default Period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all Junior Participating Preferred Shares then outstanding shall have been declared and paid or set apart for payment. During each Default Period, all holders of Preferred Shares (including holders of the Junior Participating Preferred Shares) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Trustees. (ii) During any Default Period, such voting right of the holders of Junior Participating Preferred Shares may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at an annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Shares, if any, to increase, in certain cases, the authorized number of Trustees shall be exercised unless the holders of ten percent (10%) in number of Preferred Shares outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Shares shall not affect the exercise by the holders of Preferred Shares of such voting right. At any meeting at which the holders of Preferred Shares shall exercise such voting right initially during an existing Default Period, they shall have the right, voting as a class, to elect Trustees to fill up to two (2) vacancies, if any, in the Board or, if such right is exercised at an annual meeting, to elect two (2) Trustees. The holders of Preferred Shares shall have the right to make such increase in the number of Trustees as shall be necessary to permit the election by them at any special meeting of two (2) Trustees. After the holders of Preferred Shares shall have exercised their right to elect Trustees in any Default Period and during the continuance of such period, the number of Trustees shall not be increased or decreased except by vote of the holders of Preferred Shares as herein provided or -3- pursuant to the rights of any equity securities ranking senior to or pari passu with the Junior Participating Preferred Shares, if any. (iii) Unless the holders of Preferred Shares shall, during an existing Default Period, have previously exercised their right to elect Trustees, the Board may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of Preferred Shares outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Shares, which meeting shall thereupon be called by the Board or the Chief Operating Officer of the Trust. The Secretary of the Trust shall give notice of such meeting and of any annual meeting at which holders of Preferred Shares are entitled to vote pursuant to this paragraph (c)(iii) to each holder of record of Preferred Shares by mailing a copy of such notice to him at his last address as the same appears on the books of the Trust. Such meeting shall be called for a time not earlier than fifteen (15) days and not later than sixty (60) days after such order or request. If such meeting is not called within sixty (60) days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of Preferred Shares outstanding. Notwithstanding the provisions of this paragraph (c)(iii), no such special meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the shareholders. (iv) In any Default Period, the holders of Common Shares, and (if applicable) other classes of Shares of beneficial interest of the Trust (all Trust shares being referred to as "Shares"), shall continue to be entitled to elect the whole number of Trustees until the holders of Preferred Shares shall have exercised their rights to elect two (2) Trustees voting as a class, after the exercise of which right, (X) the Trustees so elected by the holders of Preferred Shares shall continue in office until their successors shall have been elected by such holders or until the expiration of the Default Period, and (Y) any vacancy in the Board shall (except as provided in paragraph (c)(ii) of this Section 3) be filled by vote of a majority of the remaining Trustees theretofore elected by the holders of the class or classes of Shares which elected the Trustee whose office shall have become vacant. References in this paragraph (c) to Trustees elected by the holders of a particular class of Shares shall include Trustees elected by such Trustees to fill vacancies as provided in clause (Y) of the foregoing sentence. -4- (v) Immediately upon the expiration of a Default Period, (X) the right of the holders of Preferred Shares as a class to elect Trustees shall cease, (Y) the term of any Trustees elected by the holders of Preferred Shares as a class shall terminate, and (Z) the number of Trustees shall be such number as may be provided for in the Declaration, any Article Supplementary or the By-Laws of the Trust, irrespective of any increase made pursuant to the provisions of paragraph (c)(ii) of this Section 3 such number being subject, however, to change thereafter in any manner provided by law, or in the Declaration, any Article Supplementary or the By-Laws of the Trust). Any vacancies in the Board effected by the provisions of clauses (Y) and (Z) in the preceding sentence may be filled by a majority of the remaining Trustees. (d) Except as set forth herein, holders of Junior Participating Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for taking any trust action. 4. Certain Restrictions. (a) Whenever quarterly dividends or other dividends or distributions payable on the Junior Participating Preferred Shares as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Junior Participating Preferred Shares outstanding shall have been paid in full, the Trust shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Shares; (ii) declare or pay dividends on or make any other distributions on any Shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Shares except dividends paid ratably on the Junior Participating Preferred Shares and all such parity Shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such Shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration Shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Shares provided that the Trust may at any time redeem, purchase or otherwise acquire any such parity Shares in exchange for any Shares ranking junior (either as to -5- dividends or upon dissolution, liquidation or winding up) to the Junior Participating Preferred Shares; (iv) purchase or otherwise acquire for consideration any Junior Participating Preferred Shares, or any Shares ranking on a parity with the Junior Participating Preferred Shares, except pursuant to Section 8 or in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Trust shall not permit any subsidiary of the Trust to purchase or otherwise acquire for consideration any Shares of the Trust unless the Trust could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Required Shares. Any Junior Participating Preferred Shares, purchased or otherwise acquired by the Trust in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued Preferred Shares and may be reissued as part of a new series of Preferred Shares to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (a) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Trust, no distribution shall be made to the holders of Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Shares, unless, prior thereto, the holders of Junior Participating Preferred Shares shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Liquidation Preference"). Following the payment of the full amount of the Liquidation Preference, no additional distributions shall be made to the holders of Junior Participating Preferred Shares, unless, prior thereto, the holders of Common Shares shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph (c) below to reflect such events as stock splits, stock dividends and recapitalization with respect to the Common Shares) (such number in clause (ii) immediately above being referred to as the "Adjustment Number"). Subject to the rights of any other series of Preferred Shares then outstanding, if any, following the payment of the full amount of the Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Junior Participating Preferred Shares and Common Shares, respectively, holders of Junior Participating Preferred Shares and holders of shares of Common Shares shall receive their ratable and proportionate share of the remaining assets to be distributed in the -6- ratio of the Adjustment Number to one (1) with respect to such Junior Participating Preferred Shares and Common Shares, on a per Share basis, respectively. (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Liquidation Preference and the liquidation preferences of all other series of Preferred Shares, if any, which rank on a parity with the Junior Participating Preferred Shares, then such remaining assets shall be distributed ratably to the holders of such parity Shares (including the Junior Participating Preferred Shares) in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment after satisfaction of the liquidation preferences of all series of Preferred Shares, if any, then such remaining assets shall be distributed ratably to the holders of Common Shares. (c) In the event the Trust shall at any time after the Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of shares of Common Shares that were outstanding immediately prior to such event. 7. Consolidation, Merger, etc. In case the Trust shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the Junior Participating Preferred Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of shares, securities, cash or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged. In the event the Trust shall at any time after the Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of Shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Junior Participating Preferred Shares shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. 8. Redemption. The Junior Participating Preferred Shares shall not be redeemable. 9. Ranking. The Junior Participating Preferred Shares shall rank junior to all other series of the Trust's Preferred Shares as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 10. Amendment. At such time as Junior Participating Preferred Shares are outstanding, the Declaration shall not be amended, nor shall an Article Supplementary of the Trust be filed or amended, in any manner which would materially alter or change the powers, preferences or special -7- rights of the Junior Participating Preferred Shares so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding Junior Participating Preferred Shares voting separately as a class. 11. Fractional Shares. Junior Participating Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of a holder of Junior participating Preferred Shares. IN WITNESS WHEREOF, HOSPITALITY PROPERTIES TRUST has caused these Articles Supplementary to be signed in its name and on its behalf by a majority of its entire Board of Trustees and witnessed by its Secretary on May 28, 1997. WITNESS: HOSPITALITY PROPERTIES TRUST /s/ John G. Murray By: /s/ Gerard M. Martin John G. Murray, Gerard M. Martin, Trustee Secretary By: /s/ Barry M. Portnoy Barry M. Portnoy, Trustee By: /s/ William J. Sheehan William J. Sheehan, Trustee -8- THE UNDERSIGNED, President of HOSPITALITY PROPERTIES TRUST, with respect to the foregoing Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Trust, the foregoing Articles Supplementary to be the act of said Trust and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ John G. Murray John G. Murray, President -9- EX-4.3 5 EXHIBIT 4.3 HOSPITALITY PROPERTIES TRUST TO STATE STREET BANK AND TRUST COMPANY Trustee Indenture Dated as of February 25, 1998 Senior Debt Securities
TABLE OF CONTENTS1 PAGE PARTIES..................................................................................................1 RECITALS.................................................................................................1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions................................................................................1 "Act" ..............................................................................1 "Additional Amounts"...................................................................1 "Affiliate"............................................................................2 "Authenticating Agent".................................................................2 "Authorized Newspaper".................................................................2 "Bankruptcy Law".......................................................................2 "Bearer Security"......................................................................2 "Board" ..............................................................................2 "Board Resolution".....................................................................2 "Business Day".........................................................................2 "CEDEL" ..............................................................................2 "Commission"...........................................................................2 "Common Depositary"....................................................................2 "Company"..............................................................................2 "Company Request" and "Company Order"..................................................2 "Conversion Event".....................................................................2 "Corporate Trust Office"...............................................................3 "corporation"..........................................................................3 "coupon" ..............................................................................3 "Custodian"............................................................................3 "Declaration"..........................................................................3 "Defaulted Interest"...................................................................3 "Dollar" or "$"........................................................................3 "DTC" ..............................................................................3 "ECU" ..............................................................................3 "Euroclear"............................................................................3 "European Communities".................................................................3 "European Monetary System".............................................................3 "Event of Default".....................................................................3 "Exchange Date"........................................................................3 "Foreign Currency".....................................................................3 "Funds from Operations"................................................................3 "GAAP" ..............................................................................3 "Government Obligations"...............................................................3 "Holder" ..............................................................................4 "Indenture"............................................................................4 "Indexed Security".....................................................................4 "interest".............................................................................4 "Interest Payment Date"................................................................4 "Maturity".............................................................................4 - -------- 1 This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. "Officers' Certificate"................................................................4 "Opinion of Counsel"...................................................................4 "Original Issue Discount Security".....................................................4 "Outstanding"..........................................................................4 "Paying Agent".........................................................................5 "Person" ..............................................................................5 "Place of Payment".....................................................................5 "Predecessor Security".................................................................5 "Redemption Date"......................................................................5 "Redemption Price".....................................................................6 "Registered Security"..................................................................6 "Regular Record Date"..................................................................6 "Repayment Date".......................................................................6 "Responsible Officer"..................................................................6 "Security".............................................................................6 "Security Register" and "Security Registrar"...........................................6 "Significant Subsidiary"...............................................................6 "Special Record Date"..................................................................6 "Stated Maturity"......................................................................6 "Subsidiary"...........................................................................6 "Trust Indenture Act" or "TIA".........................................................6 "Trustee"..............................................................................6 "United States"........................................................................7 "United States person".................................................................7 "Yield to Maturity"....................................................................7 SECTION 102. Compliance Certificates and Opinions.......................................................7 SECTION 103. Form of Documents Delivered to Trustee.....................................................7 SECTION 104. Acts of Holders............................................................................8 SECTION 105. Notices, etc., to Trustee and Company......................................................9 SECTION 106. Notice to Holders; Waiver..................................................................9 SECTION 107. Effect of Headings and Table of Contents..................................................10 SECTION 108. Successors and Assigns....................................................................10 SECTION 109. Separability Clause.......................................................................10 SECTION 110. Benefits of Indenture.....................................................................10 SECTION 111. Governing Law.............................................................................10 SECTION 112. Legal Holidays............................................................................10 SECTION 113. No Personal Liability.....................................................................10 ARTICLE TWO SECURITIES FORMS SECTION 201. Forms of Securities.......................................................................11 SECTION 202. Form of Trustee's Certificate of Authentication...........................................11 SECTION 203. Securities Issuable in Global Form........................................................11 ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series......................................................12 SECTION 302. Denominations.............................................................................15 SECTION 303. Execution, Authentication, Delivery and Dating............................................15 SECTION 304. Temporary Securities......................................................................16 SECTION 305. Registration, Registration of Transfer and Exchange.......................................18 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities..........................................20 -ii- SECTION 307. Payment of Interest; Interest Rights Preserved............................................20 SECTION 308. Persons Deemed Owners.....................................................................22 SECTION 309. Cancellation..............................................................................22 SECTION 310. Computation of Interest...................................................................23 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture...................................................23 SECTION 402. Application of Trust Funds................................................................24 ARTICLE FIVE REMEDIES SECTION 501. Events of Default.........................................................................24 SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................25 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................26 SECTION 504. Trustee May File Proofs of Claim..........................................................27 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons....................27 SECTION 506. Application of Money Collected............................................................27 SECTION 507. Limitation on Suits.......................................................................28 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium, if any, Interest and Additional Amounts....................................................................28 SECTION 509. Restoration of Rights and Remedies........................................................28 SECTION 510. Rights and Remedies Cumulative............................................................28 SECTION 511. Delay or Omission Not Waiver..............................................................28 SECTION 512. Control by Holders of Securities..........................................................29 SECTION 513. Waiver of Past Defaults...................................................................29 SECTION 514. Waiver of Usury, Stay or Extension Laws...................................................29 SECTION 515. Undertaking for Costs.....................................................................29 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults........................................................................29 SECTION 602. Certain Rights of Trustee.................................................................30 SECTION 603. Not Responsible for Recitals or Issuance of Securities....................................31 SECTION 604. May Hold Securities.......................................................................31 SECTION 605. Money Held in Trust.......................................................................31 SECTION 606. Compensation and Reimbursement............................................................31 SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests............................32 SECTION 608. Resignation and Removal; Appointment of Successor.........................................32 SECTION 609. Acceptance of Appointment by Successor....................................................33 SECTION 610. Merger, Conversion, Consolidation or Succession to Business...............................33 SECTION 611. Appointment of Authentication Agent.......................................................34 SECTION 612. Certain Duties and Responsibilities of the Trustee........................................35 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders..............................................36 SECTION 702. Reports by Trustee........................................................................36 -iii- SECTION 703. Reports by Company........................................................................36 SECTION 704. Company to Furnish to Trustee Names and Addresses of Holders..............................36 ARTICLE EIGHT CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE SECTION 801. Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions...............................................37 SECTION 802. Rights and Duties of Successor Corporation................................................37 SECTION 803. Officers' Certificate and Opinion of Counsel..............................................37 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders........................................37 SECTION 902. Supplemental Indentures with Consent of Holders...........................................38 SECTION 903. Execution of Supplemental Indentures......................................................39 SECTION 904. Effect of Supplemental Indentures.........................................................39 SECTION 905. Conformity with Trust Indenture Act.......................................................39 SECTION 906. Reference in Securities to Supplemental Indentures........................................39 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if any, Interest and Additional Amounts...................40 SECTION 1002. Maintenance of Office or Agency..........................................................40 SECTION 1003. Money for Securities Payments to Be Held in Trust........................................41 SECTION 1004. Existence................................................................................42 SECTION 1005. Provision of Financial Information.......................................................42 SECTION 1006. Statement as to Compliance...............................................................42 SECTION 1007. Additional Amounts.......................................................................42 SECTION 1008. Waiver of Certain Covenants..............................................................43 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article.................................................................43 SECTION 1102. Election to Redeem; Notice to Trustee....................................................43 SECTION 1103. Selection by Trustee of Securities to Be Redeemed........................................43 SECTION 1104. Notice of Redemption.....................................................................44 SECTION 1105. Deposit of Redemption Price..............................................................45 SECTION 1106. Securities Payable on Redemption Date....................................................45 SECTION 1107. Securities Redeemed in Part..............................................................45 ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article.................................................................46 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities....................................46 SECTION 1203. Redemption of Securities for Sinking Fund................................................46 -iv- ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. Applicability of Article................................................................47 SECTION 1302. Repayment of Securities..................................................................47 SECTION 1303. Exercise of Option.......................................................................47 SECTION 1304. When Securities Presented for Repayment Become Due and Payable...........................47 SECTION 1305. Securities Repaid in Part................................................................48 ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance............................................................................48 SECTION 1402. Defeasance and Discharge.................................................................48 SECTION 1403. Covenant Defeasance......................................................................49 SECTION 1404. Conditions to Defeasance or Covenant Defeasance..........................................49 SECTION 1405. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions..............................................................50 ARTICLE FIFTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1501. Purposes for Which Meetings May Be Called................................................51 SECTION 1502. Call, Notice and Place of Meetings.......................................................51 SECTION 1503. Persons Entitled to Vote at Meetings.....................................................51 SECTION 1504. Quorum; Action...........................................................................51 SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of Meetings......................52 SECTION 1506. Counting Votes and Recording Action of Meetings..........................................53 TESTIMONIUM.............................................................................................54 SIGNATURES..............................................................................................54 EXHIBIT A -- FORMS OF CERTIFICATION
-v- HOSPITALITY PROPERTIES TRUST Reconciliation and tie between Trust Indenture Act of 1939, as amended (the "TIA"), and Indenture, dated as of February 25, 1998. TIA Section Indenture Section Sec. 310(a)(1).......................... 607 (a)(2).......................... 607 (b)............................. 607, 608 Sec. 312(a)............................. 704 Sec. 312(c)............................. 701 Sec. 313(a)............................. 702 (c).............................. 702 Sec. 314(a)............................. 1006 (a)(4)........................... 1007 (c)(1)........................... 102 (c)(2)........................... 102 (e).............................. 102 Sec. 315(b)............................. 601 Sec. 316(a) (last sentence)............. 101 ("Outstanding") (a)(1)(A)....................... 502, 512 (a)(1)(B)....................... 513 (b).............................. 508 Sec. 317(a)(1).......................... 503 (a)(2)........................... 504 Sec. 318(a)............................. 111 (c).............................. 111 - ------------------- NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. Attention should also be directed to Section 318(c) of the TIA, which provides that the provisions of Sections 310 to and including 317 of the TIA are a part of and govern every qualified indenture, whether or not physically contained therein. -vi- INDENTURE, dated as of February 25, 1998, between HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust (hereinafter called the "Company"), having its principal office at 400 Centre Street, Newton, Massachusetts 02158, and STATE STREET BANK AND TRUST COMPANY, as Trustee hereunder (hereinafter called the "Trustee"), having its initial Corporate Trust Office at Two International Place, Boston, Massachusetts 02110. RECITALS OF THE COMPANY The Company deems it necessary to issue from time to time for lawful purposes its unsecured debt securities (hereinafter called the "Securities") evidencing its unsecured indebtedness, and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, unlimited as to principal amount, to bear interest at the rates or formulas, to mature at such times and to have such other provisions as shall be fixed as hereinafter provided. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are deemed to be incorporated into this Indenture by such Act, and shall, to the extent applicable, be governed by such provisions. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the TIA, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the TIA; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Three, Article Five, Article Six and Article Ten, are defined in those Articles. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Amounts" means any additional amounts which are required by a Security or by or pursuant to a Board Resolution, under circumstances specified therein, to be paid by the Company in respect of certain taxes imposed on certain Holders and which are owing to such Holders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means any authenticating agent appointed by the Trustee pursuant to Section 611. "Authorized Newspaper" means a newspaper, printed in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Whenever successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different Authorized Newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "Bankruptcy Law" has the meaning specified in Section 501. "Bearer Security" means any Security established pursuant to Section 201 which is payable to bearer. "Board" means the board of trustees of the Company or any committee of that board duly authorized to act hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities pursuant to Section 301, any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in that Place of Payment or particular location are authorized or required by law, regulation or executive order to close. "CEDEL" means Cedel, S.A., or its successor. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Common Depositary" has the meaning specified in Section 304. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by the President or a Vice President, and by its Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institution of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit (or composite currency) other than the ECU for the purposes for which it was established. 2 "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Two International Place, Boston, Massachusetts 02110. "corporation" includes corporations, associations, companies and business trusts. "coupon" means any interest coupon appertaining to a Bearer Security. "Custodian" has the meaning specified in Section 501. "Declaration" has the meaning specified in Section 113. "Defaulted Interest" has the meaning specified in Section 307. "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, or any successor thereto. "ECU" means the European Currency Unit as defined and revised from time to time by the Council of the European Communities. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels Office, or its successor as operator of the Euroclear System. "European Communities" means the European Economic Community, the European Coal and Steel Community and the European Atomic Energy Community. "European Monetary System" means the European Monetary System established by the Resolution of December 5, 1978 of the Council of the European Communities. "Event of Default" has the meaning specified in Article Five. "Exchange Date" has the meaning specified in Section 304. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the ECU, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "Funds from Operations" for any period means the consolidated net income of the Company and its Subsidiaries for such period without giving effect to depreciation and amortization, gains or losses from extraordinary items, gains or losses on sales of real estate, gains or losses on investments in marketable securities and any provision/benefit for income taxes for such period, plus funds from operations of unconsolidated joint ventures, all determined on a consistent basis in accordance with GAAP. "GAAP" means generally accepted accounting principles in effect from time to time as used in the United States applied on a consistent basis. "Government Obligations" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign Currency in which the Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the Foreign Currency in which the Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; 3 provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Holder" means, in the case of a Registered Security, the Person in whose name a Security is registered in the Security Register and, in the case of a Bearer Security, the bearer thereof and, when used with respect to any coupon, shall mean the bearer thereof. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 301; provided, however, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more applicable provisions hereof and shall include the terms of the or those particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, shall mean interest payable after Maturity, and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 1007, includes such Additional Amounts. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment or otherwise. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company (including counsel who is an employee of the Company) and who shall be acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption or repayment at the option of the Holder money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any coupons appertaining thereto; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; 4 (iii) Securities, except to the extent provided in Sections 1402 and 1403, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen; (iv) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (v) Securities converted into Common Shares, Preferred Shares or other securities of the Company pursuant to or in accordance with this Indenture if the terms of such Securities provide for convertibility pursuant to Section 301; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by TIA Section 313, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the maturity thereof pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined pursuant to Section 301 as of the date such Security is originally issued by the Company, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above) of such Security, (iii) the principal amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Security pursuant to Section 301, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities or coupons on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of or within any series, means the place or places where the principal of (and premium, if any) and interest on such Securities are payable as specified as contemplated by Sections 301 and 1002. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a mutilated, destroyed, lost or stolen coupon appertains shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security or the Security to which the mutilated, destroyed, lost or stolen coupon appertains. "Redemption Date", when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. 5 "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" shall mean any Security established pursuant to Section 201 which is registered in the Security Register. "Regular Record Date" for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for that purpose as contemplated by Section 301, whether or not a Business Day. "Repayment Date" means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture. "Responsible Officer", when used with respect to the Trustee, means the chairman or vice-chairman of the board of directors, the chairman or vice-chairman of the executive committee of the board of directors, the president, any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer, the controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. "Security" has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities" with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Significant Subsidiary" means any Subsidiary which is a "significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X, promulgated under the Securities Act of 1933, as amended) of the Company. "Special Record Date" for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means a corporation a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. For the purposes of this definition, "voting stock" means stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended and as in force at the date as of which this Indenture was executed, except as provided in Section 905. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series. 6 "United States" means, unless otherwise specified with respect to any Securities pursuant to Section 301, the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "United States person" means, unless otherwise specified with respect to any Securities pursuant to Section 301, an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created organized in or under the laws of the United States or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. "Yield to Maturity" means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates delivered pursuant to Section 1006) shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion as to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a certificate of or representations by counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion, certificate or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel, certificate or representations may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any Subsidiary stating that the information as to such factual matters is in the possession of the Company or such Subsidiary, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations as to such matters are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion or representations by an accountant or firm or accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows, or in the exercise of reasonable 7 care should know, that the certificate or opinion or representation with respect to the accounting matters upon which his certificate, statement or opinion is based are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. If Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fifteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1506. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner which the Trustee deems sufficient. (c) The ownership of Registered Securities shall be proved by the Security Register. (d) The ownership of Bearer Securities may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The ownership of Bearer Securities may also be proved in any other manner which the Trustee deems sufficient. (e) If the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, in or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose 8 the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (f) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices, etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, Re: Hospitality Properties Trust, and specifically referring to the applicable series of Securities, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company, and specifically referring to the applicable series of Securities. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders of Registered Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder. Except as otherwise expressly provided herein or otherwise specified with respect to any Securities pursuant to Section 301, where this Indenture provides for notice to Holders of Bearer Securities of any event, such notice shall be sufficiently given if published in an Authorized Newspaper in The City of New York and in such other city or cities as may be specified in such Securities on a Business Day, such publication to be not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication. If by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither the failure to give notice by publication to any particular Holder of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of such notice with respect to other Holders of Bearer Securities or the sufficiency of any notice to Holders of Registered Securities given as provided herein. 9 Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. Separability Clause. In case any provision in this Indenture or in any Security or coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Securities or coupons, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Governing Law. This Indenture and the Securities and coupons shall be governed by and construed in accordance with the law of The Commonwealth of Massachusetts. This Indenture is subject to the provisions of the TIA that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 112. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or any Security or coupon other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu hereof), payment of interest or any Additional Amounts or principal (and premium, if any) or sinking fund payment need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. SECTION 113. No Personal Liability. THE DECLARATION OF TRUST OF THE COMPANY, AS AMENDED AND RESTATED ON AUGUST 21, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 10 ARTICLE TWO SECURITIES FORMS SECTION 201. Forms of Securities. The Registered Securities, if any, of each series and the Bearer Securities, if any, of each series and related coupons shall be in substantially the forms as shall be established in one or more indentures supplemental hereto or approved from time to time by or pursuant to a Board Resolution in accordance with Section 301, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange on which the Securities may be listed, or to conform to usage. Unless otherwise specified as contemplated by Section 301, Bearer Securities shall have interest coupons attached. The definitive Securities and coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or coupons, as evidenced by their execution of such Securities or coupons. SECTION 202. Form of Trustee's Certificate of Authentication. Subject to Section 611, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By______________________________ Authorized Officer SECTION 203. Securities Issuable in Global Form. If Securities of or within a series are issuable in global form, as specified in and as contemplated by Section 301, then, notwithstanding clause (8) of Section 301 and the provisions of Section 302, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel. The provisions of the last sentence of Section 303 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303. 11 Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of and any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security (i) in the case of a permanent global Security in registered form, the Holder of such permanent global Security in registered form or (ii) in the case of a permanent global Security in bearer form, Euroclear or CEDEL. ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of the following, as applicable (each of which (except for the matters set forth in clauses (1), (2) and (14) below), if so provided, may be determined from time to time by the Company with respect to unissued Securities of the series when issued from time to time): (1) the title of the Securities of the series (which shall distinguish the Securities of such series from all other series of Securities); (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906, 1107 or 1305); (3) the date or dates, or the method by which such date or dates will be determined, on which the principal of the Securities of the series shall be payable; (4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest will be payable and the Regular Record Date, if any, for the interest payable on any Registered Security on any Interest Payment Date, or the method by which such date shall be determined, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (5) the place or places where the principal of, any premium and interest on and any Additional Amounts payable in respect of, Securities of the series shall be payable, any Registered Securities of the series may be surrendered for registration of transfer, exchange or conversion and notices or demands to or upon the Company in respect of the Securities of the series and this Indenture may be served; (6) the period or periods within which or the date or dates on which, the price or prices at which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, if the Company is to have the option; (7) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which or the date or dates on which, the price or prices at which, and other terms and 12 conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Registered Securities of the series shall be issuable and the denomination or denominations in which any Bearer Securities of the series shall be issuable; (9) if other than Dollars, the Foreign Currency or Currencies in which payment of the principal of (and premium, if any), interest, if any, on, and Additional Amounts, if any, on the Securities of the series shall be payable, in which the Securities of the series shall be redeemed or purchased or in which the Securities of the series shall be denominated; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or, if applicable, the portion of the principal amount of Securities of the series that is convertible in accordance with the provisions of this Indenture, or the method by which such portion shall be determined; (11) whether the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more currencies, currency units, composite currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined; (12) whether the principal of (and premium, if any) or interest, if any on or Additional Amounts, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Securities are to be paid; (13) provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified; (14) any deletions from, modifications of or additions to the Events of Default or covenants of the Company set forth in this Indenture with respect to Securities of the series (whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein); (15) whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations), whether any Securities of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 305, and, if Registered Securities of the series are to be issuable as a global Security, the identity of the depositary for such series; (16) the date as of which any Bearer Securities of the series and any temporary global Security representing Outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (17) the Person to whom any interest on any Registered Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is 13 registered at the close of business on the Regular Record Date for such interest, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 304; (18) the applicability, if any, of Sections 1402 and/or 1403 to the Securities of the series and any provisions in modification of, in addition to or in lieu of any of the provisions of Article Fourteen; (19) if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions; (20) if the Securities of the series are to be issued upon the exercise of warrants, the time, manner and place for such Securities to be authenticated and delivered; (21) whether and under what circumstances the Company will pay Additional Amounts as contemplated by Section 1007 on the Securities of the series to any Holder who is not a United States person (including any modification to the definition of such term) in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Securities rather than pay such Additional Amounts (and the terms of any such option); (22) the obligation, if any, of the Company to permit the conversion of the Securities of such series into Common Shares or Preferred Shares of the Company or other securities, as the case may be, and the terms and conditions upon which such conversion shall be effected (including, without limitation, the initial conversion price or rate, the conversion period, any adjustment of the applicable conversion price and any requirements relative to the reservation of such shares for purposes of conversion); (23) the terms and conditions, if any, upon which payment of the Securities of such series shall be subordinated to the Securities of another series or other indebtedness of the Company (including, without limitation, indebtedness which ranks senior to such Securities; restrictions on payments to Holders of such Securities while a default with respect to such senior indebtedness is continuing; restrictions, if any, on payments to the Holders of such Securities following an Event of Default; and any requirements for Holders of such Securities to remit certain payments to the holders of such senior indebtedness); (24) if the Securities of the series are to be guaranteed, the term and conditions of such guarantee; (25) if other than the Trustee, the identity of each Security Registrar and/or Paying Agent for the series; and (26) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and the coupons appertaining to any Bearer Securities of such series shall be substantially identical except, in the case of Registered Securities, as to denominations and except as may otherwise be provided in or pursuant to the Board Resolution establishing the series (subject to Section 303) and set forth in an Officers' Certificate or in any indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to one or more Board Resolutions, a copy of an appropriate record of such action(s) shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the Securities of such series. 14 SECTION 302. Denominations. The Securities of each series shall be issuable in such denominations as shall be specified as contemplated by Section 301. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions, the Registered Securities of such series, other than Registered Securities issued in global form (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities and any coupons appertaining thereto shall be executed on behalf of the Company by its President or one of its Vice Presidents and may be, but shall not be required to be, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities and coupons may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities or coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities or coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series, together with any coupon appertaining thereto, executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities; provided, however, that, in connection with its original issuance, no Bearer Security shall be mailed or otherwise delivered to any location in the United States; and provided further that, unless otherwise specified with respect to any series of Securities pursuant to Section 301, a Bearer Security may be delivered in connection with its original issuance only if the Person entitled to receive such Bearer Security shall have furnished a certificate in the form set forth in Exhibit A-1 to this Indenture or such other certificate as may be specified with respect to any series of Securities pursuant to Section 301, dated no earlier than 15 days prior to the earlier of the date on which such Bearer Security is delivered and the date on which any temporary Security first becomes exchangeable for such Bearer Security in accordance with the terms of such temporary Security and this Indenture. If any Security shall be represented by a permanent global Bearer Security, then, for purposes of this Section and Section 304, the notation of a beneficial owner's interest therein upon original issuance of such Security or upon exchange of a portion of a temporary global Security shall be deemed to be delivery in connection with its original issuance of such beneficial owner's interest in such permanent global Security. Except as permitted by Section 306, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and cancelled. If all the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate or formula, maturity date, date of issuance and date from which interest shall accrue. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to TIA Sections 315(a) through 315(d)) shall be fully protected in relying upon, (i) an Opinion of Counsel stating that (a) the form or forms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; (b) the terms of such Securities and any coupons have been established in conformity with the provisions of this Indenture; and (c) such Securities, together with any coupons appertaining thereto, when completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, 15 insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors' rights generally and to general equitable principles; and (ii) an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the issuance of the Securities have been complied with and that, to the best of the knowledge of the signers of such certificate, no Event of Default with respect to any of the Securities shall have occurred and be continuing. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties, obligations or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Officers' Certificate otherwise required pursuant to Section 301 or a Company Order, or an Opinion of Counsel or an Officers' Certificate otherwise required pursuant to the preceding paragraph at the time of issuance of each Security of such series, but such order, opinion and certificates, with appropriate modifications to cover such future issuances, shall be delivered at or before the time of issuance of the first Security of such series. Each Registered Security shall be dated the date of its authentication and each Bearer Security shall be dated as of the date specified as contemplated by Section 301. No Security or coupon shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security or Security to which such coupon appertains a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 304. Temporary Securities. (a) Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form, or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form. Except in the case of temporary Securities in global form (which shall be exchanged in accordance with Section 304(b) or as otherwise provided in or pursuant to a Board Resolution), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series (accompanied by any non-matured coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations; provided, however, that no definitive Bearer Security shall be delivered in exchange for a temporary Registered Security; and provided further that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in Section 303. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. 16 (b) Unless otherwise provided in or pursuant to a Board Resolution, this Section 304(b) shall govern the exchange of temporary Securities issued in global form other than through the facilities of DTC. If any such temporary Security is issued in global form, then such temporary global Security shall, unless otherwise provided therein, be delivered to the London office of a depositary or common depositary (the "Common Depositary"), for the benefit of Euroclear and CEDEL, for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). Without unnecessary delay but in any event not later than the date specified in, or determined pursuant to the terms of, any such temporary global Security (the "Exchange Date"), the Company shall deliver to the Trustee definitive Securities, in aggregate principal amount equal to the principal amount of such temporary global Security, executed by the Company. On or after the Exchange Date, such temporary global Security shall be surrendered by the Common Depositary to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or from time to time in part, for definitive Securities without charge, and the Trustee shall authenticate and deliver, in exchange for each portion of such temporary global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such temporary global Security to be exchanged. The definitive Securities to be delivered in exchange for any such temporary global Security shall be in bearer form, registered form, permanent global bearer form or permanent global registered form, or any combination thereof, as specified as contemplated by Section 301, and, if any combination thereof is so specified, as requested by the beneficial owner thereof; provided, however, that, unless otherwise specified in such temporary global Security, upon such presentation by the Common Depositary, such temporary global Security is accompanied by a certificate dated the Exchange Date or a subsequent date and signed by Euroclear as to the portion of such temporary global Security held for its account then to be exchanged and a certificate dated the Exchange Date or a subsequent date and signed by CEDEL as to the portion of such temporary global Security held for its account then to be exchanged, each in the form set forth in Exhibit A-2 to this Indenture or in such other form as may be established pursuant to Section 301; and provided further that definitive Bearer Securities shall be delivered in exchange for a portion of a temporary global Security only in compliance with the requirements of Section 303. Unless otherwise specified in such temporary global Security, the interest of a beneficial owner of Securities of a series in a temporary global Security shall be exchanged for definitive Securities of the same series and of like tenor following the Exchange Date when the account holder instructs Euroclear or CEDEL, as the case may be, to request such exchange on his behalf and delivers to Euroclear or CEDEL, as the case may be, a certificate in the form set forth in Exhibit A-1 to this Indenture (or in such other forms as may be established pursuant to Section 301), dated no earlier than 15 days prior to the Exchange Date, copies of which certificate shall be available from the offices of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such series of Securities and each Paying Agent. Unless otherwise specified in such temporary global Security, any such exchange shall be made free of charge to the beneficial owners of such temporary global Security, except that a Person receiving definitive Securities must bear the cost of insurance, postage, transportation and the like unless such Person takes delivery of such definitive Securities in person at the offices of Euroclear or CEDEL. Definitive Securities in bearer form to be delivered in exchange for any portion of a temporary global Security shall be delivered only outside the United States. Until exchanged in full as hereinabove provided, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of the same series and of like tenor authenticated and delivered hereunder, except that, unless otherwise specified as contemplated by Section 301, interest payable on a temporary global Security on an Interest Payment Date for Securities of such series occurring prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee of a certificate or certificates in the form set forth in Exhibit A-2 to this Indenture (or in such other forms as may be established pursuant to Section 301), for credit without further interest on or after such Interest Payment Date to the respective accounts of persons who are the beneficial owners of such temporary global Security on such Interest Payment Date and who have each delivered to Euroclear or CEDEL, as the case may be, a certificate dated no earlier than 15 days prior to the Interest Payment Date occurring prior to such Exchange Date in the form set forth as Exhibit A-1 to this Indenture (or in such other forms as may be established pursuant to Section 301). Notwithstanding anything to the contrary herein contained, the certifications made pursuant to this paragraph shall satisfy the certification requirements of the preceding two paragraphs of this Section 304 (b) and of the third paragraph of Section 303 of this Indenture and the interests of the Persons who are the beneficial owners of a temporary global Security with respect to which such certification was made will be exchanged for definitive Securities of the same series and of like tenor on the Exchange Date or the date of certification if such date occurs after the Exchange Date, without further act or deed by such beneficial owners. Except as otherwise provided in this paragraph, no payments of principal 17 or interest owing with respect to a beneficial interest in a temporary global Security will be made unless and until such interest in such temporary global Security shall have been exchanged for an interest in a definitive Security. Any interest so received by Euroclear and CEDEL and not paid as herein provided shall be returned to the Trustee prior to the expiration of two years after such Interest Payment Date in order to be repaid to the Company. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency of the Company in a Place of Payment a register for each series of Securities (the registers maintained in such office or in any such office or agency of the Company in a Place of Payment being herein sometimes referred to collectively as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Trustee, at its Corporate Trust Office, is hereby initially appointed "Security Registrar" for the purpose of registering Registered Securities and transfers of Registered Securities on such Security Register as herein provided. In the event that the Trustee shall cease to be Security Registrar, it shall have the right to examine the Security Register at all reasonable times. Subject to the provisions of this Section 305, upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations and of a like aggregate principal amount, bearing a number not contemporaneously outstanding, and containing identical terms and provisions. Subject to the provisions of this Section 305, at the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination or denominations and of a like aggregate principal amount, containing identical terms and provisions, upon surrender of the Registered Securities to be exchanged at any such office or agency. Whenever any such Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. Unless otherwise specified with respect to any series of Securities as contemplated by Section 301, Bearer Securities may not be issued in exchange for Registered Securities. If (but only if) permitted by the applicable Board Resolution and (subject to Section 303) set forth in the applicable Officers' Certificate, or in any indenture supplemental hereto, delivered as contemplated by Section 301, at the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, any such permitted exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 1002, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in a permitted exchange for a Registered Security of the same series and like tenor after the close of business at such office or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date for payment, as the case may be, and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Whenever any Bearer Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. 18 Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any permanent global Security shall be exchangeable only as provided in this paragraph. If the depositary for any permanent global Security is DTC, then, unless the terms of such global Security expressly permit such global Security to be exchanged in whole or in part for definitive Securities, a global Security may be transferred, in whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to DTC for such global Security selected or approved by the Company or to a nominee of such successor to DTC. If at any time DTC notifies the Company that it is unwilling or unable to continue as depositary for the applicable global Security or Securities or if at any time DTC ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, if so required by applicable law or regulation, the Company shall appoint a successor depositary with respect to such global Security or Securities. If (x) a successor depositary for such global Security or Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such unwillingness, inability or ineligibility, (y) an Event of Default has occurred and is continuing and the beneficial owners representing a majority in principal amount of the applicable series of Securities represented by such global Security or Securities advise DTC to cease acting as depositary for such global Security or Securities or (z) the Company, in its sole discretion, determines at any time that all Outstanding Securities (but not less than all) of any series issued or issuable in the form of one or more global Securities shall no longer be represented by such global Security or Securities, then the Company shall execute, and the Trustee shall authenticate and deliver, definitive Securities of like series, rank, tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such global Security or Securities. If any beneficial owner of an interest in a permanent global Security is otherwise entitled to exchange such interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified as contemplated by Section 301 and provided that any applicable notice provided in the permanent global Security shall have been given, then without unnecessary delay but in any event no later than the earliest date on which such interest may be so exchanged, the Company shall execute, and the Trustee shall authenticate and deliver, definitive Securities in aggregate principal amount equal to the principal amount of such beneficial owner's interest in such permanent global Security. On or after the earliest date on which such interests may be so exchanged, such permanent global Security shall be surrendered for exchange by DTC or such other depositary as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities to be redeemed and ending on the relevant Redemption Date if the Security for which exchange is requested may be among those selected for redemption; and provided further that no Bearer Security delivered in exchange for a portion of a permanent global Security shall be mailed or otherwise delivered to any location in the United States. If a Registered Security is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion or such permanent global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer. The Company or the Trustee, as applicable, shall not be required (i) to issue, register the transfer of or exchange any Security if such Security may be among those selected for redemption during a period beginning at the opening of business 15 days before selection of the Securities to be redeemed under Section 1103 and ending at the close 19 of business on (A) if such Securities are issuable only as Registered Securities, the day of the mailing of the relevant notice of redemption and (B) if such Securities are issuable as Bearer Securities, the day of the first publication of the relevant notice of redemption or, if such Securities are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Registered Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series and of like tenor; provided that such Registered Security shall be simultaneously surrendered for redemption, or (iv) to issue, register the transfer of or exchange any Security which has been surrendered for repayment at the option of the Holder, except that portion, if any, of such Security which is not to be so repaid. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee or the Company, together with, in proper cases, such security or indemnity as may be required by the Company or the Trustee to save each of them or any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to the surrendered Security. If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of written notice to the Company or the Trustee that such Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains. Notwithstanding the provisions of the previous two paragraphs, in case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains, pay such Security or coupon; provided, however, that payment of principal of (and premium, if any), any interest on and any Additional Amounts with respect to, Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series and their coupons, if any, duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons. SECTION 307. Payment of Interest; Interest Rights Preserved. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, interest on any Registered Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose 20 name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest on any Registered Security may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 308, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located inside the United States. Unless otherwise provided as contemplated by Section 301 with respect to the Securities of any series, payment of interest may be made, in the case of a Bearer Security, by transfer to an account maintained by the payee with a bank located outside the United States. Unless otherwise provided as contemplated by Section 301, every permanent global Security will provide that interest, if any, payable on any Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case may be, with respect to that portion of such permanent global Security held for its account by Cede & Co. or the Common Depositary, as the case may be, for the purpose of permitting such party to credit the interest received by it in respect of such permanent global Security to the accounts of the beneficial owners thereof. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office or agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, any interest on any Registered Security of any series that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall not be more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper in each Place of Payment, but such publications shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). In case a Bearer Security of any series is surrendered for transfer or exchange at the office or agency in a Place of Payment for such series after the close of business at such office or agency on any 21 Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. (2) The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Sections 305 and 307) interest on, such Registered Security and for all other purposes whatsoever, whether or not such Registered Security is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Title to any Bearer Security and any coupons appertaining thereto shall pass by delivery. The Company, the Trustee and any agent of the Company or the Trustee may treat the Holder of any Bearer Security and the Holder of any coupon as the absolute owner of such Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Notwithstanding the foregoing, with respect to any global Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any depositary, as a Holder, with respect to such global Security or impair, as between such depositary and owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depositary (or its nominee) as Holder of such global Security. SECTION 309. Cancellation. All Securities and coupons surrendered for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and coupons and Securities and coupons surrendered directly to the Trustee for any such purpose shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. Cancelled Securities and coupons held by the Trustee shall be destroyed by the Trustee and the Trustee shall deliver a certificate of such destruction to the Company, unless by a Company Order the Company directs their return to it. 22 SECTION 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 with respect to Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year consisting of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for and any right to receive Additional Amounts, as provided in Section 1007), and the Trustee, upon receipt of a Company Order, and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when (1) either (A) all Securities of such series theretofore authenticated and delivered and all coupons, if any, appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 305, (ii) Securities and coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 1106, and (iv) Securities and coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all Securities of such series and, in the case of (i) or (ii) below, any coupons appertaining thereto, not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as funds in trust for such purpose an amount in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable, sufficient to pay and discharge the entire indebtedness on such Securities and such coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, and any Additional Amounts with respect thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and 23 (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. The obligations of the Company to the Trustee and any predecessor Trustee under Section 606, the obligations of the Company to any Authenticating Agent under Section 611 and, if money shall have been deposited with and held by the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive the satisfaction and discharge of this Indenture. SECTION 402. Application of Trust Funds. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any), and any interest and Additional Amounts for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein with respect to any particular series of Securities, means any one of the following events (whatever the reason for such Event of Default and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon or any Additional Amounts payable in respect of any Security of that series or of any coupon appertaining thereto, when such interest, Additional Amounts or coupon becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (or premium, if any, on) any Security of that series when it becomes due and payable at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of any Security of that series; or (4) default in the performance of, or breach of, any covenant of the Company in this Indenture (other than a covenant a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a default under any bond, debenture, note or other evidence of indebtedness of the Company, or under any mortgage, indenture or other instrument of the Company (including a default with respect to Securities of any series other than that series) under which there may be issued or by which there may be secured any indebtedness of the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay an aggregate principal amount exceeding $20,000,000 of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto and shall have resulted in such indebtedness in an aggregate principal amount exceeding $20,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, 24 or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of either of its property, or (C) orders the liquidation of the Company or any Significant Subsidiary, and the order or decree remains unstayed and in effect for 90 days; or (8) any other Event of Default provided with respect to Securities of that series. As used in this Section 501, the term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or State law for the relief of debtors and the term "Custodian" means any receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing (other than an Event of Default described in Section 501(6) or 501(7)), then and in every such case the Trustee or the Holders of not less than a majority in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities or Indexed Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable. If an Event of Default described in Section 501(6) or 501(7) with respect to any series of Securities at the time outstanding occurs, the principal amount of all of the Securities of that series (or, in the case of any such Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) will automatically, and without any action by the Trustee or any Holder thereof, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of not less than a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: 25 (1) the Company has paid or deposited with the Trustee a sum sufficient to pay in the currency, currency unit or composite currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series): (A) all overdue installments of interest on and any Additional Amounts payable in respect of all Outstanding Securities of that series and any related coupons, (B) the principal of (and premium, if any, on) any Outstanding Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest and any Additional Amounts at the rate or rates borne by or provided for in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the nonpayment of the principal of (or premium, if any) or interest on Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any installment of interest or Additional Amounts, if any, on any Security of any series and any related coupon when such interest or Additional Amount becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at its Maturity, then the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities of such series and coupons, the whole amount then due and payable on such Securities and coupons for principal (and premium, if any) and interest and Additional Amounts thereon, with interest upon any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest or Additional Amounts thereon, if any, at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities of such series, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any related coupons by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 26 SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal of, or premium, if any, or interest on, the Securities) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of such series, of principal (and premium, if any) and interest and Additional Amount, if any, owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities of such series and coupons to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or coupon in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of Securities and coupons in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest and any Additional Amounts, upon presentation of the Securities or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due to the Trustee and any predecessor Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid upon the Securities and coupons for principal (and premium, if any) and interest and any Additional Amounts payable, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and coupons for principal (and premium, if any), interest and Additional Amounts, respectively; and THIRD: To the payment of the remainder, if any, to the Company. 27 SECTION 507. Limitation on Suits. No Holder of any Security of any series or any related coupon shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than a majority in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium, if any, Interest and Additional Amounts. Notwithstanding any other provision in this Indenture, the Holder of any Security or coupon shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Sections 305 and 307) interest on, and any Additional Amounts in respect of, such Security or payment of such coupon on the respective due dates expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders of Securities and coupons shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or coupons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities or coupons, as the case may be. 28 SECTION 512. Control by Holders of Securities. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might expose it to personal liability or be unduly prejudicial to the Holders of Securities of such series not joining therein. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series and any related coupons waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on or Additional Amounts payable in respect of any Security of such series or any related coupons, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 515. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than a majority in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest 29 on or any Additional Amounts or sinking fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of the Securities and coupons of such series; and provided further that in the case of any default or breach of the character specified in Section 501(4) with respect to the Securities and coupons of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities of such series. SECTION 602. Certain Rights of Trustee. Subject to the provisions of TIA Section 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security, together with any coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting to take any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (9) Any permissive right or power available to the Trustee under this Indenture or any supplement hereto shall not be construed to be a mandatory duty or obligation; (10) The Trustee shall not be charged with knowledge of any matter (including any default, other than as described in Section 501(1), (2) or (3)) unless and except to the extent actually known 30 to a Responsible Officer of the Trustee or to the extent written notice thereof is received by the Trustee at the Corporate Trust Office; and (11) The Trustee shall have no liability for any inaccuracy in the books and records of, or for any actions or omissions of, DTC, Euroclear or CEDEL or any depository acting on behalf of any of them. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. SECTION 603. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any coupons shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. Neither the Trustee nor the Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 604. May Hold Securities. The Trustee, any Paying Agent, Security Registrar, Authenticating Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent. SECTION 605. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 606. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse each of the Trustee and any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its own part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest on particular Securities or coupons. The provisions of this Section shall survive the termination of this Indenture. 31 SECTION 607. Corporate Trustee Required; Eligibility; Conflicting Interests. There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or the requirements of Federal, state, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 608. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 607(a) and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any reason with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series). If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on 32 behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner provided for notices to the Holders of Securities in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 609. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, upon request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 606. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto, pursuant to Article Nine hereof, wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in, and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 610. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities or coupons shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities or coupons so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities or coupons. In case any Securities or coupons shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate 33 and deliver such Securities or coupons, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. SECTION 611. Appointment of Authentication Agent. At any time when any of the Securities remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption or repayment thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustee, a copy of which instrument shall be promptly furnished to the Company. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and, except as may otherwise be provided pursuant to Section 301, shall at all times be a bank or trust company or corporation organized and doing business and in good standing under the laws of the United States of America or of any State or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or state authorities. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent for any series of Securities may at any time resign by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee for such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve in the manner set forth in Section 106. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation including reimbursement of its reasonable expenses for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication substantially in the following form: 34 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By:_________________________________ as Authenticating Agent By:__________________________________ Authorized Officer SECTION 612. Certain Duties and Responsibilities of the Trustee. (a) With respect to the Securities of any series, except during the continuance of an Event of Default with respect to the Securities of such series: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but shall not be under any duty to verify the contents or accuracy thereof. (b) In case an Event of Default with respect to the Securities of any series has occurred and is continuing, the Trustee shall, with respect to Securities of such series, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this Subsection (c) shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that he Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 612. 35 (e) The Trustee shall not be liable for interest on any money or assets held by it except to the extent the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any Security Registrar shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Securities pursuant to this Indenture, the Trustee shall transmit by mail to all Holders of Securities as provided in TIA Section 313(c) a brief report dated as of such May 15 if required by TIA Section 313(a). SECTION 703. Reports by Company. The Company will: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to the Holders of Securities, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in TIA Section 313(c), such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this section as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 704. Company to Furnish to Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not later than 25 days after the Regular Record Date for interest for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities of such series as of such Regular Record Date, or if there is no Regular Record Date for interest for such series of Securities, semiannually, upon such dates as are set forth in the Board Resolution or indenture supplemental hereto authorizing such series, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; 36 provided, however, that, so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. ARTICLE EIGHT CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE SECTION 801. Consolidations and Mergers of Company and Sales, Leases and Conveyances Permitted Subject to Certain Conditions. The Company may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into any other corporation; provided that in any such case, (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets is a Person organized and existing under the laws of the United States or any state thereof and such successor corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any) and any interest (including all Additional Amounts, if any, payable pursuant to Section 1007) on all of the Securities, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company by supplemental indenture, complying with Article Nine hereof, satisfactory to the Trustee, executed and delivered to the Trustee by such corporation and (ii) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result thereof as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing. SECTION 802. Rights and Duties of Successor Corporation. In case of any such consolidation, merger, sale, lease or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the predecessor corporation, except in the event of a lease, shall be relieved of any further obligation under this Indenture and the Securities. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, lease or conveyance, such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. SECTION 803. Officers' Certificate and Opinion of Counsel. Any consolidation, merger, sale, lease or conveyance permitted under Section 801 is also subject to the condition that the Trustee receive an Officers' Certificate and an Opinion of Counsel to the effect that any such consolidation, merger, sale, lease or conveyance, and the assumption of the Company's obligations under this Indenture by any successor corporation, complies with the provisions of this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders of Securities or coupons, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: 37 (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); provided, however, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply to waive such default; or (4) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of or any premium or interest on Bearer Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be issued in exchange for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form; provided, that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (5) to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series and any related coupons as permitted by Sections 201 and 301, including the provisions and procedures relating to Securities convertible into Common Shares or Preferred Shares of the Company, as the case may be; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided such provisions shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (10) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Sections 401, 1402 and 1403; provided that any such action shall not adversely affect the interests of the Holders of Securities of such series and any related coupons or any other series of Securities in any material respect. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of 38 modifying in any manner the rights of the Holders of Securities and any related coupons under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of the principal of (or premium, if any, on) or any installment of principal of or interest on, any Security; or reduce the principal amount thereof or the rate or amount of interest thereon or any Additional Amounts payable in respect thereof, or any premium payable upon the redemption thereof, or change any obligation of the Company to pay Additional Amounts pursuant to Section 1007 (except as contemplated by Section 801(i) and permitted by Section 901(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of the Holder of any Security, or change any Place of Payment where, or the currency or currencies, currency unit or units or composite currency or currencies in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or the Repayment Date, as the case may be), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver with respect to such series (or compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 1504 for quorum or voting, or (3) modify any of the provisions of this Section, Section 513 or Section 1008, except to increase the required percentage to effect such action or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder and of any coupon appertaining thereto shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in 39 the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if any, Interest and Additional Amounts. The Company covenants and agrees for the benefit of the Holders of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on and any Additional Amounts payable in respect of the Securities of that series in accordance with the terms of such series of Securities, any coupons appertaining thereto and this Indenture. Unless otherwise specified as contemplated by Section 301 with respect to any series of Securities, any interest due on and any Additional Amounts payable in respect of Bearer Securities on or before Maturity, other than Additional Amounts, if any, payable as provided in Section 1007 in respect of principal of (or premium, if any, on) such a Security, shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. Unless otherwise specified with respect to Securities of any series pursuant to Section 301, at the option of the Company, all payments of principal may be paid by check to the registered Holder of the Registered Security or other person entitled thereto against surrender of such Security. SECTION 1002. Maintenance of Office or Agency. If Securities of a series are issuable only as Registered Securities, the Company shall maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment or conversion, where Securities of that series may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain: (A) in the Borough of Manhattan, The City of New York, an office or agency where any Registered Securities of that series may be presented or surrendered for payment or conversion, where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange, where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served and where Bearer Securities of that series and related coupons may be presented or surrendered for payment or conversion in the circumstances described in the following paragraph (and not otherwise); (B) subject to any laws or regulations applicable thereto, in a Place of Payment for that series which is located outside the United States, an office or agency where Securities of that series and related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Securities of that series pursuant to Section 1007) or conversion; provided, however, that if the Securities of that series are listed on the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent for the Securities of that series in Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of that series are listed on such exchange; and (C) subject to any laws or regulations applicable thereto, in a Place of Payment for that series located outside the United States an office or agency where any Registered Securities of that series may be surrendered for registration of transfer, where Securities of that series may be surrendered for exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of each such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Bearer Securities of that series pursuant to Section 1007) or conversion at the offices specified in the Security in London, England, and the Company hereby appoints the same as its agent to receive such respective presentations, surrenders, notices and demands, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 301, no payment of principal, premium or interest on or Additional Amounts in respect of Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, that, if the Securities of a series are payable in Dollars, payment of principal of and any premium and interest on any Bearer Security (including any Additional Amounts payable on Securities of such series pursuant to Section 1007) shall be made at the office of the 40 Company's Paying Agent in the City of Boston, if (but only if) payment in Dollars of the full amount of such principal, premium, interest or Additional Amounts, as the case may be, at all offices or agencies outside the United States maintained for such purpose by the Company in accordance with this Indenture, is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Unless otherwise specified with respect to any Securities pursuant to Section 301 with respect to a series of Securities, the Company hereby designates as a Place of Payment for each series of Securities the office or agency of the Company in the City of Boston, and initially appoints the Trustee at its Corporate Trust Office as Paying Agent in such city and as its agent to receive all such presentations, surrenders, notices and demands. Unless otherwise specified with respect to any Securities pursuant to Section 302, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. SECTION 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of any Securities and any related coupons, it will, by no later than 11:00 am (Boston time) on each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities and any related coupons, it will, on or before each due date of the principal of (and premium, if any), or interest on or Additional Amounts in respect of, any Securities of that series, deposit with a Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal (and premium, if any) or interest or Additional Amounts, so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest or Additional Amounts and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any such payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those 41 upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided in the Securities of any series, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, any Security of any series and remaining unclaimed for two years after such principal (and premium, if any), interest or Additional Amounts has become due and payable shall be paid to the Company upon Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment of such principal of (and premium, if any) or interest on, or any Additional Amounts in respect of, such Security, without interest thereon, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (declaration and statutory) and franchises; provided, however, that the Company shall not be required to preserve any right or franchise if the Board shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company. SECTION 1005. Provision of Financial Information. Whether or not the Company is subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will, to the extent permitted under the Securities Exchange Act of 1934, as amended, file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial Statements") if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders, copies of the annual reports and quarterly reports which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, if the Company were subject to such Sections, and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Securities Exchange Act of 1934, as amended, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder. SECTION 1006. Statement as to Compliance. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. For purposes of this Section 1006, such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. SECTION 1007. Additional Amounts. If any Securities of a series provide for the payment of Additional Amounts, the Company will pay to the Holder of any Security of such series or any coupon appertaining thereto Additional Amounts as may be specified as contemplated by Section 301. Whenever in this Indenture there is mentioned, in any context except in the case of Section 502(1), the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or payment of any related coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established pursuant to Section 301 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms and express mention of the 42 payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise specified as contemplated by Section 301, if the Securities of a series provide for the payment of Additional Amounts, at least 20 days prior to the first Interest Payment Date with respect to that series of Securities (or if the Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal and any premium is made), and at least 10 days prior to each date of payment of principal and any premium or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company will furnish the Trustee and the Company's principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers' Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and any premium or interest on the Securities of that series shall be made to Holders of Securities of that series or any related coupons who are not United States persons without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of the series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities of that series or related coupons and the Company will pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. In the event that the Trustee or any Paying Agent, as the case may be, shall not so receive the above-mentioned certificate, then the Trustee or such Paying Agent shall be entitled (i) to assume that no such withholding or deduction is required with respect to any payment of principal or interest with respect to any Securities of a series or related coupons until it shall have received a certificate advising otherwise and (ii) to make all payments of principal and interest with respect to the Securities of a series or related coupons without withholding or deductions until otherwise advised. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them or in reliance on any Officers' Certificate furnished pursuant to this Section or in reliance on the Company's not furnishing such an Officers' Certificate. SECTION 1008. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1004 or 1005, if before or after the time for such compliance the Holders of at least a majority in principal amount of all outstanding Securities of such series, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 45 days prior to the giving of the notice of redemption in Section 1104 (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. SECTION 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the 43 minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 1104. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 106 and as may be further specified in an indenture supplemental hereto, not less than 30 days nor more than 60 days prior to the Redemption Date, unless a shorter period is specified by the terms of such series established pursuant to Section 301, to each Holder of Securities to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Security designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other such Security or portion thereof. Any notice that is mailed to the Holders of Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holders receive such notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, accrued interest to the Redemption Date payable as provided in Section 1106, if any, and Additional Amounts, if any, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price and accrued interest to the Redemption Date payable as provided in Section 1106, if any, will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the Place or Places of Payment where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and accrued interest, if any, or for conversion, (7) that the redemption is for a sinking fund, if such is the case, (8) that unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all coupons maturing subsequent to the Redemption Date or the amount of any such missing coupon or coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee for such series and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities 44 not subject to redemption on this Redemption Date pursuant to Section 305 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, (10) the CUSIP number of such Security, if any, and (11) if applicable, that a Holder of Securities who desires to convert Securities for redemption must satisfy the requirements for conversion contained in such Securities, the then existing conversion price or rate, and the date and time when the option to convert shall expire. Notice of redemption of Securities to be redeemed shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1105. Deposit of Redemption Price. On or prior to 11:00 am (Boston time) on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, which it may not do in the case of a sinking fund payment under Article Twelve, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay on the Redemption Date the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of coupons for such interest; and provided further that, except as otherwise provided with respect to Securities convertible into Common Shares or Preferred Shares of the Company, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. SECTION 1107. Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor 45 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge a new Security or Securities of the same series, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of a series, (1) deliver Outstanding Securities of such series (other than any previously called for redemption) together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, as provided for by the terms of such Securities, or which have otherwise been acquired by the Company; provided that such Securities so delivered or applied as a credit have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the applicable Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly. SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for Securities of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so delivered and credited. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. 46 ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. Applicability of Article. Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities, if any, and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article. SECTION 1302. Repayment of Securities. Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that on or before the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (or, if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date. SECTION 1303. Exercise of Option. Securities of any series subject to repayment at the option of the Holders thereof will contain an "Option to Elect Repayment" form on the reverse of such Securities. In order for any Security to be repaid at the option of the Holder, the Trustee must receive at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 60 days nor later than 30 days prior to the Repayment Date (1) the Security so providing for such repayment together with the "Option to Elect Repayment" form on the reverse thereof duly completed by the Holder or by the Holder's attorney duly authorized in writing or (2) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange, or the National Association of Securities Dealers, Inc. ("NASD"), or a commercial bank or trust company in the United States setting forth the name of the Holder of the Security, the principal amount of the Security, the principal amount of the Security to be repaid, the CUSIP number, if any, or a description of the tenor and terms of the Security, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Security to be repaid, together with the duly completed form entitled "Option to Elect Repayment" on the reverse of the Security, will be received by the Trustee not later than the fifth Business Day after the date of such telegram, telex, facsimile transmission or letter; provided, however, that such telegram, telex, facsimile transmission or letter shall only be effective if such Security and form duly completed are received by the Trustee by such fifth Business Day. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company. SECTION 1304. When Securities Presented for Repayment Become Due and Payable. If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be repaid, except to the extent provided below, shall be void. Upon surrender of any such Security for repayment in accordance with such provisions, together with all coupons, if any, appertaining thereto maturing after the Repayment Date, the principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that coupons whose Stated Maturity is on or prior to the Repayment Date shall be payable only at an office 47 or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified pursuant to Section 301, only upon presentation and surrender of such coupons; and provided further that, in the case of Registered Securities, installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for repayment shall not be accompanied by all appurtenant coupons maturing after the Repayment Date, such Security may be paid after deducting from the amount payable therefor as provided in Section 1302 an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made as provided in the preceding sentence, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest represented by coupons shall be payable only at an office or agency located outside the United States (except as otherwise provided in Section 1002) and, unless otherwise specified as contemplated by Section 301, only upon presentation and surrender of those coupons. If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest or Yield to Maturity (in the case of Original Issue Discount Securities) set forth in such Security. SECTION 1305. Securities Repaid in Part. Upon surrender of any Registered Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Registered Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid. ARTICLE FOURTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1401. Applicability of Article; Company's Option to Effect Defeasance or Covenant Defeasance. If, pursuant to Section 301, provision is made for either or both of (a) defeasance of the Securities of or within a series under Section 1402 or (b) covenant defeasance of the Securities of or within a series under Section 1403, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article (with such modifications thereto as may be specified pursuant to Section 301 with respect to any Securities), shall be applicable to such Securities and any coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any coupons appertaining thereto, elect to have Section 1402 (if applicable) or Section 1403 (if applicable) be applied to such Outstanding Securities and any coupons appertaining thereto upon compliance with the conditions set forth below in this Article. SECTION 1402. Defeasance and Discharge. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any coupons appertaining thereto on the date the conditions set forth in Section 1404 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities and any coupons appertaining thereto, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1405 and the other Sections of this Indenture referred to in clauses (A) and (B) below, and to have satisfied all of its other obligations under such Securities and any coupons appertaining thereto and this Indenture insofar as such Securities and any coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities and any coupons appertaining thereto to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such 48 Section, payments in respect of the principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 305, 306, 1002 and 1003 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 1007, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Fourteen. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 1403 with respect to such Securities and any coupons appertaining thereto. SECTION 1403. Covenant Defeasance. Upon the Company's exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be released from its obligations under Sections 1004 and 1005 and, if specified pursuant to Section 301, its obligations under any other covenant, with respect to such Outstanding Securities and any coupons appertaining thereto on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with Sections 1004 and 1005 or such other covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any coupons appertaining thereto, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 501(4) or 501(9) or otherwise, as the case may be, but except as specified above, the remainder of this Indenture and such Securities and any coupons appertaining thereto shall be unaffected thereby. SECTION 1404. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of Section 1402 or Section 1403 to any Outstanding Securities of or within a series and any coupons appertaining thereto: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any coupons appertaining thereto, (1) an amount in such currency, currencies or currency unit in which such Securities and any coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto, or (2) Government Obligations applicable to such Securities and coupons appertaining thereto (determined on the basis of the currency, currencies or currency unit in which such Securities and coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any coupons appertaining thereto, money in an amount, or (3) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any) and interest, if any, on such Outstanding Securities and any coupons appertaining thereto on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any coupons appertaining thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. 49 (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any coupons appertaining thereto shall have occurred and be continuing on the date of such deposit or, insofar as Sections 501(6) and 501(7) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of an election under Section 1402, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under Section 1403, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with and an Opinion of Counsel to the effect that either (i) as a result of a deposit pursuant to subsection (a) above and the related exercise of the Company's option under Section 1402 or Section 1403 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the Trustee for such trust funds or (ii) all necessary registrations under said Act have been effected. (g) Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. SECTION 1405. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1405, the "Trustee") pursuant to Section 1404 in respect of any Outstanding Securities of any series and any coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law. Unless otherwise specified with respect to any Security pursuant to Section 301, if, after a deposit referred to in Section 1404(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 301 or the terms of such Security to receive payment in a currency, currency unit or composite currency other than that in which the deposit pursuant to Section 1404(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the currency, currency unit or composite currency in which the deposit pursuant to Section 1404(a) has been made, the indebtedness represented by such Security and any coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest, if any, on such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the currency, currency unit or composite currency in which such Security becomes payable as a result of such election or Conversion Event based on the applicable market 50 exchange rate for such currency, currency unit or composite currency in effect on the second Business Day prior to each payment date, in the case of such an election, or, the applicable market exchange rate in effect for such currency, currency unit or composite currency (as nearly as feasible), in the case of such Conversion Event. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any coupons appertaining thereto. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article. ARTICLE FIFTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1501. Purposes for Which Meetings May Be Called. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. SECTION 1502. Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1501, to be held at such time and at such place in the City of Boston, or in London as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 25% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1501, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the City of Boston, or in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section. SECTION 1503. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 1504. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such 51 series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. Notwithstanding the foregoing provisions of this Section 1504, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the Holders of such series and one or more additional series: (i) there shall be no minimum quorum requirement for such meeting; and (ii) the principal amount of the Outstanding Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture. SECTION 1505. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the Person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (b) The Trustee shall, by an instrument in writing appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1502(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of the Outstanding Securities of such series held or represented by him; provided, 52 however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 1506. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any Series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the fact, setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. This Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. 53 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as an instrument under seal, all as of the day and year first above written. HOSPITALITY PROPERTIES TRUST By: /s/ John G. Murray Title: President and Secretary STATE STREET BANK AND TRUST COMPANY By: /s/ James E. Mogavero Title: Vice President 54 EXHIBIT A FORMS OF CERTIFICATION EXHIBIT A-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States person(s)"), (ii) are owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in United States Treasury Regulations Section 2.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institutions hereby agrees, on its own behalf or through its agent, that you may advise Hospitality Properties Trust or its agent that such financial institutions will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(1)(i)(D)(7), and, in addition, if the owner is a United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)), this is to further certify that such financial institutions has not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the above-captioned Securities held by you for our account in accordance with your Operating Procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certificate excepts and does not relate to (U.S.$) _______________ of such interest in the above-captioned Securities in respect of which we are not able to certify and as to which we understand an exchange for an interest in a Permanent Global Security or an exchange for and delivery of definitive Securities (or, if relevant, collection of any interest) cannot be made until we do so certify. We understand that this certificate may be required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Dated: , 19 A-1 To be dated no earlier than the 15th day prior to (i) the Exchange Date or (ii) the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Name of Person Making Certification] (Authorized Signatory) Name: Title: A-2 EXHIBIT A-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE CERTIFICATE [Insert title or sufficient description of Securities to be delivered] This is to certify that, based solely on written certifications that we have received in writing, by tested telex or by electronic transmission from each of the persons appearing in our records as persons entitled to a portion of the principal amount set forth below (our "Member Organizations") substantially in the form attached hereto, as of the date hereof, [U.S.$) principal amount of the above-captioned Securities (i) is owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States Federal income taxation regardless of its source ("United States person(s)"), (ii) is owned by United States person(s) that are (a) foreign branches of United States financial institutions (financial institutions, as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing for their own account or for resale, or (b) United States person(s) who acquired the Securities through foreign branches of United States financial institutions and who hold the Securities through such United States financial institutions on the date hereof (and in either case (a) or (b), each such financial institutions will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, to the further effect, that financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. We further certify that (i) we are not making available herewith for exchange (or, if relevant, collection of any interest) any portion of the temporary global Security representing the above-captioned Securities excepted in the above-referenced certificates of Member Organizations and (ii) as of the date hereof we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certification is required in connection with certain tax legislation in the United States. If administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate or a copy thereof to any interested party in such proceedings. Date: 19 [To be dated no earlier than the Exchange Date or the relevant Interest Payment Date occurring prior to the Exchange Date, as applicable] [Morgan Guaranty Trust Company New York, Brussels Office,] as Operator of the Euroclear System [Cedel S.A.] A-3 EX-4.4 6 EXHIBIT 4.4 SUPPLEMENTAL INDENTURE NO. 1 by and between HOSPITALITY PROPERTIES TRUST and STATE STREET BANK AND TRUST COMPANY as of February 25, 1998 SUPPLEMENTAL TO THE INDENTURE DATED AS OF FEBRUARY 25, 1998 ------------------------------------ HOSPITALITY PROPERTIES TRUST $150,000,000 of 7.00% Senior Notes due 2008 This SUPPLEMENTAL INDENTURE NO. 1 (this "Supplemental Indenture") made and entered into as of February 25, 1998 between HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee (the "Trustee"). WITNESSETH THAT: WHEREAS, the Company and the Trustee have executed and delivered an Indenture, dated as of February 25, 1998 (the "Indenture"), relating to the Company's issuance, from time to time, of various series of debt securities; and WHEREAS, the Company has determined to issue debt securities known as its 7.00 % Senior Notes due 2008 in an aggregate principal amount of $150,000,000; and WHEREAS, the Indenture provides that certain terms and conditions for each series of debt securities issued by the Company thereunder may be set forth in an indenture supplemental to the Indenture; NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: ARTICLE 1 DEFINED TERMS Section 1.1 The following definitions supplement, and, to the extent inconsistent with, replace the definitions in Section 101 of the Indenture: "Acquired Debt" means Debt of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person's, in each case, other than Debt incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Annual Debt Service" as of any date means the maximum amount which is expensed in any 12-month period for interest on Debt of the Company and its Subsidiaries. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in The City of New York or in the city in which the Corporate Trust Office of the Trustee is located, are required or authorized to close. "Capital Stock" means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participation or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options to purchase any thereof. "Consolidated Income Available for Debt Service" for any period means Earnings from Operations of the Company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (i) interest on Debt of the Company and its Subsidiaries, (ii) cash reserves made by lessees as required by the Company's leases for periodic replacement and refurbishment of the Company's assets, (iii) provision for taxes of the Company and its Subsidiaries based on income, (iv) amortization of debt discount and deferred financing costs, (v) provisions for gains and losses on properties and property depreciation and amortization, (vi) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (vii) amortization of deferred charges. "Debt" of the Company or any Subsidiary means, without duplication, any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness for borrowed money secured by any Encumbrance existing on property owned by the Company or any Subsidiary, to the extent of the lesser of (x) the amount of indebtedness so secured and (y) the fair market value of the property subject to such Encumbrance, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued (other than letters of credit issued to provide credit enhancement or support with respect to other indebtedness of the Company or any Subsidiary otherwise reflected as Debt hereunder) or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (iv) the principal amount of all obligations of the Company or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or (v) any lease of property by the Company or any Subsidiary as lessee which is reflected on the Company's consolidated balance sheet as a capitalized lease in accordance with GAAP, to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on the Company's consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for common stock or shares), (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock, or (iii) is redeemable at the option of the holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for common stock or shares), in each case on or prior to the stated maturity of the Notes. "Earnings from Operations" for any period means net earnings excluding gains and losses on sales of investments, extraordinary items and property valuation losses, as reflected in the financial statements of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Encumbrance" means any mortgage, lien, charge, pledge or security interest of any kind. "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Note, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Notes being redeemed or paid. For purposes of this Supplemental Indenture and the Notes, references in the Indenture to the payment of the principal (and premium, if any) and interest on the Notes shall be deemed to include the payment of the Make-Whole Amount, if any, due upon redemption with respect to the Notes. "Notes" means the Company's 7.00% Senior Notes, due 2008, issued under this Supplemental Indenture and the Indenture, as amended or supplemented from time to time. "Reinvestment Rate" means a rate per annum equal to the sum of 0.25% (twenty-five one hundredths of one percent) plus the yield on treasury securities at constant maturity under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Secured Debt" means Debt secured by any mortgage, lien, charge, pledge or security interest of any kind. -2- "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under this Supplemental Indenture, then any publicly available source of similar market data which shall be designated by the Company. "Subsidiary" means any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests of which are owned, directly or indirectly, by the Company or one or more other Subsidiaries of the Company. For the purposes of this definition, "voting equity securities" means equity securities having voting power for the election of directors, whether at all times or only so long as no senior class of security has such voting power by reason of any contingency. "Total Assets" as of any date means the sum of (i) the Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined in accordance with GAAP (but excluding accounts receivable and intangibles). "Total Unencumbered Assets" means the sum of (i) those Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed money and (ii) all other assets of the Company and its Subsidiaries not subject to an Encumbrance for borrowed money determined in accordance with GAAP (but excluding accounts receivable and intangibles). "Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Unsecured Debt" means Debt which is not secured by any of the properties of the Company or any Subsidiary. ARTICLE 2 TERMS OF THE NOTES Section 2.1 Pursuant to Section 301 of the Indenture, the Notes shall have the following terms and conditions: (a) Title; Limitation on Aggregate Principal Amount; Form of Notes. The Notes shall be Registered Securities under the Indenture and shall be known as the Company's "7.00% Senior Notes due 2008." The Notes will be limited to an aggregate principal amount of $150,000,000, and except as provided in this Section and in Section 306 of the Indenture, the Company shall not execute and the Trustee shall not authenticate or deliver Notes in excess of such principal amount. The Notes (together with the Trustee's certificate of authentication) shall be substantially in the form of Exhibit A hereto, which is hereby incorporated in and made a part of this Supplemental Indenture. The Notes will be issued in the form of one or more registered global security without coupons ("Global Notes") which will be deposited with, or on behalf of, The Depository Trust Company ("DTC"), and registered in the name of DTC's nominee, Cede & Co. Except under the circumstance described below, the Notes will not be issuable in definitive form. Unless and until it is exchanged in whole or in part for the individual notes represented thereby, a Global Note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a successor depository or any nominee of such successor. So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under this Supplemental Indenture. Except as described below, owners of beneficial interest in Notes evidenced by a Global Note will not be entitled to have any of the individual Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of any such Notes in definitive form and will not be considered the owners or holders thereof under the Indenture or this Supplemental Indenture. -3- If DTC is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Notes in exchange for the Global Note or Global Notes representing such Notes. In addition, the Company may at any time and in its sole discretion, subject to certain limitations set forth in the Indenture, determine not to have any of such Notes represented by one or more Global Notes and, in such event, will issue individual Notes in exchange for the Global Note or Global Notes representing the Notes. Individual Notes so issued will be issued in denominations of $1,000 and integral multiples thereof. (b) Interest and Interest Rate. The Notes will bear interest at a rate of 7.00% per annum, from February 25, 1998 or from the immediately preceding Interest Payment Date to which interest has been paid or duly provided for, payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 1998 (each of which shall be an "Interest Payment Date"), to the Persons in whose names the Notes are registered in the Security Register at the close of business on the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date (each, a "Record Date"). (c) Principal Repayment; Currency. The stated maturity of the Notes is March 1, 2008, provided, however, the Notes may be earlier redeemed at the option of the Company as provided in paragraph (c) below. The principal of each Note payable on its maturity date shall be paid against presentation and surrender thereof at the Corporate Trust Office of the Trustee, located initially at Two International Place, Boston, Massachusetts 02110, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public or private debts. The Company will not pay Additional Amounts (as defined in the Indenture) on the Notes. (d) Redemption at the Option of the Company; Acceleration. The Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice to each Holder of Notes to be redeemed at its address appearing in the Security Register, at a price equal to the sum of (i) the principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable Redemption Date and (ii) the Make-Whole Amount. Upon the acceleration of the Notes in accordance with Section 502 of the Indenture, the principal amount of the Notes, plus accrued and unpaid interest thereon and the Make-Whole Amount, shall become due and payable immediately. (e) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Company shall be directed to it at 400 Centre Street, Newton, Massachusetts 02158, Attention: President; notices to the Trustee shall be directed to it at Two International Place, Boston, Massachusetts 02110, Attention: Corporate Trust Department, Re: Hospitality Properties Trust 7.00% Senior Notes due 2008. (f) Global Note Legend. Each Global Note shall bear the following legend on the face thereof: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. (g) Applicability of Discharge, Defeasance and Covenant Defeasance Provisions. The Discharge, Defeasance and Covenant Defeasance provisions in Article Fourteen of the Indenture will apply to the Notes. -4- ARTICLE 3 ADDITIONAL COVENANTS Section 3.1 In addition to the covenants of the Company set forth in Article Ten of the Indenture, for the benefit of the holders of the Notes: (a) Limitations on Incurrence of Debt. (i) The Company will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum ("Adjusted Total Assets") of (without duplication) (i) the Total Assets of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company's Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such additional Debt and (ii) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt. (ii) In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total Assets. (iii) In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5x, on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by the Company and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period; (ii) the repayment or retirement of any other Debt by the Company and its Subsidiaries since the first date of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (iii) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with appropriate adjustments with respect to such acquisition being included in such pro forma calculation; and (iv) in the case of any acquisition or disposition by the Company or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation. If the Debt giving rise to the need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four-quarter period bears interest at a floating rate then, for purposes of calculating the Annual Debt Service, the interest rate on such Debt shall be computed on a pro forma basis as if the average interest rate which would have been in effect during the entire such four-quarter period had been the applicable rate for the entire such period. (b) Maintenance of Total Unencumbered Assets. The Company and its Subsidiaries will maintain at all times Total Unencumbered Assets of not less than 200% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis. -5- ARTICLE 4 ADDITIONAL EVENTS OF DEFAULT For purposes of this Supplemental Indenture and the Notes, in addition to the Events of Default set forth in Section 501 of the Indenture, it shall also constitute an "Event of Default" if a default under any bond, debenture, note or other evidence of indebtedness of the Company (including a default with respect to any other series of securities), or under any mortgage, indenture or other instrument of the Company under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor) having an aggregate principal amount outstanding of at least $20,000,000 , whether such indebtedness now exists or shall hereafter be incurred or created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged or such acceleration having been rescinded or annulled within a period of ten days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Notes, a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder. ARTICLE 5 EFFECTIVENESS This Supplemental Indenture shall be effective for all purposes as of the date and time this Supplemental Indenture has been executed and delivered by the Company and the Trustee in accordance with Article Nine of the Indenture. As supplemented hereby, the Indenture is hereby confirmed as being in full force and effect. ARTICLE 6 MISCELLANEOUS Section 6.1 In the event any provision of this Supplemental Indenture shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or any provision of the Indenture. Section 6.2 To the extent that any terms of this Supplemental Indenture or the Notes are inconsistent with the terms of the Indenture, the terms of this Supplemental or the Notes shall govern and supersede such inconsistent terms. Section 6.3 This Supplemental Indenture shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Section 6.4 This Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. -6- IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplemental Indenture to be executed as an instrument under seal in their respective corporate names as of the date first above written. HOSPITALITY PROPERTIES TRUST By: /s/ John G. Murray Name: John G. Murray Title: President and Secretary STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ James E. Mogavero Name: James E. Mogavero Title: Vice President -7- EXHIBIT A (Face of Note) 7.00% Senior Notes due 2008 No. $__________ HOSPITALITY PROPERTIES TRUST promises to pay to _______________________________________ or registered assigns, the principal sum of _____________________________________ Dollars on March 1, 2008. Interest Payment Dates: March 1 and September 1. Record Dates: February 15 and August 15. CUSIP No: 44106MAA0 HOSPITALITY PROPERTIES TRUST By:______________________________ Name: Title: Dated: This is one of the Notes referred to in the within-mentioned Indenture: STATE STREET BANK AND TRUST COMPANY, as Trustee By: Authorized Officer A - 1 (Back of Note) HOSPITALITY PROPERTIES TRUST 7.00% Senior Notes due 2008 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Hospitality Properties Trust, a Maryland real estate investment trust (the "Company"), promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. The Company shall pay in cash interest on the principal amount of this Note at the rate per annum of 7.00%. The Company will pay interest semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 1998 or if any such day is not a Business Day (as defined in the Indenture), on the next succeeding Business Day (each an "Interest Payment Date"), to Holders of record on the immediately preceding February 15 and August 15. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Indenture. The Company issued the Notes under an Indenture and Supplemental Indenture No. 1 thereto, each dated as of February 25, 1998 (collectively, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. The Notes are unsecured general obligations of the Company limited to $150,000,000 in aggregate principal amount. 4. Optional Redemption. The Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable Redemption Date and (ii) the Make-Whole Amount. As used herein the term "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Notes, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (as defined herein) (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Notes being redeemed or paid. As used herein the term "Reinvestment Rate" means a rate per annum equal to the sum of 0.25% (twenty-five one hundredths of one percent) plus the yield on treasury securities at constant maturity under the heading "Week Ending" published in the Statistical Release (as defined herein) under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published A - 2 maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. As used herein the term "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Supplemental Indenture, then any publicly available source of similar market data which shall be designated by the Company. 5. Mandatory Redemption. The Company shall not be required to make sinking fund or redemption payments with respect to the Notes. 6. Notice of Redemption. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address. Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. 7. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Security Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Security Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes, or during the period between a record date and the corresponding Interest Payment Date. 8. Defaults and Remedies. In case an Event of Default (as defined in the Indenture) with respect to the Notes shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the provisions provided in the Indenture. 9. Actions of Holders. The Indenture contains provisions permitting the holders of not less than a majority of the aggregate principal amount of the outstanding Notes, subject to certain exceptions as provided in the Indenture, on behalf of the holders of all such Notes at a meeting duly called and held as provided in the Indenture, to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided in the Indenture to be made, given or taken by the holders of the Notes, including without limitation, waiving (a) compliance by the Company with certain provisions of the Indenture, and (b) certain past defaults under the Indenture and their consequences. Any resolution passed or decision taken at any meeting of the holders of the Notes in accordance with the provisions of the Indenture shall be conclusive and binding upon such holders and upon all future holders of this Note and other Notes issued upon the registration of transfer hereof or in exchange heretofore or in lieu hereof 10. Persons Deemed Owners. The Company, the Trustee, and any agent of the Company or the Trustee may deem and treat the Person in whose name this Note is registered on the Security Register as its absolute owner for all purposes. 11. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 12. Governing Law. THE INTERNAL LAW OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN AND BE USED TO CONSTRUE THE INDENTURE AND THE NOTES. 13. No Personal Liability. THE DECLARATION OF TRUST OF THE COMPANY, AMENDED AND RESTATED ON AUGUST 21, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME A - 3 "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Hospitality Properties Trust 400 Centre Street Newton, MA 02158 Telecopier No.: (617) 969-5730 Attention: President A - 4 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Note) Signature Guarantee: EX-8.1 7 Exhibit 8.1 SULLIVAN & WORCESTER LLP One Post Office Square Boston, Massachusetts 02109 March 30, 1998 Hospitality Properties Trust 400 Centre Street Newton, Massachusetts 02158 Ladies and Gentlemen: In connection with the filing by Hospitality Properties Trust, a Maryland real estate investment trust (the "Company"), of its Annual Report on Form 10-K for the year ended December 31, 1997 (the "Form 10-K"), under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the following opinion is furnished to you to be filed with the Securities and Exchange Commission (the "SEC") as Exhibit 8.1 to the Form 10-K. We have acted as counsel for the Company in connection with the preparation of its Form 10-K, and we have examined originals or copies, certified or otherwise identified to our satisfaction, of corporate records, certificates and statements of officers and accountants of the Company and of public officials, and such other documents as we have considered relevant and necessary in order to furnish the opinion hereinafter set forth. Specifically, and without limiting the generality of the foregoing, we have reviewed: (i) the declaration of trust, as amended and restated, and the by-laws of the Company; and (ii) the sections in the Company's Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts." With respect to all questions of fact on which our opinion is based, we have assumed the accuracy and completeness of and have relied on the information set forth in the Form 10-K and in the documents incorporated therein by reference, and on representations made to us by the officers of the Company. We have not independently verified such information; nothing has come to our attention, however, which would lead us to believe that we are not entitled to rely on such information. The opinion set forth below is based upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively the "Tax Laws"), and upon the Employee Retirement Income Security Act of 1974, as amended, Hospitality Properties Trust March 30, 1998 Page 2 the Department of Labor regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, the "ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws will not change. In preparing the discussions with respect to the matters in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," we have made certain assumptions and expressed certain conditions and qualifications therein, all of which assumptions, conditions and qualifications are incorporated herein by reference. Based upon and subject to the foregoing, we are of the opinion that the discussions in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," in all material respects are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues addressed therein, and hereby confirm that the opinions of counsel referred to in said sections represent our opinions on the subject matter thereof. We hereby consent to the incorporation of this opinion by reference as an exhibit to the Form 10-K and to the reference to our firm therein, and to the incorporation of this opinion by reference in the Company's Registration Statement on Form S-3 (File No. 333-43573) under the Securities Act of 1933, as amended. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or under the rules and regulations of the SEC promulgated thereunder. Very truly yours, /s/ Sullivan & Worcester LLP SULLIVAN & WORCESTER LLP EX-10.13 8 EXHIBIT 10.13 REVOLVING CREDIT AGREEMENT among HOSPITALITY PROPERTIES TRUST, as Borrower, THE INSTITUTIONS PARTY HERETO FROM TIME TO TIME AS LENDERS, and DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent ARRANGER: DRESDNER KLEINWORT BENSON NORTH AMERICA LLC Dated as of March 19, 1998
TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS.......................................................................................... 1 1.1 Defined Terms................................................................................. 1 1.2 Other Definitional Provisions................................................................. 22 ARTICLE 2 LOANS................................................................................................ 23 2.1 Revolving Credit Commitments.................................................................. 23 2.2 Procedure for Borrowings...................................................................... 23 2.3 Disbursement of Loans......................................................................... 23 2.4 Defaulting Lenders............................................................................ 24 ARTICLE 3 COMPENSATION, REPAYMENT AND COMMITMENT REDUCTIONS............................................................................................. 25 3.1 Interest Rate................................................................................. 25 3.2 Commitment Fee................................................................................ 26 3.3 Maintenance of Loan Account................................................................... 26 3.4 Commitment Reductions......................................................................... 26 3.5 Voluntary Prepayments......................................................................... 27 3.6 Mandatory Payments and Prepayments............................................................ 27 3.7 Payments; Calculations........................................................................ 27 3.8 Special Provisions Relating to Eurodollar Loans............................................... 28 3.9 Increased Costs; Capital Adequacy............................................................. 30 3.10 Taxes......................................................................................... 31 3.11 Sharing of Payments........................................................................... 34 3.12 Administrative Fee............................................................................ 34 ARTICLE 4 CONDITIONS PRECEDENT................................................................................. 34 4.1 Conditions to Initial Loans................................................................... 34 4.2 Conditions Precedent to All Loans............................................................. 35 ARTICLE 5 REPRESENTATIONS AND WARRANTIES....................................................................... 36 5.1 Organization and Qualification................................................................ 36 5.2 Authority..................................................................................... 36 5.3 Enforceability................................................................................ 36 5.4 No Conflict................................................................................... 36 5.5 Consents and Filings.......................................................................... 36 5.6 Government Regulation......................................................................... 37 5.7 Solvency...................................................................................... 37 5.8 Financial Data................................................................................ 37 5.9 Names......................................................................................... 37 5.10 Locations of Offices, Records and other Property.............................................. 38 5.11 Subsidiaries; Ownership of Stock.............................................................. 38 5.12 Litigation.................................................................................... 38 5.13 No Defaults................................................................................... 38 5.14 Labor Matters................................................................................. 39 5.15 ERISA......................................................................................... 39 5.16 Compliance with Law........................................................................... 39 5.17 Taxes and Tax Returns......................................................................... 40 5.18 Intellectual Property......................................................................... 40 5.19 Licenses and Permits.......................................................................... 40 5.20 Material Contracts............................................................................ 41 5.21 Use of Proceeds............................................................................... 41 5.22 Accuracy and Completeness of Information...................................................... 41 5.23 Leases and Management Agreements.............................................................. 41 5.24 Title to Hotels............................................................................... 41 5.25 REIT Compliance............................................................................... 42 5.26 Insurance..................................................................................... 42 5.27 Year 2000 Problem............................................................................. 42 5.28 Certificates and Deliveries................................................................... 42 ARTICLE 6 AFFIRMATIVE COVENANTS................................................................................ 43 6.1 Financial Reporting........................................................................... 43 6.2 Notification Requirements..................................................................... 45 6.3 Trust Existence............................................................................... 46 6.4 Books and Records; Inspections................................................................ 46 6.5 Borrower's Calculations and Certifications.................................................... 46 6.6 Taxes......................................................................................... 47 6.7 Compliance With Laws.......................................................................... 47 6.8 Insurance..................................................................................... 48 6.9 Fiscal Year................................................................................... 48 6.10 Maintenance of Property....................................................................... 48 6.11 ERISA Documents............................................................................... 48 6.12 Tradenames, Etc............................................................................... 48 6.13 Acquisitions of New Hotels.................................................................... 48 6.14 Performance of Obligations.................................................................... 48 6.15 Advisory Agreement............................................................................ 48 6.16 REIT Qualification............................................................................ 49 6.17 Annual Meetings of Lenders.................................................................... 49 6.18 Required Interest Rate Cap.................................................................... 49 6.19 Year 2000 Problems............................................................................ 50 6.20 Process Agent's Consent....................................................................... 50 ARTICLE 7 FINANCIAL COVENANTS; NEGATIVE COVENANTS............................................................... 50 7.1 Financial Covenants........................................................................... 50 7.2 Other Assets or Business...................................................................... 51 7.3 Additional Indebtedness....................................................................... 52 ii 7.4 Liens......................................................................................... 52 7.5 Contingent Obligations........................................................................ 53 7.6 Restricted Payments........................................................................... 53 7.7 Investments................................................................................... 54 7.8 Affiliate Transactions........................................................................ 54 7.9 Additional Negative Pledges................................................................... 55 7.10 Additional Subsidiaries....................................................................... 55 7.11 Amendments.................................................................................... 55 7.12 Dividends..................................................................................... 55 7.13 Certain Transactions.......................................................................... 56 ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES....................................................................... 56 8.1 Events of Default............................................................................. 56 8.2 Remedies...................................................................................... 57 8.3 Right of Setoff............................................................................... 58 8.4 No Marshalling; Deficiencies; Remedies Cumulative............................................. 58 8.5 Application of Payments....................................................................... 58 ARTICLE 9 THE AGENT............................................................................................ 58 9.1 Appointment of Agent.......................................................................... 58 9.2 Nature of Duties of Agent..................................................................... 59 9.3 Lack of Reliance on Agent..................................................................... 59 9.4 Certain Rights of Agent....................................................................... 59 9.5 Reliance by Agent............................................................................. 60 9.6 Indemnification of Agent...................................................................... 60 9.7 Agent in its Individual Capacity.............................................................. 60 9.8 Successor Agent............................................................................... 61 9.9 Intentionally Omitted......................................................................... 61 9.10 Defaults...................................................................................... 61 9.11 Anticipated Receipt of Funds.................................................................. 61 9.12 Miscellaneous................................................................................. 62 ARTICLE 10 MISCELLANEOUS....................................................................................... 62 10.1 GOVERNING LAW................................................................................. 62 10.2 SUBMISSION TO JURISDICTION.................................................................... 62 10.3 CERTAIN DAMAGES............................................................................... 62 10.4 SERVICE OF PROCESS............................................................................ 63 10.5 JURY TRIAL.................................................................................... 63 10.6 LIMITATION OF LIABILITY....................................................................... 63 10.7 Delays........................................................................................ 63 10.8 Notices....................................................................................... 63 10.9 Assignments and Participations................................................................ 64 10.10 Confidentiality............................................................................... 65 10.11 Reimbursement of Expenses; Indemnification.................................................... 65 10.12 Amendments and Waivers........................................................................ 66 iii 10.13 Counterparts and Effectiveness................................................................ 67 10.14 Severability.................................................................................. 67 10.15 Maximum Rate.................................................................................. 67 10.16 Entire Agreement; Successors and Assigns...................................................... 68 10.17 Currency Translation.......................................................................... 68 10.18 Foreign Judgments............................................................................. 68 10.19 Acknowledgments............................................................................... 68 10.20 Approvals..................................................................................... 69 10.21 NONLIABILITY OF TRUSTEES...................................................................... 69 INDEX OF DEFINED TERMS.......................................................................................... 72 ANNEXES Annex I - List of Lenders and Commitment Amounts Annex II - List of Closing Documents Annex III - Pricing Grid EXHIBITS Exhibit A - Form of Revolver Note Exhibit B - Form of Assignment and Assumption Agreement Exhibit C - Form of Compliance Certificate Exhibit D - Form of Notice of Borrowing Exhibit E - Form of Notice of Continuation/Conversion Exhibit F - Form of Investment Manager's Subordination Agreement Exhibit G - Form of Register SCHEDULES Schedule A - Disclosure Schedule
iv REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT (as amended, modified and supplemented from time to time, this "Agreement") is entered into as of March 19, 1998 (the "Closing Date"), among HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust ("Borrower"), each institution identified as a lender on Annex I (each, together with its successors and assigns, a "Lender"), and DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, acting as agent for itself and the other Lenders ("Agent"). RECITALS WHEREAS, Borrower is in the business of acquiring and owning real property (including leasehold estates), which Borrower leases to various companies in exchange for a stream of lease payments, and in the business of acquiring certain mortgages; WHEREAS, Borrower desires to obtain a revolving line of credit for Borrower's general corporate purposes, including future acquisitions of real property, and Arranger has arranged such a facility; and WHEREAS, Lenders are prepared to provide such a revolving line of credit subject to and upon the terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1 Defined Terms. The following terms when used in this Agreement shall each have the definition set forth below. The same definitions shall apply in all the other Credit Documents, except where another Credit Document provides some other express definition for any term. Terms may be used before they are defined. An Index of Defined Terms follows the signature blocks. "Acquisition Cost" of a Hotel means Borrower's or its Subsidiary's actual bona-fide third party acquisition cost of such Hotel, including reasonable and bona fide third-party transaction costs, plus the amount of any capital outlays or other capital investments in such Hotel after initial acquisition, but excluding any operating losses. "Adjusted Eurodollar Rate" means, with respect to the Interest Period for each Eurodollar Loan, the rate obtained by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to one (1.00) minus the stated maximum rate (stated as a decimal) of all reserves, if any, required to be maintained against "Eurocurrency liabilities" as specified in Regulation D (or against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-U.S. office of any Lender to U.S. residents). "Advisory Agreement" means the Advisory Agreement, dated as of January 1, 1998, as extended and renewed from time to time, between Borrower and Investment Manager, as amended, supplemented or modified from time to time in compliance with this Agreement and the Investment Manager's Subordination Agreement. "Administrative Agent" means Agent or such Lender as Agent shall have designated from time to time to perform administrative services with regard to the Loan. "Administrative Fee" means a fee of Fifty Thousand Dollars ($50,000) per year payable by Borrower to Administrative Agent in equal quarterly installments as compensation for performance of administrative services in connection with the Loan. "Affiliate" of a Person means another Person who directly or indirectly controls, is controlled by, is under common control with, or is a director, officer or partner of, such Person. A Person shall be deemed to control another Person if (a) such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise, or (b) for purposes of Section 7.8 only, such Person owns or controls the power to vote, directly or indirectly, more than five percent (5%) of any class of the Capital Stock of such other Person. Notwithstanding the foregoing, Health and Retirement Properties Trust, a Maryland real estate investment trust, shall not be deemed an "Affiliate." "Applicable Margin" means a fluctuating rate of interest per annum determined as follows. o For a Base Rate Loan, the Applicable Margin shall be zero, except that (as set forth in Annex III) the Applicable Margin shall be One-Tenth of One Percent (0.10%) per annum (10 basis points) if both: (a) no Rating is in effect for Borrower; and (b) Borrower's Leverage Ratio equals or exceeds Forty Percent (40%). o For a Eurodollar Loan, the Applicable Margin shall be based on the then-applicable Pricing Parameter in accordance with the table set forth in Annex III. 2 "Arranger" means Dresdner Kleinwort Benson North America LLC. "Assigned Value" of any Hotel means, as of the last day of each Fiscal Quarter, the following amount, as calculated and determined by Borrower with Agent's approval: o For any Hotel that the Credit Parties Have Owned for Less Than Six Full Fiscal Quarters, an amount equal to the product of (a) Ninety Five Percent (95%) times (b) the Credit Parties' aggregate Acquisition Cost of such Hotel. o For any Hotel that the Credit Parties Have Owned for Six Full Fiscal Quarters or Longer, an amount equal to ten (10) times the annual sum (determined on the basis of the last twelve completed calendar months) of the following for such Hotel: (a) Base Rent; less (b) a reasonable allocation (based on relative Acquisition Costs) of all annual cash corporate expenses of Borrower and its Subsidiaries (including, for example, general and administrative overhead, including advisory fees) except Consolidated Debt Service. "Assignment and Assumption Agreement" means an agreement in substantially the form of Exhibit B. "Auditors" means Arthur Andersen LLP or another nationally recognized firm of independent public accountants selected by Borrower and satisfactory to Required Lenders. "Bankruptcy Code" means Title 11 of the U.S. Code (11 U.S.C. ss.ss. 101 et seq.), as amended from time to time, and any successor statute. "Base Rate" means a fluctuating rate of interest per annum equal at any time to the greater at such time of (a) the Federal Funds Rate plus one-half of one percent (0.50%) and (b) the rate which the Agent establishes as its base lending rate from time to time. The Base Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Agent and each of the Lenders may make loans at rates of interest at, above or below the Base Rate. "Base Rate Loan" means a Loan that is made or being maintained at a rate of interest based upon the Base Rate. "Base Rent" means the minimum or base rent that a Lease requires Lessee to pay. The term excludes: (a) payments (such as real estate taxes, insurance premiums, and costs of maintenance) that the Lease requires the Lessee to pay third parties; (b) any element of rent that is conditional, contingent, or not yet capable of determination; and (c) FF&E Deposits. If Lease(s) for multiple Hotels do not separately allocate Base Rent to such Hotels, then Base Rent shall be reasonably allocated between such Hotels (where necessary) in a manner satisfactory to Agent. 3 "Benefit Plan" means a "defined benefit plan" (as defined in Section 3 of ERISA) for which any Credit Party or any ERISA Affiliate has been an "employer" (as defined in Section 3 of ERISA) within the past six years. "Borrower" is defined in the first paragraph of this Agreement. "Borrowing" means the incurrence of a Revolving Loan from all Non-Defaulting Lenders on a given day (or resulting from conversions or continuations on a given date), having in the case of Eurodollar Loans the same Interest Period. "Business" means Borrower's business consisting of the acquisition and ownership of (a) real property (including leaseholds) leased to third party Lessees pursuant to Leases, and operated by such Lessees as branded hotels and (b) mortgage investments. "Business Day" means any day that is not a Saturday, Sunday or a day on which commercial banks in New York, New York are required or permitted by law to be closed. When used in connection with Eurodollar Loans, this definition also excludes any day on which commercial banks are not open for dealing in U.S. dollar deposits in the London interbank market. "Capital Expenditures" for any Person for any period means the sum of all expenditures of such Person which would be capitalized for purposes of financial statements for such period in accordance with GAAP (whether payable in cash or other property or accrued as a liability), including expenditures for maintenance and repairs which should be capitalized and the capitalized portion of Capital Leases. "Capital Lease" means, for any Person, any lease of property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is required to be accounted for as a capital lease on the balance sheet of such Person. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person other than a corporation (including partnership interests in a partnership, member interests in a limited liability company and beneficial interests in a trust), and any and all warrants, options or other rights to purchase any of the foregoing. "Cash Available for Distribution" means Funds from Operations, less FF&E Deposits included in Funds from Operations and adjusted for any recurring non-revenue-enhancingcapital expenditures and for non-cash expenses and non-cash revenues, such as revenues arising from "straight-lining" of rents. "Cash Equivalents" means any of the following, denominated in Dollars: (a) securities issued or directly and fully guaranteed or insured by the U.S. or any agency or instrumentality thereof (provided that the full faith and credit of the U.S. is pledged in support thereof) having maturities of not more than ninety (90) days from the date of acquisition ("Government Obligations"), (b) time deposits and certificates of deposit of any commercial bank either incorporated in the U.S. or incorporated in a foreign jurisdiction and 4 having a branch office in the U.S., in each case of recognized standing having capital and surplus in excess of $500,000,000 and whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than ninety (90) days from the date of acquisition, (c) commercial paper issued by an Approved Bank or the parent corporation of an Approved Bank (so long as such parent maintains an office in the U.S. from which it issues such commercial paper) and commercial paper issued by any Person incorporated in the U.S. rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's, and in each case maturing within ninety (90) days of the date of acquisition, (d) repurchase obligations of an Approved Bank for Government Obligations and with a term of not more than seven (7) days, and (e) investments in money market mutual funds having assets in excess of $2,500,000,000, substantially all of whose assets are comprised of Government Obligations. "Casualty Loss" means (a) the loss, damage, or destruction of any asset owned or used by any Credit Party or (b) the condemnation, confiscation, or other taking, in whole or in part, of any such asset. "Change of Control" means any event, transaction or condition as a result of which (a) the Managing Trustees (together with their Affiliates) shall cease to own (and maintain control over) in the aggregate full beneficial ownership with full voting and dispositive power as to at least 250,000 of the total outstanding shares of Capital Stock of Borrower that are ordinarily entitled to vote for its Board of Directors (which figure of 250,000 shall be appropriately adjusted for stock splits, stock dividends, and similar transactions) or (b) the Managing Trustees (together with their Affiliates) shall cease to maintain Control of Investment Manager. "Closing Date" means the date on which this Agreement is executed and delivered, whether or not any advance of the Revolving Loan is made on such date. "Closing Documents List" means the List of Closing Documents attached hereto as Annex II. "Code" means the Internal Revenue Code of 1986, amendments thereto, successor statutes, and regulations, rulings and guidance promulgated or issued thereunder. "Commitment Fee" is defined in Section 3.2. "Common Stock" means the common shares of Borrower, par value $0.01 per share. "Compliance Certificate" means a written certificate, substantially in the form of Exhibit C, executed by Borrower's Chief Financial Officer, which shall demonstrate that as of the date of such certificate, and assuming the full funding of any Revolver Loans then being requested by Borrower, Borrower is and shall continue to be in compliance with the financial (and all other material) covenants of this Agreement in all material respects. Any Compliance Certificate shall also set forth: (a) a list of all Hotels constituting the Unencumbered Pool (and identifying the Hotels in each Hotel Pool within the Unencumbered 5 Pool); (b) Borrower's certification that all Hotels so listed fully qualify under the criteria for inclusion in the Unencumbered Pool; (c) to the extent required by Agent from time to time, such detail and calculations as will in Agent's judgment substantiate the certifications described in "a" and "b"; and (d) any changes in the composition of the Unencumbered Pool since the preceding Compliance Certificate delivered by Borrower, if any. Each Compliance Certificate shall also have attached thereto a schedule of calculations demonstrating compliance with the financial covenants contained in this Agreement. "Consolidated Debt Service" means, for any fiscal period of Borrower, Consolidated Interest Expense plus required scheduled amortization payments (other than payments due upon maturity) of Borrower and its Subsidiaries with respect to Indebtedness of any of them for such period determined on a consolidated basis in accordance with GAAP. "Consolidated EBITDA" for a period means (a) the consolidated net income (excluding extraordinary or unusual and non-recurring items) of Borrower and its Subsidiaries (net of minority interests where applicable) for the period plus (b) all Consolidated Interest Expense, income tax expense, depreciation and amortization (including amortization of any goodwill or other intangibles) for the period and excluding (unless already deducted in calculating net income) (c) FF&E Deposits (and related income arising from payments made by Lessees to Borrower or its Subsidiaries). Adjustment shall be made for any non-cash expenses and non-cash revenues, such as for revenues arising from "straight-lining" of rents. Except where otherwise expressly stated herein, Consolidated EBITDA shall be measured as to the last four completed quarters on a rolling four quarters basis. "Consolidated Indebtedness" means all Indebtedness of Borrower and all its Subsidiaries on a consolidated basis. "Consolidated Interest Expense" means, for any fiscal period of Borrower, the total interest expense (excluding amortization of paid deferred costs, discounts or premiums, if any, and including interest expense attributable to Capital Leases in accordance with GAAP) on all Consolidated Indebtedness of Borrower and all its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Secured Debt" means all Consolidated Indebtedness that is secured by or otherwise the subject of a Lien on any property of Borrower or any Subsidiary. The Obligations do not constitute Consolidated Secured Debt. "Consolidated Total Assets" means, as of the date of any determination thereof, the net book value of the assets of Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Contingent Obligation" means any direct or indirect, contingent obligation for, or guaranty of, the Indebtedness of another, except endorsements in the ordinary course of business. The amount of any Contingent Obligation shall be equal to the maximum reasonably anticipated liability in respect of the obligations guarantied or otherwise supported, calculated using the assumption that the obligor is or will be required to fully 6 perform thereunder. Any particular contingent obligation shall be counted only once for purposes of this definition. "Control" (together with the corresponding terms "controls," "is controlled by," or "is under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. "Credit Documents" means this Agreement, the Notes, each Guaranty, and all other agreements, instruments and documents, including opinions and certificates, now or hereafter executed and delivered in connection with any of the foregoing, each as amended, modified and supplemented from time to time. "Credit Parties" means, collectively, Borrower and each and all of its Subsidiaries. "Credit Party" means any one of them. "Debt Service Coverage Ratio" means the ratio of Consolidated EBITDA to Consolidated Debt Service, with respect to the last four completed Fiscal Quarters in aggregate, as of the end of each Fiscal Quarter. "Default" means an event or condition which would constitute an Event of Default with the giving of notice, the passage of time or both. "Default Rate" is defined in Section 3.1(d). "Defaulting Lender" is defined in Section 2.4(a). "Disclosure Schedule" means the Schedule A to this Agreement labeled as such, in form and substance satisfactory to Agent and the Lenders as of the Closing Date. "Dollar Equivalent" as to any monetary sum expressed in a foreign currency means such monetary sum converted to Dollars based on the then Prevailing Exchange Rate. "Dollars" and the sign "$" each mean lawful money of the U.S. "D&P" means Duff & Phelps Inc., and any successor thereto. "Due Diligence Reports" means, as to any Hotel, environmental, engineering, and title reports, and such other third-party reports as any Credit Party shall obtain in connection with the acquisition of any Hotel or as Agent shall require from time to time (but no more frequently than upon acquisition and only for cause thereafter) to be updated, in the case of any of the foregoing reports each dated no earlier than one year before the date of the Credit Party's acquisition of the Hotel (with, in the case of environmental reports, a database search at either the closing of the acquisition of such Hotel or (b) the date such Hotel is included in the Unencumbered Pool) and prepared by an independent vendor or consultant (including a licensed title insurance company where applicable) satisfactory to Agent, which report(s) shall be in form and substance satisfactory to Agent. 7 "Eligible Assignee" means (i) a commercial bank organized under the laws of the U.S., or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial bank organized under the laws of any OECD Nation or a political subdivision of any such nation, and having total assets in excess of $5,000,000,000; provided, however, that such bank is acting through a branch or agency located in the country in which it is organized or in another OECD Nation or the Cayman Islands; (iii) the central bank of any OECD Nation; (iv) an insurance company organized under the laws of the U.S. (or any State thereof or the District of Columbia) and having total assets in excess of $5,000,000,000 (but excluding an insurance company that is a "captive" subsidiary of an entity that would itself not qualify as an Eligible Assignee); (v) a savings bank or savings and loan association organized under the laws of the U.S., or any State thereof or the District of Columbia, and having total assets in excess of $5,000,000,000; (vi) any Lender party to this Agreement; (vii) any Affiliate of any Lender party to this Agreement; (viii) any U.S. Federal Reserve Bank; or (ix) any other governmentally regulated financial institution approved by Administrative Agent, such approval not to be unreasonably withheld. Notwithstanding the foregoing, none of the following shall constitute an Eligible Assignee: (x) Borrower or any Affiliate of Borrower; (y) anyone acting by, on behalf of, or pursuant to any separate agreement or arrangement with Borrower or any Affiliate of Borrower; or (z) any Person that, in Agent's discretion, either (a) has an adverse business reputation or (b) is or may be acquiring its interest in the Loan for purposes other than providing financing to Borrower in accordance with the terms and conditions of this Agreement. "Environmental Affiliate" means any Person whose liability for any Environmental Claim a Credit Party has or may have retained, assumed or otherwise become liable for (contingently or otherwise), either contractually or by operation of law. "Environmental Approvals" means any permit, license, approval, ruling, variance, exemption or other authorization required under applicable Environmental Laws. "Environmental Claim" means, with respect to any Person, any notice, claim, demand or similar communication (written or oral) by any other Person alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by such Person or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, in each case as have been, are now, or may at any time hereafter be in effect and as the same may be amended or modified hereafter, including: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 8 ss.ss. 9601 et seq.; the Toxic Substance Control Act, 15 U.S.C. ss.ss. 9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1802 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq.; the Clean Water Act, 33 U.S.C. ss.ss. 1251 et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., and other similar federal and/or state environmental laws. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder. "ERISA Affiliate" means any entity required to be aggregated with any Credit Party under Sections 414(b), (c), (m) or (o) of the Code. "Eurodollar Loan" means a Loan that is made or being maintained at a rate of interest based upon the Adjusted Eurodollar Rate. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Loan, the rate per annum (rounded upwards to the nearest whole multiple of one-sixteenth of one percent) equal to the offered quotation of the rate for Dollar deposits with maturities comparable to the Interest Period for which such Eurodollar Rate will apply) which appear on the Telerate Screen Page 3750 (or successor page) as at 11:00 a.m. London time, on the day that is two Business Days prior to the beginning of such Interest Period (or with respect to the initial Interest Period, the Closing Date rather than two Business Days prior to the beginning of the initial Interest Period) and in an amount comparable to the amount of the Loan to be outstanding during such Interest Period or, if such Telerate shall not exist on such Business Day, an interest rate per annum equal to the rate (rounded upward to the nearest whole multiple of one-sixteenth (1/16) of one percent (1.00%) per annum, if such rate is not such a multiple) of the offered quotation, if any, to first class banks in the Eurodollar market by Agent for Dollar deposits of amounts in immediately available funds comparable to the principal amount of the Eurodollar Loan for which the Eurodollar Rate is being determined, with maturities comparable to the Interest Period for which such Eurodollar Rate will apply, as of approximately 11:00 A.M. New York time two (2) Business Days prior to the commencement of such Interest Period. "Event of Default" is defined in Article 8. "Excess Floating Rate Exposure" means the excess, if any, of: (a) all Consolidated Indebtedness bearing interest at a floating rate (including the principal amount of all Loans hereunder) over (b) an amount equal to Twenty Percent (20%) of the sum of (i) GAAP consolidated shareholders' equity (plus minority interests) of Borrower and its Subsidiaries; plus (ii) all long-term funded Consolidated Indebtedness (other than Contingent Obligations). "Expenses" means all reasonable costs and expenses of Agent (including reasonable fees and expenses of counsel) incurred in connection with the Credit Documents and the transactions contemplated herein and therein, including in connection with the preparation, execution, and delivery of this Agreement and the other Credit Documents and any amendment, waiver or consent relating hereto or thereto, in connection with Agent's initial 9 syndication efforts with respect to this Agreement and in connection with the enforcement of this Agreement and the other Credit Documents, specifically including (without limiting the generality of the foregoing) (a) administration costs of Agent and costs of enforcement of the rights of Agent or any Lender under the Credit Documents, (b) the reasonable fees and expenses of accountants, appraisers and other consultants, experts or advisors retained by Agent, (c) reasonable fees and expenses (including reasonable legal fees and expenses) incurred by Agent in connection with the initial syndication of the Commitments and the Loans, (d) the cost of fees and taxes, if any, in connection with the filing of financing statements, if any, (e) the costs, if any, of preparing waivers, amendments, and terminations of any of the Credit Documents, and (f) Agent's costs of obtaining any Due Diligence Reports, if any. "Federal Funds Rate" means a fluctuating interest rate per annum equal at any time to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as determined by Agent. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Fees" means the Administrative Fee and the Commitment Fee. "FF&E Deposits" means funds that any Lease requires a Lessee to hold or to remit to any Credit Party, which funds are to be held by such Lessee or by such Credit Party in reserve accounts for furnishings, fixtures, and equipment for any Hotel(s). "Financial Statements" means the consolidated balance sheets, statements of operations, statements of cash flows and statements of changes in shareholder's equity of Borrower and its Subsidiaries for the period specified, prepared in accordance with GAAP consistently applied. "Fiscal Quarter" means a fiscal quarter of each Credit Party's Fiscal Year, with appropriate interpolations or adjustments to accommodate variations between the Credit Parties' fiscal quarters and those of Lessees or mortgagors. "Fiscal Year" means the fiscal year of the applicable Credit Party, which, for Borrower and each of its Subsidiaries as of the Closing Date, begins on January 1 and ends on December 31 of each calendar year, with appropriate interpolations or adjustments to accommodate variations between the Credit Parties' fiscal years and those of Lessees or mortgagors. "Fitch" means Fitch Investors Service, Inc., and any successor thereto. "Funds from Operations" means consolidated net income of Borrower and its Subsidiaries, adjusted as follows in a manner satisfactory to Agent: (a) gains and losses from debt restructuring and sales of property shall be excluded; (b) depreciation and amortization of real estate assets shall be added back; and (c) appropriate adjustments shall be made for unconsolidated partnerships and joint ventures. 10 "GAAP" means generally accepted accounting principles as in effect in the U.S. on the Closing Date and as amended from time to time, subject however to Section 6.1(e). "Governing Documents" of any Person means the declaration of trust, certificate or articles of incorporation, by-laws, partnership agreement or operating or members agreement, as the case may be, and any other organizational or governing documents, of such Person. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any foreign, federal, state or other court or governmental agency, authority, instrumentality or regulatory body. "Group" is used herein as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended. "Guaranty" means that certain Guaranty dated the Closing Date executed by each of the Guarantors in favor of Agent and the Lenders. "Guarantor" means each and every Subsidiary of Borrower, other than a Subsidiary that satisfies the following conditions: (a) such Subsidiary does not own any Hotel in the Unencumbered Pool; and (b) based on bona fide restrictions in other credit documents with other lenders (or in the charter documents of any Subsidiary that is not a Wholly-Owned Subsidiary), such Subsidiary is not permitted to be a Guarantor as to the Obligations. The Guarantors are identified in greater detail in Section 5.11 of the Disclosure Schedule. "Highest Lawful Rate" means, at any given time during which any Obligations shall be outstanding hereunder, the maximum nonusurious interest rate that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations, under the laws of the State of New York (or the law of any other jurisdiction whose laws are mandatorily applicable notwithstanding the provisions of this Agreement and the other Credit Documents), or under applicable federal laws which may presently or hereafter be in effect and which allow a higher maximum nonusurious interest rate than under New York (or such other jurisdiction's) law, in any case after taking into account, to the extent permitted by applicable law, any and all relevant payments or charges under this Agreement and any other Credit Documents executed in connection herewith, and any available exemptions, exceptions and exclusions. "Hotel" means any parcel of real property and the improvements and business operations thereon owned or ground leased at any time (as of the Closing Date or thereafter acquired) by Borrower or a Subsidiary the improvements of which are operated as a hotel, whether or not such Hotel is part of the Unencumbered Pool. "Hotel Net Cash Flow" means the net operating cash flow of a Hotel, after (a) all taxes (except income taxes), insurance, salaries, utilities, and other operating expenses, all sums that the applicable Lease or Management Agreement requires Lessee or Manager to pay 11 (without duplication; excluding (i) all items payable to Manager that are subordinated to Base Rent and (ii) Base Rent), and (b) all FF&E Deposits. Hotel Net Cash Flow shall be determined as of any date based on the last four completed Fiscal Quarters of the Credit Party that owns such Hotel (subject to reasonable adjustment or interpolation to accommodate differences between such Subsidiary's Fiscal Quarters and those of its Lessee). "Hotel Pool" means any group of two or more Hotels leased pursuant to a single Lease or whose Leases are cross-defaulted (as to defaults by Lessee), together with all other Hotels whose Leases are cross-defaulted (as to defaults by Lessee) with such Lease(s). "Indebtedness" of a Person means (a) indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade liabilities and security deposits or guarantee deposits incurred in the ordinary course of business and payable in accordance with customary practices), whether on open account or evidenced by a note, bond, debenture or similar instrument or otherwise, (b) obligations under Capital Leases, (c) reimbursement obligations for letters of credit, banker's acceptances or other credit accommodations, (d) liabilities, as determined by Agent, under any Interest Rate Agreement, (e) Contingent Obligations of such Person, (f) obligations secured by any Lien on that Person's property, even if that Person has not assumed such obligations, and (g) liabilities that are subordinate to the Loan. The Loan constitutes Indebtedness of Borrower and its Subsidiaries. "Insolvency Event" means, with respect to any Person, the occurrence of any of the following: (a) such Person shall be adjudicated insolvent or bankrupt, or shall generally fail to pay or admit in writing its inability to pay its debts as they become due, (b) such Person shall seek dissolution or reorganization or the appointment of a receiver, trustee, custodian or liquidator for it or a substantial portion of its property, assets or business or to effect a plan or other arrangement with its creditors, (c) such Person shall make a general assignment for the benefit of its creditors, or consent to or acquiesce in the appointment of a receiver, trustee, custodian or liquidator for a substantial portion of its property, assets or business, (d) such Person shall file a voluntary petition under any bankruptcy, insolvency or similar law, or (e) such Person, or a substantial portion of its property, assets or business shall become the subject of an involuntary proceeding or petition for its dissolution, reorganization, or the appointment of a receiver, trustee, custodian or liquidator and any such proceeding or petition shall not be dismissed within one hundred twenty (120) days after commencement or filing, as the case may be, or any order for relief shall be entered in any such proceeding. "Intellectual Property" means patents, patent applications, trademarks, service marks, trade names, copyrights and other such rights, or valid licenses thereof. "Interest Coverage Ratio" means the ratio of Consolidated EBITDA to Consolidated Interest Expense, considered for the last four completed Fiscal Quarters, as of the end of each Fiscal Quarter. "Interest Period" means, for each Eurodollar Loan, a period of one, two, three or six months during which the interest rate for such Loan is fixed; provided, however, that (a) no Interest Period with respect to any portion of the Loan may end after the Maturity Date, 12 and (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, unless such extension would cause the last day of such Interest Period to occur in the next following calendar month, in which case the last day of such Interest Period shall occur on the next preceding Business Day. "Interest Rate Agreement" means an interest rate cap agreement or other interest rate protection or hedge agreement. "Interest Rate Cap" means an Interest Rate Agreement that is an interest rate cap or other Interest Rate Agreement that imposes no obligations on the beneficiary thereof, and is in all respects satisfactory in form and substance to Agent. "Investment" means (a) all expenditures made and (without duplication) all liabilities incurred or assumed (including Contingent Obligations) for or in connection with the acquisition of any beneficial or other interest in, all or substantially all of the assets of, or any obligations, securities or other Indebtedness of, a Person, and (b) all direct or indirect loans, advances, capital contributions or transfers of property to a Person. In determining the aggregate amount of Investments outstanding at any particular time: (1) a guaranty shall be valued at not less than the principal amount guarantied and outstanding; (2) returns of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution) shall be deducted; (3) earnings, whether as dividends, interest or otherwise, shall not be deducted; and (4) decreases in the market value shall not be deducted. "Investment Grade Rating" of a Person means that the senior, unsecured debt rating of such Person satisfies either of the following: (a) a rating of BBB- or higher by S&P; or (b) a rating of Baa3 or higher by Moody's. "Investment Manager" means REIT Management & Research, Inc., a Delaware corporation, or such other investment manager to Borrower as Agent shall have approved in Agent's sole and absolute discretion. "Investment Manager's Subordination Agreement" means an agreement between Investment Manager and Agent on behalf of the Lenders in substantially the form of Exhibit F. "IRS" means the U.S. Internal Revenue Service and any successor thereto. "Judgment Currency" is defined in Section 10.18. "Last Financial Statement Date" means September 30, 1997. "Lease" means a (sub)lease of a Hotel, entered into between Borrower (or a Subsidiary) and a Lessee, provided that 100% of the payments by the Lessee under any Lease shall constitute "rents from real property" within the meaning of Section 856(d)(1) of the Code. 13 "Lessee" means the (sub)lessee of a Hotel pursuant to a Lease, provided that (without Agent's approval) no such (sub)lessee shall be an Affiliate of Borrower, any Subsidiary, Investment Manager, or any Managing Trustee, except so long as the following conditions are satisfied: (a) the affected Hotel is not counted as part of the Unencumbered Pool; and (b) based on particular circumstances affecting a particular Hotel Pool (e.g., default by the Lessee), Borrower enters into interim leasing arrangements for up to one year with an Affiliate of Borrower, any Subsidiary, Investment Manager, or any Managing Trustee (which arrangements shall not be extended, renewed, or continued for longer than the original one-year term); and (c) no more than one Hotel Pool is subject to such arrangements at any one time. "Leverage Ratio" means, as of the last day of each Fiscal Quarter of Borrower, the quotient of (a) Consolidated Indebtedness divided by (b) the Assigned Value of all Hotels. "Lien" means any lien, claim, charge, pledge, security interest, assignment, hypothecation, deed of trust, mortgage, lease, conditional sale, retention of title, or other preferential arrangement having substantially the same economic effect as any of the foregoing, whether voluntary or imposed by law. The term "Lien" shall also include (and wherever a creditor holds, such creditor shall be deemed to be secured by a Lien): (a) any so-called "negative pledge" agreement, pursuant to which a Person owning an asset agrees with its creditor that such Person shall not subject property of such Person (whether specifically identified property, or a class or type of property owned by such Person) to a Lien as defined in the first sentence of this paragraph; and (b) any arrangement by which a Lien of the type described in the first sentence of this paragraph (excluding a Permitted Lien) may "spring" into existence or otherwise arise, or any Person has covenanted to create or provide such a Lien, upon the occurrence or nonoccurrence of specified events or the passage of time. "Loan Account" is defined in Section 3.3. "Loans" means the Revolver Loans. "Management Agreement" means any management agreement, operating agreement, operating lease, license, or other arrangement for operation of a Hotel by a Manager, entered into by the Lessee of a Hotel. "Management Fee" means a fee payable by a Lessee to a Manager pursuant to a Management Agreement. "Manager" means the manager of a Hotel pursuant to a Management Agreement. "Managing Trustee" means either of Mr. Barry M. Portnoy, and/or Mr. Gerard M. Martin, both having a business address c/o the Investment Manager. "Mandatory Redeemable Obligation" means an obligation of any Credit Party (or guarantied by any of them) which must be redeemed or paid (a) at a fixed or determinable date, whether by operation of sinking fund or otherwise, (b) at the option of any Person 14 other than the applicable Credit Party, or (c) upon the occurrence of a condition not solely within the control of the applicable Credit Party, such as a redemption required to be made out of future earnings. "Margin Stock" shall have the meaning provided for such term in Regulations G, T, U and X of the Federal Reserve. "Material Adverse Effect" means, as to any matter, fact, or circumstance, that such matter, fact, or circumstance would reasonably be expected to have: (a) a material adverse effect on the business, operations, results of operations, assets, liabilities, prospects or condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, or (b) a material adverse effect on the ability of a Credit Party to perform its obligations under the Credit Documents to which it is a party, or (c) the material impairment of the ability of Agent or any Lender to enforce the Obligations. "Material Contract" means any contract, lease or other agreement or arrangement to which any Credit Party is a party (other than the Credit Documents) involving aggregate consideration payable to or by any Credit Party of $10,000,000 or more (other than contracts that by their terms may be terminated by any party thereto in the ordinary course of business upon less than thirty (30) days notice, and purchase orders for capital expenditures permitted under this Agreement or which is otherwise material to the business, operations, results of operations, assets, liabilities, prospects or condition (financial or otherwise) of any Credit Party. Without limiting the generality of the foregoing, all present and future Leases and the Advisory Agreement are Material Contracts. "Material Lessee" means any Lessee that holds Leases (whether or not cross-defaulted) affecting Hotels having an aggregate Assigned Value equal to or exceeding Twenty Percent (20%) of Borrower's Consolidated Total Assets. "Materials of Environmental Concern" means chemicals, pollutants, contaminants, wastes, toxic or hazardous substances, petroleum (including crude oil and any fraction thereof) and petroleum products and any other gas, liquid or solid regulated under any Environmental Law, other than those maintained in accordance with law. "Maturity Date" means the Revolver Maturity Date. "Moody's" means Moody's Investors Services, Inc. or any successor agency. "Multiemployer Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which any Credit Party or any ERISA Affiliate has contributed within the past six years or with respect to which any Credit Party may incur any liability. "Non-Defaulting Lender" is defined in Section 2.4. "Non-Pool Hotel" means a Hotel that is not a Pool Hotel. "Note" means each Revolver Note. 15 "Notice of Borrowing" is defined in Section 2.2. "Notice of Continuation" is defined in Section 3.8(a). "Notice of Conversion" is defined in Section 3.8(b). "Obligations" means the collective reference to the unpaid principal of, and the accrued and unpaid interest on, the Loans and all other obligations and liabilities of Borrower to Agent and the Lenders (including each Credit Party's liability for all interest that accrues after the maturity of the Loans and all interest that accrues after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to any Credit Party, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, that may arise under, out of, or in connection with, this Agreement, any other Credit Document, or any other document made, delivered or given in connection with this Agreement, any other Credit Document or whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to Agent and the Lenders that are required to be paid by Borrower pursuant to the terms of any such agreement), and all other obligations and liabilities of any or all of the Credit Parties to Agent and/or any Lender under this Agreement, any Note or any other Credit Document. "OECD Nation" means a member nation of the Organization for Economic Cooperation and Development. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Permitted Liens" is defined in Section 7.4. "Permitted Mortgage Investments" means any leasehold or fee mortgage(s) or deed(s) of trust held beneficially and of record by Borrower or a Subsidiary, provided that such mortgage(s) or deed(s) of trust comply with all of the following requirements, which shall apply cumulatively: o The aggregate value of all such mortgage(s) and deed(s) of trust, as determined pursuant to GAAP, shall not exceed Twenty Percent (20%) of Consolidated Total Assets. o The real property collateral for such mortgage(s) or deed(s) of trust shall not be the subject of any material Environmental Claim(s), shall be free of Materials of Environmental Concern other than those maintained in accordance with applicable, and shall not consist of the (sub)leasehold estate arising under any Lease. o No mortgagor or trustor under any such mortgage or deed of trust shall be an Affiliate of Borrower, any Subsidiary, Investment Manager, or any Managing Trustee. 16 o Such mortgage or deed of trust shall not be subject to any collateral assignment, hypothecation, or other Lien. o The aggregate value of all such mortgage(s) or deed(s) of trust that are in monetary or other material default at the time of acquisition or origination by Borrower or a Subsidiary shall not exceed Ten Percent (10%) of Consolidated Total Assets. o If Borrower were to acquire the encumbered real property, Borrower would not then be in Default under this Agreement as a result. Without limiting the generality of the foregoing, the collateral shall consist solely of assets that would be Hotels if owned by a Credit Party. "Permitted New Indebtedness" means any Indebtedness incurred by Borrower or any Subsidiary after the Closing Date, but only if such Indebtedness satisfies the following requirements: (a) after taking into account such Indebtedness Borrower is in full compliance with all provisions of this Agreement, including the financial covenants set forth in Section 7.1; and (b) either (i) the stated maturity date of such Indebtedness is at least 270 days after the Maturity Date and such Indebtedness is on arm's length and upon terms and conditions that are substantially normal and customary for comparable indebtedness of comparable companies; or (ii) such Indebtedness is incurred by a Subsidiary (not by Borrower) and both: (x) such Subsidiary does not own any Hotel(s) in the Unencumbered Pool; and (y) either (1) such Indebtedness is wholly nonrecourse to all Credit Parties or (2) after taking into account the Recourse Exposure Amount, if any, the Credit Parties are in full compliance with all provisions of this Agreement. "Permitted Transaction Amount" means One Million Dollars ($1,000,000) plus an integral multiple of Five Hundred Thousand Dollars ($500,000). "Person" means any individual, sole proprietorship, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, institution, entity, party or government (including any division, agency or department thereof). "Plan" means any employee benefit plan, program or arrangement maintained or contributed to by any Credit Party, or with respect to which any of them may incur liability. "Pool Hotel" means any Hotel that is part of a Hotel Pool. "Prevailing Exchange Rate" means, as to any foreign currency, the spot rate at which Dollars are offered on such day by Agent in New York, New York for such foreign currency. The Prevailing Exchange Rate shall be adjusted by Agent on a daily basis in accordance with Agent's customary procedures as in effect from time to time for foreign currency transactions. "Pricing Parameter" means: (a) if a Rating is presently in effect for Borrower, then such Rating; and (b) otherwise, Borrower's Leverage Ratio. 17 "Pro Rata Share" of any Lender means such Lender's proportionate interest in the Revolver Loans, calculated as follows. Divide the amount of that Lender's Revolver Commitment by the total amount of all Revolver Commitments at the time, unless there are no such commitments at the time. In that event, divide the sum of the principal amount of that Lender's outstanding Revolver Loans by the sum of the total principal amount of all Revolver Loans outstanding at the time. While any Lender is a Defaulting Lender, the amount of its Revolver Commitment (or Revolver Loans, as applicable) will be deemed to be zero for purposes of calculating Required Lenders. "Qualified Counterparty" means: (a) Agent or any Affiliate of Agent; or (b) a financial institution whose long term debt shall be rated not lower than A+ by S&P and A1 by Moody's and which is otherwise satisfactory to Agent and Borrower. "Rating" of Borrower means the rating of Borrower's senior, unsecured debt issued by any Rating Agency and in effect at the time of determination. For purposes of such determination, the highest two ratings (or the two equally highest) shall first be identified. Whichever of those two ratings is lower (if either) shall govern. If the two highest ratings are equal, then that rating shall be deemed Borrower's "Rating." If at any time Agent determines that the preceding Rating cannot be determined or calculated or does not exist, or if Borrower does not have an Investment Grade Rating, or if only one Rating Agency has issued a rating as to Borrower, then it shall be deemed that no Rating is in effect for Borrower. "Rating Agency" means any of the following rating agencies: S&P; Moody's; Fitch; or D&P. "Recourse Exposure Amount" for any Hotel means zero, except that if a Hotel is subject to a Lien as to which Borrower (i.e., Hospitality Properties Trust, a Maryland real estate investment trust, as opposed to any Subsidiary thereof) is or may become personally liable (in whole or in part) for payment of principal and interest, then the Recourse Exposure Amount means the lesser of (i) the excess, if any, of (a) the total amount of principal and more-than-sixty-days-overdue interest secured by such Lien (and any other Lien(s) equal or prior in lien to such Lien) over (b) an amount equal to Sixty-Five Percent (65%) of the Acquisition Cost of such Hotel; or (ii) the maximum amount of Borrower's actual or potential personal liability with respect to the principal and more-than-sixty-days-overdue interest secured by such Lien (and any other Lien(s) equal or prior in lien to such Lien). "Register" means a register of the names and addresses of all Lenders, their Revolver Commitments, and the principal amount of their Loans, as in effect from time to time, all in substantially the form of Exhibit G. "REIT" means a real estate investment trust as defined in Section 856 of the Code. "Reportable Event" means any of the events described in Section 4043 of ERISA or the regulations thereunder. 18 "Required Lenders" means Lenders the Pro Rata Shares of which total more than sixty-six and two-thirds percent (66-2/3%) of the total Pro Rata Shares of all Lenders. "Requirement of Law" means (a) the Governing Documents of a Person, (b) any law, treaty, rule or regulation or determination of an arbitrator, court or other Governmental Authority, or (c) any franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval binding on a Person or any of its property. "Reset Date" means the Closing Date and, thereafter: (a) so long as Borrower maintains a Rating, the effective date of each and every change in Borrower's Rating, effective upon each such change; and (b) at all other times, the first day of each calendar month. "Restricted Payments" shall have the meaning set forth in Section 7.6. "Retiree Health Plan" means an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA that provides benefits to persons after termination of employment, other than as required by Section 601 of ERISA. "Revolver Commitment" of a Lender means its commitment to make Revolver Loans, in an outstanding amount not to exceed, at any time, the amount set forth opposite its name on Annex I under the heading "Revolver Commitment," plus (without duplication) any amount so described in an Assignment and Assumption Agreement executed by such Lender, as such aggregate amount may be reduced from time to time. The aggregate amount of all the Revolver Commitments shall not exceed Two Hundred Fifty Million Dollars ($250,000,000). "Revolver Loans" is defined in Section 2.1. "Revolver Maturity Date" means the earlier of (a) the fourth anniversary of the Closing Date and (b) the date, if any, on which the Revolver Loans mature by notice of prepayment, acceleration or otherwise. "Revolver Note" means a promissory note of Borrower substantially in the form of Exhibit A. "SEC Filing" means any filing, report, or disclosure of any kind made with the United States Securities and Exchange Commission relating to Borrower, any securities issued by Borrower, or Borrower's affairs or operations. "S&P" means Standard & Poor's Rating Group, or any successor agency. "Subsidiary" of a Person means a corporation, partnership, limited liability company or other entity (a) in which that Person directly or indirectly owns or controls shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other governing body of such entity or (b) of which that Person is a general partner or a managing member or which that Person otherwise controls, directly or 19 indirectly, whether through the ownership of voting securities, by contract or otherwise. Without limiting the generality of the foregoing, as of the Closing Date all Subsidiaries of Borrower are listed in Section 5.11 of the Disclosure Schedule. "Ten-Year Treasury Rate" means as of any date, the interest rate per annum on such date for U.S. Government Treasury Securities with a ten (10) year remaining term, as calculated by the U.S. Treasury and available on the screen entitled Government Markets PX1 on the Bloomberg Information Service, or if not so available, determined on the basis of comparable yields for comparable U.S. obligations as published in a reputable publication designated by Agent. Where relevant to this Agreement, the Ten-Year Treasury Rate shall be ascertained by Borrower and certified to Agent subject to verification by Agent. "Termination Event" means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan; (b) the withdrawal of Borrower, any of its Subsidiaries or any ERISA Affiliate from a Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA); (c) the provision of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA); (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan; (e) any event or condition (1) which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (2) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan. "Total Commitments" means at any time, the total Revolver Commitments of all Lenders at such time. The Total Commitments shall not exceed Two Hundred Fifty Million Dollars ($250,000,000). "Type" of Loan refers to whether it is a Eurodollar Loan or a Base Rate Loan. "UCC" means the Uniform Commercial Code as in effect in New York from time to time. "Unencumbered Pool" means, collectively, all of the Hotels each of which satisfies all of the following criteria: o Such Hotel is, directly or indirectly, owned or leased 100% by Borrower, and no other Person (other than a Credit Party that is directly or indirectly 100% owned by Borrower) holds any direct or indirect interest in such Hotel (except for Permitted Liens). o If such Hotel is owned or ground-leased by a Subsidiary, then no asset of such Subsidiary is subject to a Lien (except for Permitted Liens), and such Subsidiary has not directly or indirectly guarantied or assumed liability for any Indebtedness (secured or unsecured) of any Subsidiary that is not a Credit Party. 20 o If such Hotel is a Pool Hotel, then all other Pool Hotels in the same Hotel Pool shall also be part of the Unencumbered Pool. o No Credit Party has pledged, hypothecated, or encumbered, directly or indirectly, or granted any Lien (other than a Permitted Lien) with respect to, its direct or indirect interest in such Hotel or in the Credit Party that owns or leases such Hotel. o Where a Credit Party's estate in a Hotel consists of a leasehold, such leasehold shall have a remaining term of at least thirty-five (35) years and shall otherwise be on terms and conditions satisfactory to Agent. o If such Hotel is subject to a Management Agreement entered into or modified after the Closing Date, then either: (a) such agreement and the Manager thereunder shall have been approved by Agent; or (b) such Management Agreement unconditionally, automatically, and completely terminates (with no rights of Manager nondisturbance and no rights for Manager to obtain a new or replacement Management Agreement), automatically or at Borrower's option, if the Lessee's estate in the Hotel terminates. o Such Hotel is free of Materials of Environmental Concern other than those maintained in accordance with applicable law in all material respects, material Environmental Claims, material structural defects, any Liens other than Permitted Liens, all as evidenced by Due Diligence Reports. o Such Hotel shall be fully operational and (in the case of rooms and suites) available for paying guests, except that no more than the following percentage of rooms (or suites, where applicable) may be out of service for renovation or remodeling at any particular time: Unencumbered Pool in Aggregate 15% Any Non-Pool Hotel 25% Each Hotel Pool 20% o Such Hotel shall be subject to a Lease satisfactory to Agent with a Lessee satisfactory to Agent, and such Lessee shall not be in material default beyond the expiration of any notice or cure period under its Lease or as to any material obligation to Borrower or any Subsidiary. o As to each Hotel in an Unencumbered Pool, either: (a) as to no more than twenty percent (20%) of the Hotels in the Unencumbered Pool (measured by Assigned Value), all obligations of Lessee under its Lease shall be unconditionally guarantied in favor of Borrower or the applicable Subsidiary 21 by a Person having an Investment Grade Rating (or some other guarantor satisfactory to Agent (all guarantors as of the Closing Date being hereby approved)), pursuant to a form of guaranty reasonably satisfactory to Agent; or (b) as to at least eighty percent (80%) of the Hotels in the Unencumbered Pool (measured by Assigned Value), Hotel Net Cash Flow from such Hotel shall equal or exceed the following percentage of Base Rent for such Hotel considered individually (or in the aggregate within each Hotel Pool): Any Non-Pool Hotel 110% Each Hotel Pool in the Aggregate 100% o Hotels having an Assigned Value representing at least sixty-five percent (65%) of the aggregate Assigned Value of the Unencumbered Pool shall be operated under brand names satisfactory to Agent (Agent hereby approving all brand names of Hotels in place as of the Closing Date); any franchise arrangements relating to such brand names shall be in full force and effect and no material uncured default shall have occurred and be continuing beyond applicable cure periods(s) thereunder; and, to the extent that such franchise arrangements exist, the franchisor shall not have given notice of intention not to renew any such arrangements, unless Borrower shall have arranged a replacement brand name satisfactory to Agent. "U.S." means the United States of America. "Wholly-Owned Subsidiary" means a wholly-owned Subsidiary of Borrower which has guarantied the Obligations to Agent for the benefit of Agent and the Lenders, in each case pursuant to guaranties in substantially the form of the Guaranty executed and delivered on the Closing Date. "Year 2000 Problem" means any significant risk that computer hardware or software used in the business or operations of Borrower, any Subsidiary of Borrower, or Investment Manager will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively and reliably as in the case of times or time periods occurring before January 1, 2000. 1.2 Other Definitional Provisions. (a) All accounting terms used in this Agreement or in any other Credit Document shall be construed in accordance with GAAP, applied on a basis consistent with the Financial Statements delivered to Agent covering the period through the Last Financial Statement Date, unless otherwise specified in the applicable Credit Document. (b) The word "including" means "including without limitation." Each of the words "hereof," "herein," and "hereunder" refer to this Agreement as a whole, not to any 22 particular portion of this Agreement. References to Articles, Sections, Annexes, Schedules and Exhibits are internal references to this Agreement and to its attachments, unless otherwise specified. The headings and the Table of Contents are for convenience of reference only and shall not affect the meaning or construction of any provision of this Agreement. ARTICLE 2 LOANS 2.1 Revolving Credit Commitments. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make loans and advances to Borrower ("Revolver Loans"), from the Closing Date through the last Business Day before the Revolver Maturity Date, provided, that the outstanding principal amount of such Lender's Revolver Loans must never exceed its Pro Rata Share of the amount of the total Revolver Commitments. Revolver Loans may be voluntarily prepaid (subject to Section 3.5) and any principal amounts so prepaid may be reborrowed as set forth above. 2.2 Procedure for Borrowings. To request a Borrowing of Revolver Loans, Borrower shall deliver to Agent (to all notice recipients for Agent as listed in Annex I) a written notice, substantially in the form of Exhibit D (a "Notice of Borrowing"), together with a Compliance Certificate. Each Notice of Borrowing shall specify (1) whether the requested Borrowing is of Base Rate Loans or (subject to all applicable restrictions contained in this Agreement) Eurodollar Loans, and (2) the Business Day on which Borrower requests that such Loans be made. Notices of Borrowing for Base Rate Loans shall be received by Agent before 11:00 A.M. New York time on the Business Day prior to the date of the proposed Borrowing, and Notices of Borrowing for Eurodollar Loans shall be received by Agent not later than 11:00 A.M. New York time on the third Business Day prior to the date of the proposed Borrowing. Each Notice of Borrowing shall, unless otherwise specifically provided herein, consist entirely of Loans of the same Type and, if the requested Borrowing is to consist of Eurodollar Loans, shall be in an aggregate amount for all Lenders equal to a Permitted Transaction Amount. Borrower shall specify in each Notice of Borrowing whether the conditions for the requested Borrowing are satisfied. Each Notice of Borrowing shall be deemed to automatically constitute Borrower's representation and warranty, to Agent and to each and every Lender considered separately, that all representations and warranties contained in this Agreement are and remain true and correct as of the date of such Notice of Borrowing; as of the date of the making of the requested Loan; and immediately thereafter taking into account the effect of the requested Loan. Borrower may request a Borrowing of Loans no more than three (3) times per month (unless an Event of Default has occurred, in which case no further Borrowings of Loans shall be permitted). Once given, a Notice of Borrowing is irrevocable by and binding on Borrower. Borrower shall provide to Agent a list, with specimen signatures, of officers authorized to request Loans. Agent is entitled to rely upon such list until it is replaced by Borrower. Agent shall give each Lender prompt notice by telephone or facsimile transmission of a Notice of Borrowing. 2.3 Disbursement of Loans. Subject to the determination by Agent and the Lenders that the applicable conditions for borrowing contained in Article 4 are satisfied or duly waived, each Lender shall make available to Agent at Agent's address, no later than 23 11:00 A.M. New York time on the date of the proposed Borrowing as set forth in the Notice of Borrowing, an amount in immediately available funds equal to such Lender's Pro Rata Share of the requested Borrowing, provided, however, that in no event shall such amount exceed the unutilized amount of such Lender's Commitment to make Revolving Loans. Unless Agent receives contrary written notice prior to the date of any such Borrowing of Loans, it is entitled to assume that each Lender will make available its Pro Rata Share of the Borrowing and in reliance upon that assumption, but without any obligation to do so, may advance such Pro Rata Share on behalf of the Lender. The proceeds of Revolver Loans shall be transmitted by Agent as reasonably requested by Borrower in its Notice of Borrowing. 2.4 Defaulting Lenders. (a) A Lender who fails to pay Agent its Pro Rata Share of any Loans made available by Agent on such Lender's behalf, or who fails to pay any other amount owing by it to Agent, is a "Defaulting Lender." Agent may recover all such amounts owing by a Defaulting Lender on demand. If the Defaulting Lender does not pay such amounts on Agent's demand, Agent shall promptly notify Borrower and Borrower shall pay such amounts within five Business Days. In addition, the Defaulting Lender shall pay Agent interest on such amount for each day from the date it was made available by Agent to Borrower to the date it is recovered by Agent at a rate per annum equal to (1) the overnight Federal Funds Rate, if paid by the Defaulting Lender, or (2) the then applicable rate of interest calculated under Article 3, plus, in each case, Agent's costs, losses and expenses, if any, incurred as a result of the Defaulting Lender's failure to perform its obligations. The foregoing shall not limit any rights or claims of Borrower against any Defaulting Lender, including any rights or claims as a result of Borrower's payment of any amounts that should have been paid by the Defaulting Lender. (b) The failure of any Lender to fund its Pro Rata Share of any Loan shall not relieve any other Lender of its obligation to fund its Pro Rata Share of such Loan. Conversely, no Lender shall be responsible for the failure of another Lender to fund its Pro Rata Share of a Loan. Revolver Loans shall be incurred pro rata from the Lenders (the "Non- Defaulting Lenders") which are not Defaulting Lenders based on their Revolver Commitments, provided, that each such Lender shall have at least one (1) Business Day's advance notice of its obligation to fund the increased amount. (c) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Agent for the Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender. For purposes of voting or consenting to matters with respect to the Credit Documents and determining Pro Rata Shares such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Revolver Commitment shall be deemed to be zero. This Section 2.4 shall remain effective with respect to such Lender until (1) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable or (2) Required Lenders, Agent and Borrower shall have waived such Lender's default in writing. The operation of this Section 2.4 shall not be 24 construed to increase or otherwise affect the Revolver Commitment of any Lender, or relieve or excuse the performance by Borrower of its duties and obligations hereunder. (d) Nothing in this Section 2.4 shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice any rights which Borrower, Agent, or any Lender may have against any Defaulting Lender as a result of any default by such Defaulting Lender hereunder. ARTICLE 3 COMPENSATION, REPAYMENT AND COMMITMENT REDUCTIONS 3.1 Interest Rate. (a) Interest on Base Rate Loans. Borrower shall pay to Agent for the account of the Lenders, quarterly in arrears, on the last Business Day of each calendar quarter, interest on Base Rate Loans outstanding during such calendar quarter at an interest rate per annum equal to the Base Rate plus the Applicable Margin. The rate hereunder shall change each day the Base Rate changes. After maturity of such Base Rate Loans (whether by acceleration or otherwise), interest shall be payable upon demand. Each determination by Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (b) Interest on Eurodollar Loans. Interest on each Eurodollar Loan shall be payable on the last day of the Interest Period for such Eurodollar Loan (and, in the case of any Eurodollar Loan with an Interest Period of six months, also on the three-month anniversary of the commencement of that Interest Period), at the date of conversion of such Eurodollar Loan (or a portion thereof) to a Base Rate Loan and at maturity of such Eurodollar Loan, as applicable, at an interest rate per annum equal to the Adjusted Eurodollar Rate for the Interest Period for such Eurodollar Loan plus the Applicable Margin. After maturity of such Eurodollar Loans (whether by acceleration or otherwise), interest shall be payable upon demand. Each determination by Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Applicable Margin; Reset Dates. At any time when no Rating is in effect for Borrower, within five Business Days after the end of each calendar month, Borrower shall deliver to Agent a certificate executed by the President or Chief Financial Officer of Borrower showing Borrower's calculations of the Leverage Ratio for the calendar month just ended. The first day after the last day of the calendar month just ended will be the applicable "Reset Date" corresponding to such certificate delivered by Borrower. The Applicable Margin shall be adjusted or continued, as the case may be, on each Reset Date based on the then-current Pricing Parameter as set forth in the table set forth in Annex III, and the Applicable Margin as so adjusted or continued shall remain in effect until the next Reset Date. (d) Interest After Default. Notwithstanding anything to the contrary in this Agreement or any other Credit Document, from the date of occurrence of an Event of 25 Default until the earlier of (i) the date all Obligations have been paid and satisfied in full or (ii) the date such Event of Default is cured or waived, Borrower shall be obligated to pay to Agent for the account of the Lenders interest on all amounts then outstanding under this Agreement calculated at a rate per annum (the "Default Rate") equal to the higher of (x) the Base Rate plus the Applicable Margin thereon, and (y) the Adjusted Eurodollar Rate plus the Applicable Margin thereon, plus in each case two percent (2.00%) per annum (200 basis points). (e) Distribution of Interest. Interest on the Loans shall be allocated by Agent to each Lender in accordance with the Pro Rata Share of Loans actually advanced by and repaid to each Lender, and shall accrue from and including the date such Loans are so advanced and to but excluding the date such Loans are repaid by Borrower. Agent shall distribute interest on Loans promptly after receiving it. 3.2 Commitment Fee. Borrower shall pay in arrears to Agent for the account of the Lenders, on the last Business Day of each calendar quarter (in equal quarterly installments), and on the Revolver Maturity Date, a quarterly fee (the "Commitment Fee") calculated at a fluctuating rate per annum, determined based on the applicable Pricing Parameter as of the most recent Reset Date from the table set forth in Annex III, on the average unused portion of the aggregate Revolver Commitments at the end of each day during the applicable period. (The Commitment Fee set forth in Annex III represents an annualized Commitment Fee, which shall be calculated for each Fiscal Quarter based on one-quarter of the stated annualized Commitment Fee and the daily average unused portion of the aggregate Revolver Commitments during such Fiscal Quarter.) The annualized Commitment Fee shall be adjusted or continued, as the case may be, on each Reset Date based on the then-current determination of the applicable Pricing Parameter, and such annualized Commitment Fee as so adjusted or continued shall remain in effect until the next Reset Date. 3.3 Maintenance of Loan Account. Agent shall maintain an account on its books in the name of Borrower (the "Loan Account") in which Borrower will be charged with all loans and advances made by the Lenders to Borrower or for Borrower's account and the other Obligations of Borrower under the Credit Documents, including the Revolver Loans, the Fees, and any other Obligations. The Loan Account will be credited with all payments received by Agent from Borrower. Absent manifest error, books and records of Agent regarding the Loan Account shall be final, conclusive and binding on Borrower. 3.4 Commitment Reductions. (a) On the Revolver Maturity Date, the Revolver Commitment, if any, of each Lender shall automatically reduce to zero and may not be reinstated. (b) Borrower may reduce or terminate the Revolver Commitments at any time and from time to time in whole or in part; provided, that (1) such reduction shall be of an identical percentage of each applicable Lender's Revolver Commitment, and (2) the amount of such reduction shall be One Million Dollars ($1,000,000) or an integral multiple thereof, and (3) Borrower shall give Agent at least fifteen days prior written notice of each such 26 reduction. Once reduced, no portion of the Revolver Commitments that has been reduced may be reinstated. 3.5 Voluntary Prepayments. Borrower shall have the right to prepay the Loans in whole or in part from time to time on the following terms and conditions: (a) Borrower shall give Agent written notice (or telephonic notice promptly confirmed in writing), which notice shall be irrevocable, of its intent to prepay the Loans, at least three Business Days prior to a prepayment of Eurodollar Loans and at least one Business Day prior to a prepayment of Base Rate Loans, which notice shall specify the amount of such prepayment and what Types of Loans are to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing(s) pursuant to which made, which notice Agent shall promptly transmit to each of the Lenders; (b) each prepayment shall be in an aggregate principal amount equal to a Permitted Transaction Amount; (c) prepayments of Eurodollar Loans made pursuant to this Section 3.4 may only be made on the last day of the Interest Period applicable thereto, unless Borrower pays Agent the breakage costs for each Lender required under Section 3.8(d)(2). 3.6 Mandatory Payments and Prepayments. The aggregate balance of Revolver Loans outstanding at any time in excess of the principal amount of Revolver Loans that would cause Borrower to be in full compliance with the covenants contained in this Agreement shall be due and payable immediately without the necessity of any demand. The entire then remaining principal amount of the Revolver Loans shall be due and payable on the Revolver Maturity Date. Subject to Section 2.4, all repayments of any Loans shall be paid to Agent for the account of each Lender based upon its Pro Rata Share of such Loans. 3.7 Payments; Calculations. All calculations of (i) interest hereunder and (ii) Fees, including, without limitation, Commitment Fees, shall be made by Agent, on the basis of a year of 365/366 days for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such interest or Fees are payable. Each determination by Agent of interest rates, Commitment Fees, and other fees, charges, expenses and payments hereunder shall be conclusive and binding for all purposes, absent manifest error. Each Credit Party shall make all payments owing by it to Agent or to any Lender hereunder or under any other Credit Document immediately available funds at such payment office as Agent shall designate by written notice to Borrower from time to time. Pending further written notice from Agent, Agent hereby designates the following account: Method of Payment: Fedwire Address: Dresdner Bank AG, New York 27 75 Wall Street New York, NY 10005 ABA No.: 026 008 303 Account Name: Hospitality Properties Trust Attn: Gary Jermansky Comments: Indicate type of payment - interest, principal, etc. Contact: Gary Jermansky Dresdner Bank, AG, New York 75 Wall Street 33rd Floor New York, New York 10005 212-429-2674 212-429-2130 3.8 Special Provisions Relating to Eurodollar Loans. (a) Continuation. With respect to any Borrowing consisting of Eurodollar Loans, subject to Section 3.8(c) and so long as no Event of Default has occurred and is continuing, Borrower may elect to maintain such Borrowing or any portion thereof equal to a Permitted Transaction Amount as a Borrowing consisting of Eurodollar Loans by selecting a new Interest Period for such Borrowing, which new Interest Period shall commence on the last day of the immediately preceding Interest Period. Each selection of a new Interest Period shall be made by notice given by Borrower to Agent not later than 11:00 A.M. New York time on the third Business Day prior to the date of any such continuation. Such notice by Borrower of a continuation (a "Notice of Continuation") shall be substantially in the form of Exhibit E and shall specify (i) the date of such continuation, (ii) the Type of Loans subject to such continuation, (iii) the aggregate amount of Loans subject to such continuation (which 28 must be a Permitted Transaction Amount) and (iv) the duration of the selected Interest Period. Borrower shall be deemed to have delivered a Notice of Continuation (requesting another Interest Period equal to the expiring Interest Period and contemplating a continuation of the same Borrowing in the same amount) unless, by 11:00 A.M. New York time on the third Business Day prior to the date of any such continuation Borrower has notified Agent otherwise in writing. Borrower may combine Borrowings with Interest Periods which end on the same Business Day into a single new Borrowing and may split one Borrowing into two or more Borrowings each consisting of a Permitted Transaction Amount, pursuant to this Section 3.8(a). If Borrower shall fail to select a new Interest Period for any Borrowing consisting of Eurodollar Loans in accordance with this Section 3.8(a), then such Loans will automatically, on the last day of the then existing Interest Period therefor, continue as a Eurodollar Loan and be renewed for the same Interest Period and the same Borrowing amount. Agent shall give each Lender prompt notice by telephone or facsimile transmission of each Notice of Continuation. (b) Conversion. Subject to Section 3.8(c) and (in the case of conversions to Eurodollar Loans) so long as no Event of Default has occurred and is continuing, Borrower may, on any Business Day upon written notice (each such notice, a "Notice of Conversion") given to Agent, convert the entire amount of or a portion of all Loans of one Type comprising the same Borrowing into Loans of another Type; provided, however, that any conversion of any Eurodollar Loans into Base Rate Loans shall be made on, and only on, the last day of an Interest Period for such Eurodollar Loans and, upon conversion of any Base Rate Loans into Eurodollar Loans, Borrower shall pay accrued interest to the date of conversion on the principal amount of Base Rate Loans converted. Each such Notice of Conversion shall be given not later than 11:00 A.M. New York time on the Business Day prior to the date of any proposed conversion into Base Rate Loans and on the third Business Day prior to the date of any proposed conversion into Eurodollar Loans. Subject to the restrictions specified above, each Notice of Conversion shall be substantially in the form of Exhibit E and shall specify (i) the requested date of such conversion, (ii) the Type of Loans to be converted, (iii) the portion of such Type of Loans to be converted, (iv) the Type of Loan such Loans are to be converted into and (v) if such conversion is into Eurodollar Loans, the duration of the Interest Period of such Loans. Each conversion into Eurodollar Loans shall be in an aggregate amount for the Loans of all Lenders in an amount equal to a Permitted Transaction Amount. Borrower may elect to convert the entire amount of or a portion of all Loans of one Type comprising more than one Borrowing into Loans of another Type by combining such Borrowings into one Borrowing, provided, that if the Borrowings so combined consist of Eurodollar Loans, such Loans shall have Interest Periods ending on the same date. (c) Certain Limitations on Eurodollar Loans. The right of Borrower to maintain, select, continue or convert Eurodollar Loans shall be limited as follows: (1) If Agent is not offering U.S. dollar deposits (in the applicable amounts) in the London interbank market, or Agent determines that adequate and fair means do not otherwise exist for ascertaining the Adjusted Eurodollar Rate for Eurodollar Loans comprising any requested Borrowing, continuation or conversion, the right of Borrower to select Eurodollar Loans for such Borrowing, continuation or conversion or any subsequent 29 Borrowing, continuation or conversion shall be suspended until Agent shall notify Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Loan comprising such requested Borrowing, continuation or conversion shall be made as a Base Rate Loan. (2) If Required Lenders shall determine and notify Agent that the Adjusted Eurodollar Rate for Loans comprising a Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Loans for such Borrowing, the right of Borrower to select Eurodollar Loans for such Borrowing shall be suspended until Agent shall notify Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Loan comprising such Borrowing shall be made as a Base Rate Loan. (3) If at any time any Lender determines (which determination shall, absent manifest error, be conclusive and binding on all parties) that the making, continuation or conversion of any Loan as a Eurodollar Loan has become unlawful or impermissible by reason of compliance by that Lender with any law, governmental rule, regulation or order of any Governmental Authority (whether or not having the force of law and whether or not failure to do so would result in costs or penalties), then such Lender may give notice of that determination in writing to Borrower and Agent and Agent shall promptly transmit the notice to each other Lender. Until such Lender gives notice otherwise, the right of Borrower to select Eurodollar Loans from that Lender shall be suspended and, to the extent required by applicable law, rule, regulation, or order, each Eurodollar Loan outstanding from that Lender shall automatically and immediately convert to a Base Rate Loan. (4) Except as otherwise expressly provided in this Agreement, there shall not be outstanding at any one time more than an aggregate of eight (8) Borrowings of Eurodollar Loans. (d) Compensation. (1) Each Notice of Continuation and Notice of Conversion shall be irrevocable by and binding on Borrower. In the case of any Borrowing, continuation or conversion that the related Notice of Borrowing, Notice of Continuation or Notice of Conversion specifies is to be comprised of Eurodollar Loans, Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill, on or before the date for such Borrowing, continuation or conversion specified in such Notice of Borrowing, Notice of Continuation or Notice of Conversion, the applicable conditions set forth in Article 4, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender to fund the Loan to be made by such Lender as part of such Borrowing, continuation or conversion. (2) If any payment of principal of, or conversion or continuation of, any Eurodollar Loan is made other than on the last day of the Interest Period for such Loan for any reason, Borrower shall, within ten (10) Business Days of written demand by any Lender (a copy of which demand such Lender shall deliver to Agent), pay to Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, 30 costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Loan. 3.9 Increased Costs; Capital Adequacy. (a) If after the date of this Agreement the adoption of or any change in any Requirement of Law or in the interpretation or administration thereof by any Governmental Authority (whether or not having the force of law) or compliance by Agent or any Lender with any direction, request or requirement (whether or not having the force of law) of any Governmental Authority or monetary authority, including Regulation D of the Federal Reserve as from time to time in effect (and any successor thereto), in each case after the Closing Date: (1) shall change the basis of taxation of payments to Agent or any Lender in respect of the principal of or interest on any Loan made by such Lender (other than taxes imposed on or measured by the overall net income of Agent or such Lender, as the case may be, by the jurisdiction in which such Person has its principal office (or lending office) or by any political subdivision or taxing authority therein); or (2) shall impose, modify or hold applicable any reserve, deposit, compulsory loan or other similar requirement against assets of, deposits with or for the account of, or other extensions of credit by, any office of Agent or any Lender (which requirement, with respect to Loans, is not otherwise included in the determination of the Adjusted Eurodollar Rate or the Base Rate, as applicable); and the result of any of the foregoing is to increase the cost to such Person of making, converting into, continuing or maintaining Loans or of purchasing and maintaining any participation therein, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, Borrower shall pay to Agent or such Lender, as the case may be, any additional amounts necessary to compensate such Person for such increased cost or reduced receipt, together with interest on such amount from the date of the required payment until payment in full thereof at a rate equal at all times to the Base Rate or the Default Rate, as applicable. If any Person becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify Borrower, through Agent, of the event by reason of which it has become so entitled. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) If Agent or any Lender shall have determined that the applicability of any law, rule, regulation or guideline adopted after the Closing Date pursuant to or arising out of the July 1988 report of the Basic Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption after the Closing Date of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance 31 by any such Person or any such Person's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Person's or such holding company's capital as a consequence of its obligations hereunder to a level below that which such Person or such holding company could have achieved but for such adoption, change or compliance (taking into consideration such Person's or such holding company's policies with respect to capital adequacy) by an amount deemed by such Person to be material, then from time to time, after submission by such Person to Borrower (with a copy to Agent) of a written request therefor, Borrower shall pay to such Person such additional amount or amounts as will compensate such Person for any such reduction suffered. (c) A certificate of Agent or the applicable Lender, as the case may be, setting forth such amount or amounts as shall be necessary to compensate such Person or its holding company as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to Borrower (with a copy to Agent) and shall be conclusive absent manifest error. Borrower shall pay such Person the amount shown as due on any such certificate delivered by it within 10 Business Days after its receipt of the same. 3.10 Taxes. (a) All payments made by Borrower under this Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, charges, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding (i) net income taxes or any other taxes imposed on or measured by the net income or profits of Agent or a Lender, as the case may be, in each case by the jurisdiction under the laws of which such Person is organized or any political subdivision thereof or by the jurisdiction in which the principal or applicable lending or issuing office of such Person is located or any political subdivision thereof and (ii) U.S. withholding taxes payable with respect to payments hereunder under laws (including any treaty, ruling, determination or regulation, including presently issued regulations having a future effective date) in effect on, but not any increase in U.S. withholding tax resulting from any subsequent change in such laws (but not the mere occurrence of a future effective date as to final regulations already in place) occurring after, (x) the Closing Date in the case of Agent and any Person which is a Lender as of the date of this Agreement, and (y) in the case of any other Lender, the date of the Assignment and Acceptance Agreement pursuant to which it became a Lender (all such non-excluded taxes, levies, imposts, charges, deductions and withholdings the "Non-Excluded Taxes"). In addition, Borrower agrees to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Credit Document ("Other Taxes"). If any Non-Excluded Taxes or Other Taxes are required by law to be withheld from any amounts payable to Agent or any Lender hereunder or under the Notes, the amounts so payable to such Person shall be increased to the extent necessary to yield to such Person interest or any such other amounts payable hereunder at the rates or in the amounts specified in this 32 Agreement and the Notes. Whenever any Non-Excluded Taxes or Other Taxes are payable by Borrower, upon receipt thereof Borrower shall send to Agent for its own account or for the account of the applicable Lender, as the case may be, a certified copy of any original official receipt received by Borrower showing payment thereof. Borrower shall indemnify Agent and the Lenders for the full amount of Non-Excluded Taxes, Other Taxes and any taxes imposed by any jurisdiction on amounts payable under this Section 3.10 that are paid by such indemnified Person (including penalties, interest and expenses arising therefrom or with respect thereto). If Agent or a Lender receives a refund which it determines is in respect of any Non-Excluded Taxes or Other Taxes for which such Person has received payment from Borrower hereunder, such Person shall, within 30 days of such determination by such Person, repay such refund to Borrower, provided that Borrower, upon the request of such Person, agrees to return such refund (plus any penalties, interest or other charges) to such Person in the event such Person is required to repay such refund. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the U.S. or a State thereof shall: (1) in the case of a Lender that is a "bank" under Section 881(c)(3)(A) of the Code: (A) on or before the date of the first payment to such Lender pursuant to this Agreement following the Closing Date or on or before the effective date of the Assignment and Acceptance Agreement pursuant to which such Person becomes a Lender, deliver to Borrower and Agent (x) two duly completed copies of U.S. Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (y) a U.S. Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; and (B) deliver to Borrower and Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and promptly upon the occurrence of any event requiring a change in the most recent form previously delivered by it to Borrower; or (2) in the case of a Lender that is not a "bank" under Section 881(c)(3)(A) of the Code: (A) on or before the date of the first payment to such Lender pursuant to this Agreement following the Closing Date or on or before the effective date of the Assignment and Acceptance Agreement pursuant to which such Person becomes a Lender, deliver to Borrower and Agent (i) a statement under penalties of perjury that (to the extent true) such Lender (x) is not a "bank" under Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or 33 other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements, (y) is not a 10-percent shareholder within the meaning of Section 881(c)(3)(B) of the Code and (z) is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (ii) an Internal Revenue Service Form W-8; and (B) deliver to Borrower and Agent a further copy of said Form W-8, or any successor applicable form or other manner of certification on or before the date that any such Form W-8 expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by such Lender; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders any such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises Borrower and Agent, in which case such Lender shall provide substitute or replacement forms, if any. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any U.S. federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from U.S. backup withholding tax. Each Person that shall become a Participant pursuant to Section 10.9(d) shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this Section 3.10 to the Lender from which the related participation shall have been purchased. Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the U.S. (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) to the extent that such Lender has not provided to Borrower on or prior to the date required pursuant to this Section 3.10(b) the IRS form or forms, if any, so required to be provided to Borrower, and Borrower shall not be obligated under this Section 3.10 to gross-up payments to be made to such a Lender in respect of income or similar taxes imposed by the U.S. if such Lender has not provided to Borrower on or prior to the date so required the IRS form or forms required to be provided to Borrower pursuant to this Section 3.10(b). (c) Each Lender agrees to use reasonable efforts, including reasonable efforts to change its lending office, to avoid or to minimize any amounts which might otherwise be payable pursuant to Sections 3.9 and 3.10, provided that such efforts do not cause the imposition on such Lender of additional costs or legal or regulatory burdens deemed by such Lender to be material in the context. 3.11 Sharing of Payments. If any Lender obtains any payment in excess of its Pro Rata Share of payments on account of the Revolver Loans (whether through direct payment, right of setoff, banker's lien, counterclaim, or any other means, including direct payment), such Lender shall immediately purchase from the other Lenders with Revolver Commitments portions of their Revolver Loans sufficient to cause that Lender to share the excess payment ratably with all the other Lenders, and the Lenders shall otherwise take such actions as shall be reasonably requested by Agent to cause such excess payment to be equitably shared by all Lenders in proportion to Pro Rata Shares. 34 3.12 Administrative Fee. Borrower shall pay Administrative Agent the Administrative Fee in equal quarterly installments in advance, each due on the first day of a Fiscal Quarter, except that the first installment, prorated, shall be due promptly upon billing by Administrative Agent after the date hereof. Notwithstanding anything to the contrary in this Agreement, no Lender (other than Administrative Agent) shall have any interest in, or right to receive any portion of, Administrative Fee. ARTICLE 4 CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans. The obligation of each Lender to fund its Pro Rata Share of the initial Revolver Loan (if any disbursements thereof are made on the Closing Date) are subject to the satisfaction or waiver of the following conditions precedent on the Closing Date: (a) Closing Documents List. Agent and the Lenders shall have received each of the agreements, opinions, reports, approvals, consents, certificates and other documents set forth on the Closing Documents List, each duly executed (where applicable) and delivered by all appropriate Persons and in form and substance satisfactory to Agent and the Lenders. (b) Liquidity and Financial Compliance. Agent and the Lenders shall have received evidence satisfactory to them that Borrower will be in full compliance with this Agreement (including the financial covenants contained in Section 7.1) after giving effect to consummation of the transactions completed herein and the making of any initial advance of the Revolver Loan to be funded on the Closing Date. (c) Fees and Expenses. All Fees and Expenses (including reasonable attorneys' fees and expenses) payable on or before the Closing Date shall have been paid in full, including all fees and other sums payable by Borrower pursuant to that certain engagement letter dated January 30, 1998, between Borrower and Arranger. (Notwithstanding the foregoing, Agent may determine to defer Borrower's obligation to pay for certain Expenses until some later date, such as the closing of Agent's initial syndication of this Loan. Accordingly, Agent's failure to require Borrower to pay any such Expenses as of the Closing Date shall not be deemed a waiver of Agent's right to require Borrower to pay such Expenses at a later date as determined by Agent.) (d) Structure; Due Diligence. Agent and each Lender shall have reviewed and be satisfied with the structure, prospective liabilities (including environmental and pension liabilities) and regulatory compliance of Borrower and its Subsidiaries, including review of a completed audit report by Arthur Andersen LLP and review of insurance certificates, copies of which shall have been provided to Agent and each Lender. (e) No Material Adverse Change. There shall not have been any material adverse change in the financial condition, assets, operation or prospects of Borrower since the Last Financial Statement Date. 35 (f) Additional Documents. Borrower and its Subsidiaries shall have executed and delivered (or caused to be executed and delivered) to Agent for distribution to the Lenders any and all other information, agreements, instruments, certificates, opinions and other documents regarding the transactions contemplated hereby as Agent or any Lender shall request. 4.2 Conditions Precedent to All Loans. The obligation of each Lender to fund its Pro Rata Share of any requested Loan is subject to the following additional conditions precedent, and each Notice of Borrowing and each acceptance of the proceeds of a Loan shall constitute a representation and warranty by Borrower that such conditions are satisfied: (a) Representations and Warranties. All representations and warranties contained in this Agreement and the other Credit Documents shall be true and correct in all material respects on and as of the date of such Notice of Borrowing and on and as of the date such Loan is made, as if then made, other than representations and warranties that expressly relate solely to an earlier date; (b) No Defaults. No Default or Event of Default shall have occurred, or would result from the making of the requested Loan, which has not been waived; and (c) No Adverse Change. No event shall have occurred since the Last Financial Statement Date, which has had or would reasonably be expected to have a Material Adverse Effect. ARTICLE 5 REPRESENTATIONS AND WARRANTIES. To induce Agent and the Lenders to enter into this Agreement and to make the Loans and other financial accommodations described herein, Borrower hereby represents and warrants to Agent and the Lenders that as of the Closing Date the following representations and warranties are true in all material respects. Such representations and warranties, and all other representations and warranties made by any Credit Party in any other Credit Document, shall survive the execution and delivery of the Credit Documents. 5.1 Organization and Qualification. Each Credit Party (i) is a corporation, limited liability company, partnership or real estate investment trust duly organized or formed, validly existing and, if applicable, in good standing under the laws of the state of its formation; (ii) has the power and authority to own its properties and assets and to transact the businesses in which it is engaged; and (iii) is duly qualified and is authorized to do business and, if applicable, is in good standing in each jurisdiction where it is engaged in business and where such qualification is required, except where failure to comply with any of the foregoing would not have a Material Adverse Effect. As of the Closing Date, Section 5.1 of the Disclosure Schedule lists all jurisdictions in which the Credit Parties are qualified to do business as foreign entities. 36 5.2 Authority. Each Credit Party has the requisite organizational power and authority to execute, deliver and perform each of the Credit Documents to which it is a party. All organizational action necessary for the execution, delivery and performance of each of the Credit Documents by each Credit Party which is a party thereto has been taken. 5.3 Enforceability. This Agreement and each other Credit Document is the legal, valid and binding obligation of each Credit Party which is a party thereto, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law). 5.4 No Conflict. The execution, delivery and performance of each Credit Document by each Credit Party which is a party thereto are not in contravention of any Requirement of Law or any indenture, contract, lease, agreement, instrument or other commitment to which any Credit Party is a party or by which any Credit Party or any of their properties are bound and will not result in the imposition of any Liens upon any of the property of any Credit Party (other than Liens in favor of Agent). 5.5 Consents and Filings. No authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Person is required in connection with the execution, delivery and performance of this Agreement or any other Credit Document, except those that have been obtained or made. 5.6 Government Regulation. Neither Borrower nor any Subsidiary is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, nor is Borrower or any Subsidiary subject to any other Requirement of Law which purports to regulate or restrict its ability to borrow money or grant Liens on its assets. 5.7 Solvency. Both before and after giving effect to the transactions contemplated in this Agreement: (i) the fair saleable value of the assets of each Credit Party is not less than the amount that will be required to pay the probable liabilities of such Credit Party on its existing debts as they become due; (ii) no Credit Party is engaged in, or about to become engaged in, a business or transaction for which such Credit Party's property would constitute unreasonably small capital in relation to such business or transaction; and (iii) no Credit Party has incurred, intends to incur or believes that it will incur, debts and liabilities beyond its ability to pay as such debts and liabilities become absolute and matured. 5.8 Financial Data. (a) Borrower has provided to Agent complete and accurate copies of annual audited Financial Statements for the Fiscal Years 1995, 1996 and 1997 (and, after the Closing Date, for any Fiscal Year as to which this Agreement requires Borrower to have delivered annual audited Financial Statements), and unaudited Financial Statements for the partial Fiscal Year ended on the Last Financial Statement Date (and, after the Closing Date, for any period as to which this Agreement requires Borrower to have delivered unaudited 37 partial-year Financial Statements). All such Financial Statements have been prepared in accordance with GAAP consistently applied throughout the periods involved and fairly present the respective consolidated financial positions, results of operations and cash flows of Borrower as at such dates and for such periods, except as otherwise specifically described in the notes to any of such Financial Statements. As of the date of the most recent Financial Statements delivered to Agent and each Lender, neither Borrower nor any of its Subsidiaries has any Contingent Obligation, contingent liability or liability for taxes, long-term leases or commitments which is not reflected in such Financial Statements but, pursuant to GAAP, would be required to be reflected in such Financial Statements. (b) Borrower has provided to Agent complete and accurate copies of the pro forma balance sheet of Borrower as of the Closing Date, giving effect to the transactions contemplated in this Agreement to occur on the Closing Date. Such pro forma balance sheet fairly presents the pro forma combined financial condition of Borrower and all other Credit Parties as of the Closing Date, giving effect to such transactions. 5.9 Names. As of the Closing Date, the only names under which each Credit Party has conducted business during the last five years are listed in Section 5.9 of the Disclosure Schedule. 5.10 Locations of Offices, Records and other Property. The address of the principal place of business and chief executive office of each Credit Party is set forth in Section 5.10 of the Disclosure Schedule (or has changed since the Closing Date to another location as to which Borrower has complied with the requirements of Section 7.3(f)). The books and records of each Credit Party are maintained exclusively at such locations. The location of all real property owned or leased by any Credit Party is set forth in Section 5.10 of the Disclosure Schedule, except for real property first owned or leased after the Closing Date, as to all of which Borrower has complied with the requirements of Section 7.3(f). There is no jurisdiction in which any Credit Party owns or leases any real property other than those jurisdictions identified in Section 5.10 of the Disclosure Schedule. 5.11 Subsidiaries; Ownership of Stock. The only direct or indirect Subsidiaries of Borrower (after the Closing Date, other than Subsidiaries established or acquired in accordance with Section 7.7(c)) are those listed in Section 5.11 of the Disclosure Schedule. Section 5.11 of the Disclosure Schedule correctly indicates, for each Subsidiary that is not a Guarantor, the basis for such Subsidiary's not being a Guarantor. Borrower is the record and beneficial owner of all of the Capital Stock of each of its Subsidiaries except as provided in Section 5.11 of the Disclosure Schedule or, after the Closing Date, as otherwise disclosed in writing to Agent and not in violation of this Agreement. Except as set forth in Section 5.11 of the Disclosure Schedule or, after the Closing Date, as otherwise disclosed in writing to Agent, there are no proxies, irrevocable or otherwise, with respect to such Capital Stock, and no equity securities of any of such Subsidiaries are or may become required to be issued by reason of any options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any Capital Stock of any such Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any such Subsidiary is or may become bound to 38 issue additional Capital Stock or securities convertible into or exchangeable for such Capital Stock. All of such Capital Stock so owned by Borrower is owned by Borrower free and clear of any Liens other than Permitted Liens. 5.12 Litigation. Except as set forth in Section 5.12 of the Disclosure Schedule, no judgments, orders, writs or decrees are outstanding against or affecting any Credit Party or any of the properties, rights, revenues or assets of any Credit Party, nor is there now pending or, to the best of Borrower's knowledge, threatened, any litigation, claim, investigation, arbitration, or other proceeding against or affecting any Credit Party or any of the properties, rights, revenues or assets of any Credit Party, including any counterclaim brought in a litigation or arbitration in which any Credit Party is the plaintiff that would result in a Material Adverse Effect. 5.13 No Defaults. To Borrower's knowledge, no Credit Party is in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it is bound and Borrower knows of no dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment, in either case, which default would have a Material Adverse Effect. 5.14 Labor Matters. There are no labor contracts to which any Credit Party is a party. No Credit Party is engaged in any unfair labor practice that would reasonably be expected to have a Material Adverse Effect. There is no strike, labor dispute, union organizing activity, slowdown or stoppage pending or, to the best knowledge of Borrower, threatened against any Credit Party which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 5.15 ERISA. No ERISA Affiliate maintains or contributes to any Plan or is obligated to do so. No Credit Party, ERISA Affiliate, or fiduciary of any Plan is subject to any direct or indirect liability with respect to any Plan under any Requirement of Law or agreement. 5.16 Compliance with Law. (a) Generally. Neither Borrower nor any other Credit Party has violated or failed to comply with any Requirement of Law, which failure would have a Material Adverse Effect. (b) Compliance with Environmental Laws. (1) Except as set forth in Section 5.16 of the Disclosure Schedule or that would not have a Material Adverse Effect, (A) each of the Credit Parties and, to Borrower's knowledge, Environmental Affiliates are in compliance in all material respects with all applicable Environmental Laws, (B) each of the Credit Parties and, to Borrower's knowledge, Environmental Affiliates have all Environmental Approvals required to operate their businesses as presently conducted, (C) none of the Credit Parties has received and, to the best of Borrower's knowledge, no Environmental Affiliate has received any communication from a Governmental Authority, employee or any other Person or group that 39 alleges that such Credit Party is not in compliance in all material respects with all Environmental Laws (which, if first received after the Closing Date, has not been disclosed to the Lenders if and to the extent required under Section 6.2(b)) and (D) to Borrower's knowledge, there are no circumstances known to Borrower which may prevent or interfere with such compliance in the future. (2) Except as set forth in Section 5.16 of the Disclosure Schedule or which would not have a Material Adverse Effect: there is no Environmental Claim pending or threatened against any Credit Party or, to Borrower's knowledge, Environmental Affiliate which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; and, to Borrower's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge or disposal of any Material of Environmental Concern, that would reasonably be expected to form the basis of any Environmental Claims against any Credit Party or Environmental Affiliate, which Environmental Claims, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (3) Without limiting the generality of the foregoing, except as disclosed in any environmental report made available to Agent or in Section 5.16 of the Disclosure Schedule, to Borrower's knowledge: (i) there are no on-site or off-site locations at which any Credit Party or Environmental Affiliate has stored, disposed of or arranged for the disposal of Materials of Environmental Concern; (ii) there are no underground storage tanks located on property owned or leased by any Credit Party or Environmental Affiliate; (iii) there is no asbestos contained in or forming part of any building, building component, structure or office space owned or leased by any Credit Party or Environmental Affiliate; and (iv) no polychlorinated biphenyls ("PCB's") are used or stored at any property owned or leased by any Credit Party or Environmental Affiliate, in any such case that is reasonably expected to have a Material Adverse Effect. 5.17 Taxes and Tax Returns. Each Credit Party has timely filed all tax returns it is required to file and has paid all taxes, penalties, assessments and other governmental charges payable by it which have become due, other than those not yet delinquent and those being contested in good faith by appropriate proceedings and for which adequate reserves have been made in conformity with GAAP. The information filed in such tax returns is accurate and complete in all material respects. All deductions taken in such income tax returns are appropriate and in accordance with applicable laws and regulations in all material respects. No tax Liens have been filed against any assets of any Credit Party. No deficiencies for taxes have been claimed, proposed or assessed by any taxing or other Governmental Authority against any Credit Party; there are no pending or threatened audits, investigations or claims for or relating to any liability for taxes and there are no matters under discussion with any Governmental Authority that, in any such case, could result in a material additional liability for taxes and which would reasonably be expected to have a Material Adverse Effect. No federal income tax returns of any Credit Party have been audited by the Internal Revenue Service as of the Closing Date. Except as set forth in Section 5.17 of the Disclosure Schedule, no extension of a statute of limitations relating to taxes, assessments, fees or other governmental charges is in effect with respect to any Credit Party. No Credit 40 Party has any obligation under any written tax sharing agreement or agreement regarding payments in lieu of income taxes with any Person other than another Credit Party. 5.18 Intellectual Property. Each Credit Party has obtained and holds in full force and effect all Intellectual Property, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted, except where failure to obtain and/or hold such Intellectual Property would not have a Material Adverse Effect. No product, process, method, substance, part or other material presently sold or employed by any Credit Party in connection with such business infringes any Intellectual Property owned by any other Person. 5.19 Licenses and Permits. Each Credit Party has obtained and holds in full force and effect, free from burdensome restrictions, all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its business as presently conducted, except where the failure to obtain such rights and approvals, individually and in the aggregate, would not be reasonably expected to have a Material Adverse Effect. No Credit Party is in violation of the terms or conditions of any such right or approval, which violation would reasonably be expected to have a Material Adverse Effect. 5.20 Material Contracts. Section 5.20 of the Disclosure Schedule contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date. Except as described in Section 5.20 of the Disclosure Schedule and except as would not reasonably be expected to have a Material Adverse Effect, no Material Contract contains any burdensome restrictions on any Credit Party or any of their respective properties, all of the Material Contracts are in full force and effect, and, to Borrower's knowledge, no material defaults currently exist thereunder. 5.21 Use of Proceeds. No part of the proceeds of any Loan will be used by any Credit Party to purchase or carry any Margin Stock or to extend credit to any other Person for the purpose of purchasing or carrying any Margin Stock or for any other purpose in violation of any Requirement of Law or the terms and conditions of any of the Credit Documents. Neither the making of any Loan nor the use of the proceeds thereof has been or will be in violation of or inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve. 5.22 Accuracy and Completeness of Information. To Borrower's knowledge, all factual information furnished by or on behalf of any Credit Party in writing to Agent, any Lender, or the directors, officers, employees, independent contractors and agents of any of them for purposes of or in connection with this Agreement or any other Credit Documents, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. 5.23 Leases and Management Agreements. Section 5.23 of the Disclosure Schedule correctly identifies all Leases and Management Agreements to which any Credit Party is a 41 party as of the Closing Date. To the extent that such Section summarizes Base Rent of Leases and other economic terms of Leases and Management Agreements, such summary is accurate and correct in all material respects. All Leases and Management Agreements listed in such Section are in full force and effect and have not been amended, modified, terminated or waived in any way, orally or in writing except as disclosed in the Disclosure Schedule. No material default beyond the expiration of any applicable notice or cure period exists under any such Lease to which any Credit Party is a party or, to the best of Borrower's knowledge, under any Management Agreement (whether or not a Credit Party is a party thereto). All Leases in each of the seven groups of Leases set forth in Section 5.23 of the Disclosure Schedule are on substantially the same terms and conditions (other than as to amount of Base Rent and percentage rent and identity of the leased premises). 5.24 Title to Hotels. As to all or substantially all of the Hotels, Borrower or a Subsidiary is the insured under a policy of title insurance issued by a title insurer licensed to do business in the jurisdiction where such Hotel is located. As to each such policy of title insurance: (a) the coverage amount equals or exceeds the Acquisition Cost of the related Hotel; (b) exceptions to title do not include any Liens, except for Permitted Liens and Liens that have been repaid as of the Closing Date; (c) no claims are pending that, if adversely determined, would have a Material Adverse Effect; and (d) no title insurer has given notice to the insured Person that such policy of title insurance is no longer in effect. Except for Permitted Liens, neither Borrower nor any Subsidiary has knowledge of any defect in title that could, individually or in the aggregate, have a Material Adverse Effect. Borrower represents and warrants that as of the date hereof, Borrower has terminated and repaid all previously existing secured debt of Borrower or any other Credit Party. To the extent, if any, that any mortgages, deeds, of trust, and other security documents relating to such secured debt (the "Former Mortgages") have not been released of record as of the date hereof, Borrower shall, on or before April 20, 1998, (a) cause the record holder of each Former Mortgage to execute and acknowledge appropriate release documentation, and (b) submit such release documentation to the appropriate public offices for recordation. Provided that Borrower performs its obligations under the preceding sentence, the Former Mortgages shall not be deemed a breach of this paragraph or of any other provision of this Agreement. 5.25 REIT Compliance. Borrower fully complies with all requirements for qualification as a REIT and has done so since its inception, except where the failure to qualify would not have a Material Adverse Effect. None of the assets owned, or hereafter to be acquired, by Borrower or any Subsidiary constitute (or will constitute) property held primarily for sale to customers in the ordinary course of Borrower's trade or business. 5.26 Insurance. All Leases require the Lessees thereunder to maintain with respect to the Hotels insurance coverage of a nature, on terms, and providing coverage in accordance with the insurance that a commercially reasonable person would maintain with respect to similar properties and a similar business. No Credit Party has received notice that any such insurance has been cancelled, nonrenewed, or impaired in any way. 5.27 Year 2000 Problem. Borrower has reviewed its operations and those of its Subsidiaries and of Investment Manager with a view to assessing whether its or any of their 42 respective businesses will, in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission, or other utilization of data be vulnerable to a Year 2000 Problem. Based on such review, Borrower has no reason to believe that a Material Adverse Effect will occur with respect to its or its Subsidiaries' business or operations resulting from a Year 2000 Problem. 5.28 Certificates and Deliveries. At all times until all Obligations have been paid in full and all Commitments have terminated, all Compliance Certificates and other certificates, deliveries and reports delivered by Borrower to Agent or any Lender pursuant to this Agreement are and shall be true and correct in all material respects. Without limiting the generality of the foregoing, at all times the most recent Compliance Certificate delivered by Borrower accurately describes the Unencumbered Pool and the basis upon which each and every Hotel in the Unencumbered Pool qualifies for inclusion in the Unencumbered Pool. ARTICLE 6 AFFIRMATIVE COVENANTS Until termination of the Commitments and this Agreement and full and final payment and satisfaction of all Obligations due hereunder or under any other Credit Document: 6.1 Financial Reporting. Borrower shall timely deliver to Agent (separately to each notice recipient for Agent as listed in Annex I) the following information: (a) Annual Financial Statements. As soon as available, but not later than ninety (90) days after each Fiscal Year end: (i) Borrower's annual consolidated audited Financial Statements; (ii) a comparison in reasonable detail to the prior year audited Financial Statements; (iii) the Auditors' unqualified opinion; (iv) a "Management Letter," if any, prepared by the Auditors; (v) a narrative discussion of Borrower's consolidated financial condition and results of operations and the consolidated liquidity and capital resources for such Fiscal Year, prepared by the chief financial officer of Borrower; and (vi) a Compliance Certificate. (b) Projections. Not later than thirty (30) days prior to the commencement of each Fiscal Year, projections of Borrower's financial condition, operating budgets, and results of operations for such Fiscal Year, containing projected consolidated annual balance sheets and statements of operations, certified by Borrower's chief financial officer as having been made reasonably, in good faith, and based upon the facts reasonably known to management at the time. (c) Quarterly Financial Statements. As soon as available, but not later than forty-five (45) days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter of each Fiscal Year, as to which fourth Fiscal Quarter reports under this paragraph shall not be required): (i) Borrower's Financial Statements as of the Fiscal Quarter then ended, and for the Fiscal Year to date; (ii) a comparison in reasonable detail to the Financial Statements for the corresponding periods of the prior Fiscal Year; and (iii) the certification of the chief executive officer or chief financial officer of Borrower that such Financial Statements have been prepared in accordance with GAAP (subject to year-end audit adjustments). 43 (d) Quarterly Supplemental Information. As soon as available, but not later than forty-five (45) days after the end of each Fiscal Quarter: (i) a narrative discussion of Borrower's consolidated financial condition and results of operations and the consolidated liquidity and capital resources for such Fiscal Quarter and Fiscal Year to date, prepared by the chief financial officer of Borrower; (ii) a Compliance Certificate; and (iii) a report on all material acquisitions and dispositions of assets by Borrower and its Subsidiaries during the Fiscal Quarter (to the extent not otherwise disclosed in the Compliance Certificate). (e) Changes in GAAP. All accounting determinations for purposes of determining compliance with the financial covenants contained in this Agreement shall be made in accordance with GAAP as in effect on the Closing Date and applied on a basis consistent in all material respects with the audited Financial Statements delivered to Agent on or before the Closing Date. The Financial Statements required to be delivered hereunder from and after the Closing Date, and all financial records, shall be maintained in accordance with GAAP. If (a) GAAP shall change from the basis used in preparing the audited Financial Statements delivered to Agent on or before the Closing Date, (b) Borrower (with the consent of the Auditor) intends to institute any such change and so notifies Agent, and (c) such change would result in a change in the method of calculation of any of the covenants, standards or terms in this Agreement, the parties hereto agree to enter into negotiations to amend such provisions so as equitably to reflect such change, with the desired result that the criteria for evaluating compliance with such covenants, standards and terms shall be the same after such change as if such change had not been made and will only be adjusted to reflect such change in GAAP; provided, however, that no change in GAAP that would affect the method of calculation of any of the covenants, standards or terms of this Agreement or of any other Credit Document shall be given effect for purposes hereof or thereof until the applicable provisions are amended, in a manner satisfactory to Required Lenders and Borrower, to so reflect such change in accounting principles. Until such an amendment is so agreed, the certificates required to be delivered pursuant to Section 6.1 demonstrating compliance with the covenants contained herein shall include calculations setting forth the adjustments necessary to demonstrate how Borrower is in compliance with the financial covenants based upon GAAP as in effect on the Closing Date. (f) Further Assurances. When requested by Agent or any Lender, any further information regarding the business affairs and financial condition of all or any of the Credit Parties, or any matter that is the subject of any representation, warranty, covenant or other obligation contained in this Agreement provided such information is available to or can be obtained by or calculated by Borrower. Without limiting the generality of the foregoing, Borrower shall within five (5) Business Days after request by Agent or any Lender, which request may be made at any time but no more frequently than once in any thirty-day period, deliver to Agent an updated and current Compliance Certificate. (g) Material Mortgagors and Material Lessees. Borrower shall, with respect to each material mortgagor under any Permitted Mortgage Investment and with respect to each Material Lessee, deliver to Agent the same reports and information required by Sections 6.1(a)(i)(ii) and (iii) and (c)(i) and (ii), except that: (i) every reference to Borrower and its Subsidiaries shall be deemed to refer to such material mortgagor or Material Lessee; and (ii) the time periods within which Borrower shall deliver such reports as to material mortgagors 44 and Material Lessees shall each be thirty days longer than the time periods set forth in Sections 6.1(a) and (c). (h) Failure to Timely Deliver. At any time when Borrower has failed timely to deliver any information required to be delivered by this Agreement, Agent may in Agent's discretion estimate the information that Borrower should have, but failed to, deliver. All rights and obligations under this Agreement (including Borrower's compliance with the financial covenants in Section 7.1 and the occurrence of any Default or Event of Default) shall be determined based on such estimated information unless and until Borrower shall have delivered actual information in compliance with this Agreement. Nothing in this paragraph shall be deemed to waive any Default or Event of Default arising from Borrower's failure to deliver any information required by this Agreement. (i) Securities and Exchange Commission Filings. Within five business days after Borrower makes any SEC Filing, Borrower shall provide Agent with a complete and accurate copy of such SEC Filing. Within ten business days after Borrower becomes aware of any SEC Filing relating to Borrower made by a third party, Borrower shall provide Agent with a complete and accurate copy of such SEC Filing. 6.2 Notification Requirements. Borrower shall timely give Agent (separately to each notice recipient for Agent designated on Annex I) the following notices, each in reasonable detail: (a) Notice of Defaults, Proceedings and Adverse Changes. Promptly, and in any event within two (2) Business Days after Borrower becomes aware of any of the following, a certificate of the chief executive officer or chief financial officer of Borrower specifying the nature thereof and describing the event or condition and any action taken or planned to be taken with respect thereto by any Credit Party: (1) the occurrence of an Event of Default; (2) any proceeding being instituted or threatened to be instituted (including pursuant to a cross- claim or counterclaim) against any Credit Party in or before any federal, state, local or foreign court, commission or other regulatory body that, if adversely determined, would have a Material Adverse Effect; (3) any order, judgment or decree being entered against any Credit Party or to Borrower's knowledge any of its properties or assets that would have a Material Adverse Effect; (4) any breach, modification, or termination of any Material Contract; or (5) any actual change, development or event which has had or would reasonably be expected to have a Material Adverse Effect. (b) Environmental. Promptly and in any event within two Business Days after the occurrence of any of the following events or conditions, a certificate of the chief executive officer or chief financial officer of Borrower specifying the nature of such condition and the applicable Credit Party's or Environmental Affiliate's proposed response thereto: (1) the receipt by any Credit Party or to Borrower's knowledge any of its Environmental Affiliates of any communication from a Governmental Authority, employee or other Person or group that alleges that a Credit Party or Environmental Affiliate is not in substantial compliance with applicable Environmental Laws; (2) any Credit Party shall obtain actual knowledge that there exists any Environmental Claim pending or threatened against a Credit Party or Environmental Affiliate that, if adversely determined, would have a Material Adverse Effect; 45 or (3) any release, emission, discharge or disposal of any Material of Environmental Concern that could form the basis of any Environmental Claim against any Credit Party or Environmental Affiliate that, if adversely determined, would have a Material Adverse Effect. (c) ERISA Notices. Promptly, and in any event within five (5) Business Days after receipt, any notice relating to any Credit Party's compliance with, or obligations under, ERISA. (d) New Material Contracts. Within five (5) Business Days after being entered into, Borrower's entry into any new Material Contract, together with a copy thereof and of all related or ancillary documentation. (e) Certain Changes. At least ten (10) Business Days prior written notice to Agent of any change in Borrower's name, identity or structure from that described herein. (f) Additions to Unencumbered Pool. Within ten (10) Business Days after Borrower's acquisition of any new Hotel to be added to the Unencumbered Pool or any change affecting a previously existing Hotel so that such Hotel will qualify to be included in the Unencumbered Pool, notice of such acquisition or modification, setting forth: (a) the Acquisition Cost; and (b) as to such Hotel only, the same information that Borrower would be required to include in a Compliance Certificate. Such notice shall be accompanied by a copy of the Lease and Management Agreement for such Hotel and copies of any Due Diligence Reports for such Hotel not previously delivered to Agent. (g) Removals from Unencumbered Pool. Within ten (10) Business Days after Borrower's disposition or other removal of any Hotel from the Unencumbered Pool or after any Hotel previously in the Unencumbered Pool otherwise ceases to qualify for inclusion in the Unencumbered Pool, notice of such disposition, removal, or disqualification, setting forth: (a) the identity of the Hotel(s) being disposed of, removed, or disqualified; and (b) the Assigned Value of such Hotel(s). 6.3 Trust Existence. Borrower shall, and shall cause each Subsidiary of Borrower to, (i) maintain its existence, (ii) maintain in full force and effect all licenses, bonds, franchises, leases, trademarks and qualifications to do business, and all patents, contracts and other rights necessary to the conduct of their businesses, except where the failure to maintain such rights would not reasonably be expected to have a Material Adverse Effect, and (iii) continue in, and limit their operations to, the Business. Nothing in this paragraph shall be deemed to prevent the transfer of interests in, or Borrower's terminating and/or liquidating Subsidiaries from time to time, provided that after such transfer, termination and/or liquidation Borrower and its remaining Subsidiaries are in full compliance with this Agreement in all material respects. 6.4 Books and Records; Inspections. Borrower shall maintain, and shall cause each other Credit Party to maintain, proper books and records in which entries in conformity with GAAP and all requirements of law shall be made of, and which entries shall fairly reflect, all transactions and dealings in relation to its business and activities and books and records pertaining thereto in such detail, form and scope as is consistent with good business 46 practice. Borrower agrees that Agent or its agents and any Lender may enter upon the premises of Borrower at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default, for the purposes of discussing the affairs, finances and business of any Credit Party with any officers, employees and directors of any Credit Party. 6.5 Borrower's Calculations and Certifications. Wherever this Agreement requires or permits Borrower to calculate any amount or ratio, or certify as to any factual matter, Agent shall have the right, but not the obligation, to require Borrower to promptly provide reasonable substantiation and backup for Borrower's determination, all in a manner satisfactory to Agent, and Agent and Agent's representatives and advisers shall have the right to inspect and review Borrower's books and records to audit and/or otherwise determine the correctness of Borrower's calculation or certification. If Agent determines that Borrower's calculation or certification was incorrect, or that Agent cannot promptly affirmatively confirm that it was correct, then Agent shall have the right but not the obligation to replace Borrower's calculation or certification with an estimate made in good faith by Agent or Agent's advisors or consultants. Such estimate shall then apply for all purposes of this Agreement (including as to Borrower's compliance with the financial covenants contained in Section 7.1 and the occurrence or nonoccurrence of a Default or an Event of Default) unless and until Agent has accepted Borrower's calculation or certification as to the matter in question. Nothing in this paragraph shall be deemed to waive any Default or Event of Default arising from Borrower's failure to accurately deliver any certificate or calculation required by this Agreement. 6.6 Taxes. Borrower agrees to pay, when due, and to cause each other Credit Party and to pay when due, all taxes lawfully levied or assessed against Borrower or any other Credit Party or any of Borrower's or any Credit Party's property before any penalty or interest accrues thereon; provided, however, that, unless such taxes have become a federal tax or ERISA Lien on any of the assets of a Credit Party, no such tax need be paid if the same is being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and if an adequate reserve or other appropriate provision shall have been made therefor to the extent required by GAAP. 6.7 Compliance With Laws. (a) Generally. Borrower agrees to comply, and to cause each other Credit Party to comply, with all Requirements of Law applicable to the operation of its business or its assets, unless, so long as no choate tax or ERISA Lien arises as a result thereof or in connection therewith, (a) the applicable Credit Party is contesting such Requirement of Law in good faith, by appropriate proceedings promptly instituted and diligently conducted and if an adequate reserve or other appropriate provision shall have been made therefor to the extent required by GAAP, or (b) such failure to comply would not reasonably be expected to have a Material Adverse Effect. (b) Environmental Laws. Without limiting the generality of the foregoing, Borrower shall: 47 (1) Comply with all Environmental Laws applicable to it, and obtain, comply with and maintain all Environmental Approvals necessary for its operations as conducted and as planned to be conducted except where the failure to comply or maintain would not have a Material Adverse Effect; and (ii) take all reasonable efforts to ensure that all of its tenants, subtenants, contractors, subcontractors and invitees comply with all Environmental Laws, and obtain, and comply with, any and all Environmental Approvals applicable to them except where the failure to comply or maintain would not have a Material Adverse Effect. (2) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions, required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings or the failure to comply would not reasonably be expected to have a Material Adverse Effect. 6.8 Insurance. Borrower and its Subsidiaries shall at all times cause the applicable Lessees to maintain with respect to the Hotels insurance of a nature, on terms, and providing coverage in accordance with the insurance that a commercially reasonable person would maintain with respect to similar properties and a similar business. 6.9 Fiscal Year. Borrower agrees to maintain its fiscal year, and to cause each of its Subsidiaries to maintain its fiscal year, as a year ending December 31. 6.10 Maintenance of Property. Borrower agrees to keep, and to cause each other Credit Party to keep, all property necessary to their respective businesses in good working order and condition (ordinary wear and tear excepted) in accordance with their past operating practices and not to commit any waste with respect to any of their properties. 6.11 ERISA Documents. Borrower will cause to be delivered to Agent, upon Agent's request, any document relating to Borrower's or any Subsidiary's compliance with ERISA. 6.12 Tradenames, Etc. Borrower shall, and shall cause each other Credit Party to, do or cause to be done, all things necessary to preserve and keep in full force and effect its patents, trademarks, service marks, trade names, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals, except where the failure to so preserve any of the foregoing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or is otherwise expressly permitted by Section 6.3. 6.13 Acquisitions of New Hotels. To the extent that Borrower acquires Hotels after the Closing Date and desires to include such Hotels in the Unencumbered Pool, Borrower shall provide Agent with Due Diligence Reports for any such Hotel(s) at least twenty (20) days before such Hotels shall be included in the Unencumbered Pool. 48 6.14 Performance of Obligations. Borrower shall, and shall cause each other Credit Party to, perform all of its obligations under the terms of each mortgage, indenture, security agreement, debt instrument, lease, undertaking and contract by which it or any of its properties is bound or to which it is a party (including all Material Contracts), if the failure to so perform, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. 6.15 Advisory Agreement. Borrower shall maintain the Advisory Agreement in full force and effect at all times after the Closing Date, and shall not modify or amend the Advisory Agreement in any material respect without Agent's prior written consent. No later than thirty days before each expiration date of the Advisory Agreement, (a) Borrower and Investment Manager shall renew the Advisory Agreement on substantially the same terms as are in effect on the Closing Date, and (b) Borrower shall provide Agent with a copy of the renewal Advisory Agreement fully signed by both parties. 6.16 REIT Qualification. Borrower is qualified as a REIT and shall at all times hereafter continue so to qualify. 6.17 Annual Meetings of Lenders. To the extent (if any) requested by Agent from time to time, Borrower shall cause the Managing Trustees and Borrower's other senior executive officers to attend a meeting of the Lenders annually to discuss the business and affairs of Borrower and the status of the Loans. Each such meeting shall be held on a mutually agreeable date, upon reasonable notice to all Lenders, within 100 days after the end of Borrower's Fiscal Year, at a location in the Borough of Manhattan or as otherwise agreed by Borrower and Agent. 6.18 Required Interest Rate Cap. If, at any time, both (a) the sum of the Ten-Year Treasury Rate plus 1.75% per annum exceeds 9.50% per annum and (b) any Excess Floating Rate Exposure exists, then within five Business Days after the occurrence of the foregoing (unless at the end of such five-Business-Day period either or both of such conditions "a" or "b" has ceased to exist), Borrower shall purchase and fully pay for Interest Rate Cap(s) from Qualified Counterparty(ies) (and Borrower shall thereafter maintain and continue such Interest Rate Cap(s) through the earlier of the Revolver Maturity Date or the date condition "a" ceases to be satisfied), and enter into such other documentation in connection therewith as Agent shall reasonably require, requiring the counterparty to make a stream of payments equal to the outcome, from time to time, of the following formula:
Payments by = Excess X (Adjusted Eurodollar Rate for a 30- - 9.5% per Counterparty Floating Rate Day LIBOR Period + Applicable annum) Exposure Margin for Eurodollar Loans
For purposes of the preceding formula, Excess Floating Rate Exposure and Applicable Margin shall be determined as of the date that Borrower is required to provide the Interest Rate Cap. If Excess Floating Rate Exposure or Applicable Margin changes thereafter, then Borrower shall as requested by Agent promptly adjust the notional amount or terms of the Interest Rate Cap or deliver additional Interest Rate Cap(s). If an Interest Rate Cap consists of a "cap," then Borrower shall pay the entire cost of the Interest Rate Cap at the time 49 Borrower is required to obtain it. If Borrower purchases any such Interest Rate Cap from Agent or any Affiliate of Agent or any Lender, then all rights and obligations of Borrower under such Interest Rate Cap shall be independent of Borrower's rights and obligations under this Agreement, and for purposes of this Agreement such Interest Rate Cap shall be deemed to have been issued by a third-party Qualified Counterparty. Any Interest Rate Cap shall be issued by the Qualified Counterparty directly in favor of Agent for the benefit of the Lenders. To the extent that Agent receives any payments under such Interest Rate Cap, Agent shall apply such payments first against Borrower's obligations under this Agreement and Agent shall promptly release any excess to Borrower. If at any time Borrower is no longer required to maintain or continue an Interest Rate Cap pursuant to this paragraph, then provided that no uncured Event of Default shall have occurred, Agent shall consent to cancellation of the Interest Rate Cap in place and otherwise cooperate to facilitate its termination. If an uncured Event of Default occurs, then Borrower shall no longer have the right to terminate any Interest Rate Cap that is in place. If at any time Borrower is required to deliver or maintain an Interest Rate Cap but has not done so, Agent shall be entitled to suspend any Advances of the Loan. If Borrower fails to obtain an Interest Rate Cap in Agent's name when and as required by this Agreement, then Agent shall have the right, without notice to Borrower, to obtain from any Qualified Counterparty (including Agent or an Affiliate of Agent) such an Interest Rate Cap on terms satisfactory to Agent in its reasonable discretion. Borrower shall pay all costs and expenses of Agent in connection therewith, including any fees charged by the Qualified Counterparty (including Agent or an Affiliate of Agent) issuing such Interest Rate Cap and any reasonable attorneys' fees and disbursements incurred by Borrower in connection therewith. Neither Agent nor any Lender shall be deemed to have assumed any obligations or duties under such Interest Rate Cap, except to the extent that Agent or a Lender is a Qualified Counterparty under such Interest Rate Cap and has thereby assumed the obligations of such a Qualified Counterparty. In such event, if such Qualified Counterparty fails to perform its obligations under the Interest Rate Cap, then notwithstanding anything to the contrary in this Agreement Agent shall be entitled to an offset against any sums otherwise payable to such Qualified Counterparty under this Agreement. If any Interest Rate Cap (including one required by this sentence) expires and thereafter (or simultaneously with such expiration) conditions "a" and "b" set forth at the beginning of this paragraph are satisfied, then Borrower shall again be obligated to provide an Interest Rate Cap as required by this paragraph. 6.19 Year 2000 Problems. Borrower shall take all action necessary to assure that its computer-based system (and those of Investment Manager and of all Subsidiaries) are able to process effectively data, including dates on and after January 1, 2000, without any Year 2000 Problem. At the request of Agent or of any Lender, Borrower shall provide Agent or such Lender with assurances and substantiations reasonably acceptable to Agent or such Lender as to Borrower's, its Subsidiaries', and Investment Manager's capability to process data on and after January 1, 2000 without any Year 2000 Problem. 50 6.20 Process Agent's Consent. Within thirty days after the date hereof, Borrower shall obtain written consent (in form reasonably satisfactory to Agent) by Corporation Service Company to serve as agent for service of process pursuant to Section 10.4 of this Agreement. ARTICLE 7 FINANCIAL COVENANTS; NEGATIVE COVENANTS Until termination of the Commitments and this Agreement and full and final payment and satisfaction of all Obligations due hereunder or under any other Credit Document, Borrower shall comply with, and, where required, shall cause each other Credit Party to comply with, the following covenants: 7.1 Financial Covenants. Borrower shall not at any time or for any period (except where the following financial covenants expressly refer to compliance as of the end of a Fiscal Quarter, in which cases compliance shall be tested only at the end of each Fiscal Quarter) cause or permit any one or more of the following financial covenants not to be satisfied. If for any reason or at any time (or, where applicable, at the end of a Fiscal Quarter) any one or more financial ratio(s) or amount(s) set forth below fails to comply with the requirement set forth below, then regardless of the cause of such noncompliance, such noncompliance shall constitute a Default under this Agreement. (a) The Aggregate Assigned Value of the portion of the Unencumbered Pool located in any single "Metropolitan Area" as defined in the Statistical Abstract of the United States shall at no time be greater than 20% of the aggregate Assigned Value of the Unencumbered Pool. (b) The aggregate Assigned Value of the Unencumbered Pool shall at no time be less than 200% times the sum of (a) the Obligations, plus (b) all other Consolidated Indebtedness, other than Consolidated Secured Debt, plus (c) the Recourse Exposure Amount for all Hotels. (c) The Assigned Value of Hotels Owned by Subsidiaries that are neither (a) Wholly- Owned Subsidiaries nor (b) Guarantors shall at no time be greater than Ten Percent (10%) of Consolidated Total Assets. (d) At the end of each Fiscal Quarter, Consolidated EBITDA for the Unencumbered Pool (considered separately) divided by Consolidated Interest Expense (excluding Consolidated Interest Expense on Consolidated Secured Debt) shall be no less than 2.50. (d) Consolidated Indebtedness (Leverage Ratio) shall at no time be greater than 50% of the aggregate Assigned Value of all Hotels. (e) At the end of each Fiscal Quarter, consolidated tangible net worth of all Credit Parties shall be no less than $900,000,000 plus an amount equal to 80% of gross proceeds to the Credit Parties of all equity offerings (common or preferred) consummated by any of them after the Closing Date. 51 (f) Consolidated Secured Debt shall at no time be greater than 35% of the aggregate Assigned Value of all Hotels. (g) At the end of each Fiscal Quarter, the Debt Service Coverage Ratio shall be no less than 2.25 to 1. (h) At the end of each Fiscal Quarter, the Interest Expense Coverage Ratio shall be no less than 2.50 to 1. (i) Permitted Mortgage Investments as a percentage of Consolidated Total Assets shall at no time be greater than Twenty Percent (20%). 7.2 Other Assets or Business. No Credit Party shall conduct any business other than the Business. The Credit Parties shall continue to conduct business after the Closing Date in substantially the same manner as they conducted business before the Closing Date, subject to compliance with this Agreement. 7.3 Additional Indebtedness. Borrower shall not, and shall not permit any other Credit Party to, directly or indirectly incur, create, assume, guaranty or suffer to exist any Indebtedness other than the following, subject in all cases to the restrictions of Section 7.1: (a) Indebtedness under the Credit Documents; (b) Indebtedness outstanding on the Closing Date and listed in Section 7.3 of the Disclosure Schedule; (c) Indebtedness of Borrower to any Subsidiary and Indebtedness of any Subsidiary to Borrower or any other Subsidiary; (d) Permitted New Indebtedness; (e) The Advisory Agreement; and (f) Contingent Obligations permitted by Section 7.5. 7.4 Liens. Borrower shall not, and shall not permit any other Credit Party, directly or indirectly, to create, incur, assume, or suffer to exist any Lien on any Hotel within the Unencumbered Pool now owned or hereafter acquired except the following Liens ("Permitted Liens"): (a) Liens granted to the Lenders under the Credit Documents; (b) Liens listed in Section 7.4 of the Disclosure Schedule; (c) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, or landlords, liens for taxes, assessments or other governmental charges (other than choate federal tax and ERISA Liens), and other similar Liens arising by operation 52 of law, in each case for amounts that are not yet due and payable or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which an adequate reserve or other appropriate provision shall have been made to the extent required by GAAP, so long as Agent has been notified thereof; (d) any attachment or judgment Liens the existence of which, individually and in the aggregate, does not constitute an Event of Default under Section 8.1(k); (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, individually and in the aggregate, do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Borrower or any of its Subsidiaries; (f) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (g) deposits to secure trade contracts (other than for borrowed money), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (h) the lessor's interest in property leased to Borrower or any of its Subsidiaries pursuant to a lease permitted by this Agreement; (i) a Lessee's interest under a Lease permitted by this Agreement and the Manager's interest under a Management Agreement permitted by this Agreement; and (j) Liens in favor of other Credit Parties securing Permitted New Indebtedness that is subordinate to the Obligations pursuant to subordination arrangements satisfactory to Agent. 7.5 Contingent Obligations. Borrower shall not, and shall not permit any other Credit Party to, directly or indirectly incur, assume, or suffer to exist any Contingent Obligation, excluding: (a) the Guaranty and other Contingent Obligations in favor of Agent or any Lender under the Credit Documents; (b) surety bonds described in Section 7.4(g); (c) Contingent Obligations existing on the Closing Date and listed in Section 7.5 of the Disclosure Schedule; and (d) Guaranties in favor of Lessees of the obligations of other Credit Parties under Leases. 7.6 Restricted Payments. Borrower shall not, and shall not permit any other Credit Party to, directly or indirectly, make or cause to be made any of the following 53 payments (collectively, the "Restricted Payments") except as otherwise expressly permitted by this Section 7.6 or with the approval of the Required Lenders in their sole and absolute discretion: (a) declare or pay any dividend (other than dividends payable solely in common or preferred stock of Borrower or dividends payable to the Borrower by any Subsidiary) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Credit Party, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Credit Party, except for the minimum dividends and distributions required to maintain Borrower's status as a REIT; (b) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than Indebtedness pursuant to this Agreement or Indebtedness owing to Borrower from one of its Subsidiaries) or of any Mandatory Redeemable Obligation; (c) make any payment, whether of principal or interest, on account of any Indebtedness of any Credit Party which Indebtedness is subordinate to the Loan; or (d) make any payments to Investment Manager pursuant to the Advisory Agreement or otherwise. Notwithstanding the foregoing, Borrower may make any Restricted Payments that would otherwise become payable in the ordinary course of Borrower's business, provided that: (i) both before and after making such Restricted Payment no Default or Event of Default shall exist under this Agreement or any of the other Credit Documents; and (ii) even after the making of such Restricted Payment, Borrower shall be holding Cash Equivalents in an amount sufficient to pay the next installment of interest to become due under this Agreement after first taking into account all other payments required to be made by or to Borrower on or before the date such payment of interest is due. Nothing in this paragraph shall prohibit a Subsidiary that is not a Wholly-Owned Subsidiary from paying required minimum payments that must be made to partners or members who are not Credit Parties, pursuant to the terms of the organizational documents of such Subsidiary. 7.7 Investments. Borrower shall not, and shall not permit any other Credit Party to, directly or indirectly, make any Investment in any Person (including any director, officer or employee of any Credit Party), whether in cash, securities, or other property of any kind, other than: (a) loans, investments and advances between the Credit Parties in existence as of the Closing Date and described in Section 7.7 of the Disclosure Schedule; (b) loans and advances by (i) Borrower to any Subsidiary and (ii) any Subsidiary to Borrower or any other Subsidiary; (c) Investments by Borrower in Subsidiaries for the purpose of capitalization thereof, provided that such Subsidiaries shall be formed solely for the purpose of conducting the Business; (e) extensions of trade credit in the ordinary course of business to Persons who are not Affiliates of Borrower or any of its Subsidiaries; (f) Cash Equivalents; 54 (g) Investments in additional Hotels consistent with the Business and the operation, prosecution, and expansion of the Business, and otherwise in compliance with this Agreement; and (h) Such other Investments as Required Lenders may approve in writing in their sole discretion. 7.8 Affiliate Transactions. Borrower shall not, and shall not permit any other Credit Party to, directly or indirectly, enter into any transaction with, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to, any Affiliate of any Credit Party, except in the ordinary course of and pursuant to the reasonable requirements of the Credit Party's business, and upon fair and reasonable terms no less favorable to any Credit Party than could be obtained in a comparable arm's-length transaction with an unaffiliated Person. 7.9 Additional Negative Pledges. Borrower shall not, and shall not permit any other Credit Party, directly or indirectly, to create or otherwise cause or suffer to exist or become effective, directly or indirectly, for the benefit of any party other than Agent and the Lenders, (i) any prohibition or restriction (including any agreement to provide equal and ratable security to any Person in the event a Lien is granted to or for the benefit of any other Person) on the creation or existence of any Lien upon the assets of any Credit Party except in connection with Permitted New Indebtedness of the affected Credit Party or (ii) any contractual obligation which may restrict or inhibit Agent's rights or ability to sell or otherwise exercise its rights or remedies under any of the Credit Documents after the occurrence of an Event of Default. Borrower has disclosed to Agent that certain existing Leases or Management Agreements restrict Borrower from granting Liens upon the related Hotels. Such existing restrictions shall not be deemed to violate this Agreement. Borrower represents and warrants that by entering into this Agreement, Borrower is not in violation of such existing restrictions. 7.10 Additional Subsidiaries. Borrower shall not, and shall not permit any Credit Party, directly or indirectly, by operation of law or otherwise, to, merge with, consolidate with, acquire all or substantially all of the assets or Capital Stock of, or otherwise combine with any Person, other than in connection with (i) the creation of a Subsidiary after which Borrower and all of Borrower's Subsidiaries remain in compliance with this Agreement in all material respects, (ii) a Subsidiary merging with or consolidating into, or acquiring the assets of, one or more other Subsidiaries, (iii) one or more Subsidiaries engaged in the Business merging with or consolidating into Borrower, and (iv) any transaction pursuant to which Borrower or a Subsidiary is the surviving and continuing entity or succeeds to the business or pursuant to which the acquired entity survives but becomes a Subsidiary of Borrower and Borrower is in compliance with this Agreement in all material respects. Any newly formed Subsidiary shall, simultaneously with its formation, join in the Guaranty unless such Subsidiary does not satisfy the conditions to be a Guarantor. 7.11 Amendments. Borrower shall not, and shall not permit any other Credit Party, without the prior written consent of Agent, to amend, supplement or otherwise modify in any material respect, or waive or release any of its material rights under or with respect to, (i) 55 the Governing Documents of any Credit Party (except for Governing Documents of a Subsidiary where the action being taken has no Material Adverse Effect), (ii) any agreement, instrument or document (other than a Credit Document) evidencing or relating to Indebtedness of any Credit Party (other than Indebtedness entirely between or among Credit Parties), (iii) any Lease affecting any Hotel in the Unencumbered Pool, or (iv) any Management Agreement affecting any Hotel in the Unencumbered Pool (to the extent of any rights of Borrower or any other Credit Party thereunder). 7.12 Dividends. Except to the extent necessary to permit Borrower to maintain Borrower's status as a REIT, Borrower shall not pay or declare any dividend or distribution to shareholders with respect to any Fiscal Year in excess of the lesser of (a) Ninety-Five Percent (95%) of Funds from Operations for such Fiscal Year or (b) One Hundred Percent (100%) of Cash Available for Distribution for such Fiscal Year. 7.13 Certain Transactions. Borrower shall not consummate any purchase or sale of assets, financing, or other transaction if, after giving effect to such transaction, a Default or Event of Default will exist hereunder. ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Failure to Pay. Borrower shall fail to pay any principal on any Loan when due or Borrower shall fail to pay any interest or other amounts payable under any Credit Document within five (5) Business Days after such interest or other payment becoming due in accordance with the terms of the applicable Credit Document. (b) Breach of Certain Covenants. Any Credit Party shall fail to comply with any covenant contained in Sections 5.24, 6.3 (as to Borrower only), 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, or 7.12 hereof. (c) Breach of Representation or Warranty. Any material representation or warranty made or deemed to be made by any Credit Party in this Agreement or in any other Credit Document (or in any statement, certificate, or calculation delivered or provided under this Agreement or any other Credit Document), shall be false or misleading in any material respect when made or deemed to be made. (d) Other Defaults. Any Credit Party shall fail to comply with any provisions contained in this Agreement or any other Credit Document, other than as set forth in Sections 8.1(a) and 8.1(b), and such failure shall continue for thirty (30) days after its occurrence, or (if such failure is reasonably curable) such additional period as may reasonably be required to cure the same. 56 (e) Dissolution. Either (a) Borrower shall dissolve, wind up or otherwise cease to do business, or (b) any Subsidiary shall do so and such Subsidiary's dissolution, winding up, or cessation would have a Material Adverse Effect. (f) Insolvency Event. Any Credit Party shall become the subject of an Insolvency Event, other than (in the case of a Subsidiary only) an Insolvency Event that does not have a Material Adverse Effect. (g) Change of Control. A Change of Control shall occur, including as a result of death or disability of both (but not merely one) of the Managing Trustees. (h) Cross Default. A default or event of default shall occur (and continue beyond any applicable grace period) under any note, agreement or instrument evidencing any Indebtedness of Borrower or any Subsidiary (other than the Obligations) in an aggregate principal amount in excess of $10,000,000, which default or event of default permits the acceleration of the maturity of such Indebtedness. (i) Failure of Enforceability of Credit Documents; Security. Any material covenant, agreement or obligation of any Credit Party contained in or evidenced by any of the Credit Documents shall cease to be enforceable, or shall be determined to be unenforceable, in accordance with its terms; or any Credit Party shall deny or disaffirm in writing its obligations under any of the Credit Documents. (j) ERISA. Borrower or any Credit Party shall establish any Plan or shall incur any liability under ERISA, without Agent's consent. (k) Judgments. One or more judgments, writs, orders or warrants of attachment or other similar process or decrees in an aggregate amount of $10,000,000 or more shall be entered by a court or courts of competent jurisdiction against any or all of the Credit Parties (other than any judgment, writs, orders or warrants of attachment or other similar process as to which, and only to the extent, a reputable insurance company has acknowledged coverage thereof in writing) and (i) any such judgments, writs, orders or warrants of attachment or other similar process or decrees shall not be stayed, discharged, paid, bonded or vacated within 30 days or (ii) enforcement proceedings shall be commenced by any creditor on any such judgments, writs, orders or warrants of attachment or other similar process or decrees. (l) Advisory Agreement. For any reason, the Advisory Agreement shall cease to be in full force and effect. (m) REIT Qualification. Borrower shall cease to qualify as a REIT. 8.2 Remedies. Upon the occurrence and during the continuance of an Event of Default, Agent may, and upon the direction of Required Lenders shall, do any or all of the following: 57 (a) Acceleration. Upon the written request of the Required Lenders, Agent shall declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 8.1(f), in which case all Obligations shall automatically become immediately due and payable without the necessity of any request of the Required Lenders or notice or other demand to Borrower) without presentment, demand, protest or any other action or obligation of Agent or any Lender. (b) Termination of Commitments. Upon the written request of the Required Lenders, Agent shall, by written notice to Borrower, declare all the Revolver Commitments to be terminated, whereupon all such Commitments shall terminate immediately and, at all times thereafter, all Loans made by any Lender pursuant to this Agreement shall be at such Lender's sole discretion. (c) Other Remedies. Agent may exercise any other rights or remedies afforded Agent or any Lender under any Credit Document or applicable law. 8.3 Right of Setoff. In addition to all rights of offset that Agent or any Lender may have under applicable law or otherwise, upon the occurrence and during the continuance of any Event of Default, and whether or not Agent or any Lender has made any demand or the Obligations of any Credit Party have matured, Agent and each Lender shall have the right to appropriate and apply to the payment of the Obligations (in accordance with Section 8.5) all deposits and other obligations then or thereafter owing by Agent or such Lender to such Credit Party. Each Lender exercising such rights shall notify Agent thereof and any amount received as a result of the exercise of such rights shall be shared in accordance with Section 3.11. 8.4 No Marshalling; Deficiencies; Remedies Cumulative. The foregoing remedies are not intended to be exhaustive and the full or partial exercise of any of them shall not preclude the full or partial exercise of any other available remedy under this Agreement, under any other Credit Document, at equity or at law. During the pendency of any uncured Event of Default, Borrower shall have no right to obtain any Borrowings hereunder and no right to consent to or approve any matter that would otherwise have required Borrower's consent under any Credit Document. 8.5 Application of Payments. Upon the occurrence and during the continuance of an Event of Default, all amounts received by Agent pursuant to any Credit Documents or the exercise of any rights or remedies thereunder or under applicable law shall be applied in the following order: first, to the payment of any Fees, expenses and other Obligations due and payable to Agent under any of the Credit Documents, including any amounts advanced by Agent on behalf of the Lenders; second, to the ratable payment of any Fees, expenses and other Obligations due and payable to the Lenders under any of the Credit Documents other than those Obligations specifically referred to in this Section 8.5; third, to the ratable payment of interest due on the Revolver Loans; and fourth, to the ratable payment of principal due on the Revolver Loans. 58 ARTICLE 9 THE AGENT Other than Borrower's rights under Section 9.8, this Article 9 is for the benefit of Agent and the Lenders only. 9.1 Appointment of Agent. Each Lender hereby designates Dresdner Bank AG, New York and Grand Cayman Branches, as its agent and irrevocably authorizes Agent to take action on its behalf under the Credit Documents, to exercise the powers and perform the duties described therein, and to exercise such other powers reasonably incidental thereto. Agent may perform any of its duties through its agents or employees. In its capacity as Administrative Agent, Agent (or any other Lender designated by Agent from time to time as Administrative Agent) shall be entitled to the same protections, exculpations, and indemnities as are set forth in this Article 9 with respect to Agent. 9.2 Nature of Duties of Agent. Agent has no duties or responsibilities except those expressly set forth in the Credit Documents. Neither Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted hereunder or in connection herewith, except to the extent of damages or losses directly caused by such Person's gross negligence or willful misconduct. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have a fiduciary relationship to any Lender or any participant of any Lender. Agent shall act only for the Lenders. Except for the express obligations of Agent and the Lenders under this Agreement, neither Agent nor any Lender assumes any obligation to any Credit Party. Neither Agent nor any Lender assumes any agency or trust relationship with any Credit Party. Agent shall have no liability for the acts or omissions of any subagents engaged or selected by Agent, provided that Agent was not grossly negligent in the engagement or selection of such subagents. Agent may deem and treat each Lender as the holder of the Loan made by it for all purposes hereof. Agent shall not be required to deal with any Person that has acquired a participation in any Loan. 9.3 Lack of Reliance on Agent. Independently and without reliance upon Agent, each Lender has made and shall continue to make its own independent investigation and analysis of the content and validity of the Credit Documents and of the performance and creditworthiness of the Credit Parties thereunder. Based on such documents and information as it has deemed appropriate, each Lender has made its own credit analysis of Borrower and of whether to enter into this Agreement. Each Lender shall, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Credit Document. Agent assumes no responsibility and undertakes no obligation to make inquiry with respect to such matters. Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by Borrower or any officer, employee or official of Borrower or any other Person contained in this Agreement or any other Credit Document, or in any certificate or other document or instrument referred to or provided for it, or received by any of them under, this Agreement or any other Credit Document, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or any other document or instrument referred to or provided for herein or therein, or for any failure by Borrower to perform any obligations hereunder or thereunder. 59 Agent shall not be required to keep itself informed as to Borrower's compliance with this Agreement or any other Credit Document or any other document referred to or provided for herein or therein or to inspect the properties or books and records and Borrower. Except for notices, reports, and other documents and information that this Agreement expressly requires Agent to furnish to the Lenders, Agent shall have no duty or obligation to provide any Lender with any credit or other information concerning the affairs, financial condition or business of any Credit Party. Agent shall not be required to file this Agreement, any other Credit Document, or any document or instrument referred to herein or therein, for record, or to give notice to anyone of any of the foregoing. 9.4 Certain Rights of Agent. Agent may request instructions from Required Lenders at any time. If Agent requests instructions from Required Lenders at such time with respect to any action or inaction, Agent shall be entitled to await instructions from Required Lenders at such time before such action or inaction. No Lender shall have any right of action based upon Agent's action or inaction in response to instructions from Required Lenders at such time. Any action taken or failure to act pursuant to instructions of Required Lenders shall be binding on all Lenders and any other holder of all or any portion of the Loan or any participation therein. Except for actions expressly required of Agent under this Agreement, Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include a requirement for cash collateral) of the Lenders' indemnity obligations under this Article 9 in respect of any and all liability and expense that Agent may incur by reason of taking or continuing to take any such action. 9.5 Reliance by Agent. Agent may rely upon written or telephonic communications it believes to be genuine and to have been signed, sent or made by the proper person. Agent may obtain the advice of legal counsel (including, for matters concerning Borrower, counsel for Borrower), independent public accountants and other experts selected by it and shall have no liability for action or inaction in good faith based upon such advice. 9.6 Indemnification of Agent. To the extent Agent is not reimbursed and indemnified by Borrower, each Lender will reimburse and indemnify Agent, to the extent of such Lender's Pro Rata Share of the Loans, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever (including all Expenses) which may be imposed on, incurred by or asserted against Agent in performing its duties here under or otherwise relating to the Credit Documents, or any other documents contemplated hereby or thereby (including any costs and expenses that Borrower is obligated but fails to reimburse) or the enforcement of any of the terms hereof or thereof. Notwithstanding the foregoing, no Lender shall be liable to Agent: (a) to the extent of losses directly resulting from Agent's gross negligence or willful misconduct; (b) with respect to any loss of principal or interest under Agent's Loan; or (c) for any loss suffered by Agent or its Affiliate in connection with any Interest Rate Agreement Agent may enter into with Borrower. 60 9.7 Agent in its Individual Capacity. In its individual capacity, Agent shall have the same rights and powers hereunder as any other Lender and may exercise them as though it was not performing the duties of an agent for the Lenders. The terms "Lenders," "Required Lenders," or any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity. Agent and its Affiliates may accept deposits from, lend money to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory or other business with Borrower or any Affiliate of Borrower as if it were not performing the duties of an agent for the Lenders, and may accept fees and other consideration from Borrower for services in connection with this Agreement and otherwise without having to account for the same to any Lender. 9.8 Successor Agent. (a) Agent may, upon five Business Days' notice to the Lenders and Borrower, resign at any time by giving written notice thereof to the Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent, which successor Agent, so long as it is reasonably acceptable to Required Lenders and Borrower, shall be that Lender then holding the greatest Commitment. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after notice of Agent's retirement or resignation, then the retiring Agent may, on behalf of the Lenders, appoint one of the Lenders as successor Agent, which successor Agent shall be subject to Borrower's reasonable approval. (b) Upon its acceptance of the agency hereunder, a successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. The retiring Agent shall continue to have the benefit of this Article 9 for any action or inaction while it was Agent. 9.9 Intentionally Omitted. 9.10 Defaults. Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default unless Agent has received notice from a Lender or from Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default." If Agent receives such a notice, then Agent shall give prompt notice thereof to the Lenders. In addition to Agent's right to take actions on its own accord as permitted under this Agreement, Agent shall take such action with respect to a Default or Event of Default as shall be directed by Required Lenders. Until Agent shall have received such directions, Agent may act (or not act) as it deems advisable. In no event shall Agent be required to take any action that it determines to be contrary to law. 9.11 Anticipated Receipt of Funds. Unless Agent shall have received notice from a Lender or from Borrower (either, as applicable, a "Payor") prior to the date on which such Lender is to make payment hereunder to Agent of the proceeds of a Loan or Borrower is to make payment to Agent, as the case may be (either such payment, a "Required Payment"), which notice shall be effective upon receipt, that Payor will not make the Required Payment in full to Agent, Agent may assume that the Required Payment has been made in full to 61 Agent on such date, and Agent in its sole and absolute discretion may, but shall not be obligated to, in reliance upon such assumption, make the amount thereof available to the intended recipient on such date. If and to the extent that Payor shall not in fact have made the Required Payment in full to Agent, the recipient of such payment (from Agent, made based upon Agent's inappropriate reliance on Agent's receipt of the Required Payment) shall repay to Agent forthwith on demand such amount made available to it together with interest thereon, for each day from the date such amount was to be made available by Agent until the date Agent recovers such amount, at the customary rate set by Agent for the correction of errors among Lenders for three (3) Business Days and thereafter at the Base Rate. 9.12 Miscellaneous. Notwithstanding anything to the contrary in this Agreement, Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Credit Document that affects its duties, rights, or functions hereunder or thereunder unless Agent shall have given its prior written consent thereto. Agent shall have no liabilities or responsibilities to Borrower or any Lender on account of any Lender's (except Agent's), or Borrower's failure to perform its obligations hereunder or under any other Credit Document. Without consent of Borrower or any Lender, Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices wherever located in the United States, provided that Agent shall promptly notify Borrower and all Lenders thereof. ARTICLE 10 MISCELLANEOUS 10.1 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK. 10.2 SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG ANY OR ALL OF THE CREDIT PARTIES AND THE LENDERS OR AGENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT AGENT, ON BEHALF OF THE LENDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST ANY OR ALL OF THE CREDIT PARTIES AND/OR THEIR PROPERTY IN ANY LOCATION REASONABLY SELECTED BY AGENT IN GOOD FAITH TO ENABLE AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY AGENT. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH AGENT HAS COMMENCED A PROCEEDING, 62 INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS. 10.3 CERTAIN DAMAGES. BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING TO WHICH AGENT OR ANY LENDER IS A PARTY ANY SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES. 10.4 SERVICE OF PROCESS. BORROWER HEREBY IRREVOCABLY DESIGNATES CORPORATION SERVICE COMPANY AS THE DESIGNEE, APPOINTEE AND AGENT OF BORROWER TO RECEIVE, FOR AND ON BEHALF OF BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT. 10.5 JURY TRIAL. EACH OF BORROWER, AGENT, AND THE LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY DISPUTES WILL BE RESOLVED IN A BENCH TRIAL. 10.6 LIMITATION OF LIABILITY. NEITHER AGENT NOR ANY LENDER SHALL HAVE ANY LIABILITY TO ANY CREDIT PARTY (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR CONSEQUENTIAL DAMAGES SUFFERED BY ANY CREDIT PARTY IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH. 10.7 Delays. No delay or omission of Agent or the Lenders to exercise any right or remedy hereunder shall impair any such right or operate as a waiver thereof. 10.8 Notices. Except as otherwise provided herein, all notices and correspondences hereunder shall be in writing and sent by certified or registered mail, return receipt requested, or by overnight delivery service, with all charges prepaid, if to Agent or any of the Lenders, then to its address for notices set forth on Annex I or such other address as Agent or any Lender may notify the other parties hereto from time to time (and in Agent's case, each notice and each item of correspondence shall be delivered in multiple copies by separate deliveries to each of the notice recipients designated for Agent in Annex I), or by facsimile transmission, promptly confirmed in writing sent by first class mail, to the appropriate telecopier number(s) set forth on Annex I or to such other number(s) as Agent or any Lender may notify the other parties hereto from time to time (again, in multiple separate transmissions to each of the individuals identified in Annex I, and if to any Credit Party then to such Credit Party at the following address or facsimile number, as applicable, or to such other number as Credit Party may notify the other parties hereto from time to time: If to Borrower or any other Credit Party: 63 400 Centre Street Newton, Massachusetts 02158 Attention: Mr. Thomas M. O'Brien (telecopy number: 617-969-5730) (telephone number: 617-964-8389); with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Attention: Jennifer B. Clark, Esq. (telecopy number: 617-338-2880) (telephone number: 617-338-2406). All such notices and correspondence shall be deemed given (i) if sent by certified or registered mail, three Business Days after being delivered to the U.S. Postal Service, (ii) if sent by overnight delivery service, when received at the above stated addresses or when delivery is refused, and (iii) if sent by telex or facsimile transmission, when receipt of such transmission is acknowledged. 10.9 Assignments and Participations. (a) Borrower Assignment. Borrower shall not assign this Agreement, or any rights or obligations hereunder, without the prior written consent of Agent and the Required Lenders. (b) Lender Assignments. Each Lender may assign all or a portion of its rights and obligations under this Agreement, the Notes and the other Credit Documents, to any Eligible Assignee, upon execution and delivery to Agent, for its acceptance and recording in the Register, of an Assignment and Assumption Agreement, together with surrender of any Note or Notes subject to such assignment and a processing and recordation fee of $3,000.00 payable to Administrative Agent. No such assignment shall be for less than $5,000,000 of the Commitments unless it is to another Lender or any Affiliate of the Lender making such assignment or a Federal Reserve Bank or it constitutes the entire remaining Commitment of the assigning Lender. (c) Agent's Register. Agent shall maintain the Register and shall also maintain a copy of each Assignment and Assumption Agreement delivered to and accepted by it and modify the Register to give effect to each Assignment and Assumption Agreement. Upon its receipt of each Assignment and Assumption Agreement and surrender of the affected Note or Notes, Agent will give prompt notice thereof to Borrower and deliver to Borrower a copy of the Assignment and Assumption Agreement and the surrendered Note or Notes. Within five (5) Business Days after its receipt of such notice, Borrower shall execute and deliver to Agent a new Note or Notes to the order of the assignee in the amount of the Revolver Commitments assumed by it and to the assignor in the amount of the Revolver Commitment retained by it, if any. Such new Note or Notes shall re-evidence the Indebtedness 64 outstanding under the surrendered Note or Notes and shall be dated as of the Closing Date. Agent shall be entitled to rely upon the Register exclusively for purposes of identifying the Lenders hereunder. (d) Lender Participations. Each Lender may sell participations (without the consent of Agent, Borrower or any other Person) to one or more Persons in or to all or a portion of its rights and obligations under this Agreement, the Notes and/or the other Credit Documents. Notwithstanding a Lender's sale of a participation interest, its obligations hereunder shall remain unchanged. Borrower, Agent, and the other Lenders shall continue to deal solely and directly with such Lender. No participant shall have rights to approve any amendment or waiver of this Agreement except to the extent such amendment or waiver would (i) increase the Revolver Commitment of the Lender from whom the participant purchased its participation interest; (ii) reduce the principal of, or rate or amount of interest on the Loans subject to such participation, (iii) postpone any date fixed for any payment of principal of, or interest on, the Loans subject to the participation interest, or (iv) release any guarantor of the Obligations, except when otherwise permitted hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation. (e) Estoppels. In connection with Agent's initial syndication of the Loan, Borrower shall at Borrower's expense diligently endeavor to obtain estoppel certificates from all Lessees to the extent such certificates are required to be delivered pursuant to the applicable Leases. Borrower shall not be obligated to commence litigation to enforce the obligations of Lessees to deliver estoppel certificates. 10.10 Confidentiality. Each Lender agrees that it will use reasonable efforts not to disclose without the prior consent of Borrower any information with respect to any Credit Party which is furnished pursuant to or in connection with this Agreement and which is designated by Borrower to the Lenders in writing as confidential; provided, however, that any Lender may disclose any such information (a) to its Affiliates, employees, auditors, advisors or counsel or to Agent or another Lender, (b) as has become generally available to the public other than by means of a breach of this Section 10.10 by such Lender, (c) as may be required or appropriate in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over such Lender, (d) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (e) in order to comply with any Requirement of Law, and (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, provided, that such transferee or participant agrees to be bound by the provisions of this Section 10.10 as if it were a Lender. 10.11 Reimbursement of Expenses; Indemnification. Whether or not the transactions contemplated in this Agreement are consummated: 65 (a) Borrower shall, upon demand, pay all Expenses of Agent; (b) Borrower shall, upon demand, pay to the Agent and any and all Lenders all reasonable costs and expenses (including the reasonable fees and disbursements of counsel and other professionals) paid or incurred by such Person in (i) enforcing its rights under or in respect of this Agreement, the other Credit Documents or any other agreement, instrument or document now or hereafter executed and delivered in connection herewith or therewith, (ii) in collecting the Loans or any other Obligations, and (iii) in obtaining any legal, accounting or other advice in connection with any of the foregoing; and (c) Borrower shall indemnify and does hereby agree to defend and hold harmless Agent and each of the Lenders and their respective shareholders, directors, officers, employees, agents, advisors, counsel and Affiliates (each, an "Indemnified Person" and, collectively, the "Indemnified Persons") from and against any and all losses, claims, damages, liabilities, deficiencies, judgments or expenses incurred by any of them (except to the extent that it is finally judicially determined to have resulted from the negligence or willful misconduct of the Indemnified Person seeking indemnification) arising out of or by reason of (x) any litigation, investigations, claims or proceedings which arise out of or are in any way related to (i) this Agreement or any other Credit Document or the transactions contemplated hereby or thereby, (ii) any actual or proposed use by Borrower of the proceeds of the Loans or (iii) Agent's or the Lenders' entering into this Agreement, the other Credit Documents or any other agreements, instruments and documents relating hereto, including, without limitation, amounts paid in settlement, court costs and the reasonable fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding or any advice rendered in connection with any of the foregoing, (y) any remedial or other action taken by Borrower or any of the Lenders in connection with compliance by Borrower or any of its Subsidiaries, or any of their respective properties, with any foreign, federal, state or local environmental laws, acts, rules, regulations, orders, directions, ordinances, criteria or guidelines, and (z) any violation of, noncompliance with or liability under any Environmental Law applicable to the operations and/or conduct of any Credit Party or its properties, whether owned or leased (each, a "Property"); provided, however, that Borrower shall have no obligation hereunder to any Indemnified Person with respect to indemnified liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. (d) Notwithstanding anything to the contrary contained in paragraph (c) of this Section 10.10, in all such litigations, investigations, claims, proceedings or actions, or the preparation therefore, the Indemnified Persons shall be entitled to select their own counsel. 10.12 Amendments and Waivers. No amendment or waiver of any provision of this Agreement, any part of the Disclosure Schedule or any part of any other Credit Document shall be effective unless in writing and signed by Agent and Required Lenders, except that: (a) the consent of all the Lenders (but only those Lenders with Obligations being directly affected, in the case of clauses (ii) and (iii)) is required to: (i) increase the Revolver Commitments; (ii) reduce the principal of, or interest on, any or all of the Notes or any Fees hereunder (other than Fees that are exclusively for the account of Agent); (iii) postpone any 66 date fixed for any payment in respect of principal of, or interest on, any or all of the Notes or any Fees hereunder; (iv) change the percentage of the Revolver Commitments, or any minimum requirement necessary for the Lenders or Required Lenders to take any action hereunder; or (v) amend or waive this Section 10.12(a), or change the definition of Required Lenders; (b) if the interest rate or scheduled repayments of the Loan are being increased (except as expressly set forth herein) or the date of any scheduled repayment is being shortened or accelerated, the consent of Required Lenders of the facilities taken as a whole and the consent of Required Lenders shall be required in connection therewith; (c) the consent of Agent shall be required for any amendment, waiver or consent affecting the rights or duties of Agent under any Credit Document, in addition to the consent of the Lenders otherwise required by this Section 10.12; and (d) the consent of Borrower shall be required for any amendment, waiver or consent affecting the rights or duties of Borrower under any Credit Document, in addition to the other consents required by this Section 10.12, provided, that the Lenders and Agent may modify or waive, as among themselves, any of the provisions of Article 9, provided that (without Borrower's consent) no such modification or waiver made by the Lenders and Agent shall impose any obligations upon Borrower or limit Borrower's rights. Borrower and the Lenders hereby authorize Agent to modify this Agreement by unilaterally amending or supplementing Annex I to reflect assignments of the Revolver Commitments. 10.13 Counterparts and Effectiveness. This Agreement and any waiver of amendment hereto may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. This Agreement shall become effective on the date on which all of the parties hereto shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to Agent or, in the case of the Lenders, shall have given to Agent written, telecopied or telex notice (actually received) at such office that the same has been signed and mailed to it. 10.14 Severability. In case any provision in or obligation under this Agreement, any or all of the Notes or the other Credit Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby. 10.15 Maximum Rate. Notwithstanding anything to the contrary contained elsewhere in this Agreement or in any other Credit Document, Borrower, Agent and the Lenders hereby agree that all agreements among them under this Agreement and the other Credit Documents, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever shall the amount paid, or agreed to be paid, to Agent or any Lender for the use, forbearance, or detention of the money loaned to Borrower and evidenced hereby or thereby or for the performance or 67 payment of any covenant or obligation contained herein or therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever, fulfillment of any provisions of this Agreement or any of the other Credit Documents at the time performance of such provision shall be due shall exceed the Highest Lawful Rate, then, automatically, the obligation to be fulfilled shall be modified or reduced to the extent necessary to limit such interest to the Highest Lawful Rate, and if from any such circumstance any Lender should ever receive anything of value deemed interest by applicable law which would exceed the Highest Lawful Rate, such excessive interest shall be applied to the reduction of the principal amount then outstanding hereunder or on account of any other then outstanding Obligations and not to the payment of interest, or if such excessive interest exceeds the principal unpaid balance then outstanding hereunder and such other then outstanding Obligations, such excess shall be refunded to Borrower. All sums paid or agreed to be paid to Agent or any Lender for the use, forbearance, or detention of the Obligations and other Indebtedness of Borrower to Agent or any Lender, to the extent permitted by applicable law, shall be amortized, prorated, allocated and spread throughout the full term of such Indebtedness, until payment in full thereof, so that the actual rate of interest on account of all such Indebtedness does not exceed the Highest Lawful Rate throughout the entire term of such Indebtedness. The terms and provisions of this Section 10.15 shall control every other provision of this Agreement and each Note and all other agreements among Borrower, Agent and the Lenders. 10.16 Entire Agreement; Successors and Assigns. This Agreement and the other Credit Documents constitute the entire agreement among Borrower, Agent, and the Lenders, supersede any prior agreements among them, and shall bind and benefit Borrower, Agent and the Lenders and their respective successors and permitted assigns. 10.17 Currency Translation. Unless specifically provided otherwise, all dollar figures and dollar calculations under this Agreement or the other Credit Documents are denominated in Dollars (unless otherwise specifically stated) and all loans made hereunder will be made in Dollars. The foreign currency amount of all totals and subtotals submitted by or on behalf of the Credit Parties to any Lender or Agent will be converted into Dollars at the Prevailing Exchange Rate on the date prior to submission to Agent or such Lender, or, in the case of financial statements, in accordance with GAAP. All payments made by any Credit Party or applied by Agent or any Lender to the Obligations shall be first converted into Dollars at the Prevailing Exchange Rate on the date of payment or application (if not already in Dollars) and then credited against the Obligations. 10.18 Foreign Judgments. If for the purposes of obtaining or enforcing a judgment in any court in any jurisdiction it becomes necessary to convert into the currency of the country giving such judgment (the "Judgment Currency") an amount due hereunder in Dollars, then the date of such conversion shall be known as the "Conversion Date." If there is a change in the rate of exchange between the Judgment Currency and Dollars occurring between the Conversion Date and the date of actual receipt of the amount due hereunder or under such judgment, the applicable Credit Party will, notwithstanding such judgment, to the extent permitted by law, pay all such additional amounts as may be necessary to ensure the amount paid and received in the Judgment Currency when converted at the rate of exchange prevailing on the date of such receipt will produce the amount then due in Dollars. The obligation to make such additional payment shall constitute a separate and independent 68 obligation of such Credit Party and shall not merge with any judgment or any partial payment or enforcement of payment. The term "rate of exchange" used herein shall include any premiums and costs payable in connection with the conversion being effected. 10.19 Acknowledgments. Borrower hereby acknowledges that: (a) It has been advised by counsel in the negotiation, execution, and delivery of this Agreement and the other Credit Documents; (b) Neither Agent nor any Lender has any fiduciary relationship with or fiduciary duty to Borrower arising out of or in connection with this Agreement or any of the other Credit Documents, and the relationship between Agent and the Lenders on the one hand, and Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) No joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among Borrower and the Lenders or between Borrower and Agent. 10.20 Approvals. In all cases where the consent, approval, or any discretionary concurrence of Agent and/or the Lenders and/or Borrower is required, such consent shall not be unreasonably withheld, delayed or conditioned, subject to the following provisions: (a) Agent and the Lenders may withhold their consent for any reason or no reason (and may be arbitrary, capricious, and unreasonable in withholding consent) with respect to any of the following matters and any matter(s) directly or indirectly related thereto: (i) any Change of Control, (ii) replacement or substitution of both Managing Trustees, (iii) any change in the Business or scope of Borrower's permitted Indebtedness or Investments or the making of any Restricted Payments not otherwise permitted by this Agreement, (iv) any matter that, in Agent's reasonable judgment, could or would cause a Material Adverse Effect, (v) replacement of Investment Manager, and (vi) the granting of any waivers or forbearances under any Credit Documents. (b) A Person shall be deemed to be "reasonable" by demonstrating the existence of any rational basis for such Person's determination, disapproval, action or inaction, based upon such considerations and factors as such Person shall have determined relevant, each given such weight (if any) as such Person shall have determined. A Person shall not be obligated to demonstrate that: (a) their determination, disapproval, action or inaction is consistent with the action that an institutional lender or real estate investor would normally or typically take in the same circumstances; (b) there is no rational basis for the action such Person has disapproved; (c) such Person has considered all relevant or applicable considerations or factors; or (d) some other course of action, other than the course of action being disapproved by such Person, would be more appropriate under the circumstances. (c) If a Person has covenanted to be "reasonable" and, in violation of such covenant, withholds, delays, or conditions consent or approval as to any matter, then as the sole remedy for such wrongful withholding, delay, or conditioning, any Person aggrieved by 69 such act or omission shall be entitled to seek injunctive relief compelling such Person to grant the consent in question or deeming such consent to have been granted. Such injunctive relief shall constitute the sole remedy with respect to such consent. Each party specifically waives any right to damages or any offset, claim, defense, or counterclaim against such party's obligations under the Credit Documents on account of any such wrongful withholding, delay, or conditioning of consent. 10.21 NONLIABILITY OF TRUSTEES. THE DECLARATION OF TRUST OF BORROWER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 70 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their proper and duly authorized officers as of the date set forth above. BORROWER: HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By: /s/ John G. Murray ---------------------------------- John G. Murray, President AGENT: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent By: /s/ Michael A. Seton ---------------------------------- Michael A. Seton, Assistant Vice President By: /s/ Johannes Boeckmann ---------------------------------- Johannes Boeckmann, Vice President LENDERS: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as a Lender By: /s/ Michael A. Seton ---------------------------------- Michael A. Seton, Assistant Vice President By: /s/ Johannes Boeckmann ---------------------------------- Johannes Boeckmann, Vice President INDEX OF DEFINED TERMS $ .........................................................7 Acquisition Cost .........................................................1 Adjusted Eurodollar Rate...................................................2 Administrative Agent.......................................................2 Administrative Fee.........................................................2 Advisory Agreement.........................................................2 Affiliate .........................................................2 Agent .........................................................1 Agreement .........................................................1 Applicable Margin .........................................................2 Approved Bank .........................................................5 Arranger .........................................................3 Assigned Value .........................................................3 Assignment and Assumption Agreement................................................3 Auditors .........................................................3 Bankruptcy Code .........................................................3 Base Rate .........................................................3 Base Rate Loan .........................................................3 Base Rent .........................................................3 Benefit Plan .........................................................4 Borrower ......................................................1, 4 Borrowing .........................................................4 Business .........................................................4 Business Day .........................................................4 Capital Expenditures.......................................................4 Capital Lease .........................................................4 Capital Stock .........................................................4 Cash Available for Distribution............................................4 Cash Equivalents .........................................................4 Casualty Loss .........................................................5 Change of Control .........................................................5 Closing Date ......................................................1, 5 Closing Documents List.....................................................5 Code .........................................................5 Commitment Fee .....................................................5, 26 Common Stock .........................................................5 Compliance Certificate.....................................................5 Consolidated Debt Service..................................................6 Consolidated EBITDA........................................................6 Consolidated Indebtedness..................................................6 Consolidated Interest Expense..............................................6 Consolidated Secured Debt..................................................6 Consolidated Total Assets..................................................6 Contingent Obligation......................................................6 Control .........................................................7 Conversion Date. ........................................................68 Credit Documents .........................................................7 Credit Parties .........................................................7 Credit Party .........................................................7 D&P .........................................................7 Debt Service Coverage Ratio................................................7 Default .........................................................7 Default Rate .....................................................7, 26 Defaulting Lender .........................................................7 Defaulting Lender.........................................................24 Disclosure Schedule........................................................7 Dollar Equivalent .........................................................7 Dollars .........................................................7 Due Diligence Reports......................................................7 Eligible Assignee .........................................................8 Environmental Affiliate....................................................8 Environmental Approvals....................................................8 Environmental Claim........................................................8 Environmental Laws.........................................................8 ERISA .........................................................9 ERISA Affiliate .........................................................9 Eurodollar Loan .........................................................9 Eurodollar Rate .........................................................9 Event of Default .........................................................9 Excess Floating Rate Exposure..............................................9 Expenses .........................................................9 Federal Funds Rate........................................................10 Federal Reserve ........................................................10 Fees ........................................................10 FF&E Deposits ........................................................10 Financial Statements......................................................10 Fiscal Year ........................................................10 Fitch ........................................................10 Former Mortgages ........................................................42 Funds from Operations.....................................................10 GAAP ........................................................11 Governing Documents.......................................................11 Government Obligations.....................................................4 Governmental Authority....................................................11 Group ........................................................11 Guarantor ........................................................11 Guaranty ........................................................11 Herein, ........................................................22 Hereof, ........................................................22 Hereunder ........................................................22 Highest Lawful Rate.......................................................11 Hotel ........................................................11 Hotel Net Cash Flow.......................................................11 Hotel Pool ........................................................12 Including ........................................................22 Indebtedness ........................................................12 Indemnified Person........................................................66 Indemnified Persons.......................................................66 Insolvency Event ........................................................12 Intellectual Property.....................................................12 Interest Coverage Ratio...................................................12 Interest Period ........................................................12 Interest Rate Agreement...................................................13 Interest Rate Cap ........................................................13 Investment ........................................................13 Investment Grade Rating...................................................13 Investment Manager........................................................13 Investment Manager's Subordination Agreement...............................................13 IRS ........................................................13 Judgment Currency ....................................................13, 68 Last Financial Statement Date.............................................13 Lease ........................................................13 Lender .....................................................1, 24 Lenders ........................................................60 Lessee ........................................................14 Leverage Ratio ........................................................14 Lien ........................................................14 Loan Account ....................................................14, 26 Loans ........................................................14 Management Agreement......................................................14 Management Fee ........................................................14 Manager ........................................................14 Mandatory Redeemable Obligation...........................................14 Margin Stock ........................................................15 Material Adverse Effect...................................................15 Material Contract ........................................................15 Material Lessee ........................................................15 Materials of Environmental Concern........................................15 Maturity Date ........................................................15 Moody's ........................................................15 Multiemployer Plan........................................................15 Non-Defaulting Lender.....................................................15 Non-Defaulting Lenders....................................................24 Non-Excluded Taxes........................................................32 Non-Pool Hotel ........................................................15 Note ........................................................15 Notice of Borrowing...................................................16, 23 Notice of Continuation................................................16, 28 Notice of Conversion..................................................16, 28 Obligations ........................................................16 OECD Nation ........................................................16 Other Taxes ........................................................32 Payor ........................................................61 PBGC ........................................................16 PCB's ........................................................40 Permitted Liens ....................................................16, 52 Permitted Mortgage Investments............................................16 Permitted New Indebtedness................................................17 Permitted Transaction Amount..............................................17 Person ........................................................17 Plan ........................................................17 Pool Hotel ........................................................17 Prevailing Exchange Rate..................................................17 Pricing Parameter ........................................................17 Principals ........................................................14 Pro Rata Share ........................................................18 Property ........................................................66 Qualified Counterparty....................................................18 Rate of exchange ........................................................68 Rating ........................................................18 Rating Agency ........................................................18 Recourse Exposure Amount..................................................18 Register ........................................................18 REIT ........................................................18 Reportable Event ........................................................18 Required Lenders ....................................................19, 60 Required Payment ........................................................61 Requirement of Law........................................................19 Reset Date ........................................................19 Restricted Payments...................................................19, 53 Retiree Health Plan.......................................................19 Revolver Commitment.......................................................19 Revolver Loans ....................................................19, 23 Revolver Maturity Date....................................................19 Revolver Note ........................................................19 S&P ........................................................19 SEC Filing ........................................................19 Subsidiary ........................................................19 Ten-Year Treasury Rate....................................................20 Termination Event ........................................................20 Total Commitments ........................................................20 Type ........................................................20 U.S. ........................................................22 UCC ........................................................20 Unencumbered Pool ........................................................20 Wholly-Owned Subsidiary...................................................22 Year 2000 Problem ........................................................22 ANNEX I LENDERS AND COMMITMENT AMOUNTS NOTE: ANY NOTICE TO AGENT MUST BE DELIVERED SEPARATELY TO ALL NOTICE RECIPIENTS DESIGNATED BELOW OR SUCH REPLACEMENT NOTICE RECIPIENTS AS AGENT MAY DESIGNATE BY WRITTEN NOTICE FROM TIME TO TIME. Name and Address of Lender Revolver Commitment - -------------------------- ------------------- Dresdner Bank AG, New York Branch and Grand Cayman Branch $250,000,000 75 Wall Street New York, New York 10005 Attn.: Mr. Michael A. Seton, 25th Floor Fax No: (212) 429-2781 Mr. Gary Jermansky, 33rd Floor Fax No.: (212) 429-2130 Mr. Ronald Rapp, 24th Floor Fax No.: (212) 429-2793 ANNEX II LIST OF CLOSING DOCUMENTS US$250,000,000 REVOLVING CREDIT AGREEMENT among HOSPITALITY PROPERTIES TRUST, as Borrower, THE INSTITUTIONS PARTY THERETO AS LENDERS and DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent Dated as of March 19, 1998 L&W File No.: 021810-0055 KEY Advisors REIT Management and Research, Inc., a Delaware corporation. Agent Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent HPT Hospitality Properties Trust, a Maryland real estate investment trust Lenders The institutions party to the Credit Agreement as Lenders L&W Latham & Watkins, counsel to Agent S&W Sullivan & Worcester LLP, counsel to HPT Definitions. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Credit Agreement of which this Annex II is a part. II-2
DOCUMENT RESPONSIBLE 1. DOCUMENTS RELATING TO THE REVOLVING CREDIT AGREEMENT 1.1 Revolving Credit Agreement among HPT, the Lenders and Agent, with the following Annexes, Exhibits and Schedules attached: L&W a. Annex I List of Lenders and Commitment Amounts b. Annex II List of Closing Documents c. Annex III Pricing Grid d. Exhibit A Form of Revolver Note e. Exhibit B Form of Assignment and Assumption Agreement f. Exhibit C Form of Compliance Certificate g. Exhibit D Form of Notice of Borrowing h. Exhibit E Form of Notice of Continuation/Conversion i. Exhibit F Form of Investment Manager's Subordination Agreement j. Exhibit G Form of Register k. Schedule A Disclosure Schedule HPT 1.2 Revolver Note executed by HPT in favor of Agent. L&W 1.3 Subsidiaries' Guarantee by each Subsidiary in favor of Agent. L&W 1.4 Investment Manager's Subordination Agreement by HPT and Advisors in favor of Agent. L&W 1.5 Environmental Indemnity Agreement by HPT and each Subsidiary in favor of Agent. L&W 1.6 Notice of Borrowing by HPT to Agent. HPT 1.7 Closing Date Compliance Certificate executed by Chief Financial Officer of HPT. HPT 1.8 Solvency Certificate by Chief Financial Officer of HPT to Agent and the Lenders. L&W 1.9 Copies of Material Contracts referred to in Section 5.20 of the Credit Agreement. HPT 1.10 Financial Statements of HPT referred to in Section 5.8 of the Credit Agreement: HPT a. Fiscal Year 1995 (audited) b. Fiscal Year 1996 (audited) c. Fiscal Year 1997 up to September 30, 1997 (unaudited) d. Closing Date Balance Sheet (pro forma) II-3 DOCUMENT RESPONSIBLE 1.11 Engagement Letter Agreement between Dresdner, Kleinwort Benson North America LLC and HPT Agent 1.12 Accounting Review Report Agent 1.13 Insurance Review Report Agent 1.14 Sources and Uses of Funds HPT 1.15 Wire Transfer Instructions HPT 2. REAL PROPERTY 2.1 Copies of all Ground Leases for Hotels HPT 2.2 Copies of Lease for each Hotel HPT 2.3 Copies of Management Agreement for each Hotel HPT 2.4 Summary of all Hotel Ground Leases L&W 2.5 Summary of all Hotel Leases L&W 2.6 Summary of all Hotel Management Agreements L&W 2.7 Payoff letter(s) from DLJ HPT 2.8 Copies of Contracts of Purchase and Sale for [4 sites] HPT 3. OPINION LETTERS 3.1 Opinion of S&W, counsel to HPT, addressed to Agent and the Lenders. S&W 4. CORPORATE DOCUMENTS 4.1 Certificate of the Secretary of HPT certifying as to certain HPT organizational matters, including incumbency, executed by Secretary of HPT, with the following exhibits attached: a. Certificate of Incorporation or Declaration of Trust of HPT, as amended to date b. By-laws of HPT, as amended to date c. Relevant resolutions of the Board of Trustees of HPT. II-4 DOCUMENT RESPONSIBLE 4.2 Certificate of the Secretary of each Subsidiary certifying as to HPT certain corporate matters, including incumbency, executed by Secretary of such Subsidiary, with the following exhibits attached: a. Certificate of Incorporation of such Subsidiary, as amended to date b. By-laws of such Subsidiary, as amended to date c. Relevant resolutions of the Board of Directors of such Subsidiary. 4.5 Certificates of Good Standing with respect to each of HPT and each HPT Subsidiary, from: a. Delaware, with respect to HPTCY Corporation, HPTMI Corporation, HPTRI Corporation, HPTSLC Corporation, HPTWN Corporation and Hospitality Properties Mortgage Acceptance Corp. b. Maryland, with respect to HPT, HPT CW Properties Trust, HPTCY Properties Trust, HPTMI Properties Trust, HPTMI II Properties Trust, HPTSHC Properties Trust, HPTSLC Properties Trust and HPT SUITE Properties Trust
II-5
ANNEX III: PRICING GRID If a Rating Is in Effect for Borrower Then Such Rating If No Rating Is in Effect for Borrower, then Shall be the Pricing Parameter, as Follows Borrower's Leverage Ratio Shall be the Pricing Parameter, As Follows Rating Leverage Ratio BBB+/Baa BBB/Baa2 BBB-/Baa3 Below Below 30% 30% or 40% or 1 or Better or Better or Better BBB-/Baa3 Higher but Higher Below 40% Applicable Margin for Base Rate Loans 0% 0% 0% 0% 0% 0% .10% Applicable Margin for Eurodollar Loans .875% 1.00% 1.125% 1.25% 1.25% 1.35% 1.50% Annualized Commitment Fee .125% .15% .15% .20% .20% .20% .25% NOTES 1. Borrower shall be entitled to the most favorable Applicable Margin and Commitment Fee for which Borrower qualifies at time of determination. 2. Bold column shows pricing at closing. On first Reset Date, Pricing Parameters will be redetermined and, subject to this Agreement, will increase, decrease, or stay constant, as applicable, based on Pricing Parameters from time to time. 3. Annualized commitment fee is payable each Fiscal Quarter based on average undrawn Commitments during that quarter.
EXHIBIT A REVOLVER NOTE $_____________ New York, New York _______ __, ____ FOR VALUE RECEIVED, the undersigned, Hospitality Properties Trust, a Maryland real estate investment trust ("Maker"), promises to pay to ______________________ ("Lender") or order, at its offices located at _________________________ (or at such other place as Agent shall notify Maker in writing from time to time), the principal amount of ___________________ Dollars ($____________) or such lesser amount of the Revolver Loans (as defined in the Credit Agreement referred to below) made or maintained by Lender as is outstanding from time to time, with interest thereon from the date each such Revolver Loan is made on the unpaid principal balance under this Revolver Note (this "Note") payable at the rates and at the times set forth in that certain Revolving Credit Agreement dated as of March 19, 1998 among Maker, Lender, the other lenders party thereto and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as agent (as amended, modified and supplemented from time to time, the "Credit Agreement"), including without limitation default interest as set forth in Section 3.1(d) of the Credit Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement. The principal amount under this Note shall be due and payable on the terms set forth in the Credit Agreement, but in any event on or prior to the Revolver Maturity Date. This Note is secured by certain Credit Documents and is one of the "Revolver Notes" referred to in the Credit Agreement. Reference is hereby made to the Credit Agreement for a description of the nature and extent of the security for this Note and the rights with respect to such security of the holder of this Note. This Note is subject to mandatory prepayment as provided in Section 3.6 of the Credit Agreement and prepayment at the option of Maker as provided in Section 3.5 of the Credit Agreement. Principal and interest shall be payable, without defense, set off or counterclaim, in lawful money of the United States of America in immediately available funds and otherwise in accordance with the terms of the Credit Agreement. Each payment under this Note shall be applied as provided in the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default, the unpaid balance of the principal amount of this Note may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement. Maker promises to pay all reasonable fees, costs and expenses incurred in the collection and enforcement of this Note. Maker hereby waives diligence, presentment, protest, demand and notice of every kind (except such notices as may be required under the Credit Agreement or the other Credit Documents) and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. This Note shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York without giving effect to the conflict of law provisions thereof. THE DECLARATION OF TRUST OF MAKER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF MAKER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, MAKER. ALL PERSONS DEALING WITH MAKER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF MAKER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. [signature page follows] IN WITNESS WHEREOF, Maker has caused this Note to be duly executed the day and year first above written. HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By: _________________________ Name: Title: EXHIBIT B ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is entered into as of the date set forth in item 3 of Annex I hereto between _______________ ("Assignor") and ______________________ ("Assignee"). Reference is made to the credit agreement described in Item 2 of Annex I hereto (as amended, modified and supplemented from time to time, the "Credit Agreement"). Capitalized terms used and not otherwise defined herein have the meanings given them in the Credit Agreement. 1. Assignor hereby sells and assigns to Assignee, and Assignee hereby purchases and assumes from Assignor, that interest in and to all of Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified in Item 4 of Annex I of all outstanding rights and obligations under the Credit Agreement relating to the facility listed in Item 4 of Annex I, including without limitation, such interest in Assignor's Revolver Commitment (if applicable) and the Loans owing to Assignor relating to such facility. After giving effect to such sale and assignment Assignee's Revolver Commitment will be as set forth in Item 4 of Annex I. 2. Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Hospitality Properties Trust, a Maryland real estate investment trust ("Borrower") or the performance or observance by Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (ii) agrees that it will, independently and without reliance, as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is eligible as an assignee under the terms of the Credit Agreement; (iv) appoints and authorizes Dresdner Bank AG, New York Branch and Grand Cayman Branch, to take such action as agent (in such capacity, "Agent") on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) if Assignee is organized under the laws of a jurisdiction outside the United States, attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty. 4. Following the execution of this Agreement by Assignor and Assignee, it will be delivered to Agent for recording by Agent. The effective date of this Assignment shall be the first date on which both Assignor and Assignee shall have executed this Agreement and shall have received the consent of Agent, unless otherwise specified in Item 5 of Annex I (the "Settlement Date"). 5. Upon such acceptance and recording by Agent, as of the Settlement Date (i) Assignee shall be a party to the Credit Agreement and, to the extent provided in this Agreement, have the rights and obligation of a Lender thereunder and (ii) Assignor shall, to the extent provided in this Agreement, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by Agent, from and after the Settlement Date, Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees (if applicable) with respect thereto) to Assignee. On the Settlement Date, Assignee shall pay to Assignor the principal amount of any outstanding Loans under the Credit Agreement to the extent assigned to Assignee hereunder. Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves on the Settlement Date. 7. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 8. This Agreement may be executed in one or more counterparts, all of which shall constitute one and the same agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date set forth in Item 3 of Annex I. [NAME OF ASSIGNOR] as Assignor By:___________________________ Title:________________________ [NAME OF ASSIGNEE] as Assignee By:___________________________ Title:________________________ ACCEPTED THIS ____ DAY OF __________, ____ DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent By:___________________________ Title:________________________ By:___________________________ Title:________________________ 3 ANNEX I TO ASSIGNMENT AND ASSUMPTION AGREEMENT 1. Borrower: Hospitality Properties Trust, a Maryland real estate investment trust 2. Name and Date of Credit Agreement: Revolving Credit Agreement dated as of March __, 1998 among Borrower, the Lenders listed therein and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent. 3. Date of Assignment and Assumption Agreement: _____________________ 4. Amounts (as of date in Item #3 above): a. Revolver Loans $__________ b. Revolver Commitment $__________ c. Assigned Share __________% d. Assigned Amount of Revolver Commitment $__________ 5. Settlement Date: ____________________ 6. Notice and Payment Instructions Assignee: _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ 7. Initials of Authorized Signatories: Assignor: _____ Assignee: _____ EXHIBIT C COMPLIANCE CERTIFICATE [Letterhead of Borrower] [Date] Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent 75 Wall Street New York, NY 10005-2889 Attn: Mr. Michael A. Seton, 25th Floor Mr. Gary Jermansky, 33rd Floor Mr. Ronald Rapp, 24th Floor Ladies and Gentlemen: Reference is made to that certain Revolving Credit Agreement among Hospitality Properties Trust, a Maryland real estate investment trust ("Borrower"), the institutions parties thereto as lenders, and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as agent ("Agent"), dated March __, 1998 (the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this certificate shall have the meaning given to them in the Credit Agreement. The undersigned hereby certifies to Agent and each Lender that, as of the date hereof: (a) I am the duly elected, qualified and acting Chief Financial Officer of Borrower. (b) I have reviewed the terms of the Credit Agreement, and have reviewed, or have caused to be reviewed under my supervision, in reasonable detail, the transactions and the condition of Borrower during the immediately preceding [applicable period]. (c) The Borrower is in compliance with the financial (and all other material) covenants of the Credit Agreement in all material respects. The review described in paragraph_(b) above did not disclose the existence during or at the end of such [applicable period], and I have no knowledge of the existence as of the date hereof, of any condition or event which constitutes a Default or an Event of Default, except as hereinafter set forth. Any exceptions to this paragraph (c) are described in a separate attachment to this Certificate, which lists in detail the nature of the condition or event, the period during which it has existed and the action which Borrower has taken, is taking, and proposes to take with respect to such condition or event. (d) I further certify that, based on the review described in paragraph_(b) above, neither Borrower nor any of its Subsidiaries at any time during or at the end of such [applicable period], except as specifically described in a separate attachment to this Certificate, did any of the following: (i) Changed its corporate name, or transacted business under any trade name, style, or fictitious name, other than those previously described to Agent and set forth in the Credit Agreement. (ii) Changed the location of its chief executive office. (iii) Changed its capital structure. (iv) Permitted or suffered to exist any Lien or encumbrance on any of its properties, whether real or personal, other than as specifically permitted in the Credit Agreement. (v) Received any notice of any kind from any federal, state or local agency, tribunal or other authority regulating or having responsibility for any environmental matters. (vi) Became aware of or received notice of any breach or violation of any material covenant contained in any instrument or agreement respecting the Indebtedness of Borrower or any of its Subsidiaries. (e) The figures set forth in Schedule A hereto for determining compliance with the financial covenants set forth in the Credit Agreement are true and complete as of the date hereof. (f) The list of Hotels set forth in Schedule B hereto (the "Hotel List") is a true and complete list of all Hotels that constitute the Unencumbered Pool and the Assigned Value for each of such Hotels. Each of the Hotels set forth in the Hotel List qualifies under the criteria for inclusion in the Unencumbered Pool under the Credit Agreement. (g) The Hotel List correctly identifies each Hotel Pool within the Unencumbered Pool and each Hotel within each such Hotel Pool. (h) [If requested by Agent: The figures set forth in Schedule C hereto for determining the accuracy of the certifications in paragraphs (f) and (g) above are true and complete as of the date hereof. (i)] The list of Hotels set forth in Schedule D hereto is a true and complete list as of the date hereof of all changes in the composition of the Unencumbered Pool as of the date hereof since the date of the immediately preceding Compliance Certificate that was delivered by Borrower to Agent. [remainder of page intentionally left blank] The foregoing certifications are made and delivered this _____ day of ______, ____. Very truly yours, ___________________________ Name:_____________________, Chief Financial Officer of HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust Schedule A Note: ("QE" means only as of the last day of a Fiscal Quarter) - -------------------------------------------------------------------------------- Financial Ratio or Amount Compliance Requirement/Actual Amount ================================================================================ 1. (a) Consolidated Secured Debt $ - -------------------------------------------------------------------------------- a. Consolidated Indebtedness $ - -------------------------------------------------------------------------------- b. Aggregate Assigned Value of $ All Hotels - -------------------------------------------------------------------------------- c. Ratio of Consolidated Secured Required: No Higher Than 35% Debt to Aggregate Assigned Actual: Value of All Hotels - -------------------------------------------------------------------------------- d. Leverage Ratio (ratio of Required: No Higher Than 50% Consolidated Indebtedness to Actual: Aggregate Assigned Value of All Hotels) ================================================================================ 2. (a) Aggregate Assigned Value of $ Entire Unencumbered Pool - -------------------------------------------------------------------------------- a. Amount of Obligations $ - -------------------------------------------------------------------------------- b. Consolidated Indebtedness $ Other Than Obligations and Consolidated Secured Debt - -------------------------------------------------------------------------------- c. Recourse Exposure Amount for $ All Hotels - -------------------------------------------------------------------------------- d. Sum of Items (b), (c) and (d) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- e. Ratio of Aggregate Assigned Required: At Least 200% Value of Entire Unencumbered Actual: Pool to Item (e)) ================================================================================ 3. (a) Aggregate Assigned Value of the 1. [Metropolitan Area] $ Portion of the Unencumbered Pool Located in Each of the Four 2. [Metropolitan Area] $ "Metropolitan Areas" (as Defined in the Statistical Abstract of the United 3. [Metropolitan Area] $ States) that Have the Greatest Such Aggregate Assigned Values 4. [Metropolitan Area] $ - -------------------------------------------------------------------------------- a. Ratio of Each of the Four Required: No Higher Than 20% for Any Aggregate Assigned Values Metropolitan Area Listed in Item (a) to the Actual: Aggregate Assigned Value of 1. [Metropolitan Area] % the Entire Unencumbered Pool 2. [Metropolitan Area] % (Item 2(a)) 3. [Metropolitan Area] % 4. [Metropolitan Area] % ================================================================================ 4. (a) Assigned Value of Hotels Owned by $ Subsidiaries That Are Neither Wholly-Owned Subsidiaries Nor (b) Guarantors - -------------------------------------------------------------------------------- a. Ratio of Item (a) to Assigned Required: No Higher Than 10% Value of All Hotels (Item 1(c)) Actual: ================================================================================ 5. (a) Consolidated EBITDA for the $ Unencumbered Pool (Considered Separately) (QE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- a. Consolidated Interest Expense $ (QE) - -------------------------------------------------------------------------------- b. Consolidated Interest Expense $ on Consolidated Secured Debt (QE) ================================================================================ c. Consolidated EBITDA for the Required: 2.50 or Higher Unencumbered Pool Actual: (Considered Separately) divided by Consolidated Interest Expense (Excluding Consolidated Interest Expense on Consolidated Secured Debt) (QE) ================================================================================ 6. (a) Gross Proceeds to the Credit Parties of All Equity Offerings (Common or Preferred) Consummated by Any of Them After the Closing Date - -------------------------------------------------------------------------------- a. Consolidated Tangible Net Required: At Least 80% of Item 6(a) Worth of All Credit Parties (QE) Plus $900,000,000 Actual: ================================================================================ 7. (a) Consolidated EBITDA for all Hotels $ (QE) - -------------------------------------------------------------------------------- a. Consolidated Debt Service (QE) $ - -------------------------------------------------------------------------------- b. Consolidated Interest Expense $ (QE) - -------------------------------------------------------------------------------- c. Debt Service Coverage Ratio Required: At Least 2.25 to 1 (Ratio of Consolidated EBITDA Actual: for All Hotels to Consolidated Debt Service) (QE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- d. Interest Coverage Ratio (Ratio Required: At Least 2.50 to 1 of Consolidated EBITDA for All Actual: Hotels to Consolidated Interest Expense) (QE) ================================================================================ 8. (a) Permitted Mortgage Investments - -------------------------------------------------------------------------------- a. Consolidated Total Assets - -------------------------------------------------------------------------------- b. Permitted Mortgage Investments Required: No Higher Than 20% as a Percentage of Consolidated Actual: Total Assets - --------------------------------------------------------------------------------
Schedule B ========================================================================================================== Name of Hotel Address of Hotel Assigned Value Hotel Pool, if any, of of Hotel which Hotel is a member - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- ==========================================================================================================
Schedule C Schedule D The following Hotels were included in the Unencumbered Pool on [date], the date of the immediately preceding Compliance Certificate that was delivered by Borrower to Agent, but are not included in the Unencumbered pool as of [date]: ================================================================================ Name of Hotel Address of Hotel - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ The following Hotels were not included in the Unencumbered Pool on [date], the date of the immediately preceding Compliance Certificate that was delivered by Borrower to Agent, but are included in the Unencumbered pool as of [date]: ================================================================================ Name of Hotel Address of Hotel - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ EXHIBIT D NOTICE OF BORROWING [DATE] Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent 75 Wall Street New York, NY 10005-2889 Attention: Mr. Michael A. Seton, 25th Floor Mr. Gary Jermansky, 33rd Floor Mr. Ronald Rapp, 24th Floor Ladies and Gentlemen: The undersigned, Hospitality Properties Trust, a Maryland real estate investment trust ("Borrower"), refers to the Revolving Credit Agreement dated as of March 19, 1998 among Borrower, certain institutions parties thereto as lenders, and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as Agent (as amended, modified, and supplemented to date, the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used in this Notice of Borrowing shall have the respective meanings given to them in the Credit Agreement. Pursuant to Section 2.2 of the Credit Agreement, Borrower hereby gives you irrevocable notice that it requests a Borrowing under the Credit Agreement, and sets forth below the required information relating to such Borrowing (the "Proposed Borrowing"): (i) The Proposed Borrowing is of [Base Rate] [Eurodollar] Loans. (ii) The requested date of the Proposed Borrowing is ____________________. (iii) The aggregate amount of the Proposed Borrowing is $__________ [and, if the Proposed Borrowing is of Eurodollar Loans, the Interest Period is [one] [two] [three] [six] months]. (iv) The account at which the requested funds shall be made available is - ---------------. The undersigned hereby certifies to Agent and each Lender considered separately that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (A) the representations and warranties contained in the Credit Agreement and in each other Credit Document are true and correct in all material respects before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date); (B) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, which constitutes or would constitute a Default or an Event of Default; and (C) all of the other conditions to the Proposed Borrowing set forth in the Credit Agreement have been fulfilled. If notice of this Proposed Borrowing has been given previously by telephone, then this notice should be considered a written confirmation of such telephone notice. HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By: ______________________________ Name: Thomas M. O'Brien Title: Treasurer 2 EXHIBIT E NOTICE OF CONTINUATION/CONVERSION Pursuant to that certain Revolving Credit Agreement dated as of March 19, 1998 among Hospitality Properties Trust ("Borrower"), certain lenders party thereto and Dresdner Bank AG, New York Branch and Grand Cayman Branch, as agent (as amended, modified and supplemented from time to time, the "Credit Agreement"), this represents Borrower's request: [A: to convert $__________ in principal amount of presently outstanding [Base Rate/Eurodollar] Loans to [Base Rate/Eurodollar] Loans on [DATE].] [B: to continue as Eurodollar Loans Loans in the principal amount of $__________, which are currently outstanding as Eurodollar Loans.] [The Interest Period for such Eurodollar Loans commencing on [DATE] is requested to be a [one/two/three/six] month period.] The undersigned officer (in his or her capacity as an officer of Borrower and not individually) does hereby certify on behalf of Borrower that no Default or Event of Default has occurred and is continuing under the Credit Agreement. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. DATED: [DATE] HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By: ________________________________ Name: Thomas M. O'Brien Title: Treasurer EXHIBIT F INVESTMENT MANAGER'S SUBORDINATION AGREEMENT INVESTMENT MANAGER'S SUBORDINATION AGREEMENT (this "Agreement"), dated as of March 19, 1998, by and among REIT Management & Research, Inc., a Delaware corporation, having an address at 400 Centre Street, Newton, Massachusetts 02158 (the "Investment Manager"), Hospitality Properties Trust, a Maryland real estate investment trust, having an address at 400 Centre Street, Newton, Massachusetts 02158 (the "Borrower"), and Dresdner Bank AG, New York Branch and Grand Cayman Branch, having an address at 75 Wall Street, New York, New York 10005, as agent on behalf of the Lenders (as hereinafter defined) (the "Agent"). R E C I T A L S: Pursuant to that certain Revolving Credit Agreement, dated as of the date hereof (as modified and supplemented and in effect from time to time, the "Loan Agreement"; capitalized terms used herein and not otherwise defined having the meanings set forth in the Loan Agreement), by and among Borrower, as borrower; Agent, as agent; and the institutions party thereto as lenders ("Lenders"), the Lenders have committed to make a loan (the "Loan") to Borrower up to a maximum aggregate principal amount of $250,000,000. The Loan is to be evidenced by, and repayable with interest thereon in accordance with, that certain Revolver Note, dated the date hereof, executed and delivered by Borrower to the order of Agent (as modified, supplemented or substituted and in effect from time to time, collectively, the "Note"). Investment Manager has agreed to provide management, advisory and administrative services and certain other services for the Borrower pursuant to an Advisory Agreement among Investment Manager, Barry M. Portnoy, Gerard M. Martin and Borrower (as amended, modified or supplemented and in effect from time to time, the "Advisory Agreement"). NOW, THEREFORE, to induce the Agent to enter into the Loan Agreement and to induce Lenders to make the Loan and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Representations of Investment Manager. Investment Manager warrants and represents to the Agent the following as of the date hereof: (a) The Advisory Agreement has not been assigned, modified, amended or supplemented. The Advisory Agreement is in full force and effect, and constitutes the entire agreement with respect to the provision of management, advisory or administrative services to Borrower, except as set forth therein. A true, correct and complete copy of the Advisory Agreement is attached hereto as Exhibit A. (b) The Advisory Agreement constitutes the legal, valid and binding obligation of Investment Manager, enforceable against Investment Manager in accordance with its terms, subject to general principles of equity and laws affecting the rights and remedies of debtors and creditors generally. (c) To Investment Manager's knowledge, Borrower is not in default in the performance of the terms and provisions of the Advisory Agreement, nor is there now any condition which, with the giving of notice or lapse of time, or both, will become a default. (d) There are no contracts, agreements or commitments between Borrower and Investment Manager in respect of the Loan Agreement or the provision of management, advisory or administrative services to Borrower, except as provided in the Advisory Agreement. (e) Investment Manager is not in material default under the terms and provisions of the Advisory Agreement, nor is there now any condition which, with the giving of notice or lapse of time, or both, will become a default. No claim or dispute exists between Borrower and Investment Manager with respect to the Advisory Agreement. (f) Investment Manager has not assigned or encumbered its interest under the Advisory Agreement. (g) Investment Manager does not have any option or preferential right to purchase all or any part of, and does not have any right, title or interest with respect to any Hotel or any other property of Borrower other than as advisor under the Advisory Agreement. (h) As of the date hereof, all fees, sums, charges, costs, expenses and other amounts due under the Advisory Agreement have been paid in accordance with the terms of the Advisory Agreement. 2. Investment Manager's Covenants. A. Investment Manager hereby consents and agrees to each and every one of the following covenants and agreements for the benefit of the Agent: (a) Performance and Notice of Default. Investment Manager agrees that it will (i) promptly perform and observe in all material respects all of the covenants and agreements required to be performed and observed by it under the Advisory Agreement, and (ii) promptly notify Agent of any material default under the Advisory Agreement of which it becomes aware. (b) No Termination of Advisory Agreement. Investment Manager will not terminate the Advisory Agreement without first providing the Agent with at least thirty (30) days' prior written notice of such intention. (c) Subordination of the Advisory Agreement to Liens of Lender. Any and all liens, rights and interests (whether choate or inchoate and including, without limitation, all 2 mechanic's and materialman's liens under applicable law) owned, claimed or held, or to be owned, claimed or held, by Investment Manager in and to any property of the Borrower (collectively, the "Subordinated Obligations"), are and shall be in all respects subordinate and inferior to the liens and security interests created or to be created for the benefit of the Agent, its successors and assigns, and securing the repayment of the Note (including, without limitation, post-petition interest), including, among other things, liens and security interests with respect to the Hotels (collectively, the "Senior Obligations"). The foregoing subordination shall not affect the right of Investment Manager to receive and use all fees paid or payable to it under the Advisory Agreement. (d) Agent's Right to Terminate. Upon (1) the occurrence of an Event of Default pursuant to which the Loan is accelerated (or otherwise becomes due and payable in full) or (2) Investment Manager committing any act which would permit termination of the Advisory Agreement by Borrower, the Agent shall have the right to terminate the Advisory Agreement by giving Borrower and Investment Manager thirty (30) days prior written notice. (e) No Amendments to the Advisory Agreement. Investment Manager will not amend or modify the Advisory Agreement in any material respect without the prior written consent of the Agent, which consent shall not be unreasonably withheld, delayed or conditioned. In the event Investment Manager fails to secure such approval, the Advisory Agreement shall, for the purposes of Investment Manager's obligations to the Agent pursuant to this Agreement, be deemed not to have been modified by such amendment. (f) Limitation on Liens. Investment Manager will not create, incur, assume or suffer to exist (to the extent funds are available to satisfy such lien in accordance with the provisions of the Advisory Agreement) any Lien upon any property of Borrower, including, without limitation, the Hotels, except as permitted under the Loan Agreement or as otherwise agreed to in writing by the Agent. (g) Delivery of Notices, etc. Investment Manager shall furnish the Agent with all material notices from any Governmental Authority or private litigants received by Investment Manager with respect to any Hotel. (h) Further Assurances. Investment Manager shall (i) execute such affidavits and certificates as the Agent shall reasonably require to further evidence the agreements herein contained, provided same do not increase Investment Manager's obligations set forth, contemplated or otherwise intended hereunder, (ii) on written request from the Agent, furnish the Agent with copies of such information as Borrower is entitled to receive under the Advisory Agreement, and (iii) cooperate with the Agent's representatives in any inspection of all or any property of Borrower to the extent the Agent is permitted to enter and inspect such property in accordance with the Loan Agreement. 3 (i) Agent Not Obligated Under Advisory Agreement. Investment Manager further agrees that nothing herein shall impose upon the Agent any obligation for payment or performance in favor of Investment Manager, unless the Agent has elected to assert Borrower's rights under the Advisory Agreement, in which case the Agent shall pay Investment Manager the sums due to Investment Manager under the terms of the Advisory Agreement from and after the effective date of the Agent's notice of such election to Investment Manager, and Investment Manager shall continue performance on the Agent's behalf in accordance with the terms of the Advisory Agreement. (j) Agent's Reliance on Representations. Investment Manager has executed this Agreement for the purpose of inducing the Lenders to make the Loan and inducing Agent to enter into the Loan Agreement and with full knowledge that the Agent and Lenders shall rely upon the representations, warranties, covenants and agreements herein contained when making the Loan and that but for this instrument and the representations, warranties, covenants and agreements herein contained, the Agent and Lenders would not take such actions. B. Except as expressly permitted hereby, upon the occurrence and continuance of an Event of Default under the Loan Agreement, Investment Manager shall not request, demand or sue for, or take, accept or receive from Borrower, by set-off or in any other manner, and Borrower shall not make, any payment of any monies (including, without limitation, principal or interest (including post-petition interest) thereafter owing by Borrower to Investment Manager in respect of the Subordinated Obligations or any security therefor, other than for services rendered prior to such date, until the final payment in full of the Senior Obligations; provided, however, that Investment Manager has no obligation to continue as Investment Manager under the Advisory Agreement if Investment Manager is not receiving compensation for its services thereunder. C. In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Borrower or the proceeds thereof, to creditors of Borrower, or upon any indebtedness of Borrower, by reason of the liquidation, dissolution or other winding up of Borrower or Borrower's business, or any sale, receivership, insolvency or bankruptcy proceeding, or assignment for the benefit of creditors, or any proceeding by or against Borrower for any relief under any bankruptcy or insolvency law or laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, then and in any such event any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any or all indebtedness or obligations of Borrower to Investment Manager in respect of any of the Subordinated Obligations (including, without limitation, interest and post-petition interest) shall be paid or delivered directly to the Agent for application to the Senior Obligations (including, without limitation, post-petition interest), due or not due, until the Senior Obligations shall have first been fully paid and satisfied; provided, however, that Investment Manager has no obligation to continue as Investment Manager under the Advisory Agreement if Investment Manager is not receiving compensation for its services thereunder. Upon the occurrence and during the continuance of an Event of 4 Default, Investment Manager irrevocably authorizes and empowers the Agent to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and to file claims and take such other proceedings, in the Agent's own name or in the name of Investment Manager or otherwise, as the Agent may deem necessary or advisable for the enforcement of this Agreement. Investment Manager will execute and deliver to the Agent such powers of attorney, assignments or other instruments as may be reasonably requested by the Agent in order to enable the Agent to enforce any and all claims upon or with respect to any of the Subordinated Obligations, and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect to any such Obligations of Borrower. D. Should any payment or distribution or security or proceeds thereof be received by Investment Manager upon or with respect to any of the Subordinated Obligations contrary to the foregoing provisions, Investment Manager will forthwith deliver the same to the Agent in precisely the form received (except for the endorsement or assignment of Investment Manager where necessary) for application to the Senior Obligations (including, without limitation, post-petition interest), and, until so delivered, the same shall be held in trust by Investment Manager as property of the Agent. In the event of the failure of Investment Manager to make any such endorsement or assignment, the Agent, or any of its officers or employees, is hereby irrevocably authorized to make the same. E. Investment Manager will not assign or transfer to others any claim which it has or may hereafter have against Borrower in respect of any of the Subordinated Obligations while any of the Senior Obligations (including without limitation, post-petition interest) remain unpaid, unless such assignment or transfer is made expressly subject to the terms and conditions hereof in any instrument in form and substance satisfactory to the Agent. F. The Agent, at any time and from time to time, may enter into such agreement or agreements with Borrower as the Agent may reasonably deem proper extending the time of payment of or renewing or otherwise altering the terms of all or any of the Senior Obligations without notice to Investment Manager and without in any way impairing or affecting the obligations of Investment Manager hereunder. G. The Agent shall not be prejudiced in its right to enforce this Agreement in respect of any of the Subordinated Obligations owing to Investment Manager by any act or failure to act on the part of Borrower or anyone in custody of Borrower's assets or property. 3. No Assignment. Notwithstanding anything to the contrary in the Advisory Agreement, neither Investment Manager nor Borrower may assign the Advisory Agreement without the prior written consent of the Agent. 4. No Waiver. No failure to exercise, and no delay in exercising, and no course of dealing with respect to, any power, remedy or right under this Agreement by the Agent shall operate as a waiver thereof, nor shall any single or partial exercise thereof by the Agent preclude any other or further exercise thereof or the exercise of any other power, remedy or right. The 5 remedies provided herein are cumulative and not exclusive of any remedies provided by applicable law and/or any of the other Credit Documents. 5. Notice. All notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed if to Agent at its address set forth on the first page hereof, Attention: Mr. Michael A. Seton, 25th Floor; Mr. Gary Jermansky, 33rd Floor; and Mr. Ronald Rapp, 24th Floor; if to Investment Manager at its address set forth on the first page hereof, Attention: President; and if to Borrower at its address set forth on the first page hereof, Attention: Mr. Thomas M. O'Brien; or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 5. A copy of all notices, consents, approvals and requests directed to the Agent shall be delivered to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Roger M. Zeitzeff, Esq., and Joshua Stein, Esq., and a copy of all notices, consents, approvals and requests directed to Investment Manager or Borrower shall be delivered to Investment Manager or Borrower at the address set forth in the preceding sentence, with a copy of each to: Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109, Attention: Jennifer B. Clark, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or two Business Days after mailing; or in the case of expedited prepaid delivery and telecopy, on the Business Day after the same was sent. A party receiving a notice which does not comply with the technical requirements for notice under this Section 5 may elect to waive any deficiencies and treat the notice as having been properly given. 6. Indemnity. Borrower shall indemnify, defend and hold the Agent harmless against and from all liability, loss, damage and expense (including, without limitation, reasonable attorney's fees and disbursements), which the Agent may or shall incur or be subject to by reason of this Agreement, or by reason of any action taken in good faith by the Agent hereunder, and against and from any and all claims and demands whatsoever which may be asserted against the Agent by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms, covenants and conditions contained in the Advisory Agreement, other than claims and demands arising by reason of Agent's own fraud, gross negligence or willful misconduct. Should the Agent incur any such liability, loss, damage or expense, the amount thereof, together with interest thereon at the rate of interest applicable from time to time under the Note, shall be payable by Borrower to the Agent immediately upon demand. 7. Amendments, Etc. This Agreement cannot be amended except by an agreement in writing, signed by the Agent, Borrower and Investment Manager, and no provision hereof may be waived except by an instrument in writing signed by the Agent. 8. Inspection; Books and Records. Investment Manager agrees that Agent or its agents and any Lender may enter upon the premises of Investment Manager at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default, 6 for the purposes of discussing the affairs, finances and business of any Credit Party and any Hotel with any of the officers, employees and directors of Investment Manager. Such officers, employees and directors shall truthfully and fully explain the affairs, finances and business of such Credit Party or Hotel to Agent or its agents and any Lender, as the case may be. At any time and from time to time on and after the occurrence and during the continuance of an Event of Default, Investment Manager shall, at Investment Manager's sole cost and expense, deliver to Agent within five days of Agent's request all books, records, files, correspondence and closing documents maintained by Investment Manager with respect to any Credit Party and any Hotel. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10. Severability. If any provision of this Agreement or the application thereof to any person or entity or circumstance shall, to any extent, be illegal, invalid and/or unenforceable, the remainder of this Agreement or the application of such provision to persons or entities or circumstances other than those as to which it is illegal, invalid and/or unenforceable, as the case may be, shall not be affected, and each provision of this Agreement shall be legal, valid and enforceable to the extent permitted by law. The illegality, invalidity and/or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the legality, validity and/or enforceability thereof in any other jurisdiction. 11. Expenses. If any suit or other proceeding is instituted by the Agent to enforce this Agreement (or any portion hereof), Borrower shall pay, upon demand, all of the reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by the Agent in connection therewith, together with interest at the Default Rate. The obligations of Borrower under this Section 11 shall survive the expiration or termination of this Agreement. 12. Headings. Headings used in this Agreement are for convenience of reference only and do not constitute part of this Agreement for any purpose. 13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AND INVESTMENT MANAGER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING BROUGHT BY ANY PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. 14. SUBMISSION TO JURISDICTION. INVESTMENT MANAGER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. INVESTMENT MANAGER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING 7 BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 15. Cumulative Remedies. All rights and remedies set forth in this Agreement are cumulative, and the Agent may recover judgment thereon, issue execution therefor, and resort to every other right or remedy available at law or in equity, without first exhausting and without affecting or impairing the security of any right or remedy afforded hereby; and no such right or remedy set forth in this Agreement shall be deemed exclusive of any of the remedies or rights granted to the Agent in the Note, the Loan Agreement or any other Credit Document. Nothing contained in this Agreement shall be deemed to limit or restrict the rights and remedies of the Agent under any of the other documents related to the Senior Obligations. 16. Borrower's Consent. Borrower has joined herein to evidence its consent to all the agreements of Investment Manager contained in this Agreement. 17. Successors. This Agreement shall be binding upon and shall inure to the benefit of each party hereto and their respective successors and assigns. 18. Counterparts. This Agreement may be executed in any number of counterparts each of which, taken together, shall constitute one and the same original. 19. Conflicts with Loan Agreement. Notwithstanding anything to the contrary set forth elsewhere in this Agreement or in any other Credit Document, this Agreement and such other Credit Documents are expressly made subject in their entirety to the Credit Agreement and in the event of a conflict or ambiguity created between the Credit Agreement and any provision herein (and/or under any other Credit Document) or obligation of Borrower hereunder (and/or under any other Credit Document), the terms of the Credit Agreement shall govern and control. 20. Termination. Upon the Obligations being fully paid by Borrower in accordance with the Loan Agreement, this Agreement shall be of no further effect. 21. NO LIABILITIES OF TRUSTEES. THE DECLARATION OF TRUST OF BORROWER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. INVESTMENT MANAGER: REIT MANAGEMENT & RESEARCH, INC. a Delaware corporation By:________________________________ Name: Title: BORROWER: HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By:______________________________ Name: Title: AGENT: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent By:________________________________ Name: Title: By:________________________________ Name: Title: 9 EXHIBIT A ADVISORY AGREEMENT A copy of the Advisory Agreement, dated as of January 31, 1998, between REIT Management & Research, Inc. and Hospitality Properties Trust has been filed with the Securities and Exchange Commission as an exhibit to Hospitality Properties Trust's Current Report on Form 8-K dated February 11, 1998, which exhibit is incorporated herein by reference. 10 EXHIBIT G FORM OF REGISTER [Intentionally Omitted.] EX-10.14 9 EXHIBIT 10.14 INVESTMENT MANAGER'S SUBORDINATION AGREEMENT INVESTMENT MANAGER'S SUBORDINATION AGREEMENT (this "Agreement"), dated as of March 19, 1998, by and among REIT Management & Research, Inc., a Delaware corporation, having an address at 400 Centre Street, Newton, Massachusetts 02158 (the "Investment Manager"), Hospitality Properties Trust, a Maryland real estate investment trust, having an address at 400 Centre Street, Newton, Massachusetts 02158 (the "Borrower"), and Dresdner Bank AG, New York Branch and Grand Cayman Branch, having an address at 75 Wall Street, New York, New York 10005, as agent on behalf of the Lenders (as hereinafter defined) (the "Agent"). R E C I T A L S: Pursuant to that certain Revolving Credit Agreement, dated as of the date hereof (as modified and supplemented and in effect from time to time, the "Loan Agreement"; capitalized terms used herein and not otherwise defined having the meanings set forth in the Loan Agreement), by and among Borrower, as borrower; Agent, as agent; and the institutions party thereto as lenders ("Lenders"), the Lenders have committed to make a loan (the "Loan") to Borrower up to a maximum aggregate principal amount of $250,000,000. The Loan is to be evidenced by, and repayable with interest thereon in accordance with, that certain Revolver Note, dated the date hereof, executed and delivered by Borrower to the order of Agent (as modified, supplemented or substituted and in effect from time to time, collectively, the "Note"). Investment Manager has agreed to provide management, advisory and administrative services and certain other services for the Borrower pursuant to an Advisory Agreement among Investment Manager, Barry M. Portnoy, Gerard M. Martin and Borrower (as amended, modified or supplemented and in effect from time to time, the "Advisory Agreement"). NOW, THEREFORE, to induce the Agent to enter into the Loan Agreement and to induce Lenders to make the Loan and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Representations of Investment Manager. Investment Manager warrants and represents to the Agent the following as of the date hereof: (a) The Advisory Agreement has not been assigned, modified, amended or supplemented. The Advisory Agreement is in full force and effect, and constitutes the entire agreement with respect to the provision of management, advisory or administrative services to Borrower, except as set forth therein. A true, correct and complete copy of the Advisory Agreement is attached hereto as Exhibit A. (b) The Advisory Agreement constitutes the legal, valid and binding obligation of Investment Manager, enforceable against Investment Manager in accordance with its terms, subject to general principles of equity and laws affecting the rights and remedies of debtors and creditors generally. (c) To Investment Manager's knowledge, Borrower is not in default in the performance of the terms and provisions of the Advisory Agreement, nor is there now any condition which, with the giving of notice or lapse of time, or both, will become a default. (d) There are no contracts, agreements or commitments between Borrower and Investment Manager in respect of the Loan Agreement or the provision of management, advisory or administrative services to Borrower, except as provided in the Advisory Agreement. (e) Investment Manager is not in material default under the terms and provisions of the Advisory Agreement, nor is there now any condition which, with the giving of notice or lapse of time, or both, will become a default. No claim or dispute exists between Borrower and Investment Manager with respect to the Advisory Agreement. (f) Investment Manager has not assigned or encumbered its interest under the Advisory Agreement. (g) Investment Manager does not have any option or preferential right to purchase all or any part of, and does not have any right, title or interest with respect to any Hotel or any other property of Borrower other than as advisor under the Advisory Agreement. (h) As of the date hereof, all fees, sums, charges, costs, expenses and other amounts due under the Advisory Agreement have been paid in accordance with the terms of the Advisory Agreement. 2. Investment Manager's Covenants. A. Investment Manager hereby consents and agrees to each and every one of the following covenants and agreements for the benefit of the Agent: (a) Performance and Notice of Default. Investment Manager agrees that it will (i) promptly perform and observe in all material respects all of the covenants and agreements required to be performed and observed by it under the Advisory Agreement, and (ii) promptly notify Agent of any material default under the Advisory Agreement of which it becomes aware. (b) No Termination of Advisory Agreement. Investment Manager will not terminate the Advisory Agreement without first providing the Agent with at least thirty (30) days' prior written notice of such intention. (c) Subordination of the Advisory Agreement to Liens of Lender. Any and all liens, rights and interests (whether choate or inchoate and including, without limitation, all 2 mechanic's and materialman's liens under applicable law) owned, claimed or held, or to be owned, claimed or held, by Investment Manager in and to any property of the Borrower (collectively, the "Subordinated Obligations"), are and shall be in all respects subordinate and inferior to the liens and security interests created or to be created for the benefit of the Agent, its successors and assigns, and securing the repayment of the Note (including, without limitation, post-petition interest), including, among other things, liens and security interests with respect to the Hotels (collectively, the "Senior Obligations"). The foregoing subordination shall not affect the right of Investment Manager to receive and use all fees paid or payable to it under the Advisory Agreement. (d) Agent's Right to Terminate. Upon (1) the occurrence of an Event of Default pursuant to which the Loan is accelerated (or otherwise becomes due and payable in full) or (2) Investment Manager committing any act which would permit termination of the Advisory Agreement by Borrower, the Agent shall have the right to terminate the Advisory Agreement by giving Borrower and Investment Manager thirty (30) days prior written notice. (e) No Amendments to the Advisory Agreement. Investment Manager will not amend or modify the Advisory Agreement in any material respect without the prior written consent of the Agent, which consent shall not be unreasonably withheld, delayed or conditioned. In the event Investment Manager fails to secure such approval, the Advisory Agreement shall, for the purposes of Investment Manager's obligations to the Agent pursuant to this Agreement, be deemed not to have been modified by such amendment. (f) Limitation on Liens. Investment Manager will not create, incur, assume or suffer to exist (to the extent funds are available to satisfy such lien in accordance with the provisions of the Advisory Agreement) any Lien upon any property of Borrower, including, without limitation, the Hotels, except as permitted under the Loan Agreement or as otherwise agreed to in writing by the Agent. (g) Delivery of Notices, etc. Investment Manager shall furnish the Agent with all material notices from any Governmental Authority or private litigants received by Investment Manager with respect to any Hotel. (h) Further Assurances. Investment Manager shall (i) execute such affidavits and certificates as the Agent shall reasonably require to further evidence the agreements herein contained, provided same do not increase Investment Manager's obligations set forth, contemplated or otherwise intended hereunder, (ii) on written request from the Agent, furnish the Agent with copies of such information as Borrower is entitled to receive under the Advisory Agreement, and (iii) cooperate with the Agent's representatives in any inspection of all or any property of Borrower to the extent the Agent is permitted to enter and inspect such property in accordance with the Loan Agreement. 3 (i) Agent Not Obligated Under Advisory Agreement. Investment Manager further agrees that nothing herein shall impose upon the Agent any obligation for payment or performance in favor of Investment Manager, unless the Agent has elected to assert Borrower's rights under the Advisory Agreement, in which case the Agent shall pay Investment Manager the sums due to Investment Manager under the terms of the Advisory Agreement from and after the effective date of the Agent's notice of such election to Investment Manager, and Investment Manager shall continue performance on the Agent's behalf in accordance with the terms of the Advisory Agreement. (j) Agent's Reliance on Representations. Investment Manager has executed this Agreement for the purpose of inducing the Lenders to make the Loan and inducing Agent to enter into the Loan Agreement and with full knowledge that the Agent and Lenders shall rely upon the representations, warranties, covenants and agreements herein contained when making the Loan and that but for this instrument and the representations, warranties, covenants and agreements herein contained, the Agent and Lenders would not take such actions. B. Except as expressly permitted hereby, upon the occurrence and continuance of an Event of Default under the Loan Agreement, Investment Manager shall not request, demand or sue for, or take, accept or receive from Borrower, by set-off or in any other manner, and Borrower shall not make, any payment of any monies (including, without limitation, principal or interest (including post-petition interest) thereafter owing by Borrower to Investment Manager in respect of the Subordinated Obligations or any security therefor, other than for services rendered prior to such date, until the final payment in full of the Senior Obligations; provided, however, that Investment Manager has no obligation to continue as Investment Manager under the Advisory Agreement if Investment Manager is not receiving compensation for its services thereunder. C. In the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Borrower or the proceeds thereof, to creditors of Borrower, or upon any indebtedness of Borrower, by reason of the liquidation, dissolution or other winding up of Borrower or Borrower's business, or any sale, receivership, insolvency or bankruptcy proceeding, or assignment for the benefit of creditors, or any proceeding by or against Borrower for any relief under any bankruptcy or insolvency law or laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, then and in any such event any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any or all indebtedness or obligations of Borrower to Investment Manager in respect of any of the Subordinated Obligations (including, without limitation, interest and post-petition interest) shall be paid or delivered directly to the Agent for application to the Senior Obligations (including, without limitation, post-petition interest), due or not due, until the Senior Obligations shall have first been fully paid and satisfied; provided, however, that Investment Manager has no obligation to continue as Investment Manager under the Advisory Agreement if Investment Manager is not receiving compensation for its services thereunder. Upon the occurrence and during the continuance of an Event of 4 Default, Investment Manager irrevocably authorizes and empowers the Agent to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and to file claims and take such other proceedings, in the Agent's own name or in the name of Investment Manager or otherwise, as the Agent may deem necessary or advisable for the enforcement of this Agreement. Investment Manager will execute and deliver to the Agent such powers of attorney, assignments or other instruments as may be reasonably requested by the Agent in order to enable the Agent to enforce any and all claims upon or with respect to any of the Subordinated Obligations, and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect to any such Obligations of Borrower. D. Should any payment or distribution or security or proceeds thereof be received by Investment Manager upon or with respect to any of the Subordinated Obligations contrary to the foregoing provisions, Investment Manager will forthwith deliver the same to the Agent in precisely the form received (except for the endorsement or assignment of Investment Manager where necessary) for application to the Senior Obligations (including, without limitation, post-petition interest), and, until so delivered, the same shall be held in trust by Investment Manager as property of the Agent. In the event of the failure of Investment Manager to make any such endorsement or assignment, the Agent, or any of its officers or employees, is hereby irrevocably authorized to make the same. E. Investment Manager will not assign or transfer to others any claim which it has or may hereafter have against Borrower in respect of any of the Subordinated Obligations while any of the Senior Obligations (including without limitation, post-petition interest) remain unpaid, unless such assignment or transfer is made expressly subject to the terms and conditions hereof in any instrument in form and substance satisfactory to the Agent. F. The Agent, at any time and from time to time, may enter into such agreement or agreements with Borrower as the Agent may reasonably deem proper extending the time of payment of or renewing or otherwise altering the terms of all or any of the Senior Obligations without notice to Investment Manager and without in any way impairing or affecting the obligations of Investment Manager hereunder. G. The Agent shall not be prejudiced in its right to enforce this Agreement in respect of any of the Subordinated Obligations owing to Investment Manager by any act or failure to act on the part of Borrower or anyone in custody of Borrower's assets or property. 3. No Assignment. Notwithstanding anything to the contrary in the Advisory Agreement, neither Investment Manager nor Borrower may assign the Advisory Agreement without the prior written consent of the Agent. 4. No Waiver. No failure to exercise, and no delay in exercising, and no course of dealing with respect to, any power, remedy or right under this Agreement by the Agent shall operate as a waiver thereof, nor shall any single or partial exercise thereof by the Agent preclude any other or further exercise thereof or the exercise of any other power, remedy or right. The 5 remedies provided herein are cumulative and not exclusive of any remedies provided by applicable law and/or any of the other Credit Documents. 5. Notice. All notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, or (b) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed if to Agent at its address set forth on the first page hereof, Attention: Mr. Michael A. Seton, 25th Floor; Mr. Gary Jermansky, 33rd Floor; and Mr. Ronald Rapp, 24th Floor; if to Investment Manager at its address set forth on the first page hereof, Attention: President; and if to Borrower at its address set forth on the first page hereof, Attention: Mr. Thomas M. O'Brien; or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 5. A copy of all notices, consents, approvals and requests directed to the Agent shall be delivered to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Roger M. Zeitzeff, Esq., and Joshua Stein, Esq., and a copy of all notices, consents, approvals and requests directed to Investment Manager or Borrower shall be delivered to Investment Manager or Borrower at the address set forth in the preceding sentence, with a copy of each to: Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109, Attention: Jennifer B. Clark, Esq. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or two Business Days after mailing; or in the case of expedited prepaid delivery and telecopy, on the Business Day after the same was sent. A party receiving a notice which does not comply with the technical requirements for notice under this Section 5 may elect to waive any deficiencies and treat the notice as having been properly given. 6. Indemnity. Borrower shall indemnify, defend and hold the Agent harmless against and from all liability, loss, damage and expense (including, without limitation, reasonable attorney's fees and disbursements), which the Agent may or shall incur or be subject to by reason of this Agreement, or by reason of any action taken in good faith by the Agent hereunder, and against and from any and all claims and demands whatsoever which may be asserted against the Agent by reason of any alleged obligation or undertaking on its part to perform or discharge any of the terms, covenants and conditions contained in the Advisory Agreement, other than claims and demands arising by reason of Agent's own fraud, gross negligence or willful misconduct. Should the Agent incur any such liability, loss, damage or expense, the amount thereof, together with interest thereon at the rate of interest applicable from time to time under the Note, shall be payable by Borrower to the Agent immediately upon demand. 7. Amendments, Etc. This Agreement cannot be amended except by an agreement in writing, signed by the Agent, Borrower and Investment Manager, and no provision hereof may be waived except by an instrument in writing signed by the Agent. 8. Inspection; Books and Records. Investment Manager agrees that Agent or its agents and any Lender may enter upon the premises of Investment Manager at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default, 6 for the purposes of discussing the affairs, finances and business of any Credit Party and any Hotel with any of the officers, employees and directors of Investment Manager. Such officers, employees and directors shall truthfully and fully explain the affairs, finances and business of such Credit Party or Hotel to Agent or its agents and any Lender, as the case may be. At any time and from time to time on and after the occurrence and during the continuance of an Event of Default, Investment Manager shall, at Investment Manager's sole cost and expense, deliver to Agent within five days of Agent's request all books, records, files, correspondence and closing documents maintained by Investment Manager with respect to any Credit Party and any Hotel. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 10. Severability. If any provision of this Agreement or the application thereof to any person or entity or circumstance shall, to any extent, be illegal, invalid and/or unenforceable, the remainder of this Agreement or the application of such provision to persons or entities or circumstances other than those as to which it is illegal, invalid and/or unenforceable, as the case may be, shall not be affected, and each provision of this Agreement shall be legal, valid and enforceable to the extent permitted by law. The illegality, invalidity and/or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the legality, validity and/or enforceability thereof in any other jurisdiction. 11. Expenses. If any suit or other proceeding is instituted by the Agent to enforce this Agreement (or any portion hereof), Borrower shall pay, upon demand, all of the reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by the Agent in connection therewith, together with interest at the Default Rate. The obligations of Borrower under this Section 11 shall survive the expiration or termination of this Agreement. 12. Headings. Headings used in this Agreement are for convenience of reference only and do not constitute part of this Agreement for any purpose. 13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AND INVESTMENT MANAGER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING BROUGHT BY ANY PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. 14. SUBMISSION TO JURISDICTION. INVESTMENT MANAGER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. INVESTMENT MANAGER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING 7 BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 15. Cumulative Remedies. All rights and remedies set forth in this Agreement are cumulative, and the Agent may recover judgment thereon, issue execution therefor, and resort to every other right or remedy available at law or in equity, without first exhausting and without affecting or impairing the security of any right or remedy afforded hereby; and no such right or remedy set forth in this Agreement shall be deemed exclusive of any of the remedies or rights granted to the Agent in the Note, the Loan Agreement or any other Credit Document. Nothing contained in this Agreement shall be deemed to limit or restrict the rights and remedies of the Agent under any of the other documents related to the Senior Obligations. 16. Borrower's Consent. Borrower has joined herein to evidence its consent to all the agreements of Investment Manager contained in this Agreement. 17. Successors. This Agreement shall be binding upon and shall inure to the benefit of each party hereto and their respective successors and assigns. 18. Counterparts. This Agreement may be executed in any number of counterparts each of which, taken together, shall constitute one and the same original. 19. Conflicts with Loan Agreement. Notwithstanding anything to the contrary set forth elsewhere in this Agreement or in any other Credit Document, this Agreement and such other Credit Documents are expressly made subject in their entirety to the Credit Agreement and in the event of a conflict or ambiguity created between the Credit Agreement and any provision herein (and/or under any other Credit Document) or obligation of Borrower hereunder (and/or under any other Credit Document), the terms of the Credit Agreement shall govern and control. 20. Termination. Upon the Obligations being fully paid by Borrower in accordance with the Loan Agreement, this Agreement shall be of no further effect. 21. NO LIABILITIES OF TRUSTEES. THE DECLARATION OF TRUST OF BORROWER, DATED MAY 12, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS DEALING WITH BORROWER, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. INVESTMENT MANAGER: REIT MANAGEMENT & RESEARCH, INC. a Delaware corporation By: /s/ John G. Murray ----------------------------------- Name: John G. Murray Title: Executive Vice President BORROWER: HOSPITALITY PROPERTIES TRUST, a Maryland real estate investment trust By: /s/ John G. Murray ----------------------------------- Name: John G. Murray Title: President AGENT: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, as Agent By: /s/ Michael A. Seton ----------------------------------- Name: Michael A. Seton Title: Assistant Vice President By: /s/ Johannes Boeckmann ----------------------------------- Name: Johannes Boeckmann Title: Vice President 9 EXHIBIT A ADVISORY AGREEMENT A copy of the Advisory Agreement, dated as of January 31, 1998, between REIT Management & Research, Inc. and Hospitality Properties Trust has been filed with the Securities and Exchange Commission as an exhibit to Hospitality Properties Trust's Current Report on Form 8-K dated February 11, 1998, which exhibit is incorporated herein by reference. EX-10.37 10 EXHIBIT 10.37 21902 Lassen Chatsworth, CA 91311 AGREEMENT OF PURCHASE AND SALE between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P. a Delaware limited partnership ("Patriot") and CHATSWORTH SUMMERFIELD ASSOCIATES, L.P. a Kansas limited partnership ("Summerfield")
TABLE OF CONTENTS Page ARTICLE IA PART A..................................................................................... 6 1.1A Part B of this Agreement................................................................... 6 1.1B Part A of this Agreement................................................................... 6 ARTICLE I DEFINITIONS................................................................................ 1 1.1 Definitions................................................................................ 1 ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF PURCHASE PRICE; TITLE........................................................... 8 2.1 Purchase and Sale.......................................................................... 8 2.2 Payment of Purchase Price.................................................................. 8 2.3 Deposit.................................................................................... 8 2.4 Submission Matters and Title Information................................................... 8 2.5 Availability of Information and Access..................................................... 9 ARTICLE III SUMMERFIELD'S REPRESENTATIONS AND WARRANTIES............................................................................. 10 3.1 Organization and Power..................................................................... 10 3.2 Authorization and Execution................................................................ 10 3.3 Non-contravention.......................................................................... 10 3.4 No Special Taxes........................................................................... 11 3.5 Compliance with Existing Laws.............................................................. 11 3.6 Personal Property.......................................................................... 11 3.7 Operating Agreements....................................................................... 11 3.8 Insurance.................................................................................. 11 3.9 Condemnation Proceedings; Roadways......................................................... 11 3.10 Actions or Proceedings..................................................................... 12 3.11 Labor and Employment Matters............................................................... 12 3.13 Submission Matters......................................................................... 12 3.14 Bankruptcy................................................................................. 12 3.15 Hazardous Substances....................................................................... 13 3.16 Occupancy Agreements....................................................................... 13 3.17 Leased Property............................................................................ 14 3.18 Americans With Disabilities Act............................................................ 14 3.19 Structural Condition....................................................................... 14 3.20 Zoning and Platting........................................................................ 14 3.21 Access..................................................................................... 14 3.22 No Commitments............................................................................. 14 3.23 Summerfield Is Not a "Foreign Person"...................................................... 14 3.24 No Other Property Interests................................................................ 14 3.25 Management Agreement....................................................................... 14 3.26 Development Agreement...................................................................... 15 3.27 Relationship to Certain Parties............................................................ 15 3.28 Liquor License............................................................................. 15 3.29 Improvements............................................................................... 15 3.30 Warranties and Guaranties.................................................................. 15 3.31 Limitations on Representations and Warranties.............................................. 15 ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES................................................... 16 4.1 Organization and Power..................................................................... 16 4.2 Authority of Patriot....................................................................... 16 4.3 Non-contravention.......................................................................... 16 4.4 Litigation................................................................................. 17 4.5 Submission Matters......................................................................... 17 4.6 Bankruptcy................................................................................. 17 ARTICLE V CONDITIONS PRECEDENT....................................................................... 17 5.1 As to Patriot's Obligations................................................................ 17 5.2 As to Summerfield's Obligations............................................................ 18 ARTICLE VI COVENANTS OF SUMMERFIELD................................................................... 19 6.1 Operating Agreements, Occupancy Agreements and Management Agreement .................................................................. 19 6.2 Insurance.................................................................................. 20 6.3 Audited Statements......................................................................... 20 6.4 Operation of Properties Prior to Closing................................................... 20 6.5 No Marketing............................................................................... 22 6.6 Liens...................................................................................... 22 6.7 Corporate and Bulk Sales Clearance......................................................... 22 ARTICLE VII CLOSING.................................................................................... 23 7.1 Closing.................................................................................... 23 7.2 Summerfield's Deliveries................................................................... 23 7.3 Patriot's Deliveries....................................................................... 26 7.4 Mutual Deliveries.......................................................................... 27 7.5 Closing Costs.............................................................................. 27 7.6 Revenue and Expense Allocations............................................................ 27 7.7 Summerfield's Accounts Receivable.......................................................... 29 ARTICLE VIII GENERAL PROVISIONS......................................................................... 30 8.1 Condemnation............................................................................... 30 8.2 Risk of Loss............................................................................... 30 8.3 Absence of Broker.......................................................................... 31 8.4 Confidentiality............................................................................ 31 8.5 Employees.................................................................................. 32 8.6 Investment Bankers......................................................................... 32 8.7 Radon Disclosure........................................................................... 32 ARTICLE IX LIABILITY OF PATRIOT, INDEMNIFICATION BY SUMMERFIELD;DEFAULT; TERMINATION RIGHTS.................................................... 33 9.1 Expenses................................................................................... 33 9.2 Indemnification by Summerfield............................................................. 33 9.3 Indemnification by Patriot................................................................. 33 9.4 Waiver of Rights........................................................................... 34 9.5 Expiration of Representations, Warranties and Covenants.................................... 34 9.6 Deductible Amount.......................................................................... 34 9.7 Exclusivity................................................................................ 34 9.8 No Implied Representations................................................................. 35 9.9 Costs and Attorneys' Fees.................................................................. 35 9.10 Limitation of Liability.................................................................... 35 ARTICLE X TERMINATION AND ENFORCEMENT................................................................ 35 10.1 Termination Events......................................................................... 35 10.2 Termination Procedures..................................................................... 36 10.3 Effect of Termination - LIQUIDATED DAMAGES................................................. 36 10.4 Enforcement Events......................................................................... 37 ARTICLE XI MISCELLANEOUS PROVISIONS................................................................... 38 11.1 Completeness; Modification................................................................. 38 11.2 Assignments................................................................................ 38 11.3 Successors and Assigns..................................................................... 38 11.4 Days....................................................................................... 38 11.5 Governing Law.............................................................................. 38 11.6 Counterparts............................................................................... 38 11.7 Severability............................................................................... 38 11.8 Costs...................................................................................... 38 11.9 Notices.................................................................................... 39 11.10 Escrow Agent............................................................................... 40 11.11 Incorporation by Reference................................................................. 40 11.12 Further Assurances......................................................................... 40 11.13 No Partnership............................................................................. 40 11.14 Time of Essence............................................................................ 40 11.15 Signatory Exculpation...................................................................... 40 11.16 Rules of Construction...................................................................... 41
AGREEMENT OF PURCHASE AND SALE - PART A THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made as of this 18th day of March, 1998, between PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Delaware limited partnership ("Patriot"), and CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership ("Summerfield") R E C I T A T I O N S: A. Summerfield is the owner of the hotel property as identified in Exhibit A1 attached hereto. B. Patriot is desirous of purchasing the hotel property from Summerfield and Summerfield is desirous of selling such hotel property to Patriot, for the purchase price and upon the terms and conditions hereinafter set forth. C. It is intended that simultaneously with the execution hereof, Patriot shall execute and deliver the Shimizu Purchase Agreements (as defined herein). D. After the execution and delivery of this Agreement, the partners of SF Hotel Company, L.P. intend to execute and deliver the Contribution Agreement (as defined herein) pursuant to which Patriot intends to acquire the management business and brand names in the Property and in other properties which are the subject of the Shimizu Purchase Agreement (as defined herein) together with all the right, title and interest of the partners of SF Hotel Company, L.P. in certain other real properties as more particularly detailed therein. NOW, THEREFORE, in consideration of premises and in consideration of the mutual covenants, promises and undertakings of the parties hereinafter set forth, and for other good and valuable considerations, the receipt and sufficiency of which is hereby acknowledged by the parties, it is agreed: ARTICLE IA PART A 1.1A Part B of this Agreement. Part B of this Agreement shall be similar in form and substance to Part B in each of the Shimizu Purchase Agreements and Part A is attached hereto to the extent that it consists of those certain definitions, Schedules and Exhibits which are referred to in Part B but which vary as between this Agreement and each of the Shimizu Purchase Agreements. 1.1B Part A of this Agreement. The Schedules and Exhibits in Part A of this Agreement appear as hereinafter set forth. IN WITNESS WHEREOF, Summerfield and Patriot have caused this Agreement comprising both PART A and PART B hereof to be executed in their names by their respective duly authorized representatives. PATRIOT: PATRIOT AMERICAN HOSPITALITY PARTNERSHIP L.P., a Delaware limited partnership By: PAH GP, Inc. By: /s/ Michael Silverman Name: Michael Silverman Title: authorized signatory Date of Execution: March 18, 1998 SUMMERFIELD: CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership By: SC Suites Corp., a Delaware corporation, a general partner By: /s/ Y. Takasaki Name: Y. Takasaki Title: Secretary and Treasurer By: Summerfield Suites Holding Corporation, a Delaware corporation, a general partner By: /s/ B. Anthony Isaac Name: B. Anthony Isaac Title: President Date of Execution: March 18, 1998 SCHEDULE A1 PART 1 NAME OF SELLER CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership PART 2 FF&E CASH RESERVE Balance as of February 28, 1998 is $248,705.06 PART 3 PURCHASE PRICE $10,006,248.00 of which $1,000,624.80 thereof is attributed to the Tangible Personal Property (hereinafter defined) PART 4 SURVEY That survey of latest date prepared by Robert C. Olson (PLS 5490) of Psomas and Associates pertaining to the Real Property. SCHEDULE A2 SHIMIZU PURCHASE AGREEMENTS I Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Atlanta Buckhead Summerfield Associates, L.P. II Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Atlanta Perimeter Summerfield Associates, L.P. III Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Dulles Summerfield Associates, L.P. IV Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Malvern Summerfield Associates, L.P. V Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Orlando International Summerfield Associates, L.P. VI Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Orlando/Cypress Pointe Summerfield Associates, L.P. VII Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Princeton Summerfield Associates, L.P. VIII Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Westport Summerfield Associates, L.P. IX Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and San Bruno Summerfield Associates, L.P. X Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and San Jose Summerfield Associates, L.P. XI Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Schaumberg Summerfield Associates, L.P. XII Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Somerset Summerfield Associates, L.P. XIII Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Sunnyvale Summerfield Associates, L.P. XIV Agreement of Purchase and Sale of even date herewith by and between Patriot American Hospitality Partnership, L.P. and Torrance Summerfield Associates, L.P. SCHEDULE A3 OCCUPANCY AGREEMENTS NONE SCHEDULE A4 OPERATING AGREEMENTS 1. Summerfield Suites Hotel - License Agreement dated as of April 7, 1997 between Summerfield Suites Management Company L.P., and Chatsworth Summerfield Associates, L.P. to be replaced by License Agreement dated as of Closing Date between Summerfield Suites Management Company, L.P. and Summerfield HPT Lease Company, L.P. SCHEDULE A5 INSURANCE POLICIES SEE ATTACHED SCHEDULE A6 PERSONAL PROPERTY LEASES NONE SCHEDULE A7
AUTHORIZATIONS CHATSWORTH (SMR), CA Payee Type of License Status A. Permits Provided City of Los Angeles Police Commission Permit Provided City of Los Angeles Fire Permit Provided City of Los Angeles Tax Registration Certificate Provided State of California ABC Qualification of General Manager Provided City of Los Angeles Certificate of Occupancy - Provided Spa-Enclosure City of Los Angeles Certificate of Occupancy - Provided Hotel - 3 Story (Bldg. 4)? City of Los Angeles Certificate of Occupancy - Provided Pool Maintenance Bldg. City of Los Angeles Certificate of Occupancy - Provided Hotel - 2 story (Bldg. 3) City of Los Angeles Certificate of Occupancy - Provided Hotel - 2 story (Bldg. 2) City of Los Angeles Certificate of Occupancy - Provided Hotel - 3 story (Bldg. 6) City of Los Angeles Certificate of Occupancy - Provided Pool - Enclosure City of Los Angeles Certificate of Occupancy - Provided Hotel w/Office 3-story (Bldg. 1) City of Los Angeles Certificate of Occupancy - Provided Hotel - 3 story (Bldg. 5) County of Los Angeles Hotel/Pool Provided California State Board of Equalization Seller's Permit Provided County of Los Angeles Public Health Operating Restaurant Provided State of California ABC Type 42 On Sale Beer/Wine Provided State of California ABC Duplicate Type 42 On Sale Beer/Wine Provided County of Los Angeles Public Health Operating Pool Provided B. Permits Not Provided or Expired Appropriate Government Authority Any Spa permit, if applicable Not Provided Appropriate Government Authority Federal Tax Stamp Permit Not Provided
SCHEDULE A8 DISCLOSURE SCHEDULE SEE ATTACHED EXHIBIT A1 LEGAL DESCRIPTION THAT PORTION OF LOT 1 OF TRACT NO. 4326, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON MAP RECORDED IN BOOK 48, PAGES 16 TO 19 INCLUSIVE OF MAPS, AND A PORTION OF LOT 1 OF TRACT NO. 25087, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 757, PAGES 22 AND 23 OF MAPS, AND A PORTION OF LOT 8 OF SECTION 19, CHATSWORTH PARK, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 30, PAGE 91 OF MISCELLANEOUS RECORDS, ALL IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS A WHOLE AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY CORNER OF SAID LOT 1 OF TRACT NO. 25087; THENCE ALONG THE NORTHERLY LINEN OF SAID LAST MENTIONED LOT 1, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 130.00 FEET TO THE EASTERLY LINE OF THE WESTERLY 150.00 FEET OF SAID LOT 1 OF TRACT 4326; THENCE ALONG SAID EASTERLY LINE, NORTH 0 DEGREES 00 MINUTES 15 SECONDS WEST 154.58 FEET TO THE NORTHERLY LINE OF LAST SAID LOT 1; THENCE ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 15 SECONDS EAST 136.00 FEET TO THE POINT OF BEGINNING; THENCE (1) PARALLEL WITH THE WESTERLY LINE OF LAST SAID LOT 1, SOUTH 00 DEGREES 00 MINUTES 15 SECONDS EAST 504.56 FEET TO THE NORTHERLY LINE OF LOT 2 OF SAID TRACT NO. 4326; THENCE (2) ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 233.35 FEET TO ITS INTERSECTION WITH A LINE LYING 519.35 FEET EASTERLY OF, AND PARALLEL WITH, MEASURED AT RIGHT ANGLES FROM SAID WESTERLY LINE OF LOT 1 OF TRACT 4326; THENCE (3) ALONG SAID LAST MENTIONED PARALLEL LINE, NORTH 00 DEGREES 00 MINUTES 15 SECONDS WEST 504.54 FEET TO SAID NORTHERLY LINE OF LOT 1 OF TRACT NO. 4326; THENCE (4) ALONG SAID LAST MENTIONED NORTHERLY LINE, NORTH 89 DEGREES 58 MINUTES 15 SECONDS WEST 233.35 FEET TO THE POINT OF BEGINNING. EXHIBIT A2-1 21902 Lassen Chatsworth, CA 91311 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS AGREEMENT, dated as of the _______ day of March, 1998 (the "Effective Date"), by and between CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership ("Assignor"), and SUMMERFIELD HPT LEASE COMPANY, L.P., a Kansas limited partnership ("Assignee"), provides: WITNESSETH: THAT for and in consideration of the sum of Ten Dollars ($10.00) cash in hand paid, the covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as of the Effective Date as follows: (a) Assignment. Assignor hereby transfers and assigns to Assignee the following, without warranty (except as appears in that certain Agreement of Purchase and Sale between the parties dated of even date and pertaining to the Property as hereinafter defined) to Assignee the following, to-wit: (i) All of Assignor's right, title, interest and benefit, if any, in, to, and under any and all licenses, permits, certificates of occupancy, and similar documents pertaining, or applicable to, or in any way connected with, the ownership or operation of the real property described on Exhibit A attached hereto and made a part hereof for all purposes (the "Property") and Assignor's use of the Property as a hotel, including all improvements and amenities comprising a part of the Property; (ii) All right, title and interest and benefit of Assignor, if any, in, to and under any and all rights, benefits, guaranties, warranties, affidavits, lien waivers and agreements given heretofore or due and with respect to the construction or composition of all improvements comprising a part of the Property or to any appliances, equipment, furnishings, fixtures or personal property comprising a part of the Property, including, without limitation, all rights, guaranties, and warranties inuring to the benefit of Assignor; (iii) All right, title, and interest of Assignor, if any, in and to certain (i) personal property leases including all amendments and modifications thereto and subleases thereof, as listed on Exhibit B attached hereto and made a part hereof for all purposes (collectively, the "Leases"), together with all of Assignor's right, title and interest in and to all security, escrow, breakage, refundable cleaning fees and similar deposits and fees paid or due under the Leases and all interest charges required by law to be accrued thereon, all rents, issues, profits, rights of contract and otherwise with respect to the Leases, and any estoppel or other similar certificates received by Assignor and relating to the Leases; (iv) All right, title, interests and benefits of Assignor, if any, in and to all plans, specifications, drawings, surveys and similar documents relating to the Property or to the construction of buildings and other improvements thereon, thereover or thereunder, or for the benefit of, or as an appurtenance to, all or any portion of the Property; (v) All right, title, and interest of Assignor, if any, in and to certain operating agreements relating to the Property, including all amendments and modifications thereto, as listed on Exhibit C attached hereto and made a part thereof for all purposes (collectively, the "Operating Agreements"); (vi) All right, title, and interest of Assignor, if any, in and to all occupancy agreements relating to the Property, including all amendments and modifications thereto as listed on Exhibit D attached hereto and made a part hereof for all purposes (collectively, the "Occupancy Agreements"), together with all of Assignor's right, title and interest in and to all deposits and fees paid or due under the Occupancy Agreements and all interest charges required by law to be accrued thereon, and all rents, issues, profits, rights of contract and otherwise with respect to the Occupancy Agreements; (vii) All right, title, and interest of Assignor, if any, in and to the Intangible Personal Property, as defined in that certain Transfer Agreement, by and between Assignee and Assignor dated March ___, 1998 (the "Transfer Agreement") relating to the Property and used in connection with the ownership, operation, leasing, occupancy or maintenance of the Property. (viii) All right, title, and interest of Assignor, if any, in and to all TWX numbers relating to the Property, being listed on Exhibit E attached hereto and made a part hereof for all purposes (collectively, the "TWX Numbers"); (ix) All right, title, and interest of Assignor, if any, in and to all post office boxes relating to the Property, being more particularly described on Exhibit F attached hereto and made a part hereof for all purposes (collectively, the "P.O. Boxes"); and (b) Assumption. In consideration of the assignments set forth in paragraph (a) hereof and in accordance with the terms and conditions of the Transfer Agreement, Assignee hereby assumes the Assumed Liabilities as defined in the Transfer Agreement which includes, inter alia, the interests assigned in paragraph (a) hereof (collectively, the "Assigned Interests") provided however that notwithstanding anything herein to the contrary, the Assigned Interests do not include any items which are capable of being leased to Tenant (as defined in the PSA) and which are being assigned to and assumed by Patriot American Hospitality Partnership L.P. ("PAHLP") pursuant to a certain Assignment and Assumption Agreement of even date herewith relating to the Property by and between Assignor and PAHLP. (c) Further Assurances. Assignor agrees to execute or procure and deliver to Assignee such other and further documents and instruments, or perform such other acts as may be reasonably necessary to effect the assignment of the Assigned Interests contained herein or otherwise evidence or effect the terms and provisions of this Agreement. (d) Governing Laws. This Agreement shall be governed by, and construed and interpreted under, the laws of Delaware. (e) Successors and Assigns Bound and Benefitted. This Agreement and the terms and provisions hereof shall inure to the benefit of, and be binding upon, the respective successors and assigns of Assignor and Assignee. (f) Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same instrument. TO HAVE AND TO HOLD all of Assignor's right, title and interest in and to the Assigned Interests, together with all rights, hereditaments and appurtenances pertaining thereto, unto Assignee and Assignee's successors and assigns forever; and Assignor does hereby bind itself and its successors and assigns to warrant and defend subject to the terms and conditions of the Transfer Agreement, all of Assignor's right, title and interest in and to the Assigned Interests unto Assignee and Assignee's successors and assigns, against every person whomsoever claiming or to claim the same or any part thereof, by, through or under Assignor, but not otherwise. IN WITNESS WHEREOF, Assignor and Assignee each has caused this Agreement to be executed under seal by its duly authorized representative as of the day and year first above written. ASSIGNOR: CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership By: SC Suites Corp., a Delaware corporation, its general partner By: Name: Title: By: Summerfield Suites Holding Corporation, a Delaware corporation, its general partner By: Name: Title: Date of Execution: ASSIGNEE: SUMMERFIELD HPT LEASE COMPANY, L.P. a Kansas limited partnership By: Summerfield HPT Lease Company LLC, a Delaware LLC By: Name: Title: Date of Execution: EXHIBIT A ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Legal Description THAT PORTION OF LOT 1 OF TRACT NO. 4326, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON MAP RECORDED IN BOOK 48, PAGES 16 TO 19 INCLUSIVE OF MAPS, AND A PORTION OF LOT 1 OF TRACT NO. 25087, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 757, PAGES 22 AND 23 OF MAPS, AND A PORTION OF LOT 8 OF SECTION 19, CHATSWORTH PARK, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 30, PAGE 91 OF MISCELLANEOUS RECORDS, ALL IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS A WHOLE AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY CORNER OF SAID LOT 1 OF TRACT NO. 25087; THENCE ALONG THE NORTHERLY LINEN OF SAID LAST MENTIONED LOT 1, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 130.00 FEET TO THE EASTERLY LINE OF THE WESTERLY 150.00 FEET OF SAID LOT 1 OF TRACT 4326; THENCE ALONG SAID EASTERLY LINE, NORTH 0 DEGREES 00 MINUTES 15 SECONDS WEST 154.58 FEET TO THE NORTHERLY LINE OF LAST SAID LOT 1; THENCE ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 15 SECONDS EAST 136.00 FEET TO THE POINT OF BEGINNING; THENCE (1) PARALLEL WITH THE WESTERLY LINE OF LAST SAID LOT 1, SOUTH 00 DEGREES 00 MINUTES 15 SECONDS EAST 504.56 FEET TO THE NORTHERLY LINE OF LOT 2 OF SAID TRACT NO. 4326; THENCE (2) ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 233.35 FEET TO ITS INTERSECTION WITH A LINE LYING 519.35 FEET EASTERLY OF, AND PARALLEL WITH, MEASURED AT RIGHT ANGLES FROM SAID WESTERLY LINE OF LOT 1 OF TRACT 4326; THENCE (3) ALONG SAID LAST MENTIONED PARALLEL LINE, NORTH 00 DEGREES 00 MINUTES 15 SECONDS WEST 504.54 FEET TO SAID NORTHERLY LINE OF LOT 1 OF TRACT NO. 4326; THENCE (4) ALONG SAID LAST MENTIONED NORTHERLY LINE, NORTH 89 DEGREES 58 MINUTES 15 SECONDS WEST 233.35 FEET TO THE POINT OF BEGINNING. EXHIBIT B ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Personal Property Leases None EXHIBIT C ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Operating Agreements CHATSWORTH (SMR), CA OPERATING AGREEMENTS 1. Summerfield Suites Hotel - License Agreement dated as of April 7, 1997 between Summerfield Suites Management Company L.P., and Chatsworth Summerfield Associates, L.P. to be replaced by License Agreement dated of even date herewith between Summerfield Suites Management Company, L.P. and Summerfield HPT Lease Company, L.P. EXHIBIT D ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The Occupancy Agreements None EXHIBIT E ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The TWX Numbers None EXHIBIT F ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The P.O. Boxes None EXHIBIT G ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The Management Agreement Management Agreement by and between Summerfield Suites Management Company, L.P. and Chatsworth Summerfield Associates dated January 30, 1990 to be replaced by Management Agreement of even date herewith by and between Summerfield Suites Management Company, L.P. and Summerfield HPT Lease Company, L.P. EXHIBIT A2-2 21902 Lassen Chatsworth, CA 91311 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS AGREEMENT, dated as of the _______ day of March, 1998 (the "Effective Date"), by and between CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership ("Assignor"), and PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Delaware limited partnership ("Assignee"), provides: WITNESSETH: THAT for and in consideration of the sum of Ten Dollars ($10.00) cash in hand paid, the covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as of the Effective Date as follows: (a) Assignment. Assignor hereby transfers and assigns to Assignee the following, without warranty (except as appears in that certain Agreement of Purchase and Sale between the parties dated of even date and pertaining to the Property as hereinafter defined) to Assignee the following, to-wit: (i) All of Assignor's right, title, interest and benefit, if any, in, to, and under any and all licenses, permits, certificates of occupancy, and similar documents pertaining, or applicable to, or in any way connected with, the ownership or operation of the real property described on Exhibit A attached hereto and made a part hereof for all purposes (the "Property") and Assignor's use of the Property as a hotel, including all improvements and amenities comprising a part of the Property; (ii) All right, title and interest and benefit of Assignor, if any, in, to and under any and all rights, benefits, guaranties, warranties, affidavits, lien waivers and agreements given heretofore or due and with respect to the construction or composition of all improvements comprising a part of the Property or to any appliances, equipment, furnishings, fixtures or personal property comprising a part of the Property, including, without limitation, all rights, guaranties, and warranties inuring to the benefit of Assignor; (iii) All right, title, and interest of Assignor, if any, in and to certain (i) personal property leases including all amendments and modifications thereto and subleases thereof, as listed on Exhibit B attached hereto and made a part hereof for all purposes (collectively, the "Leases"), together with all of Assignor's right, title and interest in and to all security, escrow, breakage, refundable cleaning fees and similar deposits and fees paid or due under the Leases and all interest charges required by law to be accrued thereon, all rents, issues, profits, rights of contract and otherwise with respect to the Leases, and any estoppel or other similar certificates received by Assignor and relating to the Leases; (iv) All right, title, interests and benefits of Assignor, if any, in and to all plans, specifications, drawings, surveys and similar documents relating to the Property or to the construction of buildings and other improvements thereon, thereover or thereunder, or for the benefit of, or as an appurtenance to, all or any portion of the Property; (v) All right, title, and interest of Assignor, if any, in and to all TWX numbers relating to the Property, being listed on Exhibit E attached hereto and made a part hereof for all purposes (collectively, the "TWX Numbers"); (vi) All right, title, and interest of Assignor, if any, in and to all post office boxes relating to the Property, being more particularly described on Exhibit F attached hereto and made a part hereof for all purposes (collectively, the "P.O. Boxes"); and (b) Assumption. In consideration of the assignments set forth in paragraph (a) hereof and in accordance with the terms and conditions of that certain Agreement of Purchase and Sale by and between Assignor and Assignee dated March ___, 1998 (the "PSA"), Assignee hereby assumes all of Assignor's obligations arising and accruing from and after the Effective Date under any and all of the interests assigned in paragraph (a) hereof (collectively, the "Assigned Interests"), provided however that notwithstanding anything herein to the contrary, Assignor is not transferring or assigning and Assignee is not assuming hereunder any items used in the operation of the Hotel which are not capable of being leased to Summerfield HPT Lease Company, L.P. ("Tenant") pursuant to the Facility Lease (as defined in the PSA) and which are accordingly being assigned to and assumed directly by Tenant pursuant to a certain other Assignment and Assumption Agreement of even date herewith by and between Assignor and Tenant. (c) Further Assurances. Assignor agrees to execute or procure and deliver to Assignee such other and further documents and instruments, or perform such other acts as may be reasonably necessary to effect the assignment of the Assigned Interests contained herein or otherwise evidence or effect the terms and provisions of this Agreement. (d) Governing Laws. This Agreement shall be governed by, and construed and interpreted under, the laws of Delaware. (e) Successors and Assigns Bound and Benefitted. This Agreement and the terms and provisions hereof shall inure to the benefit of, and be binding upon, the respective successors and assigns of Assignor and Assignee. (f) Counterparts. This Agreement may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same instrument. TO HAVE AND TO HOLD all of Assignor's right, title and interest in and to the Assigned Interests, together with all rights, hereditaments and appurtenances pertaining thereto, unto Assignee and Assignee's successors and assigns forever; and Assignor does hereby bind itself and its successors and assigns to warrant and defend subject to the terms and conditions of the PSA, all of Assignor's right, title and interest in and to the Assigned Interests unto Assignee and Assignee's successors and assigns, against every person whomsoever claiming or to claim the same or any part thereof, by, through or under Assignor, but not otherwise. IN WITNESS WHEREOF, Assignor and Assignee each has caused this Agreement to be executed under seal by its duly authorized representative as of the day and year first above written. ASSIGNOR: CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership By: SC Suites Corp., a Delaware corporation, its general partner By: Name: Title: By: Summerfield Suites Holding Corporation, a Delaware corporation, its general partner By: Name: Title: Date of Execution: ASSIGNEE: PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Delaware limited partnership By: PAH GP, INC. By: Name: Title: Date of Execution: EXHIBIT A ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Legal Description THAT PORTION OF LOT 1 OF TRACT NO. 4326, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON MAP RECORDED IN BOOK 48, PAGES 16 TO 19 INCLUSIVE OF MAPS, AND A PORTION OF LOT 1 OF TRACT NO. 25087, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 757, PAGES 22 AND 23 OF MAPS, AND A PORTION OF LOT 8 OF SECTION 19, CHATSWORTH PARK, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 30, PAGE 91 OF MISCELLANEOUS RECORDS, ALL IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS A WHOLE AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY CORNER OF SAID LOT 1 OF TRACT NO. 25087; THENCE ALONG THE NORTHERLY LINEN OF SAID LAST MENTIONED LOT 1, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 130.00 FEET TO THE EASTERLY LINE OF THE WESTERLY 150.00 FEET OF SAID LOT 1 OF TRACT 4326; THENCE ALONG SAID EASTERLY LINE, NORTH 0 DEGREES 00 MINUTES 15 SECONDS WEST 154.58 FEET TO THE NORTHERLY LINE OF LAST SAID LOT 1; THENCE ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 15 SECONDS EAST 136.00 FEET TO THE POINT OF BEGINNING; THENCE (1) PARALLEL WITH THE WESTERLY LINE OF LAST SAID LOT 1, SOUTH 00 DEGREES 00 MINUTES 15 SECONDS EAST 504.56 FEET TO THE NORTHERLY LINE OF LOT 2 OF SAID TRACT NO. 4326; THENCE (2) ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 233.35 FEET TO ITS INTERSECTION WITH A LINE LYING 519.35 FEET EASTERLY OF, AND PARALLEL WITH, MEASURED AT RIGHT ANGLES FROM SAID WESTERLY LINE OF LOT 1 OF TRACT 4326; THENCE (3) ALONG SAID LAST MENTIONED PARALLEL LINE, NORTH 00 DEGREES 00 MINUTES 15 SECONDS WEST 504.54 FEET TO SAID NORTHERLY LINE OF LOT 1 OF TRACT NO. 4326; THENCE (4) ALONG SAID LAST MENTIONED NORTHERLY LINE, NORTH 89 DEGREES 58 MINUTES 15 SECONDS WEST 233.35 FEET TO THE POINT OF BEGINNING. EXHIBIT B ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Personal Property Leases None EXHIBIT C ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT Operating Agreements CHATSWORTH (SMR), CA OPERATING AGREEMENTS 1. Summerfield Suites Hotel - License Agreement dated as of April 7, 1997 between Summerfield Suites Management Company L.P., and Chatsworth Summerfield Associates, L.P. to be replaced by License Agreement dated of even date herewith between Summerfield Suites Management Company, L.P. and Summerfield HPT Lease Company, L.P. EXHIBIT D ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The Occupancy Agreements None EXHIBIT E ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The TWX Numbers None EXHIBIT F ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The P.O. Boxes None EXHIBIT G ATTACHED TO ASSIGNMENT AND ASSUMPTION AGREEMENT The Management Agreement Management Agreement by and between Summerfield Suites Management Company, L.P. and Chatsworth Summerfield Associates dated January 30, 1990 to be replaced by Management Agreement of even date herewith by and between Summerfield Suites Management Company, L.P. and Summerfield HPT Lease Company, L.P. 21901 Lassen Chatsworth, CA 91311 EXHIBIT A3 BILL OF SALE THE STATE OF CALIFORNIA ss. ss. COUNTY OF LOS ANGELES ss. THIS BILL OF SALE, dated as of the day of March, 1998 (the "Effective Date"), from CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership ("Summerfield") to PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Delaware limited partnership ("Patriot" which expression shall include its successors and assigns), provides: THAT for and in consideration of the conveyance made herein, the consideration received therefor by Summerfield and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, as of the Effective Date, Summerfield hereby grants, bargains, sells, assigns, transfers, sets over and deliver to Patriot all of the right, title and interest of Summerfield in and to all personal property, goods and chattels of every kind and nature (collectively, the "Personal Property") used in connection with that certain real estate described on Exhibit A attached hereto and made a part hereof for all purposes, including without limitation, those items more particularly described on Exhibit B attached hereto and made a part hereof for all purposes, and also including without limitation, all right, title and interest of Summerfield in and to all inventories of merchandise, supplies, stocks and work in process, all machinery, furniture, fixtures and equipment of every kind and type. FURTHER, as of the Effective Date, Summerfield hereby covenants and agrees to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon reasonable request of Patriot, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by Patriot for the purpose of or in connection with acquiring or more effectually vesting in Patriot or evidencing the vesting in Patriot of all of the right, title and interest of Summerfield in and to the Personal Property. Summerfield warrants that as of the Effective Date it is the owner of the Personal Property, that the Personal Property is free from all liens and encumbrances, and that Summerfield has the right to transfer title to and deliver possession of the Personal Property to Patriot. And Summerfield for itself, its successors and assigns, warrants, and defends title to the Personal Property unto Patriot from and against all persons whomsoever in accordance with the terms and provisions of that certain Agreement of Purchase and Sale dated , 1998 by and between Patriot and Summerfield. IN WITNESS WHEREOF, Summerfield has caused this Bill of Sale to be executed as of the day and year first above written. Summerfield: CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership (seal) By: SC Suites Corp., a Delaware corporation, its general partner By: Name: Title: Date of Execution: By: Summerfield Suites Holding Corporation, a Delaware corporation, its general partner By: Name: Title: Date of Execution: STATE OF ______________________ ss. COUNTY OF _____________________ ss. On ___________, 199__ before me, the undersigned, a Notary Public in and for the State of California, duly commissioned and sworn, personally appeared, __________________________, personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal Signature ____________________________________ STATE OF ______________________ ss. COUNTY OF _____________________ ss. On _____________, 199__ before me, the undersigned, a Notary Public in and for the State of California, duly commissioned and sworn, personally appeared, _____________________________ , personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal Signature ____________________________________ Exhibit A Legal Description THAT PORTION OF LOT 1 OF TRACT NO. 4326, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON MAP RECORDED IN BOOK 48, PAGES 16 TO 19 INCLUSIVE OF MAPS, AND A PORTION OF LOT 1 OF TRACT NO. 25087, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 757, PAGES 22 AND 23 OF MAPS, AND A PORTION OF LOT 8 OF SECTION 19, CHATSWORTH PARK, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 30, PAGE 91 OF MISCELLANEOUS RECORDS, ALL IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS A WHOLE AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY CORNER OF SAID LOT 1 OF TRACT NO. 25087; THENCE ALONG THE NORTHERLY LINEN OF SAID LAST MENTIONED LOT 1, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 130.00 FEET TO THE EASTERLY LINE OF THE WESTERLY 150.00 FEET OF SAID LOT 1 OF TRACT 4326; THENCE ALONG SAID EASTERLY LINE, NORTH 0 DEGREES 00 MINUTES 15 SECONDS WEST 154.58 FEET TO THE NORTHERLY LINE OF LAST SAID LOT 1; THENCE ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 15 SECONDS EAST 136.00 FEET TO THE POINT OF BEGINNING; THENCE (1) PARALLEL WITH THE WESTERLY LINE OF LAST SAID LOT 1, SOUTH 00 DEGREES 00 MINUTES 15 SECONDS EAST 504.56 FEET TO THE NORTHERLY LINE OF LOT 2 OF SAID TRACT NO. 4326; THENCE (2) ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 233.35 FEET TO ITS INTERSECTION WITH A LINE LYING 519.35 FEET EASTERLY OF, AND PARALLEL WITH, MEASURED AT RIGHT ANGLES FROM SAID WESTERLY LINE OF LOT 1 OF TRACT 4326; THENCE (3) ALONG SAID LAST MENTIONED PARALLEL LINE, NORTH 00 DEGREES 00 MINUTES 15 SECONDS WEST 504.54 FEET TO SAID NORTHERLY LINE OF LOT 1 OF TRACT NO. 4326; THENCE (4) ALONG SAID LAST MENTIONED NORTHERLY LINE, NORTH 89 DEGREES 58 MINUTES 15 SECONDS WEST 233.35 FEET TO THE POINT OF BEGINNING. EXHIBIT A4 GRANT DEED RECORDING REQUESTED BY & WHEN RECORDED MAIL TO: __________________________________ __________________________________ __________________________________ Attention:________________________ MAIL TAX STATEMENTS TO: __________________________________ __________________________________ __________________________________ ================================================================================ (Space Above for Recorder's Use) CHATSWORTH GRANT DEED FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership ("Grantor"), hereby grants to __________________________________, a __________ ("Grantee"), the following described real property located in the City of Los Angeles, County of Los Angeles, State of California: Being more particularly described on "Exhibit A" attached hereto and by this reference made a part hereof and together with all improvements now or hereafter situated thereon, together with all rights, privileges, appurtenances, remainders, reversions and benefits thereunto in any wise appertaining or belonging. This Grant Deed is made and accepted upon and subject to the covenants, terms, and conditions of that certain Agreement of Purchase and Sale dated ___________, 1998, between Grantor and Grantee. [SIGNATURES TO FOLLOW ON NEXT PAGE] Dated:___________, 1998 CHATSWORTH SUMMERFIELD ASSOCIATES, L.P., a Kansas limited partnership By: SC Suites Corp., a Delaware corporation, its general partner By: Name: Title: By: Summerfield Suites Holding Corporation, a Delaware corporation, its general partner By: Name: Title: STATE OF __________________ ss. COUNTY OF _________________ ss. On ________, 199__ before me, the undersigned, a Notary Public in and for the State of California, duly commissioned and sworn, personally appeared, ___________________________ , personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal Signature ______________________________ STATE OF __________________ ss. COUNTY OF _________________ ss. On __________, 199__ before me, the undersigned, a Notary Public in and for the State of California, duly commissioned and sworn, personally appeared, ______________________ , personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal Signature ______________________________ EXHIBIT A Property Description THAT PORTION OF LOT 1 OF TRACT NO. 4326, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON MAP RECORDED IN BOOK 48, PAGES 16 TO 19 INCLUSIVE OF MAPS, AND A PORTION OF LOT 1 OF TRACT NO. 25087, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 757, PAGES 22 AND 23 OF MAPS, AND A PORTION OF LOT 8 OF SECTION 19, CHATSWORTH PARK, IN SAID CITY, COUNTY AND STATE, AS SHOWN ON MAP RECORDED IN BOOK 30, PAGE 91 OF MISCELLANEOUS RECORDS, ALL IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS A WHOLE AS FOLLOWS: COMMENCING AT THE NORTHWESTERLY CORNER OF SAID LOT 1 OF TRACT NO. 25087; THENCE ALONG THE NORTHERLY LINEN OF SAID LAST MENTIONED LOT 1, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 130.00 FEET TO THE EASTERLY LINE OF THE WESTERLY 150.00 FEET OF SAID LOT 1 OF TRACT 4326; THENCE ALONG SAID EASTERLY LINE, NORTH 0 DEGREES 00 MINUTES 15 SECONDS WEST 154.58 FEET TO THE NORTHERLY LINE OF LAST SAID LOT 1; THENCE ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 15 SECONDS EAST 136.00 FEET TO THE POINT OF BEGINNING; THENCE (1) PARALLEL WITH THE WESTERLY LINE OF LAST SAID LOT 1, SOUTH 00 DEGREES 00 MINUTES 15 SECONDS EAST 504.56 FEET TO THE NORTHERLY LINE OF LOT 2 OF SAID TRACT NO. 4326; THENCE (2) ALONG SAID LAST MENTIONED NORTHERLY LINE, SOUTH 89 DEGREES 58 MINUTES 37.5 SECONDS EAST 233.35 FEET TO ITS INTERSECTION WITH A LINE LYING 519.35 FEET EASTERLY OF, AND PARALLEL WITH, MEASURED AT RIGHT ANGLES FROM SAID WESTERLY LINE OF LOT 1 OF TRACT 4326; THENCE (3) ALONG SAID LAST MENTIONED PARALLEL LINE, NORTH 00 DEGREES 00 MINUTES 15 SECONDS WEST 504.54 FEET TO SAID NORTHERLY LINE OF LOT 1 OF TRACT NO. 4326; THENCE (4) ALONG SAID LAST MENTIONED NORTHERLY LINE, NORTH 89 DEGREES 58 MINUTES 15 SECONDS WEST 233.35 FEET TO THE POINT OF BEGINNING. EXHIBIT A5 PRO-FORMA TITLE POLICY SEE ATTACHED EXHIBIT A6 MANAGER ESTOPPEL CERTIFICATE _____________, 1998 Summerfield HPT Lease Company L.P. c/o Summerfield Hotel Corporation 8100 East 22nd Street, Building 500 Wichita, KS 67226 Attention: John Morse Patriot American Hospitality Hospitality Properties Trust Partnership, L.P. ("Patriot") c/o Sullivan and Worcester c/o Locke Purnell Rain Harrell One Post Office Square 2200 Ross Avenue, Suite 2200 Boston, Massachusetts 02109 Dallas, Texas 75201-6776 Attention: Jennifer Clark, Esq. Attention: J. Mitchell Bell, Esq. Re: Management Agreement, (herein so called) dated _______________, between _______________________________ ("Summerfield") and Summerfield Suites Management Company, L.P. ("Manager") with respect to __________________ Hotel located in the City of ______________________, ___________________ County, _____________________ (the "Hotel"). Gentlemen: The undersigned Manager hereby warrants and represents as follows: 1. Manager is aware of the transactions contemplated by Patriot and its assigns pursuant to (a) Agreement of Purchase and Sale dated _____,1998, pertaining to the Hotel and made by and between Patriot and [insert name of Hotel Owner] ( the "PSA") and (b) Contribution Agreement to be entered into by Patriot, SF Hotel Company L.P. and The Seller Partners as therein defined (the " Contribution Agreement"). 2. The Management Agreement, a true and correct copy of which is attached hereto as Exhibit A, is presently in full force and effect and has not been amended, modified, or supplemented except as indicated in this estoppel certificate. Except as otherwise stated herein, all capitalized terms herein have the same meaning as that attributed to same in the Management Agreement. 3. The term of the Management Agreement is that period commencing _________________, 19___ and terminating _______________,19__, with Manager having the right to extend the term for ______ consecutive extension periods of ___ years each. 4. The fees required to be paid Manager under the Management Agreement are limited to the amounts set forth in Sections [insert relevant section references] of the Management Agreement. 5. There are no fees, expense reimbursements, payments or other sums payable by Summerfield to Manager pursuant to the Management Agreement which arise from or are attributable to any period prior to the date of this letter. 6. There is currently no application for consent or approval pending before Summerfield pursuant to the Management Agreement in respect of which Manager is awaiting a response. 7. The Management Agreement represents the entire agreement between Summerfield and Manager relating to the Hotel and there are no other agreements or understandings relating thereto. 8. As of the date of this certificate, no Owner Terminating Events or Operator Terminating Events have occurred, and Manager has no charge, lien, cause of action, dispute or claim under the Management Agreement or otherwise, against Summerfield. Manager confirms that (i) the acquisition of the Hotel by Patriot or its assignee and (ii) the leasing of the Hotel by Patriot or its assignee to an entity which is affiliated with Manager (the "Sale Leaseback Transaction") shall not be deemed to be an Operator Terminating Event, as defined in the Management Agreement, and Manager waives any entitlement in its favor to terminate the Management Agreement arising therefrom. Manager also confirms that neither the Sale Leaseback Transaction nor the transaction contemplated by the Contribution Agreement will be deemed to give rise to the Right of First Contract and Manager waives any entitlement in its favor arising on account of the Sale Leaseback Transaction or the transactions contemplated by the Contribution Agreement. 9. Neither Summerfield nor Manager is in default in any respect under any of the terms, covenants and conditions of the Management Agreement and no state of facts exists which, with the passage of time or the giving of notice, or both, would constitute a default under the Management Agreement. 10. Manager unconditionally consents to the assignment by Summerfield of the Management Agreement to Patriot or its assignee. 11. This certification is made knowing that Patriot, its successors and assigns, are relying upon the representations herein made in acquiring the Hotel. EXECUTED as of the day and year above written. Manager: Summerfield Suites Management Company, L.P. By:__________________________________ Name:________________________________ Title:_______________________________ Address for Notice Purposes: _____________________________________ _____________________________________ _____________________________________ Attachment: Exhibit A - Management Agreement EXHIBIT A MANAGEMENT AGREEMENT AGREEMENT OF PURCHASE AND SALE - PART B ARTICLE I DEFINITIONS 1.1 Definitions. The following terms shall have the indicated meanings: "Act of Bankruptcy" shall mean if a party hereto or any general partner thereof shall (a) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (b) admit in writing its inability to pay its debts as they become due, (c) make a general assignment for the benefit of its creditors, (d) file a voluntary petition or commence a voluntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, (g) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect), or (h) take any corporate or partnership action for the purpose of effecting any of the foregoing; or if a proceeding or case shall be commenced, without the application or consent of a party hereto or any general partner thereof, in any court of competent jurisdiction seeking (1) the liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of debts, of such party or general partner, (2) the appointment of a receiver, custodian, trustee or liquidator for such party or general partner or all or any substantial part of its assets, or (3) other similar relief under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed; or an order (including an order for relief entered in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in effect) judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 consecutive days. "Agreement to Lease" shall mean that certain Agreement to Lease dated of even date herewith, by and between HPTSHC Properties Trust and Summerfield HPT Lease Company, L.P. with approved facility lease attached thereto pertaining to the proposed leaseback of the Property after completion of the transaction contemplated hereunder. "Applicable Laws" shall mean any applicable building, zoning, subdivision, environmental, health, safety or other governmental laws, statutes, ordinances, resolutions, rules, codes, regulations, orders or determinations of any Governmental Authority or of any insurance boards of underwriters (or other body exercising similar functions), or any restrictive covenants or deed restrictions affecting any Property or the ownership, operation, use, maintenance or condition thereof. "Assignment and Assumption Agreements" shall mean the assignment and assumption agreements in the form of Exhibits A2-1 and A2-2 attached hereto. "Authorizations" shall mean all licenses, permits and approvals required by any governmental or quasi-governmental agency, body, department, commission, board, bureau, instrumentality or officer, to be in force on the Effective Date or the Closing Date with respect to the construction, ownership, operation, leasing, maintenance, or use of the Property (hereinafter defined). "Bill of Sale - Personal Property" shall mean the bill of sale conveying title to the Tangible Personal Property from Summerfield to Patriot or its designee (as Patriot shall specify) in the form of Exhibit A3 attached hereto. "Cal-FIRPTA Certificate" shall mean an affidavit from Summerfield under Section 18662 of the California Revenue and Taxation Code, as amended, certifying that Summerfield is a partnership as determined in accordance with Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code. "Closing" shall mean the Closing of the purchase of the Property pursuant to this Agreement, and shall occur on the Closing Date. "Closing Date" shall mean the date on which the Closing occurs which shall be determined in accordance with Section 7.1. "Closing Documents" shall mean the documents defined as such in Section 7.1 hereof. "Contribution Agreement" shall mean that certain Contribution Agreement which may be entered into by and between Patriot and SF Hotel Company, L.P., pursuant to which Patriot will acquire the management business and brand name in the Property and each of the other properties as described in the Shimuzu Purchase Agreements, together with all of the right, title and interest of the partners of SF Hotel Company, L.P. in certain other real property as described therein. "Deed" shall mean the deed in the form of Exhibit A4 attached hereto. "Deposit" shall mean the amount deposited with Summerfield by Patriot pursuant to Section 2.3 hereof. The Deposit shall be held and used by Summerfield in strict accordance with the terms and provisions of this Agreement. "Disclosure Schedule" shall mean Schedule A9 attached hereto and made a part hereof. "Development Agreement" shall mean with respect to the Property, the agreement entered into by Summerfield which provided for the development of the site thereof. "Effective Date" shall mean the date this Agreement has been fully executed and delivered by all parties hereto. "Environmental Damages" shall mean all governmental or third-party claims, judgments, damages, losses, penalties, fines, liabilities (including, without limitation, punitive damages and -2- strict liability), encumbrances, liens, costs and expenses of investigation and defense of any claim, whether or not such is ultimately defeated, and of any settlement or judgment, of whatever kind or nature, contingent or otherwise, matured or unmatured, including, without limitation, attorneys' fees and disbursements, remediation costs and consultants' fees, any of which arise as a result of the existence of Hazardous Materials upon, about or beneath the Property (except if such Hazardous Materials have migrated from offsite to beneath the Property) or migrating or threatening to migrate from the Property, or as a result of the existence of a violation of Environmental Requirements pertaining to the Property. "Environmental Requirements" shall mean (i) all applicable statutes, regulations, rules, policies, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, and similar items, of all Governmental Authorities, and (ii) all judicial, administrative and regulatory decrees, judgments, directives and orders, in each case of (i) and (ii) relating to the protection of human health or the environment from Hazardous Materials, including, without limitation: (a) all requirements thereof, including, without limitation, those pertaining to reporting, licensing, permitting, investigation and remediation of emissions, discharges, releases or threatened releases of Hazardous Materials into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials; and (b) all requirements pertaining to the protection of the health and safety of employees or the public from Hazardous Materials. "Escrow Agent" shall mean American Title Company, whose address is 6029 Belt Line Road, Suite 250, Dallas, Texas 75240 (telephone 972-789-8400, fax 972-789-8029). "Expenses" shall mean expenses, trade payables and other items to be prorated which are related to the ownership and operation of the Property which are to be prorated pursuant to Section 7.6 hereof. "FF&E Cash Reserves" shall mean the cash reserves maintained for the furniture, fixtures and equipment attached to, located upon, or used in connection with the ownership, maintenance, or operation of each Property, the balance of which reserve as of February 28, 1998 is shown in Part 2 of Schedule A1 attached hereto and made a part hereof. "Financial Information" shall mean the financial information defined as such in Section 3.12 hereof. "FIRPTA Certificate" shall mean an affidavit from Summerfield under Section 1445 of the Internal Revenue Code, as amended, certifying that it is not a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person (as those terms are defined in the Internal Revenue Code and regulations promulgated thereunder), in form and substance satisfactory to Patriot. -3- "Governmental Authority" shall mean any federal, state, county, municipal or other government or any governmental or quasi-governmental agency, department, commission, board, bureau, officer or instrumentality, foreign or domestic, or any of them, having jurisdiction over Summerfield, Patriot or the Property. "Hazardous Materials" shall mean any chemical substance: (i) which is or becomes defined as a "hazardous substance," "hazardous waste," "hazardous material," "pollutant," "contaminant," or "toxic," "explosive," "corrosive," "flammable," "infectious," "radioactive," "carcinogenic," or "mutagenic" material under any law, regulation, rule, order, or other authority of the federal, state or local governments, or any agency, department, commission, board, or instrumentality thereof, regarding the protection of human health or the environment from such chemical substances including, but not limited to, the following federal laws and their amendments, analogous state and local laws, and any regulations promulgated thereunder: the Clean Air Act, the Clean Water Act, the Oil Pollution Control Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1986, the Emergency Planning and Community Right to Know Act, the Solid Waste Disposal Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Toxic Substances Control Act, including, without limitation, asbestos, lead and gasoline and other petroleum products (including crude oil or any fraction thereof); (ii) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons; (iii) without limitation, which contains drinking biphenyls or asbestos or asbestos-containing materials, or lead, or urea formaldehyde foam insulation; or (iv) without limitation, radon gas. "Hotel" shall mean the hotel and related amenities located on the Land. "Improvements" shall mean the Hotel and all other buildings, improvements, fixtures and other items of real estate located on the Land. "Insurance Policies" shall mean all policies of insurance maintained by or on behalf of Summerfield pertaining to the Property, its operation (including but not limited to policies dealing with workman's compensation and other employee-related claims), or any part thereof together with those policies of insurance which were maintained by or on behalf of Summerfield for the two (2) years prior to the Effective Date. "Intangible Personal Property" shall mean all intangible personal property owned by Summerfield in its capacity as owner of the Property, and used in connection with the ownership, operation, leasing, occupancy or maintenance of the Property, including, without limitation, (1) the Authorizations, (2) utility and development rights and privileges, business records, plans and specifications pertaining to the Property, (3) any unpaid award for taking by condemnation or any damage to the Real Property by reason of a change of grade or location of or access to any street or highway which was not effective prior to the Effective Date, (4) the share of the Rooms Ledger determined under Section 7.6 hereof, and (5) the balance of the FF&E Cash Reserve as of the Closing Date, excluding (a) any of the aforesaid rights which Patriot elects not to acquire, (b) cash -4- reserves for taxes and insurance, (c) the pre-Closing working capital on hand, and (d) the pre-Closing accounts receivable for the Hotel; provided, however, Intangible Personal Property shall not include any of the foregoing to the extent transferred by Summerfield to Tenant pursuant to the Transfer Agreements. "Land" shall mean the parcel of real estate lying and being in the County, and State as more particularly described on Exhibit A1 attached hereto, together with all easements, rights, privileges, remainders, reversions and appurtenances thereunto belonging or in any way appertaining, and all of the estate, right, title, interest, claim or demand whatsoever of Summerfield therein, in the streets and ways adjacent thereto and in the beds thereof, either at law or in equity, in possession or expectancy, now or hereafter acquired. "Leased Property" shall mean all leased items of Tangible Personal Property. "Loan Agreement" shall mean that certain Loan Agreement dated March 18, 1998, by and between Patriot American Hospitality Operating Partnership, L.P. ("PAHOP") and SF Hotel Company, L.P. pursuant to which PAHOP will lend and SF Hotel Company, L.P. will borrow $17,083,333.00 in exchange for a note convertible into a preferred partnership interest in SF Hotel Company, L.P., and which note convertible is in approved form appended thereto. "Management Agreement" shall mean the Management Agreements defined in the Transfer Agreement relating to the Property. "Manager" shall mean Summerfield Suites Management Company, L.P., in its capacity as manager under the Management Agreement. "Material Adverse Effect" shall mean in relation to Patriot any effect that is materially adverse to the financial condition and results of operation of the Property or a material increase in the obligations that Patriot is required to assume in connection herewith and, in relation to Summerfield, any effect that is materially adverse to the financial conditions and results of operation of the Property or a material increase in the obligations that Summerfield is obligated to retain in connection herewith. "Occupancy Agreements" shall mean all leases, concession or occupancy agreements (if any) in effect with respect to the Real Property under which any tenants (other than Hotel guests) or concessionaires occupy space upon the Real Property. "Operating Agreements" shall mean all management, service, supply and maintenance contracts, if any, in effect with respect to the Property and all other contracts (other than the Development Agreement, the Occupancy Agreements, and the Management Agreement) that affect the Property or are otherwise related to the construction, ownership, operation, occupancy or maintenance of the Property. -5- "Owner's Title Policy" shall mean the owner's policy of title insurance to be issued to Patriot by the Title Company in the form described in the Pro Forma Title Policy (hereinafter defined). "Permitted Liens" shall mean any liens (i) relating to or created, arising or existing in connection with any tax or other governmental charge or levy not yet due or, to the extent listed in the Disclosure Schedule, being protested in good faith, (ii) relating to or created, arising or existing in connection with any legal proceeding being contested in good faith, to the extent listed in the Disclosure Schedule, (iii) other liens described in the Disclosure Schedule, or (iv) any liens which are Permitted Title Exceptions. "Permitted Title Exceptions" shall mean those exceptions to title to the Real Property that appear on the Pro Forma Title Policy at Exhibit A5 attached hereto. "Personal Property" shall mean collectively the Tangible Personal Property and the Intangible Personal Property. "Personal Property Leases" shall mean the leases pursuant to which Summerfield leases, or will lease, the Leased Property. "Pro Forma Title Policy" shall mean the pro forma policy of title insurance in the form of Exhibit A5 attached hereto. "Property" shall mean the Real Property and the Personal Property. "Purchase Price" shall mean the sum specified in Part 3 of Schedule A1 attached hereto which sum shall be payable in the manner described in Section 2.2 hereof and subject to prorations as set forth herein. "Real Property" shall mean the Land and the Improvements. "Retained Liabilities" shall mean (except to the extent insured against by the Owner's Title Policy) all obligations and liabilities (whether known, unknown, accrued, absolute, matured, unmatured, contingent or otherwise), created on or prior to the Closing Date (except those created by Patriot), whether arising prior to or after Closing, (a) arising out of indebtedness of Summerfield or indebtedness which affects the Property or any part thereof, (b) arising out of contracts or agreements by which Summerfield is bound and which are not the subject of prorations under Section 7.6 hereof, and (c) Summerfield Expenses. "Rooms Ledger" shall mean the final night's room revenue for the Hotel (revenue from rooms occupied as of 12:01 a.m. on the Closing Date, exclusive of food, beverage, telephone and similar charges which shall be retained by Summerfield), including any sales taxes, room taxes or other taxes thereon. -6- "Shimizu Purchase Agreements" shall mean collectively all of the Agreements more particularly described in Schedule A2 attached hereto and made a part hereof regarding the intended purchase by Patriot of the properties described in each Agreement. "Submission Matters" shall mean all items described in Section 2.4(a) hereof. "Summerfield Expenses" shall mean Expenses which are the responsibility of Summerfield under Section 7.6. "Summerfield's Organizational Documents" shall mean the current partnership agreement and certificate of limited partnership and all amendments thereto of each of the entities comprising Summerfield and its general partners. "Survey" shall mean the survey described in Part 4 of Schedule A1 attached hereto and made a part hereof. "Tangible Personal Property" shall mean the items of tangible personal property consisting of all furniture, fixtures, equipment, machinery and other personal property of every kind and nature (but expressly excluding cash-on-hand and petty cash funds) located on or in the Real Property, used in the operation of the Hotel and owned by Summerfield on the Closing Date, including, without limitation, unopened inventories of food and beverages and the stock of linens, towels, paper goods, soaps, cleaning supplies, china, glassware, silverware, tablecloths, napkins, television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows, bed spreads and miscellaneous guest supplies, engineering cleaning supplies and the like. "Tenant" shall mean Summerfield HPT Lease Company, L.P. "Title Company" shall mean Escrow Agent on behalf of Chicago Title Insurance Company. "Transfer Agreements" shall mean the agreements between Summerfield or an affiliate of Summerfield and Tenant pertaining to the transfer of certain assets and the prorations of certain liabilities associated with the Hotel. "UCC Reports" shall mean the reports of searches of the Uniform Commercial Code records of both the County and State in which the Property is located. "Utilities" shall mean public sanitary and storm sewers, natural gas, telephone, public water facilities, electrical facilities and all other utility facilities and services necessary or appropriate for the operation and occupancy of the Property as a hotel. "Warranties and Guaranties" shall mean all warranties and guaranties relating to the Improvements or the Tangible Personal Property or any part thereof, if any. -7- ARTICLE II PURCHASE AND SALE OF PROPERTY; DEPOSIT; PAYMENT OF PURCHASE PRICE; TITLE 2.1 Purchase and Sale. Summerfield agrees to sell and Patriot agrees to purchase the Property for the Purchase Price and in accordance with and subject to, the terms and conditions hereinafter set forth. 2.2 Payment of Purchase Price. The Purchase Price shall be paid to Summerfield at Closing by making a wire transfer of immediately available federal funds to a designated account on behalf of Summerfield or other applicable party as specified in writing by Summerfield. 2.3 Deposit. Within three (3) days after the execution hereof by both Summerfield and Patriot and as a condition precedent to the effectiveness of this Agreement, Patriot shall deliver to Escrow Agent cash in the amount of $333,333.33 (the "Deposit"). Escrow Agent shall hold the Deposit pursuant to the terms, conditions and provisions of this Agreement. The Deposit shall be either (a) returned to Patriot pursuant to Article X or at Closing, or (b) delivered to Summerfield pursuant to Article X hereto. 2.4 Submission Matters and Title Information. (a) Summerfield has delivered the following to Patriot: (1) Complete copies of all Occupancy Agreements in effect as of the Effective Date, which are described on Schedule A3 attached hereto and made a part hereof. (2) Complete copies of all Operating Agreements in effect as of the Effective Date, which are described on Schedule A4 attached hereto and made a part hereof. (3) A schedule setting forth the type and amounts of insurance coverage maintained by Summerfield with respect to the Property as of the Effective Date as described on Schedule A5 attached hereto and made a part hereof. (4) Financial and operating statements for the Property through January, 1998 and for the previous calendar years in which the Property was operating. (5) The operating and capital expenditure budget for the Property for the current calendar year and for the previous calendar years in which the Property was operating. (6) A complete list of all Leased Property and complete copies of all Personal Property Leases, in effect as of the Effective Date which are described on Schedule A6 attached hereto and made a part hereof. -8- (7) Copies of invoices for all ad valorem taxes and special assessments assessed against the Property for the current calendar year and prior calendar year, either statements for Utilities payable for the current calendar year and the prior calendar year or such other information as Patriot has reasonably required itemizing the payment of utilities for the Hotel, and such information as Patriot has reasonably required regarding current renditions or assessments on the Property or notices relative to change in valuation for ad valorem taxes. (8) Copies of all parking, structural, mechanical or other engineering reports or engineering studies related to the Property together with copies of all soil tests, masonry tests, percolation tests, water, oil, gas, mineral, radon, formaldehyde, PCB or other environmental tests, audits or reports, market studies and site plans related to the Property. (9) Copies of complete sets of all architectural, mechanical, structural and/or electrical plans and specifications used in connection with the construction of or alterations or repairs to the Property. (10) Copies of complete sets of prototype plans for the Property. (11) A complete copy of the Management Agreement and any other documents executed by Manager which modify the Management Agreement or provide third parties with rights against Manager with respect to the Management Agreement. (12) Complete copies of the Authorizations listed at Part A of Schedule A7 attached hereto and made a part hereof. (13) Complete copies of audited financial statements for the entities comprising Summerfield for the fiscal years ending December 29, 1995 and January 3, 1997, and unaudited Financial Information for calendar year 1997 and January 1998. (14) Survey (15) UCC Reports (16) Pro Forma Title Policy. 2.5 Availability of Information and Access. Until the Closing, (a) Summerfield shall, at its sole cost and expense, make available at Summerfield's corporate offices in Wichita to Patriot, its agents, auditors, engineers. attorneys, potential lessees and other designees, for inspection and/or copying, copies of all correspondence, books, records, tax returns, bank statements, financial statements, advance reservations and room bookings and function bookings, rate schedules and any and all other materials or information relating to the Property, and (b) upon reasonable prior notice, Summerfield shall make available to Patriot, its agents, auditors, engineers, attorneys, potential -9- lessees and other designees, the Property for purposes of inspection provided that Patriot shall not cause any damage thereto and shall, in any event, be liable to make good any damage which may thereby be occasioned by any act or default on Patriot's part. ARTICLE III SUMMERFIELD'S REPRESENTATIONS AND WARRANTIES To induce Patriot to enter into this Agreement and to acquire the Property in the manner provided herein, Summerfield hereby makes the following representations and warranties, upon each of which Summerfield acknowledges and agrees that Patriot and its permitted assignees are entitled to rely and have relied, subject to the limitation set forth in Section 3.31 hereof: 3.1 Organization and Power. Summerfield is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Kansas and is qualified to transact business in the state of Kansas and in the state in which the Property is located, and has all requisite powers and all governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to enter into and perform its obligations hereunder and under any document or instrument required to be executed and delivered on behalf of Summerfield hereunder. 3.2 Authorization and Execution. This Agreement has been duly authorized by all necessary action on the part of Summerfield, has been duly executed and delivered by Summerfield, constitutes the valid and binding agreement of Summerfield, and is enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency and moratorium laws and general principles of equity. The person or persons executing this Agreement on behalf of Summerfield have the authority to do so. 3.3 Non-contravention. The execution and delivery of, and the performance by Summerfield of its obligations under, this Agreement do not and will not contravene, or constitute a default under any of Summerfield's Organizational Documents, any judgment, injunction, order or decree binding upon Summerfield or to which the Property is subject, or, to Summerfield's knowledge, do not and will not contravene, or constitute a default under, any provision of applicable law or regulation, any agreement, or other instrument binding upon Summerfield or to which the Property is subject, or result in the creation of any lien or other encumbrance on any asset of Summerfield. Other than the Transfer Agreements, there are no outstanding agreements (written or oral) pursuant to which Summerfield, (or any predecessor to or representative of Summerfield) has agreed to sell or has granted an option or right of first refusal to purchase the Property or any part thereof except for those that will be waived or released at or prior to Closing. 3.4 No Special Taxes. Summerfield has no knowledge of, nor has it received any written notice of, any special taxes or assessments, including any withholding taxes or "rollback" taxes, relating to the Property or any part thereof or any planned public improvements that may result in a special tax or assessment against the Property except as otherwise reflected in the Pro-Forma Title -10- Policy. Any taxes or assessments due and payable pursuant to the Permitted Title Exceptions will be paid by the Closing Date. To the best of Summerfield's knowledge, there are no taxes (whether special or otherwise) charges or assessments affecting the Property which are subject to reinstatement or escalation on a predetermined basis, specific to such Property. 3.5 Compliance with Existing Laws. Summerfield possesses all Authorizations, each of which is valid and in full force and effect, and no provision, condition or limitation of any of the Authorizations has been breached or violated. Summerfield has no knowledge of any termination, suspension, modification or limitation affecting any of the Authorizations. Summerfield has no knowledge, nor has it received written notice within the past two (2) years, of any existing or threatened violation of any provision of any Applicable Laws including, but not limited to, those of environmental agencies or insurance boards of underwriters with respect to the ownership, operation, use, maintenance or condition of the Property, or any part thereof, or requiring any repairs or alterations to the Property other than those that have been made prior to the date hereof. 3.6 Personal Property. To Summerfield's knowledge, all of the Personal Property, excluding the Leased Property, being conveyed by Summerfield hereunder are free and clear of all liens and encumbrances, except for the Permitted Liens, or those which will be discharged by Summerfield at Closing, and Summerfield has good and merchantable title thereto and the right to convey same in accordance with the terms of this Agreement. 3.7 Operating Agreements. There are no management, service, consulting, brokerage, supply or maintenance contracts in effect with respect to the Property other than the Operating Agreements described on Schedule A4 hereto. Summerfield has performed in all material respects all of its obligations under each of the Operating Agreements and there are no defaults under any of the Operating Agreements. To Summerfield's knowledge, all other parties to the Operating Agreements have performed all of their obligations thereunder in all material respects, and are not in default thereunder in any material respect. Summerfield has received no notice of any intention by any of the parties to any of the Operating Agreements to cancel the same, nor has Summerfield canceled any of same. 3.8 Insurance. All of Summerfield's Insurance Policies are valid and in full force and effect and to Summerfield's knowledge Summerfield has complied with all requirements of the insurance carriers of the Insurance Policies. 3.9 Condemnation Proceedings; Roadways. Summerfield has received no written notice of any condemnation or eminent domain proceeding pending or threatened against the Property or any part thereof. Summerfield has no knowledge of any change in the route or width of any street or road adjacent to or serving the Property or any part thereof, and Summerfield has received no written notice of any proposed change in the route, grade or width of, or otherwise affecting, any street or road adjacent to or serving the Property or any part thereof. -11- 3.10 Actions or Proceedings. There is no action, suit or proceeding pending or to Summerfield's knowledge threatened against or concerning Summerfield or the Property in any court, before any arbitrator or before or by any Governmental Authority which (a) in any manner raises any question affecting the validity or enforceability of this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of Summerfield or the Property, (c) could materially and adversely affect the ability of Summerfield to perform its obligations hereunder, (d) could create a lien on the Property or any part thereof or any interest therein, (e) is material and concerns any past or present employee of Manager who worked at the Hotel or (f) could otherwise adversely affect the Property or any part thereof or any interest therein or the use, operation, condition or occupancy thereof. 3.11 Labor and Employment Matters. Neither Summerfield nor Manager is a party to any oral or written employment contracts or agreements with respect to the Property which will be binding on Patriot. There are no labor disputes or organizing activities pending or threatened as to the operation or maintenance of the Property, or any part thereof. Neither Summerfield nor Manager is a party to any union or other collective bargaining agreement with employees employed in connection with the ownership, operation or maintenance of the Property. 3.12 Financial Information and Submission Matters. All of Summerfield's financial information, including, without limitation, all books and records and financial statements ("Financial Information") fairly represents in all material respects the financial condition of Summerfield and presents accurately the results of the operations of the Property for the periods indicated. Between the date of the last audited financial statement included in Summerfield's Financial Information which was submitted to Patriot and the Effective Date, there has been no event which (i) would be reported in footnotes to an audited financial statement if one were available for such period or (ii) has resulted in a Material Adverse Effect on the financial condition or in the operations of the Property except to the extent disclosed in the unaudited financial statements which have been delivered to Patriot prior to the Effective Date. 3.13 Submission Matters. All Submission Matters have been delivered by Summerfield to Patriot pursuant to this Agreement and, with respect to Submission Matters described in Section 2.4(a)(3), are true, correct and complete in all material respects and, with respect to Submission Matters described in Sections 2.4(a)(8), (9) and (10) Summerfield has no reason to believe that they are not, true, correct and complete in all material respects. Summerfield warrants the accuracy of replies as given by Summerfield (which shall mean B. Anthony Isaac, Roy R. Baker, John R. Morse and the General Manager of the Hotel) to Patriot, its employees, agents and advisors in response to queries raised by them during Patriot's due diligence investigation. 3.14 Bankruptcy. No Act of Bankruptcy has occurred with respect to Summerfield. 3.15 Hazardous Substances. Summerfield has not received any written notice that any previous owner, tenant, occupant or user of the Property has, engaged in or permitted any operations or activities upon, or any use or occupancy of the Property or any portion thereof, for the purpose -12- of or in any way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials on, under, in or about the Property in violation of any Applicable Laws. (a) Summerfield has not received any written notice nor has knowledge that any Hazardous Materials have migrated from or to the Property upon, about, or beneath other properties in violation of any Environmental Requirements; (b) None of the Property, nor the existing or, to Summerfield's knowledge, prior uses, fail or failed to materially comply with Environmental Requirements; (c) To Summerfield's knowledge, there are no permits, licenses or other authorizations which are required under any Environmental Requirements with regard to the current uses of the Property and which have not been obtained and complied with. (d) Neither Summerfield nor, to Summerfield's knowledge, any prior owner, occupant or user of the Property has received any written notice concerning any alleged violation of Environmental Requirements in connection with the Property or any liability for Environmental Damages in connection with the Property for which Summerfield (or Patriot after Closing) may be liable. (e) To Summerfield's knowledge, no Hazardous Materials are constructed, deposited, stored or otherwise located on, under, in or about the Property in violation of any Environmental Requirements. (f) There exists no writ, injunction, decree, order or judgment outstanding, nor any lawsuit, claim, proceeding, citation, summons, or, to Summerfield's knowledge investigation, pending or to Summerfield's knowledge threatened, relating to any alleged violation of Environmental Requirements on the Property, or relating to any Environmental Damages. (g) No above ground (or, to Summerfield's knowledge, underground) chemical treatment or storage tanks, or gas or oil wells are located on the Property. 3.16 Occupancy Agreements. There are no leases, concessions or occupancy agreements in effect with respect to the Property other than the Occupancy Agreements described on Schedule A3 hereto. Except as specifically provided in the Occupancy Agreements, no tenant or concessionaire is entitled to any rebates, allowances, free rent or rent abatement for any period after the Closing of the transaction contemplated hereby. Summerfield has received no notice of any intention by any of the parties to any of the Occupancy Agreements to cancel the same, nor has Summerfield canceled any of same. No brokerage commissions or compensation of any kind shall be due in connection with the Occupancy Agreements, and the rents or revenues to be derived therefrom. -13- 3.17 Leased Property. All Personal Property Leases are in good standing and free from default by Summerfield and, to Summerfield's knowledge, by the lessor thereof. 3.18 Americans With Disabilities Act. Summerfield has received no written notice that the Property is not in compliance with the Americans With Disabilities Act. 3.19 Structural Condition. Except as disclosed in writing by Summerfield to Patriot or Wyndham International, Inc. or their affiliates and as contained in any engineering reports concerning the Property delivered to Patriot, there is to Summerfield's knowledge, no latent material defect in the Improvements or structural elements thereof, mechanical systems (including, without limitation, all heating, ventilating, air conditioning, plumbing, electrical, utility and sprinkler systems) therein, the utility system servicing the Property and the roofs. 3.20 Zoning and Platting. Summerfield has no knowledge of any proceeding and has received no written notice of any threatened action or proceeding which could result in a modification or termination of the present zoning of the Property. 3.21 Access. Summerfield has no knowledge of any pending and has received no written notice of any threatened, governmental proceeding which would limit or result in the termination of the Property's existing access to and from public streets or roads. 3.22 No Commitments. To Summerfield's knowledge, no commitments have been made to any Governmental Authority, utility company, school board, church or other religious body, or any homeowners' association or any other organization, group or individual, relating to the Property which would impose an obligation upon Patriot to make any contribution or dedication of money or land or to construct, install or maintain any improvements of a public or private nature on or off the Property. 3.23 Summerfield Is Not a "Foreign Person". Summerfield is not a "foreign person" within the meaning of Section 1445 of the Internal Revenue Code, as amended (i.e., a foreign corporation, foreign partnership, foreign trust, foreign estate or foreign person as those terms are defined in the Internal Revenue Code and regulations promulgated thereunder). 3.24 No Other Property Interests. There are no property interests, buildings, structures or other improvements or personal property that are owned by Summerfield which are necessary for the operation of the Hotel, that are not being conveyed pursuant to this Agreement. 3.25 Management Agreement. There are no management contracts in effect with respect to the Property other than the Management Agreement. Summerfield has performed in all material respects all of its obligations under the Management Agreement and there are no defaults by Summerfield under the Management Agreement. To Summerfield's knowledge, all other parties (whether one or more) to the Management Agreement have performed all of their respective obligations thereunder in all material respects, and are not in default thereunder in any material -14- respect. Summerfield has received no written notice of any intention by any of the parties to the Management Agreement to cancel the same, nor has Summerfield canceled the same. 3.26 Development Agreement. There is no Development Agreement currently in effect with respect to the Property. There are no outstanding obligations to be performed by any of the parties to any previous Development Agreement and, to the extent that same may have existed, such Development Agreement may be regarded as of the Effective Date hereof as having been performed in full and of no further force or effect. 3.27 Relationship to Certain Parties. Summerfield does not, to its knowledge, have a direct or indirect relationship to the Central States, Southeast and Southwest Areas Pension Fund within the meaning of Section 514(c)(9)(B)(iv) of the Internal Revenue Code of 1986, as amended. The list of partners in Summerfield as delivered by Summerfield to Patriot is true, correct and complete. 3.28 Liquor License. Summerfield possesses all liquor licenses, alcoholic beverage licenses and other permits and Authorizations necessary to continue operating the facilities presently located in the Hotel and all such liquor licenses, alcoholic beverage licenses and other permits and Authorizations are valid and are held in the names of the operators of such businesses or affiliates thereof. 3.29 Improvements. All Improvements have been constructed and are owned, used and operated in accordance with the requirements of the Permitted Title Exceptions. 3.30 Warranties and Guaranties. Summerfield shall not, on or before Closing, release or modify the Warranties and Guaranties, if any, except with the prior written consent of Patriot, which consent shall not be unreasonably withheld or delayed and which shall be deemed given if not given or refused within five (5) business days of Summerfield's request therefor in writing. 3.31 Limitations on Representations and Warranties. Each of the representations and warranties contained in this Article III and its various subparagraphs are intended for the benefit of Patriot and may be waived in whole or in part, by Patriot, but only by an instrument in writing signed by Patriot. Each of the representations and warranties shall be deemed to be modified by such matters disclosed by (a) the Submission Matters, (b) Patriot's own due diligence investigations prior to the Effective Date, and (c) the Disclosure Schedule. All rights and remedies arising in connection with the untruth or inaccuracy of any such representations and warranties as of the Closing Date shall survive the Closing. Patriot shall promptly notify Summerfield of an apparent untruth or inaccuracy regarding a representation or warranty given by Summerfield hereunder if it learns of such inaccuracy following the Effective Date from its own due diligence activities. Summerfield, at its sole cost and expense, shall then have until the Closing Date to cure such matters to Patriot's satisfaction, if Summerfield so elects. If Summerfield gives Patriot written notice prior to Closing of the untruth or inaccuracy of any representation or warranty, or Patriot otherwise obtains actual knowledge prior to Closing of the untruth or inaccuracy of any representation or -15- warranty, and Patriot nevertheless elects to close this transaction, Patriot shall be entitled to exercise all available remedies for such breach as set forth in Article IX hereof (subject to the condition that Patriot shall have given Summerfield prompt written notice of such untruth or inaccuracy and the above opportunity to cure). Any such written notice from Summerfield to Patriot shall state in the first paragraph thereof and in all capitalized letters that "THIS NOTICE IS GIVEN PURSUANT TO THE PURCHASE AND SALE AGREEMENT MADE AS OF MARCH 18, 1998 AND RELATES TO THE UNTRUTH OR INACCURACY OF SUMMERFIELD'S REPRESENTATIONS OR WARRANTIES." Patriot shall be deemed to have actual knowledge of the untruth or inaccuracy of any representation or warranty only if such matters are disclosed by (a) the Submission Matters, (b) Patriot's due diligence investigation prior to the Effective Date, or (c) Disclosure Schedule and Patriot receives written notice from Summerfield satisfying the foregoing requirements. Except to the extent otherwise expressly provided in the second sentence of this Section, no written notice, investigation, audit, inspection, review or the like shall be deemed to terminate the effect of any such representations, warranties and covenants, it being understood that Patriot has the right to rely thereon and that each such representation and warranty constitutes a material inducement to Patriot to execute this Agreement and to close the transaction contemplated hereby and to pay the Purchase Price to Summerfield. Whenever the term "to Summerfield's knowledge" or "known to Summerfield" is used or reference to Summerfield's belief or reason to believe is made in this Agreement or in any representations and warranties given to Patriot at closing, such knowledge or belief shall be the actual knowledge or belief of B. Anthony Isaac, Roy R. Baker, John R. Morse, and the general manager of the Hotel only, without any inquiry. ARTICLE IV PATRIOT'S REPRESENTATIONS AND WARRANTIES To induce Summerfield to enter into this Agreement and to sell the Property to Patriot, Patriot hereby makes the following representations and warranties, upon each of which Patriot acknowledges and agrees that Summerfield is entitled to rely and has relied: 4.1 Organization and Power. Patriot is duly organized, validly existing and in good standing under the laws of the State of Delaware and has all partnership powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and to enter into and perform its obligations under this Agreement and any document or instrument required to be executed and delivered on behalf of Patriot hereunder. 4.2 Authority of Patriot. This Agreement has been duly authorized by all necessary action on the part of Patriot, has been duly executed and delivered by Patriot, constitutes the valid and binding agreement of Patriot and is enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency and moratorium laws and general principles of equity. The person executing this Agreement on behalf of Patriot has the authority to do so. -16- 4.3 Non-contravention. The execution and delivery of this Agreement and the performance by Patriot of its obligations hereunder do not and will not contravene, or constitute a default under, any provisions of applicable law or regulation, or any agreement, judgment, injunction, order, decree or other instrument binding upon Patriot or result in the creation of any lien or other encumbrance on any asset of Patriot. 4.4 Litigation. There is no action, suit or judicial or administrative proceeding, pending or to Patriot's knowledge threatened, against or affecting Patriot in any court or before any arbitrator or before any Governmental Authority which (a) in any manner raises any question affecting the validity or enforceability of this Agreement, (b) could materially and adversely affect the business, financial position or results of operations of Patriot, and (c) could materially and adversely affect the ability of Patriot to perform its obligations hereunder. 4.5 Submission Matters. Patriot confirms that the Submission Matters which it received prior to the Effective Date are satisfactory in all material respects. Patriot acknowledges receipt of all of the items listed in the Schedules attached hereto and, to the extent that there are additional items included in the Submission Matters which are not listed in the Schedules attached hereto, Patriot confirms that it is not aware of any items which have not been received by it but which should have been furnished to it. 4.6 Bankruptcy. No Act of Bankruptcy has occurred with respect to Patriot. Wherever the term "to Patriot's knowledge" or "known to Patriot" is used in this Agreement or in any representations and warranties given to Summerfield at Closing, such knowledge shall be the actual knowledge of Michael Silverman, Diane Parmerlee and Anne Raymond only, without any further inquiry. ARTICLE V CONDITIONS PRECEDENT 5.1 As to Patriot's Obligations. Patriot's obligation to purchase the Property is subject to the satisfaction of the following conditions precedent: (a) Summerfield's Deliveries. Summerfield shall have delivered to or for the benefit of Patriot, on or before the Closing Date, all of the documents and other information required of Summerfield pursuant to Sections 7.2 and 7.4 hereof. (b) Representations, Warranties and Covenants: Obligations of Summerfield. All of Summerfield's representations and warranties (set forth in Article III) shall be true and correct in all respects as of the Closing Date as if then made (provided that, for purposes of determining the accuracy of such warranties and representations, any inaccuracy that does not have a Material Adverse Effect in relation to Patriot shall be disregarded); Summerfield shall have performed in all respects all of its covenants and other obligations under this Agreement (provided that, for purposes -17- of determining the compliance by Summerfield of such covenants as of the Closing Date, any non-compliance by Summerfield that does not have a Material Adverse Effect in relation to Patriot shall be disregarded); and none of the following events have occurred with respect to the Property which could in Patriot's reasonable judgment, materially and adversely affect the Property: (1) a structural failure causing human fatalities; (2) human fatalities caused by disease which is specifically identified with the Property such as the occurrence of Legionnaires disease; and (3) human fatalities caused by the failure of life/safety systems. (c) Title Insurance. The commitment of Title Company to issue the Owner's Title Policy to Patriot. (d) Shimizu Purchase Agreements and Transfer Agreements. The simultaneous consummation of the purchases contemplated by the Shimizu Purchase Agreements and the Transfer Agreements, other than due to (a) the failure on the part of Patriot to comply with or perform its obligations thereunder, or (b) the occurrence of Patriot's election to terminate any Shimizu Purchase Agreement under Section 8.1 or Section 8.2 thereof (and the termination of the related Transfer Agreement), or (c) the occurrence of Patriot's election to terminate one (1) Shimizu Purchase Agreement pursuant to Section 10.1(c) of such Agreement (and the termination of the related Transfer Agreement). (e) Agreement to Lease. The execution and delivery of the Agreement to Lease by the parties hereto so that same is in full force and effect and, on the Closing Date, the performance by Tenant (as defined therein) of its obligations thereunder and the concurrent satisfaction of the conditions precedent therein to closing thereunder and the execution and delivery by Tenant of the Facility Lease (as defined therein). (f) Loan Agreement. The execution and delivery of the Loan Agreement by the parties thereto so that same is in full force and effect and, on the Closing Date, the performance by the Borrower (as defined therein) of its obligations thereunder and execution by Borrower of the Note (as defined therein). Each of the conditions contained in this Section 5.1 are intended for the benefit of Patriot and may be waived in whole or in part, by Patriot, but only by an instrument in writing signed by Patriot. 5.2 As to Summerfield's Obligations. Summerfield's obligations hereunder are subject to the satisfaction of the following conditions precedent: (a) Patriot's Deliveries. Patriot shall have delivered to or for the benefit of Summerfield, on or before the Closing Date, the Purchase Price and all of the documents and other -18- payments required of Patriot pursuant to Sections 7.3 and 7.4 hereof. (b) Representations, Warranties and Covenants; Obligations of Patriot. All of Patriot's representations and warranties made in this Agreement shall be true and correct in all respects as of the Closing Date as if then made (provided, for purposes of determining the accuracy of such warranties and representations any inaccuracy that does not have a Material Adverse Effect on Summerfield shall be disregarded) and Patriot shall have performed in all material respects all of its covenants and other obligations under this Agreement (provided, for purposes of determining the compliance by Patriot with such covenants as of the Closing Date, any non-compliance by Patriot that does not have a Material Adverse Effect in relation to Summerfield shall be disregarded). (c) Shimizu Purchase Agreements and Transfer Agreements. The simultaneous consummation of the purchases contemplated by the Shimizu Purchase Agreements and the Transfer Agreements, other than due to (a) the failure on the part of Summerfield to comply with or perform its obligations thereunder, or (b) the occurrence of Patriot's election to terminate any Shimizu Purchase Agreement under Section 8.1 or Section 8.2 thereof (and the termination of the related Transfer Agreement), or (c) the occurrence of Summerfield's election to terminate one (1) Shimizu Purchase Agreement pursuant to Section 10.1(d) of such Agreement (and the termination of the related Transfer Agreement). (d) Agreement to Lease. The execution and delivery of the Agreement to Lease by the parties hereto so that same is in full force and effect and, on the Closing Date, the performance by HPT of its obligations thereunder and the execution and delivery by Landlord of the Facility Lease (as defined therein). (e) Loan Agreement. The execution and delivery of the Loan Agreement by the parties thereto so that same is in full force and effect and, on the Closing Date, the performance by PAHOP of its obligations thereunder and funding of the Loan by PAHOP. Each of the conditions contained in this Section 5.2 are intended for the benefit of Summerfield and may be waived in whole or in part, by Summerfield, but only by an instrument in writing signed by Summerfield. ARTICLE VI COVENANTS OF SUMMERFIELD To induce Patriot to enter into this Agreement and to purchase the Property, and to pay the Purchase Price therefor, Summerfield covenants and agrees to the following: 6.1 Operating Agreements, Occupancy Agreements and Management Agreement. Summerfield shall not change, modify, extend, renew or terminate any existing, or enter into any, new Occupancy Agreements, Operating Agreements, and Management Agreement, maintenance or repair contract, supply contract, lease in which it is lessee or other agreements with respect to the -19- Property, nor shall Summerfield enter into any agreements modifying the Operating Agreements, Occupancy Agreements, and Management Agreement unless (a) any such agreement or modification will not bind Patriot or the Property after the date of Closing or (b) Summerfield has obtained Patriot's prior written consent to such agreement or modification, which consent shall not be unreasonably withheld or delayed and which shall be deemed given if not given or refused within five (5) business days of Summerfield's request therefor in writing. Summerfield agrees not to cancel any Operating Agreements unless Patriot requests in writing that one or more should be terminated. Summerfield shall not apply all or any part of the security or damage deposit of a tenant under any Occupancy Agreement to obligations of such tenant except in the ordinary course of business unless such tenant has vacated its portion of the Property as of the Closing Date. Patriot and Summerfield hereby acknowledge that Tenant shall, pursuant to the Transfer Agreements, assume the Operating Agreements, and the Management Agreement (collectively, the "Agreements") that are not terminated by Patriot pursuant to the terms hereof (all of the Agreements not so terminated being herein called the "Assumed Agreements"). With respect to the Assumed Agreements, Tenant shall be required at Closing to assume all obligations thereunder accruing from and after the Closing Date. Notwithstanding anything to the contrary set forth herein, the existing Management Agreement between Summerfield and Manager shall be terminated and shall be replaced by the Management Agreement to be entered into as of the Closing Date. 6.2 Insurance. Summerfield shall pay or cause to be paid all premiums on, and shall not allow the cancellation or expiration of any Insurance Policies unless such policy is replaced, without any lapse of coverage, by another policy or policies providing coverage at least as extensive as the policy or policies being replaced. 6.3 Audited Statements. Summerfield has delivered to Patriot copies of the audited financial statements for the fiscal years ending December 29, 1995 and January 3, 1997, and shall cooperate with Patriot's representatives and independent public accountants to enable them to contact the auditors who prepared such audited financial statements and to obtain, at Patriot's expense, a reissuance of such audited financial statements in the same form and content as presented to Patriot. Summerfield shall pay for the cost of preparation of audited financial statements for the current fiscal year and shall ensure that such audited financial statements shall be furnished to Patriot no later than March 31, 1998. 6.4 Operation of Properties Prior to Closing. Summerfield covenants and agrees with Patriot that, between the Effective Date (or such other date as specified below) and the Closing Date: (a) Subject to the restrictions contained herein, Summerfield shall operate the Property in the same manner in which it has been operated prior to the execution of this Agreement, so as to keep such Property and the Improvements and the Tangible Personal Property (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 good condition, reasonable wear and tear excepted, and so as to maintain the -20- existing caliber of the Hotel operations conducted at the Property and the reasonable good will of all tenants of the Property and all employees, guests and other customers of the Hotel. (b) Summerfield shall maintain its books of account and records in the usual, regular and ordinary manner, in accordance with sound accounting principles applied on a basis consistent with the basis used in keeping its books in prior years. (c) Summerfield shall maintain in full force and effect all Insurance Policies. (d) Summerfield shall use and operate the Property in compliance in all material respects with Applicable Laws and the requirements of any mortgage, lease, Occupancy Agreement, Operating Agreement and Insurance Policy affecting the Property. (e) Summerfield shall cause to be paid prior to delinquency all ad valorem, occupancy and sales taxes due and payable with respect to the Property or the operation of the Hotel and may, in good faith, contest or seek reimbursement of taxes paid; provided that such contest does not subject the Property to any potential liability or lien and does not subject Patriot to any potential liability in the event of an unsuccessful or unsatisfactory outcome to the contest. (f) Summerfield shall not permit the inventory of food, beverages, stock of linens, towels, paper goods, soaps, cleaning supplies, china, glassware, silverware, table cloths, napkins, miscellaneous guest supplies and engineering cleaning supplies constituting a portion of the Tangible Personal Property to be diminished other than as a result of the ordinary and necessary operation of the Hotel by Summerfield. (g) Summerfield shall not remove or cause or permit to be removed any part or portion of the Real Property or the Tangible Personal Property without the express written consent of Patriot unless the same is replaced, prior to Closing, with similar items of at least equal suitability, quality and value, free and clear of any liens or security interests other than Permitted Liens. (h) Summerfield and Manager shall continue to use commercially reasonable efforts to take guest room reservations and to book functions and meetings and otherwise to promote the business of the Property or any of them in generally the same manner as Summerfield and Manager did prior to the execution of this Agreement; and all advance room bookings and reservations and all meetings and function bookings shall be booked at rates, prices and charges heretofore customarily charged by Summerfield or Manager for such purposes, and in accordance with Summerfield's or Manager's published rate schedules. (i) Summerfield shall not make any agreements, other than those described in subparagraph (h) above, which shall be binding upon Patriot with respect to the Property or that otherwise cannot be terminated without penalty upon thirty (30) days notice unless approved by Patriot pursuant to Section 6.1. -21- (j) Summerfield shall promptly deliver to Patriot upon Patriot's request such reports showing the revenue and expenses of the Hotel and all departments thereof, together with such periodic information with respect to room reservations and other bookings, as Summerfield customarily keeps or receives internally for its own use. (k) Summerfield shall not enter into any employment agreements which would be binding on Patriot with respect to the Property. (l) Summerfield shall promptly advise Patriot of any litigation, arbitration or administrative hearing concerning or affecting the Property of which Summerfield obtains written notice or of which Summerfield has knowledge. (m) Summerfield shall not, by act or omission, breach or cause to be breached any of the terms and conditions on its part to the part to be performed and observed and as more particularly contained in the Operating Agreements and the Management Agreement. (n) Summerfield shall continue to make deposits into the FF&E Cash Reserve in accordance with the Management Agreement and shall only expend funds from such FF&E Cash Reserve pursuant to the capital expenditure budget, a copy of which has been furnished to Patriot. Summerfield must obtain Patriot's prior written approval for any proposed expenditures which have not otherwise been sanctioned in the capital expenditure budget. (o) Within three (3) days from the Effective Date, Summerfield shall furnish to Patriot copies of the Authorizations referred to at Part B of Schedule A7 together with all other Authorizations required for the proper use of the Property and the Hotel thereon. 6.5 No Marketing. Neither Summerfield nor Manager shall market the Property for sale or enter into discussions or negotiations with potential purchasers of the Property. 6.6 Liens. Summerfield shall not, after the date of this Agreement, subject the Real Property to or permit or suffer to exist any liens, encumbrances, covenants, conditions, restrictions, easements or other title matters or seek any zoning changes or take any other action which may affect or modify the status of title without Patriot's prior written consent unless same are discharged at or prior to Closing. 6.7 Corporate and Bulk Sales Clearance. (a) If the property is located in a State in which the transaction contemplated by this Agreement is subject to bulk sales laws then Summerfield shall do everything necessary to comply with those laws including the timely filing of written notices and requisite applications in the manner specified in such bulk sales laws and shall furnish copies thereof to Patriot. In addition, Summerfield shall obtain, prior to the Closing Date, all lien certificates and shall use diligent efforts to obtain, prior to the Closing Date, all clearance certificates which may be obtained pursuant to -22- those laws. Copies of all such certificates shall be delivered to Patriot promptly after receipt of same by Summerfield. (b) If Summerfield fails to obtain any such clearance certificate, then Patriot shall have the right to require Summerfield to enter into such agreements and deposit such sums with the Title Company, which shall include at Patriot's option all sums shown on any lien certificate obtained, plus the parties' reasonable estimate of those unsettled or undetermined liabilities of Seller as may be required for payment to the appropriate governmental authorities to protect Patriot against loss by reason of the non-payment by Summerfield of all taxes and other sums payable by Summerfield to the date of conveyance and Summerfield's failure to obtain and deliver clearance certificates showing that all reports have been filed with the relevant State Authority and that all such taxes and other sums have been paid. (c) Alternatively, Patriot shall have the right to reduce the Purchase Price by an amount equal to all unpaid taxes and liabilities which are the subject of such lien certificates or clearance certificates and apply the amount by which the Purchase Price is so reduced to pay such taxes. (d) Summerfield shall indemnify Patriot and save and hold Patriot harmless from and against any claims, suits, demands, liabilities or obligations of any kind or nature whatsoever, including all costs of defending same, and reasonable attorneys' fees paid or incurred in connection therewith, arising out of or relating to any claim made by any third party or any liability asserted by any third party that any applicable bulk sales law or like statute has not been complied with. The provisions of this Section 6.7 shall survive the Closing of the transaction contemplated hereby. The foregoing covenants of Summerfield are for the benefit of Patriot or its assignee of its permitted rights under this Agreement. The covenants appearing at Sections 6.1, 6.2, 6.4, 6.5 and 6.6 above shall terminate and be of no further force and effect after the Closing Date. ARTICLE VII CLOSING 7.1 Closing. The Closing shall occur on a business day designated by Patriot, with at least five (5) days notice to Summerfield (which day shall be no later than March 25, 1998). As more particularly described below, at the Closing the parties hereto will (i) execute all of the documents listed in Sections 7.2, 7.3 and 7.4 hereof (the "Closing Documents"), (ii) deliver the same to Escrow Agent, and (iii) take all other action required to be taken in respect of the transactions contemplated hereby. The Closing will occur at the offices of Locke Purnell Rain Harrell, 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201, or at such other place as Patriot shall designate by written notice to Summerfield given at least three (3) days prior to the Closing. At the Closing, Escrow Agent shall return the Deposit to Patriot and shall update the title to the Properties, Escrow Agent shall record the Deeds, release and date, where appropriate, the Closing Documents in -23- accordance with the joint instructions of Summerfield and Patriot. As provided herein, the parties hereto will agree upon adjustments and prorations to certain items which cannot be exactly determined at the Closing and will make the appropriate adjustments with respect thereto. Possession of the Properties shall be delivered to Patriot at the Closing, subject only to Permitted Title Exceptions, Permitted Liens and the rights of tenants under the Occupancy Agreements and guests in possession. 7.2 Summerfield's Deliveries. At the Closing, Summerfield shall deliver, if not previously delivered by Summerfield pursuant to the terms hereof, to Escrow Agent all of the following instruments, each of which, where applicable, shall have been duly executed and, where applicable, acknowledged and/or sworn on behalf of Summerfield and shall be dated as of the Closing Date: (a) The Deed. (b) The Bill of Sale - Personal Property. (c) The Assignment and Assumption Agreements to Tenant and Patriot respectively. (d) A Manager estoppel letter substantially in the form of Exhibit A6 attached hereto. (e) Certificates from the applicable State taxing authority and local taxing authorities stating that all occupancy and sales taxes due and payable for the Property have been paid and, if any such taxes have not been paid, the amount due and payable as of the Closing Date. (f) Certificate(s)/Registration of Title to Tenant for any vehicle owned by Summerfield and used in connection with the Property. (g) Such agreements, affidavits (including any requisite affidavits of title), estoppel certificates, statements, confirmations, releases of lien, receipts or evidence of payments made or such other documents as may be required by the Title Company to issue the Owner's Title Policy subject only to the Permitted Title Exceptions. (h) The Owner's Title Policy. (i) The FIRPTA Certificate (or alternative, if the Property is located in California, the CAL-FIRPTA Certificate). (j) All original Warranties and Guaranties in Summerfield's possession or reasonably available to Summerfield. -24- (k) Appropriate resolutions of the partners comprising Summerfield, together with all other necessary approvals and consents of Summerfield and such documentary and other evidence as may be reasonably required by Escrow Agent, authorizing and evidencing the authorization of (i) the execution on behalf of Summerfield of this Agreement and the authority of the person or persons who are executing the various documents to be executed and delivered by Summerfield prior to, at or otherwise in connection with the Closing, and (ii) the performance by Summerfield of its obligations hereunder and under such documents. (l) Current, valid, final and unconditional certificates of occupancy for the Real Property and Improvements, issued by the appropriate Governmental Authority. (m) If Tenant is assuming Summerfield's obligations under any or all of the Operating Agreements pursuant to the Transfer Agreements, the originals of such agreements, and with respect to the material Operating Agreements, consent to the assignment thereof acknowledged and approved by the other parties to such Operating Agreements to the extent required by such Operating Agreements. (n) With respect to the material Personal Property Leases, (1) the written consent of the lessors of such leases to such assignment, if required by such Personal Property Leases, and (2) executed originals of all such leases in Summerfield's possession or reasonably available to Summerfield. (o) Copies of all Insurance Policies, all of which (other than for any policy of worker's compensation) shall include an endorsement thereto noting Tenant as an additional insured with respect to occurrences on or after the date which is two (2) years prior to the Effective Date. (p) To the extent in Summerfield's possession or reasonably available to Summerfield, originals of the following items (which shall be deemed delivered by Summerfield under this Section 7.2 if delivered to Tenant or the property manager at the Hotel): (1) complete sets of all architectural, mechanical, structural and/or electrical plans and specifications used in connection with the construction of or alterations or repairs to the Property; and (2) as built plans and specifications for the Property, with copies thereof to Patriot upon receipt of Patriot's written request therefor. (q) To the extent assignable, a written instrument executed by Summerfield, conveying and transferring to Tenant all of Summerfield's right, title and interest in any telephone numbers and TWX numbers relating to the Property, and, if Summerfield maintains a post office box, conveying to Tenant all of its interest in and to such post office box and the number associated therewith, so as to assure a continuity in operation and communication. (r) Duplicate originals or copies of all agreements, leases, concession agreements and other instruments materially affecting the Property and the Hotel and/or restaurant business -25- conducted thereon in Summerfield's possession or control, which shall be deemed delivered by Summerfield under this Section 7.2 if delivered to Tenant or the property manager at the Hotel. (s) All current real estate and personal property tax bills in Summerfield's possession or under its control for taxes and assessments not yet due and payable. (t) If available, by delivery to the property manager at the Hotel, a complete set of all guest registration cards, guest transcripts, guest histories, and all other available guest information. (u) All books, records, operating reports, appraisal reports, files and other materials in Summerfield's possession or control which are necessary in Patriot's discretion to maintain continuity of operation of the Property (which items shall be deemed delivered by Summerfield under this Section 7.2 if delivered to Tenant or the property manager at the Hotel). (v) A current UCC Report showing no financing statements covering the Property other than Permitted Liens and liens to be discharged on the Closing Date. (w) Executed originals of all Occupancy Agreements and, to the extent available, Authorizations transferred or assigned to Patriot or Tenant, as appropriate, at Closing as required hereunder (which items shall be deemed delivered by Summerfield under this Section 7.2 delivered to Tenant or the property manager at the Hotel). (x) Summerfield's share of the closing costs and prorations calculable hereunder which may be deducted from the Purchase Price. (y) The liquor licenses for the Property, together with such consents and estoppels as may reasonably be required by Tenant from the holders of any of the liquor licenses for the Property, and any other necessary documents which may be required to effectuate the transfer of liquor licenses. (z) Any requisite certificate of value that must be executed pursuant to statutory or regulatory requirements of the State in which the Property is situate. (aa) A Residency Affidavit (if the Property is located in Georgia). (bb) If the Property is located in New Jersey the delivery by Summerfield of a Letter of Non-applicability or a Negative Declaration in accordance with the Industrial Site Recovery Act ("ISRA") N.J.S.A. 13:1K-6 et seq. and the regulations issued thereunder. (cc) An opinion from Summerfield's in-house counsel, John Morse, stating that Summerfield has duly authorized, executed and delivered to Patriot this Agreement and all of the conveyance documents to be delivered by Summerfield hereunder. -26- (dd) The Deposit. 7.3 Patriot's Deliveries. At the Closing, Patriot shall deliver to Escrow Agent for the benefit of Summerfield: (a) The Purchase Price and Patriot's share of closing costs in immediately available funds. (b) any other document or instrument reasonably requested by Summerfield or required hereby. (c) An opinion of Patriot's counsel as to due authorization, execution and delivery of this Agreement. 7.4 Mutual Deliveries. At the Closing, Patriot and Summerfield shall mutually execute and deliver each to the other: (a) A closing statement reflecting the adjustments and prorations required hereunder and the allocation of income and expenses required hereby which will be final, subject to subsequent adjustment pursuant to the last paragraph of Section 7.6 hereof. (b) Such other documents, instruments and undertakings as may be required by the liquor authorities of the State where a Property is located, or of any county or municipality or governmental entity having jurisdiction with respect to the transfer or issue of liquor licenses or alcoholic beverage licenses or permits for the operation of the Hotel by Tenant, to the extent not theretofore executed and delivered. (c) Such other and further documents, papers and instruments as may be reasonably required and mutually agreed to by the parties hereto or their respective counsel. 7.5 Closing Costs. Except as is explicitly provided in this Agreement, each party hereto shall pay its own legal fees and expenses. All filing fees for the Deed and the transfer, recording, sales or other similar taxes and surtaxes due with respect to the transfer of title shall be evenly divided between Summerfield and Patriot. Summerfield shall pay for the costs associated with the releases of any deeds of trust, mortgages and other financing encumbering a Property and for any costs associated with any corrective instruments. Summerfield shall also pay all taxes (and, if required by applicable law, all withholding for taxes) attributable to capital gain or income from the sale of the Property to the extent that Patriot could otherwise have liability therefor. Summerfield and Patriot shall each pay for half of all costs for all surveys, environmental and other property reports, title searches, premiums for the issuance of the Title Policy and all endorsements thereto and deletions therefrom which are customarily required by institutional investors purchasing property comparable to the Property. All other costs (except any costs incurred by Summerfield or -27- Patriot for its own account) in carrying out the transactions contemplated hereunder shall be paid by the party which customarily pays for such costs in the applicable jurisdiction. 7.6 Revenue and Expense Allocations. All revenues and expenses with respect to the Property, and applicable to the period of time before and after Closing, determined in accordance with sound accounting principles consistently applied, shall be allocated between Summerfield, Patriot and Tenant as provided herein. Summerfield shall be entitled to all revenue and shall be responsible for all expenses for the period of time up to but not including the Closing Date, and, pursuant to the Facility Lease referred to in the Agreement to Lease, Tenant shall be entitled to all revenue and shall be responsible for all expenses for the period of time from, after and including the Closing Date (provided that housekeeping costs and the Rooms Ledger for the date of Closing shall be shared equally between Tenant and Summerfield pursuant to the Transfer Agreement). Subject to the last paragraph in this Section 7.6, such adjustments shall be shown on the closing statements to be prepared as agreed upon by Summerfield, Patriot (without regard to whether it has assigned its interest hereunder), any assignee of Patriot and Tenant (with such supporting documentation as the parties thereto may require being attached as exhibits to the closing statements) and shall be deducted from or added to the Purchase Price. Without limiting the generality of the foregoing, the following items of revenue and expense shall be allocated at Closing unless the information which is necessary for such allocation is not then available, in which event these items shall be allocated as provided in the last paragraph of this Section 7.6: (a) Current rents. (b) Real estate and personal property taxes. (c) Revenue and expenses under those Operating Agreements which will be assigned to and assumed by Tenant. (d) Utility charges (including, but not limited to, charges for water, sewer and electricity). (e) Value of fuel stored on the Property at the price paid for such fuel by Summerfield, including any taxes. (f) Installments due in 1998 on account of municipal or other governmental improvement liens and special assessments; provided however, Summerfield shall also be responsible for and make payment to Tenant at Closing for the amount of such liens and special assessments which will accrue after Closing to the extent (i) that the installments for such liens and special assessments were not disclosed in the financial statements provided to Patriot prior to the Effective Date, or (ii) of the amount, if any, by which the installments for such liens and special assessments is scheduled to increase in periods after Closing from the amounts disclosed in the financial statements provided to Patriot prior to the Effective Date. -28- (g) Insurance premiums. (h) License and permit fees, where transferable. (i) All other revenues and expenses of the Property, including, but not limited to, such things as restaurant, bar and meeting room income and expenses and the like. (j) Charges and fees due under the Management Agreement. (k) Sales, occupancy and liquor taxes. (l) Use taxes (if any). (m) Payment of costs and expenses associated with accrued but unpaid salary, earned but unpaid vacation pay, accrued but unearned vacation pay, pension and welfare benefits, the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") benefits, employee fringe benefits, employee termination payments or any other employee benefits due to Summerfield's, or Manager's employees. (n) Such other items as are usually and customarily prorated between purchasers and sellers of hotel properties in the area where the Property is located. Pursuant to the Transfer Agreements, Tenant shall receive from Summerfield a credit for the total of (i) prepaid rents, (h) prepaid room receipts and deposits, function receipts and deposits and other reservation receipts and deposits, (iii) unforfeited security deposits together with interest thereon held by Summerfield under the Occupancy Agreements, and (iv) the value of any complimentary rooms (based upon the "rack" rate for each room) and any complimentary food or beverages (based upon the advertised rate for each food and beverage) provided by Summerfield from and after 12:01 a.m. on the Closing Date. At Closing, Summerfield shall, pursuant to the Transfer Agreement, sell to Tenant in connection with the Hotel, and Tenant shall acquire from Summerfield, the so-called "guest ledger" as mutually approved by Patriot, Summerfield and Tenant for the Hotel of guest accounts receivable payable to the Hotel as of the check out time for the Hotel on the Closing Date (based on guests and customers then using the Hotel) both (1) in occupancy from the preceding night through check out time the morning of the Closing Date, and (2) previously in occupancy prior to check out time on the Closing Date; provided, however, that the term "guest ledger" shall not include any accounts receivable which have been or are to be paid by any means other than a credit card. Pursuant to the Transfer Agreements, Tenant shall receive a credit for the current book value of any capital lease affecting the Property which shall be quantified in accordance with generally accepted accounting principles. -29- All subdivision and platting costs and expenses heretofore incurred by Summerfield, including, without limitation, all subdivision exactions, fees and costs and all dedication of land for parks and other public uses or payment of fees in lieu thereof, shall be paid by Summerfield on or prior to the Closing Date. If accurate allocations cannot be made by Closing because current bills or other necessary information are not obtainable (as, for example, in the case of utility bills and/or real estate or personal property taxes) or appeals are pending, the parties shall allocate such revenue or expenses on the best available information, subject to adjustment upon receipt of the final bill or other evidence of the applicable revenue or expense. Any revenue received or expense incurred by Summerfield, Patriot or Tenant with respect to the Property after the date of Closing shall be promptly allocated in the manner described herein or the Transfer Agreement, as appropriate, and the parties shall promptly pay or reimburse any amount due. The obligation to make the adjustments described herein shall survive the Closing of the transaction contemplated by this Agreement. 7.7 Summerfield's Accounts Receivable. At the Closing, Summerfield shall prepare a list of its outstanding accounts receivable as of midnight on the date prior to the Closing, specifying the name of each account and the amount due to Summerfield, and shall be entitled to retain such accounts receivable. ARTICLE VIII GENERAL PROVISIONS 8.1 Condemnation. In the event of any actual or threatened taking, pursuant to the power of eminent domain, of all or any portion of the Real Property, or any proposed sale in lieu thereof, Summerfield shall promptly give written notice thereof to Patriot. If all or a Substantial Portion (as hereinafter defined) of the Real Property is, or is to be, so condemned or sold, Patriot shall have the right to terminate this Agreement pursuant to Section 10.1(g) hereof, and upon such a termination it is acknowledged that the related Transfer Agreement will be terminated by the parties thereto. If Patriot elects not to terminate this Agreement, all proceeds, awards and other payments arising out of such condemnation or sale (actual or threatened) shall be paid or assigned, as applicable, to Patriot at Closing, and the amount of such credit shall constitute an Award under Article 11 of the Facility Lease as defined in the Agreement to Lease. Summerfield shall not settle or compromise any such proceeding without Patriot's prior written consent. If Patriot elects to terminate this Agreement by giving Summerfield written notice thereof prior to the Closing, the Deposit shall be promptly returned to Patriot and all rights and obligations of Summerfield and Patriot hereunder (except those set forth herein which expressly survive a termination of this Agreement) shall terminate immediately. In the event any portion of the Real Property is affected by a condemnation, sale or eminent domain action and such condemnation, sale or eminent domain action does not constitute a Substantial Portion of the Real Property, this Agreement shall remain in full force and effect without a reduction in the Purchase Price except as provided below. In the event of any such condemnation, sale or eminent domain action that does not constitute a Substantial Portion of the -30- Real Property, Patriot shall be entitled to any and all claims that Summerfield may have to condemnation awards or any and all causes of action with respect to such condemnation, sale or eminent domain action (all of which shall be assigned by Summerfield to Patriot at Closing), and Summerfield shall credit to Patriot at Closing, by an appropriate adjustment to the Purchase Price, an amount equal to all payments (if any) theretofore received by Summerfield with respect to such condemnation, sale or eminent domain action, and the amount of such credit shall constitute an Award under Article 11 of the Facility Lease. For purposes of this Section 8.1, a "Substantial Portion" shall mean a condemnation of in excess of $500,000.00 of the Real Property. This provision shall survive the Closing of the transaction contemplated hereby. 8.2 Risk of Loss. The risk of any loss or damage to any Property prior to the Closing Date shall remain upon Summerfield. If any such loss or damage which constitutes Substantial Loss or Damage occurs prior to Closing, Patriot shall have the right to terminate this Agreement pursuant to Section 10.1(g) hereto, and upon such termination it is acknowledged that the related Transfer Agreement will be terminated by the parties thereto. If Patriot elects not to terminate this Agreement, all insurance proceeds and rights to proceeds arising out of such loss or damage shall be paid or assigned, as applicable, to Patriot at Closing and Patriot shall receive as a credit against the Purchase Price the amount of any deductibles under the policies of insurance covering such loss or damage, and the amount of such credit shall constitute insurance proceeds under Article 10 of the Facility Lease. If Patriot elects to terminate this Agreement by giving Summerfield written notice thereof prior to the Closing, the Deposit shall be promptly returned to Patriot and all rights and obligations of Summerfield and Patriot hereunder (except those set forth herein which expressly survive a termination of this Agreement) shall terminate immediately. In the event of such termination, Patriot agrees that, to the extent that it is commercially reasonable or prudent for it to do so, it shall, in good faith, enter into negotiations with Summerfield for the redevelopment by Summerfield of the damaged or destroyed Property and the sale thereof to Patriot upon completion and stabilization, provided however that Patriot shall not be under any obligation whatsoever to conclude such negotiations and may at any time withdraw therefrom. In the event any Property or any part thereof or any of the items constituting the Personal Property should be damaged or destroyed as a result of fire or other casualty and such damage does not constitute Substantial Loss or Damage and such damage is not repaired prior to Closing, the rights and obligations of Summerfield and Patriot hereunder with respect to that Property shall not be affected by such destruction or damage and Patriot shall accept title to that Property in its destroyed or damaged condition. In such event, at the Closing, Patriot shall receive a credit against the Purchase Price equal to the amount of damage to that Property resulting from such loss or damage, and the amount of such credit shall constitute insurance proceeds under Article 10 of the Facility Lease. For purposes of this Section 8.2, "Substantial Loss or Damage" shall mean loss or damage, the cost for repair of which (as mutually determined by Patriot and Summerfield at the time of such loss or damage) exceeds $500,000.00 for the Real Property. In the event that Patriot and Summerfield are unable to agree on the cost of repair of any Substantial Loss or Damage, then such cost of repair shall be determined by an insurance adjuster selected by Summerfield and approved by Patriot, such approval not to be unreasonably withheld. This provision shall survive the Closing of the transaction contemplated hereby. -31- 8.3 Absence of Broker. There is no real estate broker involved in this transaction. Patriot warrants and represents to Summerfield that Patriot has not dealt with any real estate broker in connection with this transaction, nor has Patriot been introduced to the Property or to Summerfield by any real estate broker, and Patriot shall indemnify Summerfield and save and hold Summerfield harmless from and against any claims, suits, demands or liabilities of any kind or nature whatsoever arising on account of the claim of any person, or corporation to a real estate brokerage commission or a finder's fee as a result of having dealt with Patriot, or as a result of having introduced Patriot to Summerfield or to the Property. In like manner, Summerfield warrants and represents to Patriot that Summerfield has not dealt with any real estate broker in connection with this transaction, nor has Summerfield been introduced to Patriot by any real estate broker, and Summerfield shall indemnify Patriot and save and hold Patriot harmless from and against any claims, suits, demands or liabilities of any kind or nature whatsoever arising on account of the claim of any person, firm or corporation to a real estate brokerage commission or a finder's fee as a result of having dealt with Summerfield in connection with this transaction. 8.4 Confidentiality. Each party hereto shall use its reasonable efforts to ensure that all confidential information which such party or any of its respective representatives may now possess or may hereafter create or obtain relating to the consummation of this transaction or the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the other party, any affiliate or subsidiary of the other party or any tenant, customer or supplier of such other party, shall not be published, disclosed or made accessible by any of them, in each case without the prior written consent of the other party; provided, however, that such restriction shall not apply: (i) to the extent the disclosure may otherwise be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange; (ii) to the extent such information shall have otherwise become publicly available; (iii) to disclosure to a lender(s) for the purpose of obtaining financing in connection with this transaction; or (iv) to third parties in connection with the obtaining of any consent or the providing of any contractually required notification. After Closing, Patriot shall, in its sole discretion, be free to disclose previously confidential information related (1) to the operation of the Hotel (to the extent that such information is of a type which is customarily disclosed by a public company such as Patriot) and (2) to the purchase of the Hotel. 8.5 Employees. Patriot shall not have any liability under any pension, profit sharing or welfare benefit plan that Summerfield or Manager may have established with respect to the Property or its employees. 8.6 Investment Bankers. For purposes of this Section 8.7, "Investment Bankers" shall mean (1) Morgan Stanley of 1585 Broadway, New York, New York 10036, and (2) NationsBank Montgomery Securities, Inc. of 600 Montgomery Street, San Francisco, California 94111. Summerfield warrants and represents that there are no other investment bankers involved in this transaction and that Summerfield shall be liable to pay the fees and expenses of Investment Bankers. Summerfield shall indemnify Patriot and save and hold Patriot harmless from and against any -32- claims, suits, demands or liabilities of any kind or nature whatsoever arising on account of any claim of Investment Bankers or other such party whatsoever who have dealt with Summerfield in that regard. In like manner, Patriot shall indemnify Summerfield and save and hold Summerfield harmless from and against any claims, suits, demands or liabilities of any kind or nature whatsoever arising on account of the claims of any person or corporation other than Investment Bankers who may be advising Patriot in relation to the transaction contemplated hereby. 8.7 Radon Disclosure. If the Property is located in the State of Florida, then as required by Florida legislation there is included herein the following disclosure namely that Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient qualities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from the county public health unit. ARTICLE IX LIABILITY OF PATRIOT, INDEMNIFICATION BY SUMMERFIELD; DEFAULT; TERMINATION RIGHTS 9.1 Expenses. Patriot is not assuming any liability for Summerfield Expenses, and Summerfield hereby indemnifies and holds Patriot harmless from and against any and all claims, costs, penalties, damages, losses, liabilities and reasonable expenses (including reasonable attorneys' fees) that may at any time be incurred by Patriot and its affiliates as a result of Summerfield's failure to pay or provide Patriot with a credit for all Summerfield Expenses pursuant to Section 7.6 hereof. The provisions of this Section 9.1 shall survive the Closing of the transaction contemplated hereby. If either of the parties hereto receives notification, in the form of an invoice, of a payment which is properly payable by the other, then the party to whom the invoice was sent shall, within twenty-five (25) days from receipt thereof (the "Notice Period") notify the other party that payment is due, failing which, the other party shall not be liable for payment of any penalty charge or interest accruing thereon for the period commencing from the expiration of the Notice Period. 9.2 Indemnification by Summerfield. Summerfield hereby indemnifies and holds Patriot harmless from and against any and all claims, costs, penalties, damages, losses, liabilities and reasonable expenses (including reasonable attorneys' fees) that may at any time be incurred by Patriot, whether before or after Closing: (a) that arise as a result of any inaccuracy or breach by Summerfield of any of its representations, warranties or covenants set forth herein; provided the ability to recover hereunder is subject to the limitations set forth in Section 9.5 and Section 9.6 of this Agreement, and (b) that arise as a result of any failure on the part of Summerfield to discharge the Retained Liabilities when due. -33- The provisions of this Section 9.2 shall survive the Closing of the transaction contemplated hereby. 9.3 Indemnification by Patriot. Patriot hereby indemnifies and holds Summerfield harmless from and against any and all claims, costs, penalties, damages, losses, liabilities and reasonable expenses (including reasonable attorneys' fees) that may at any time be incurred by Summerfield, whether before or after Closing that arise as a result of any inaccuracy or breach by Patriot of any of its representations, warranties or covenants set forth herein. The provisions of this Section 9.3 shall survive the Closing of the transaction contemplated hereby. 9.4 Waiver of Rights. Summerfield hereby agrees that it and its affiliates will not seek indemnification, contribution or reimbursement from the Manager for any payments which it is required to make under Section 9.1 or Section 9.2 hereof. 9.5 Expiration of Representations, Warranties and Covenants. All of the representations and warranties of Summerfield set forth in this Agreement and the covenants set forth in Article VI of this Agreement shall terminate and expire, and shall cease to be of any force or effect, at 10:00 a.m. (California time) on the day which is one hundred eighty (180) days after the Closing Date, and all liability of Summerfield with respect to such representations, warranties and covenants shall thereupon be extinguished; provided, however, that if, prior to such one hundred eighty (180) days expiration date, Patriot shall have given written notice to Summerfield of its intention to exercise its remedies hereunder with respect to a specific representation, warranty or covenant and specifying the breach thereof in reasonable detail and prior to fifteen (15) business days after such one hundred eighty (180) days expiration date shall have filed a lawsuit in a court of competent jurisdiction claiming a breach of such a representation, warranty or covenant, then the specific indemnification claim set forth in such written notice shall survive such one hundred eighty (180) days expiration date (and shall not be extinguished thereby). 9.6 Deductible Amount. Without limiting the effect of any of Section 9.5 hereof, Summerfield shall not be required to make any indemnification payment with respect to any breach of any of its representations, warranties or covenants, except to the extent that the cumulative amount of the damages actually incurred by Patriot which is subject to indemnification under Section 9.2(a) of this Agreement and Section 9.2(a) of the Shimizu Purchase Agreements exceeds the Deductible Amount; and Summerfield shall only be required to pay, and shall only be liable for, the amount by which the cumulative amount of the damages actually incurred by Patriot actually exceeds the Deductible Amount. The "Deductible Amount" shall be $250,000.00. The total amount of the payments that Summerfield can be required to make under Section 9.2(a) of this Agreement and Section 9.2(a) of the Shimizu Purchase Agreements shall be limited in the aggregate to a maximum of $5,000,000.00, and the cumulative liability of Summerfield and the parties defined as "Summerfield" in the Shimizu Purchase Agreements shall in no event exceed such amount. 9.7 Exclusivity. The right of each party hereto to assert indemnification claims and receive indemnification payments pursuant to this Article IX shall be the sole and exclusive right -34- and remedy exercisable by such party following the Closing with respect to any breach by the other party hereto of any representation, warranty or covenant contained herein. The indemnification provided for in this Article IX shall be the exclusive right and remedy following the Closing with respect to any inaccuracy in any representation or warranty, and with respect to any failure to perform or comply with any covenant or agreement contained in this Agreement or in any certificate delivered pursuant to this Agreement or in connection with the transactions contemplated hereby or in respect of any other matter subject to indemnification hereunder, and no claim or cause of action following the Closing with respect to any misrepresentation or any breach or default as to any representation, warranty, agreement or covenant contained in this Agreement shall be enforceable unless made in accordance with the procedures, and within the time periods, set forth in this Article IX. 9.8 No Implied Representations. Patriot and Summerfield acknowledge that, except as expressly provided in Articles III and IV, none of the parties has made or is making any representations or warranties whatsoever, implied or otherwise. Without limiting the generality of the foregoing, Patriot acknowledges that Summerfield has not made and is not making any representations or warranties with respect to any forecasts or other information, or any documents, made available by or on behalf of Summerfield or any of its representatives to Patriot or any of its representatives, except to the extent set forth in any express representation or warranty in Article III. 9.9 Costs and Attorneys' Fees. In the event of any litigation or dispute between the parties arising out of or in any way connected with this Agreement, resulting in any litigation, then the prevailing party in such litigation shall be entitled to recover its costs of prosecuting and/or defending same, including, without limitation, reasonable attorneys' fees at trial and all appellate levels. The provisions of this Section 9.9 shall survive the Closing of the transaction contemplated hereby. 9.10 Limitation of Liability. Notwithstanding anything herein to the contrary, except in the case of fraud by either party, the liability of each party hereto resulting from the breach or default by either party or pursuant to any indemnity provided for in this Agreement shall be limited to actual damages incurred by the injured party and except in the case of fraud by either party, the parties hereto hereby waive their rights to recover from the other party consequential, punitive, exemplary, and speculative damages. The provisions of this Section 9.10 shall survive the Closing of the transaction contemplated hereby. ARTICLE X TERMINATION AND ENFORCEMENT 10.1 Termination Events. This Agreement may be terminated prior to the Closing: -35- (a) by Patriot if the timely satisfaction of any condition set forth in Section 5.1 has become impossible (other than as a result of any failure on the part of Patriot to comply with or perform any covenant or obligation of Patriot set forth in this Agreement); (b) by Summerfield if the timely satisfaction of any condition set forth in Section 5.2 has become impossible (other than as a result of any failure on the part of Summerfield to comply with or perform any covenant or obligation set forth in this Agreement); (c) by Patriot if any condition set forth in Section 5.1 has not been satisfied by the Closing Date; (d) by Summerfield if any condition set forth in Section 5.2 has not been satisfied by the Closing Date; (e) by Patriot if the Closing has not taken place by 10:00 a.m. (local time) on March 25, 1998 (other than as a result of any failure on the part of Patriot to comply with or perform any covenant or obligation of Patriot set forth in this Agreement); (f) by Summerfield if the Closing has not taken place by 10:00 a.m. (local time) on March 25, 1998 (other than as a result of the failure on the part of Summerfield to comply with or perform any covenant or obligation set forth in this Agreement); (g) by Patriot, in accordance with Section 8.1 or 8.2 hereof; (h) by either Patriot or Summerfield if a court of competent jurisdiction or other governmental entity shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action after the date of this Agreement, having the effect of permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions to be consummated on the Closing Date; or (i) by the mutual consent of Patriot and Summerfield. 10.2 Termination Procedures. If Patriot wishes to terminate this Agreement pursuant to Section 10.1(a), Section 10.1(c) or Section 10.1(e), Patriot shall deliver to Summerfield a written notice stating that Patriot is terminating this Agreement and setting forth a brief description of the basis on which Patriot is terminating this Agreement. If Summerfield wishes to terminate this Agreement pursuant to Section 10.1(b), Section 10.1(d) or Section 10.1(f), Summerfield shall deliver to Patriot a written notice stating that Summerfield is terminating this Agreement and setting forth a brief description of the basis on which Summerfield is terminating this Agreement. With respect to a condition other than the one described in Section 10.1(f) above, Patriot will have ten (10) days in which to cure the condition which gives rise to the right to terminate. With respect to a condition other than as described in Section 10.1(e) above, Summerfield will have ten (10) days in which to cure the condition which gives rise to the right to terminate. -36- 10.3 Effect of Termination - LIQUIDATED DAMAGES. If this Agreement is terminated pursuant to Section 10.1 and 10.2 hereof, all further obligations of the parties under this Agreement shall terminate, except those which expressly survive the termination of this Agreement; provided, however, that: (a) if prior to, or as a result of, the termination of this Agreement, Patriot shall have breached any provision of this Agreement, the Deposit shall be delivered to Summerfield as its sole and exclusive remedy for such default, it being agreed that, in the event of such a default, the damages Summerfield would sustain as a result thereof would be difficult if not impossible to ascertain; therefore, Summerfield and Patriot agree that, in an effort to cause the amount of such damages to be certain, Summerfield may retain the Deposit as full and complete liquidated damages and as Summerfield's sole remedy; /s/ /s/ Summerfield Patriot (b) if prior to, or as a result of, the termination of this Agreement, Summerfield shall have breached any provision of this Agreement, the Deposit shall be promptly returned to Patriot and Summerfield shall reimburse Patriot for all reasonable out-of-pocket and documented expenses incurred by Patriot in connection with the preparation and negotiation of this Agreement, the investigation by Patriot of the Property, and the compliance by Patriot with its obligations under this Agreement, such amount not to exceed $67,000.00; and The parties hereto stipulate and agree that the provisions of this Section 10.3 are reasonable and appropriate under the circumstances existing at the same time this Agreement is made. /s/ /s/ Summerfield Patriot 10.4 Enforcement Events. Without prejudice to the existence of all other rights or remedies available to the parties as provided herein, suit may be brought for specific performance of this Agreement and for the collection of attorneys' fees pursuant to Section 9.9 hereof: (a) by Patriot if the Closing has not taken place by 10:00 o'clock a.m. (local time) on March 25, 1998 (other than as a result of failure on the part of Patriot to comply with or perform any covenants or obligations of Patriot as set forth in this Agreement); (b) by Summerfield if the Closing has not taken place by 10:00 o'clock a.m. (local time) on March 25, 1998 (other than as a result of failure -37- on the part of Summerfield to comply with or perform any covenants or obligations of Summerfield as set forth in this Agreement) provided Summerfield ensures that the Deposit is delivered to Patriot prior to filing such suit; (c) by Patriot, if Summerfield shall have breached any provision of this Agreement which could have a Material Adverse Effect on the Property or Patriot; or (d) by Summerfield, if Patriot shall have breached any provision of this Agreement which could have a Material Adverse Effect on Summerfield or the Property provided Summerfield ensures that the Deposit is delivered to Patriot prior to filing such suit; ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Completeness; Modification. This Agreement constitutes the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior and contemporaneous discussions, understandings, agreements and negotiations between the parties hereto. This Agreement may be modified only by a written instrument duly executed by the parties hereto. 11.2 Assignments. Patriot may assign its rights hereunder without the consent of Summerfield however, any such assignment shall not relieve Patriot of its obligations under this Agreement. 11.3 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 11.4 Days. If any action is required to be performed, or if any notice, consent or other communication is given, on a day that is a Saturday or Sunday or a legal holiday in the jurisdiction in which the action is required to be performed or in which is located the intended recipient of such notice, consent or other communication, such performance shall be deemed to be required, and such notice, consent or other communication shall be deemed to be given, on the first business day following such Saturday, Sunday or legal holiday. Unless otherwise specified herein, all references herein to a "day" or "days" shall refer to calendar days and not business days. 11.5 Governing Law. This Agreement and all documents referred to herein shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware. 11.6 Counterparts. To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signature on behalf of both parties hereto appear on each counterpart hereof. All counterparts hereof shall collectively constitute a single agreement. -38- 11.7 Severability. If any term, covenant or condition of this Agreement, or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to other persons or circumstances, shall not be affected thereby, and each term, covenant or condition of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 11.8 Costs. Regardless of whether Closing occurs hereunder, and except as otherwise expressly provided herein, each party hereto shall be responsible for its own costs in connection with this Agreement and the transactions contemplated hereby, including, without limitation, fees of attorneys, engineers and accountants. 11.9 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by hand, transmitted by facsimile transmission, sent prepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States mail, certified, postage prepaid, return receipt requested, at the addresses and with such copies as designated below. Any notice, request, demand or other communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be) when actually delivered to the intended recipient. If to Summerfield: Summerfield Hotel Corporation 8100 East 22nd Street North, Building 500 Wichita KS 67227 Attention: John Morse With a copy to: Cooley Godward LLP One Maritime Plaza, 20th Floor San Francisco CA 94111 Attention: Paul Churchill And with a copy to: SC Suites Corp. 461 Fifth Avenue, 3rd Floor New York NY 10007 Attention: Anthony Chiofalo And with a copy to: Max E. Greenberg, Trager, Toplitz & Herbst 100 Church Street New York NY 10007 Attention: Todd Herbst If to Patriot: Patriot American Hospitality Partnership L.P. 1950 Stemmons Freeway, Suite 6001 Dallas TX 75207 Attention: Michael Silverman and John Bohlman -39- With a copy to: Hospitality Properties Trust 400 Centre Street Newton MA 02158 Attention: John G. Murray And with a copy to: Locke Purnell Rain Harrell 2200 Ross Avenue, Suite 2200 Dallas TX 75201 Attention: J. Mitchell Bell And with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, MA 02109 Attention: Jennifer Clark If to Escrow Agent: American Title Company 6029 Belt Line Road, Suite 250 Dallas TX 75240 Attention: Carole Badgett or to such other address as the intended recipient may have specified in a notice to the other party. Any party hereto may change its address or designate different or other persons or entities to receive copies by notifying the other party and Escrow Agent in a manner described in this Section 11.9. 11.10 Escrow Agent. Escrow Agent referred to in the definition thereof contained in Section 1.1 hereof has agreed to act as such for the convenience of the parties without fee or other charges for such services as Escrow Agent. Escrow Agent shall not be liable: (a) to any of the parties for any act or omission to act except for its own willful misconduct; (b) for any legal effect, insufficiency, or undesirability of any instrument deposited with or delivered by Escrow Agent or exchanged by the parties hereunder, whether or not Escrow Agent prepared such instrument; (c) for any loss or impairment of funds that have been deposited in escrow while those funds are in the course of collection, or while those funds are on deposit in a financial institution, if such loss or impairment results from the failure insolvency or suspension of a financial institution; (d) for the expiration of any time limit or other consequence of delay, unless a properly executed written instruction, accepted by Escrow Agent, has instructed Escrow Agent to comply with said time limit; (e) for the default, error, action or omission of either party to the escrow. Escrow Agent, in its capacity as escrow agent, shall be entitled to rely on any document or paper received by it, believed by such Escrow Agent, in good faith, to be bona fide and genuine. In the event of any dispute as to the disposition of the Deposit, or any monies held in escrow, or of any documents held in escrow, Escrow Agent may, if such Escrow Agent so elects, interplead the matter by filing an interpleader action in a court of general jurisdiction in the county or circuit where an individual Real Property is located (to the jurisdiction of which both parties do hereby consent), and pay into the registry of the court the Deposit, or deposit any such documents with respect to which there is a dispute in the -40- Registry of such court, whereupon such Escrow Agent shall be relieved and released from any further liability as Escrow Agent hereunder. Escrow Agent shall not be liable for Escrow Agent's compliance with any legal process subpoena, writ, order, judgment and decree of any court, whether issued with or without jurisdiction, and whether or not subsequently vacated, modified set aside or reversed. 11.11 Incorporation by Reference. All of the exhibits attached hereto are by this reference incorporated herein and made a part hereof. 11.12 Further Assurances. Summerfield and Patriot each covenant and agree to sign, execute and deliver, or cause to be signed, executed and delivered, and to do or make, or cause to be done or made, upon the written request of the other party, any and all agreements, instruments, papers, deeds, acts or things, supplemental, confirmatory or otherwise, as may be reasonably required by either party hereto for the purpose of or in connection with consummating the transactions as described herein. 11.13 No Partnership. This Agreement does not and shall not be construed to create a partnership, joint venture or any other relationship between the parties hereto except the relationship of Summerfield and Patriot specifically established hereby. 11.14 Time of Essence. Time is of the essence with respect to every provision hereof. 11.15 Signatory Exculpation. The signatory(ies) for Patriot and Summerfield is/are executing this Agreement in his/their capacity as representative of Patriot or Summerfield as the case may be, and not individually and, therefore, shall have no personal or individual liability of any kind in connection with this Agreement and the transactions contemplated by it. 11.16 Rules of Construction. The following rules shall apply to the construction and interpretation of this Agreement: (a) Singular words shall connote the plural number as well as the singular and vice versa, and the masculine shall include the feminine and the neuter. (b) All references herein to particular articles, sections, subsections, clauses or exhibits are references to articles, sections, subsections, clauses or exhibits of this Agreement. (c) The table of contents and headings contained herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (d) Each party hereto and its counsel have reviewed and revised (or requested revisions of) this Agreement and have participated in the preparation of this Agreement, and therefore any usual rules of construction requiring that ambiguities are to be resolved against a -41- particular party shall not be applicable in the construction and interpretation of this Agreement or any exhibits hereto. 11.17 Effect of Sale. It is agreed that S.C. Suites Corp shall have no liabilities or obligations pursuant to any documents to which they are not a party either individually or as general partner of a party executing such documents. -42- RECEIPT OF ESCROW AGENT American Title Company, as Escrow Agent, acknowledges receipt of the amount of $333,333.33 from Patriot as described in Section 2.3 of the foregoing Agreement of Purchase and Sale, said sum to be held pursuant to the terms and provisions of said Agreement. DATED this 20th day of March, 1998 AMERICAN TITLE COMPANY By: /s/ Charles S. Badgett Name: Charles S. Badgett Title: Senior Vice President -43- DESCRIPTION OF OTHER PURCHASE AND SALE AGREEMENTS [The following note regarding other Purchase and Sale Agreements does not form a part of the foregoing Purchase and Sale Agreement.] The accompanying Agreement of Purchase and Sale between Patriot American Hospitality Partnership, L.P. and Chatsworth Summerfield Associates, L.P. is one of 15 separate purchase and sale agreements which together formed a series of related transactions. The 14 other agreements (the "Related Purchase and Sale Agreements"), each with a separate seller and relating to a separate parcel or parcels of real estate and related assets (as described below), were on the substantially same terms and conditions as the accompanying Agreement of Purchase and Sale, except for variances described below. Parts 1 through 3 of Exhibit A to each of the 14 Related Purchase and Sale Agreements describe the seller, the FF&E cash reserve as of 2/28/98 and the purchase price for the respective properties. The respective sellers named in the Related Purchase and Sale Agreements, the property locations, the reserves and the purchase prices in the respective Related Purchase and Sale Agreements are as follows:
FF & E CASH RESERVE AS PURCHASE NAME OF SELLER PROPERTY LOCATION OF 2/28/98 PRICE Malvern Summerfield 20 Morehall Road $112,210.95 $16,702,184.00 Associates, L.P. Malvern, PA 19355 Princeton Summerfield 4375 U.S. Route 1 South $219,289.64 $17,135,363.00 Associates, L.P. Princeton, NJ 08543 Dulles Summerfield 13700 Coppermine Road $199,124.86 $14,769,565.00 Associates, L.P. Herndon, VA 20171-3410 Orlando International 8480 International Drive $801,065.41 $19,947,407.00 Summerfield Orlando, FL 32819 Associates, L.P. Orlando/Cypress 8751 Suiteside Drive $506,094.06 $22,197,980.00 Pointe Summerfield Orlando, FL 32836 Associates, L.P. Atlanta Buckhead 505 Pharr Road $66,655.10 $9,292,317.00 Summerfield Atlanta, GA 30335 Associates, L.P. Atlanta Perimeter 760 Mt. Vernon Hwy. $127,016.01 $11,504,294.00 Summerfield Atlanta, GA 30328 Associates, L.P. Westport Summerfield 1855 Craigshire Road $178,419.79 $9,329,874.00 Associates, L.P. St. Louis, MO 63146 Torrance Summerfield 19901 Prairie Avenue $346,023.94 $14,748,207.00 Associates, L.P. Torrance, CA 90503 Somerset Summerfield 260 Davidson Avenue $335,217.44 $23,607,072.00 Associates, L.P. Somerset, NJ 08873 Schaumburg 901 E. Woodfield Office St. $144,968.43 $12,075,270.00 Summerfield Schaumburg, IL 60173 Associates, L.P. Sunnyvale 900 Hamlin Ct. $407,847.81 $26,530,762.00 Summerfield Sunnyvale, CA Associates, L.P. San Jose Summerfield 1602 Crane St. $176,942.46 $21,430,335.00 Associates, L.P. San Jose, CA 95122 San Bruno 1350 Huntington Avenue $156,467.19 $10,723,122.00 Summerfield San Bruno, CA 94066 Associates, L.P.
The other provisions which varied among the accompanying Agreement of Purchase and Sale and one or more of the Related Purchase and Sale Agreements (each, a "Purchase and Sale Agreement") were the following: o The description of the predecessor operating agreement attached (i) as Schedule A4 to the Purchase and Sale Agreement, and (ii) as Exhibit C to the forms of Assignment and Assumption Agreements which are attached as Exhibits A2-1 and A2-2 to the Purchase and Sale Agreement. o The list of insurance policies of the seller attached as Schedule A5 to the Purchase and Sale Agreement. o The list of personal property leases of the seller attached (i) as Schedule A6 to the Purchase and Sale Agreement, and (ii) as Exhibit B to the forms of Assignment and Assumption Agreements which are attached as Exhibits A2-1 and A2-2 to the Purchase and Sale Agreement. o The list of third party authorizations of the seller, including permits provided and permits to be provided or expired, attached as Schedule A7 to the Purchase and Sale Agreement. o The disclosure schedule attached as Schedule A8 to the Purchase and Sale Agreement. o The legal description of the applicable property attached (i) as Exhibit A1 to the Purchase and Sale Agreement, (ii) as Exhibit A to the forms of Assignment and Assumption Agreements which are attached as Exhibit A2-1 and A2-2 to the Purchase and Sale Agreement, (iii) as Exhibit A to the Bill of Sale which is attached as Exhibit A3 to the Purchase and Sale Agreement, and (iv) as Exhibit A to the form of deed which is attached as Exhibit A4 to the Purchase and Sale Agreement. o Description of the Management Agreement with Summerfield Suites Management Company, L.P. attached as Exhibit G to the forms of Assignment and Assumption Agreements which are attached as Exhibits A2-1 and A2-2 to the Purchase and Sale Agreement. o The form of deed for the applicable property attached as Exhibit A4 to the Purchase and Sale Agreement. o The pro-forma title policy attached as Exhibit A5 to the Purchase and Sale Agreement. EX-10.38 11 EXHIBIT 10.38 ASSIGNMENT OF RIGHTS UNDER AGREEMENTS OF PURCHASE AND SALE THIS ASSIGNMENT OF RIGHTS UNDER AGREEMENTS OF PURCHASE AND SALE (the "Assignment") is made as of this 18th day of March 1998, by PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Delaware partnership ("Assignor"), to and for the benefit of HPTSHC PROPERTIES TRUST, a Maryland real estate investment trust ("Assignee"). W I T N E S S E T H: WHEREAS, pursuant to fifteen Agreements of Purchase and Sale, each dated as of March 18, 1998 (collectively, the "Purchase Agreements"), by and between Assignor and the Kansas limited partnership identified therein as "Summerfield" (collectively, "Summerfield"), Assignor has agreed to acquire certain hotel properties (as hereinafter defined, the "Properties"), each as more particularly described in the Purchase Agreements; WHEREAS, Assignor desires to assign the Purchase Agreements and all of Assignor's rights pursuant thereto to Assignee; and WHEREAS, Assignee desires to accept such Assignment and succeed to all of Assignor's rights, benefits, and interests under the Purchase Agreements; and NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged by the parties, Assignor hereby agrees as follows: 1. Assignor hereby transfers, conveys, assigns and delivers unto Assignee all of Assignor's right and benefits in, to and under the Purchase Agreements. 2. Assignee hereby assumes all of the obligations of Assignor under the Purchase Agreements. 3. Assignor represents and warrants to Assignee that: i. Assignor has not previously assigned any of Assignor's interest in the Purchase Agreements to any other person or entity; ii. The Purchase Agreements have not been amended, modified or supplemented in any way, and represent the entire agreement of the parties thereto as to the subject matter thereof; Assignor has not made any election, consented to any matter or exercised any option or right provided to it under the Purchase Agreements not previously disclosed in writing to Assignee; iii. To the best of Assignor's knowledge, all representations and warranties by Summerfield under or in connection with the Purchase Agreements, or in any document, -2- certificate or agreement delivered in connection therewith, are true and correct on the date hereof; and iv. Assignor has furnished to Assignee all materials provided to Assignor by Summerfield under Section 2.4 of each Purchase Agreement. 4. Assignor shall protect, indemnify and hold harmless Assignee for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), imposed upon or incurred by or asserted against Assignee under any Purchase Agreement or hereunder, excluding, however, (i) the payment of the Purchase Price by Assignee specified in Part 3 of Schedule A1 of each Purchase Agreement, and (ii) any liability of Assignee arising under any Purchase Agreement that is determined, in a final non-appealable judgment by a court of competent jurisdiction, to have resulted from the gross negligence, wilful misconduct or failure of Landlord to perform the obligations of purchaser thereunder that arise after the effective date of the Assignment Agreement. The obligations of Assignor under this paragraph 4 shall expire and be of no further force and effect from and after the date that a Lease Agreement with respect to the Properties has been entered into by Assignee, as landlord, and Summerfield HPT Lease Company, L.P., as tenant. 5. Nonliability of Trustees, Etc. THE DECLARATION OF TRUST ESTABLISHING ASSIGNEE, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HPTSHC PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF ASSIGNEE SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, ASSIGNEE. ALL PERSONS DEALING WITH ASSIGNEE, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF ASSIGNEE FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. -3- IN WITNESS THEREOF, the parties hereto have executed and delivered this Assignment as of the date above first written. ASSIGNOR: PATRIOT AMERICAN HOSPITALITY PARTNERSHIP L.P., a Delaware limited partnership By: PAH GP, Inc. By: /s/ Michael Silverman Name: Michael Silverman Title: Authorized Signatory ASSIGNEE: HPTSHC PROPERTIES TRUST, a Maryland real estate investment trust By: /s/ John Murray Its: President EX-10.39 12 EXHIBIT 10.39 AGREEMENT TO LEASE THIS AGREEMENT TO LEASE (this "Agreement") is entered into as of March 20, 1998 by and between HPTSHC PROPERTIES TRUST, a Maryland real estate investment trust ("HPT"), and SUMMERFIELD HPT LEASE COMPANY, L.P., a Kansas limited partnership ("Tenant"). W I T N E S S E T H: WHEREAS, pursuant to certain Agreements of Purchase and Sale, each dated as of March 18, 1998 (collectively, the "Purchase Agreements"), by and between Patriot American Hospitality Partnership, L.P. ("Patriot") and the Kansas limited partnerships identified therein as "Summerfield" (collectively, the "Sellers"), Patriot has agreed to acquire certain hotel properties (as hereinafter defined, the "Properties"), each as more particularly described in the Purchase Agreements; WHEREAS, Patriot has assigned to HPT Patriot's rights under the Purchase Agreements to acquire the Properties pursuant to an Assignment of Purchase Agreements dated as of even date herewith; WHEREAS, subject to and upon the terms and conditions set forth in this Agreement, pursuant to a Lease Agreement in the form attached hereto as Exhibit A (the "Lease"), HPT is prepared to lease to Tenant, and Tenant is prepared to lease from HPT, all of the Properties (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in the 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. Definitions. Capitalized terms used in this Agreement shall have the meanings set forth in the caption or recitals hereto or as set forth below: (a) "Allocable Purchase Price" shall mean, with respect to any of the Properties, the purchase Price for such Property set forth in the applicable Purchase Agreement. (b) "Business Day" shall have the meaning given such term in the Lease. (c) "Closing" shall have the meaning given such term in the Purchase Agreements (d) "Closing Date" shall have the meaning given such term in the Purchase Agreements. (e) "FF&E" shall have the meaning given such term in the Lease. -2- (f) "FF&E Funded Amount" shall mean an amount to be agreed upon by Tenant and HPT prior to the Closing Date, which amount shall be deposited in the FF&E Reserve at Closing. (g) "FF&E Reserve" shall have the meaning given such term in the Lease. (h) "Improvements" shall mean, with respect to any Property, the meaning given such term in the Purchase Agreement for such Property. (i) "Management Agreements" shall mean the Management Agreements to be entered into between Tenant and the Manager providing for the management of the Properties by the Manager, which agreements shall comply with the requirements of Section 5.4 of the Lease, and otherwise be in form and substance and on terms and conditions reasonably satisfactory to HPT. (j) "Manager" shall mean Summerfield Suites Management Company, L.P., a Kansas limited partnership. (k) "Permitted Encumbrances" shall mean, with respect to any Property, (a) liens for taxes, assessments and governmental charges with respect to such Property not yet due and payable or due and payable but not yet delinquent; (b) applicable zoning regulations and ordinances provided the same do not prohibit or impair in any material respect use of such Property as a Summerfield Suite hotel as currently operated and constructed; (c) such nonmonetary encumbrances with respect to such Property that are reflected in specimen title policies or commitments delivered to HPT prior to the date hereof, and as to which HPT has not objected in writing prior to the date hereof; and (d) UCC Financing Statements which would be permitted pursuant to the terms of Section 20.9 of the Leases. (l) "Property" shall have the meaning, with respect to any hotel property, set forth in the Purchase Agreement for such property. (m) "Purchase Price" shall mean, with respect to any Property of any Seller, the Purchase Price set forth in Schedule A1 to the Purchase Agreement for such Property. (n) "Security Deposit" shall have the meaning given such term in the Lease. (o) "Title Company" shall mean Chicago Title Insurance Company or such other title insurance company as shall have been reasonably approved by HPT and Tenant. (p) "Transfer Agreements" shall have the meaning given such term in the Purchase Agreements. 2. Agreement to Lease. Subject to and upon the terms and conditions hereinafter set forth, on the Closing Date, HPT and Tenant shall each execute and deliver the Lease with respect to the Properties and such date shall be the Commencement Date under the Lease. -3- 3. Base Rent. The base rent payable under the Lease for all the Properties shall be a monthly aggregate amount equal to $2,083,334, which amount shall be allocated among the Properties in accordance with their respective Allocable Purchase Prices. 4. Conditions to HPT's Obligation to Close. Notwithstanding any provisions to the contrary in the Purchase Agreements, the obligation of HPT to acquire the Properties on the Closing Date and to enter into the Lease shall be subject to the satisfaction of the following conditions precedent on and as of the Closing Date: (a) Purchase Agreement. All conditions of Closing under the Purchase Agreements shall have been satisfied without waiver of condition not consented to in writing by HPT. (b) Closing Documents. HPT shall have received: (i) The Lease, duly executed and delivered by Tenant; (ii) A security agreement with respect to all tangible and intangible property used in connection with the operation of the Properties, in substantially the form attached, appropriately completed and duly executed; (iii) A pledge and security agreement with respect to the FF&E Reserve and all monies deposited therein, in substantially the form attached, appropriately completed and duly executed; (iv) A pledge and security agreement with respect to all of the partnership interests of Tenant, in substantially the form attached, appropriately completed and duly executed; (v) A pledge and security agreement with respect to all of the membership interests of the general partner of Tenant, in substantially the form attached, appropriately completed and duly executed; (vi) Copies of such duly executed Uniform Commercial Code financing statements as HPT may require to perfect the security interests and liens granted pursuant to the agreements described in clauses (ii) through (v) above; (vii) The Management Agreements, duly executed and delivered by the Manager and Tenant; (viii) Certified copies of all charter and other organizational documents, applicable corporate resolutions and certificates of incumbency with respect to each Seller and its general partner, Tenant and its general partner, and the Manager under the Management Agreements; and (ix) Such other conveyance documents, certificates, deeds, affidavits and other instruments as HPT or the Title Company may reasonably require. -4- (c) Title. (i) HPT shall have received (or shall have obtained assurances satisfactory to it that it will receive not later than fifteen days after the date hereof) an ALTA survey with respect to each Property, certified to HPT, prepared by a licensed surveyor in the jurisdiction in which such Property is located, disclosing no matter (other than Permitted Encumbrances) which adversely affects such Property in any material respect; and (ii) The Title Company shall be prepared, subject only to payment of the applicable premium, to issue title insurance policies to HPT reflecting no lien or encumbrances other than Permitted Encumbrances, together with such affirmative coverages as HPT may reasonably require and shall have been determined by the Title Company as available prior to the Closing Date. (d) Opinions of Counsel. (i) HPT shall have received written opinions from counsel to Patriot and the Sellers, in each case in form and substance reasonably satisfactory to HPT; and (ii) HPT shall have received written opinions from local counsel to HPT, in form and substance reasonably satisfactory to HPT, regarding the compliance of the Properties with respect to zoning (except where zoning endorsements are available), licensing and such other matters as HPT may reasonably require, but only to the extent opinions on such matters are customary in the jurisdiction in which the applicable Property is located. (e) FF&E Funded Amount. The FF&E Funded Amount shall have been deposited in an account or accounts reasonably acceptable to HPT. (f) Environmental Matters. HPT shall have received letters, in the form requested by HPT, addressed to it from SCS Engineers permitting HPT to rely on SCS Engineers' environmental assessments of the Properties. In addition, HPT shall have received satisfactory responses to its requests for additional information from SCS Engineers, which responses shall not indicate, in the reasonable opinion of HPT, any environmental condition adversely affecting any Property. (g) Representation and Warranties; No Default. The representations and warranties made by Tenant and its general and limited partners and by Patriot in the Lease and the Incidental Documents to which they are a party, and in any certificates delivered pursuant hereto or thereto, shall be true and correct on and as of the Closing Date as if they had been made on the Closing Date; and giving effect to the Closing, no Default or Event of Default shall have occurred and be continuing under the Lease. (h) Closing Costs. Notwithstanding Section 7.5 of each of the Purchase Agreements, Tenant shall have paid such amount of the closing costs referenced therein, or shall have reimbursed HPT for such amount of such costs, so that HPT pays no more than 33.33% of such costs. -5- 5. Assignment. Except as would otherwise be permitted pursuant to the Lease, Tenant shall not assign or transfer, directly or indirectly, its rights under this Agreement without the prior written consent of HPT, which consent may be given or withheld by HPT in HPT's sole discretion. HPT shall not assign or transfer, directly or indirectly, its rights under this Agreement other than to a wholly owned subsidiary of HPT without the prior written consent of Tenant, which consent may be given or withheld by Tenant in Tenant's sole discretion. 6. Miscellaneous. (a) Notices. (i) 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). (ii) 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. (iii) All such notices shall be addressed, if to Landlord to: 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 -6- if to Tenant to: c/o Summerfield Hotel Corporation 8100 E. 22nd Street North Building 500 Wichita, KS 67226 Attn: John R. Morse Telecopier: (316) 681-5157 with a copy to: Cooley Godward LLP One Maritime Plaza 20th Floor San Francisco, CA 94111-3580 Attn: Paul Churchill Telecopier: (415) 951-3699 (iv) 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. (b) Publicity. The parties agree that no party shall, with respect to this Agreement and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public pronouncements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated to any third party without the consent of the other party. No party or its employees shall trade in the securities of any parent or Affiliated Person of HPT or Tenant until a public announcement of the transactions contemplated by this Agreement has been made. (c) Performance on Business Days. In the event the date on which performance or payment of any obligation of a party required hereunder is other than a Business Day, the time for payment or performance shall automatically be extended to the first Business Day following such date. (d) 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 -7- 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. (e) Modification of Agreement. No modification or waiver of any provision of this Agreement, nor any consent to any departure by any party therefrom, shall in any event be effective unless the same shall be in writing and signed by the other, and such modification, waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. (f) 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. (g) Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and this Agreement shall thereupon be reformed and construed and enforced to the maximum extent permitted by laws. (h) 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. (i) 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. (j) 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. (k) Nonliability of Trustees, Etc. THE DECLARATION OF TRUST ESTABLISHING HPT, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF -8- ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HPTSHC PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HPT SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HPT. ALL PERSONS DEALING WITH HPT, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HPT FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. -9- IN WITNESS WHEREOF, HPT and Tenant have executed this Agreement under seal as of the date above first written. HPTSHC PROPERTIES TRUST By: /s/ John Murray Its: President SUMMERFIELD HPT LEASE COMPANY, L.P., a Kansas limited partnership By: Summerfield HPT Lease Company L.L.C., its General Partner By: /s/ John R. Morse Its:_______________________ EXHIBIT A Form of Lease [See attached copy.] Exhibit A MASTER LEASE AGREEMENT DATED AS OF MARCH __, 1998 BY AND BETWEEN HPTSHC PROPERTIES TRUST AS LANDLORD AND SUMMERFIELD HPT LEASE COMPANY, L.P., AS TENANT
TABLE OF CONTENTS ARTICLE 1 DEFINITIONS..............................................................................................1 1.1 "Accountants" .............................................................................1 1.3 "Additional Charges" ......................................................................1 1.5 "Affiliated Person" .......................................................................2 1.6 "Agreement" ...............................................................................2 1.7 "Applicable Laws" .........................................................................2 1.8 "Assignment Agreement......................................................................2 1.9 "Award" ...................................................................................2 1.10 "Base Total Hotel Sales" .................................................................2 1.11 "Base Year" ..............................................................................3 1.12 "Business Day" ...........................................................................3 1.13 "Capital Addition" .......................................................................3 1.14 "Capital Expenditure" ....................................................................3 1.15 "Claim" ..................................................................................3 1.16 "Code" ...................................................................................3 1.17 "Commencement Date" ......................................................................3 1.18 "Condemnation" ...........................................................................3 1.19 "Condemnor" ..............................................................................4 1.20 "Consolidated Financials".................................................................4 1.21 "Date of Taking" .........................................................................4 1.22 "Default" ................................................................................4 1.23 "Disbursement Rate" ......................................................................4 1.24 "Distribution" ...........................................................................4 1.25 "Encumbrance" ............................................................................4 1.26 "Entity...................................................................................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"................................................................5 1.32 "Extended Terms" .........................................................................5 1.34 "FF&E Estimate............................................................................5 1.35 "FF&E Funded Amount.......................................................................5 1.36 "FF&E Reserve.............................................................................5 1.37 "Financial Officer's Certificate" ........................................................5 1.38 "Fiscal Year" ............................................................................5 1.39 "Fixed Term" .............................................................................5 1.40 "Fixtures" ...............................................................................5 1.41 "GAAP" ...................................................................................6 1.42 "Government Agencies......................................................................6 1.43 "Hazardous Substances" ...................................................................6 1.44 "Hotel" ..................................................................................7 1.45 "Hotel Mortgage" .........................................................................7 1.46 "Hotel Mortgagee" ........................................................................7 -ii- 1.47 "Immediate Family.........................................................................7 1.48 "Impositions" ............................................................................7 1.49 "Incidental Documents" ...................................................................8 1.50 "Increased Amount" .......................................................................8 1.51 "Indebtedness" ...........................................................................8 1.52 "Insurance Requirements" .................................................................8 1.53 "Interest Rate"...........................................................................8 1.54 "Land" ...................................................................................8 1.55 "Landlord" ...............................................................................8 1.56 "Landlord Liens...........................................................................8 1.57 "Lease Year" .............................................................................8 1.58 "Leased Improvements" ....................................................................8 1.59 "Leased Intangible Property" .............................................................8 1.60 "Leased Personal Property" ...............................................................9 1.61 "Leased Property" ........................................................................9 1.62 "Legal Requirements" .....................................................................9 1.63 "Lien" ...................................................................................9 1.64 "Management Agreements"...................................................................9 1.65 "Manager" ................................................................................9 1.66 "Minimum Rent" ...........................................................................9 1.67 "Notice" .................................................................................9 1.68 "Officer's Certificate" ..................................................................9 1.69 "Overdue Rate" ..........................................................................10 1.70 "Parent..................................................................................10 1.71 "Patriot"................................................................................10 1.72 "Patriot Acquisition Date"...............................................................10 1.73 "Patriot Acquisition Documents"..........................................................10 1.74 "Patriot Contribution Agreement".........................................................10 1.75 "Patriot LP".............................................................................10 1.76 "Permitted Encumbrances" ................................................................10 1.77 "Permitted Liens" .......................................................................10 1.78 "Permitted Use" .........................................................................10 1.79 "Person" ................................................................................10 1.80 "Property"...............................................................................10 1.81 "Purchase Agreements"....................................................................10 1.82 "Records" ...............................................................................11 1.83 "Rent" ..................................................................................11 1.84 "SEC" ...................................................................................11 1.85 "Security Deposit".......................................................................11 1.86 "SHC" ...................................................................................11 1.87 "Special Charter Document Provisions"....................................................11 1.88 "Special Purpose Conditions Date"........................................................11 1.89 "State" .................................................................................11 1.90 "Subsidiary" ............................................................................11 1.91 "Subtenant"..............................................................................11 1.92 "Subtenant General Partner"..............................................................11 1.93 "Successor Landlord" ....................................................................11 -iii- 1.94 "Tangible Net Worth" ....................................................................11 1.95 "Tenant" ................................................................................12 1.96 "Tenant FF&E Security Agreement".........................................................12 1.97 "Tenant General Partner".................................................................12 1.98 "Tenant Pledge Agreement" ...............................................................12 1.99 "Tenant General Partner Pledge Agreement"................................................12 1.100 "Tenant Security Agreement..............................................................12 1.101 "Tenant's Personal Property" ...........................................................12 1.102 "Term"..................................................................................12 1.103 "Total Hotel Sales".....................................................................12 1.104 "Uniform System of Accounts" ...........................................................13 1.105 "Unsuitable for Its Permitted Use" .....................................................13 1.106 "Work" .................................................................................13 1.107 "Wyndham"...............................................................................13 ARTICLE 2 LEASED PROPERTY AND TERM................................................................................13 2.1 Leased Property...........................................................................13 2.2 Condition of Leased Property..............................................................14 2.3 Fixed Term................................................................................15 2.4 Extended Term.............................................................................15 ARTICLE 3 RENT....................................................................................................16 3.1 Rent......................................................................................16 3.1.1 Minimum Rent...................................................................16 3.1.2 Additional Rent................................................................16 3.1.3 Additional Charges.............................................................18 3.2 Late Payment of Rent, Etc.................................................................20 3.3 Net Lease.................................................................................20 3.4 No Termination, Abatement, Etc............................................................21 3.5 Security Deposit..........................................................................21 ARTICLE 4 USE OF THE LEASED PROPERTY..............................................................................23 4.1 Permitted Use.............................................................................23 4.1.1 Permitted Use..................................................................23 4.1.2 Necessary Approvals............................................................23 4.1.3 Lawful Use, Etc................................................................23 4.2 Compliance with Legal/Insurance Requirements, Etc.........................................24 4.3 Environmental Matters.....................................................................24 4.3.1 Restriction on Use, Etc........................................................24 4.3.2 Environmental Report. .........................................................25 4.3.3 Indemnification of Landlord....................................................25 -iv- 4.3.4 Survival.......................................................................26 ARTICLE 5 MAINTENANCE AND REPAIRS.................................................................................26 5.1 Maintenance and Repair....................................................................26 5.1.1 Tenant's General Obligations...................................................26 5.1.2 FF&E Reserve...................................................................26 5.1.3 Landlord's Obligations.........................................................28 5.1.4 Nonresponsibility of Landlord, Etc.............................................29 5.2 Tenant's Personal Property................................................................29 5.3 Yield Up..................................................................................29 5.4 Management Agreement......................................................................30 ARTICLE 6 IMPROVEMENTS, ETC.......................................................................................31 6.1 Improvements to the Leased Property. ....................................................31 6.2 Salvage...................................................................................31 ARTICLE 7 LIENS...................................................................................................32 7.1 Liens.....................................................................................32 7.2 Landlord's Lien...........................................................................32 ARTICLE 8 PERMITTED CONTESTS......................................................................................32 ARTICLE 9 INSURANCE AND INDEMNIFICATION...........................................................................33 9.1 General Insurance Requirements............................................................33 9.2 Replacement Cost..........................................................................34 9.3 Waiver of Subrogation.....................................................................34 9.4 Form Satisfactory, Etc....................................................................35 9.5 Blanket Policy............................................................................35 9.6 No Separate Insurance.....................................................................35 9.7 Indemnification of Landlord...............................................................36 ARTICLE 10 CASUALTY................................................................................................36 10.1 Insurance Proceeds.......................................................................36 10.2 Damage or Destruction....................................................................37 10.2.1 Damage or Destruction of Leased Property......................................37 -v- 10.2.2 Partial Damage or Destruction.................................................37 10.2.3 Insufficient Insurance Proceeds...............................................37 10.2.4 Disbursement of Proceeds......................................................37 10.3 Damage Near End of Term..................................................................38 10.4 Tenant's Property........................................................................38 10.5 Restoration of Tenant's Property.........................................................39 10.6 No Abatement of Rent.....................................................................39 10.7 Waiver...................................................................................39 ARTICLE 11 CONDEMNATION............................................................................................39 11.1 Total Condemnation, Etc..................................................................39 11.2 Partial Condemnation.....................................................................39 11.3 Abatement of Rent........................................................................40 11.4 Temporary Condemnation...................................................................41 11.5 Allocation of Award......................................................................41 ARTICLE 12 DEFAULTS AND REMEDIES...................................................................................41 12.1 Events of Default........................................................................41 12.2 Remedies.................................................................................44 12.3 Tenant's Waiver..........................................................................45 12.4 Application of Funds.....................................................................45 12.5 Landlord's Right to Cure Tenant's Default................................................45 12.6 Sublease Termination or Modification. ..................................................45 ARTICLE 13 HOLDING OVER............................................................................................46 ARTICLE 14 LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT.........................................................47 14.1 Landlord Notice Obligation...............................................................47 14.2 Landlord's Default.......................................................................47 ARTICLE 15 PURCHASE RIGHTS.........................................................................................47 15.1 First Refusal to Purchase................................................................47 15.2 Purchase by Tenant.......................................................................48 15.3 Landlord's Option to Purchase Tenant's Personal Property; Transfer of Licenses.......................................................................................49 -vi- ARTICLE 16 SUBLETTING AND ASSIGNMENT...............................................................................49 16.1 Subletting and Assignment................................................................49 16.2 Required Sublease Provisions.............................................................50 16.3 Permitted Sublease.......................................................................51 16.4 Patriot Acquisition......................................................................51 16.5 Sublease Limitation......................................................................53 ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..........................................................53 17.1 Estoppel Certificates....................................................................53 17.2 Financial Statements.....................................................................53 17.3 General Operations.......................................................................54 ARTICLE 18 LANDLORD'S RIGHT TO INSPECT.............................................................................55 ARTICLE 19 HOTEL MORTGAGES.........................................................................................55 19.1 Landlord May Grant Liens.................................................................55 19.2 Subordination of Lease...................................................................55 19.3 Notice to Mortgagee and Superior Landlord................................................56 ARTICLE 20 ADDITIONAL COVENANTS OF TENANT..........................................................................57 20.1 Prompt Payment of Indebtedness...........................................................57 20.2 Conduct of Business......................................................................57 20.3 Maintenance of Accounts and Records......................................................57 20.4 Notice of Litigation, Etc................................................................57 20.5 Indebtedness of Tenant...................................................................58 20.6 Financial Condition of Tenant............................................................59 20.7 Distributions, Payments to Affiliated Persons, Etc.......................................59 20.8 Prohibited Transactions..................................................................59 20.9 Liens and Encumbrances...................................................................59 20.10 Merger; Sale of Assets; Etc.............................................................59 ARTICLE 21 REPRESENTATIONS AND WARRANTIES..........................................................................60 21.1 Representations of Tenant................................................................60 21.1.1 Status and Authority of Tenant................................................60 21.1.2 Action of Tenant..............................................................60 -vii- 21.1.3 No Violations of Agreements...................................................60 21.1.4 Litigation....................................................................60 21.1.5 Existing Leases, Agreements, Etc..............................................60 21.1.6 Disclosure....................................................................61 21.1.7 Utilities, Etc................................................................61 21.1.8 Compliance With Law...........................................................61 21.1.9 Hazardous Substances..........................................................61 21.2 Representations of Landlord..............................................................61 21.2.1 Status and Authority of Landlord..............................................61 21.2.2 Action of Landlord............................................................62 21.2.3 No Violations of Agreements...................................................62 21.2.4 Litigation....................................................................62 21.3 Survival, Etc............................................................................62 ARTICLE 22 MISCELLANEOUS...........................................................................................63 22.1 Limitation on Payment of Rent............................................................63 22.2 No Waiver................................................................................63 22.3 Remedies Cumulative......................................................................63 22.4 Severability.............................................................................63 22.5 Acceptance of Surrender..................................................................63 22.6 No Merger of Title.......................................................................64 22.7 Conveyance by Landlord...................................................................64 22.8 Quiet Enjoyment..........................................................................64 22.9 Memorandum of Lease......................................................................64 22.10 Notices.................................................................................64 22.11 Trade Area Restriction..................................................................66 22.12 Construction............................................................................66 22.13 Counterparts; Headings..................................................................67 22.14 Applicable Law, Etc.....................................................................67 22.15 Nonrecourse. ..........................................................................67 22.16 Confidentiality.........................................................................67 22.17 Nonliability of Trustees................................................................67
EXHIBITS A - The Land B - Allocated Purchase Price C - Restricted Trade Area MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT is entered into as of this __ day of March, 1998, by and between HPTSHC PROPERTIES TRUST, a Maryland real estate investment trust, as landlord ("Landlord"), and SUMMERFIELD HPT LEASE COMPANY, L.P., a Kansas limited partnership, as tenant ("Tenant"). W I T N E S S E T H : WHEREAS, Landlord owns fee simple title to the Leased Property (this and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1) described in Exhibits A-1 through A-15; 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 "Accountants" shall have the meaning given such term in Section 3.1.2(c). 1.2 "Additional Rent" shall have the meaning given such term in Section 3.1.2(a). 1.3 "Additional Charges" shall have the meaning given such term in Section 3.1.3. 1.4 "Adjusted Purchase Price" shall mean, for any Property, the amount allocated to such Property as set forth on Exhibit B, plus the aggregate amount of all disbursements by Landlord pursuant to Sections 5.1.3(b), 10.2.3 or 11.2 with respect to such Property, plus any other amount disbursed or advanced by Landlord to finance, or to reimburse Tenant for its financing of, any Capital Addition to such Leased Property. -2- 1.5 "Affiliated Person" shall mean, with respect to any Person, (a) in the case of any such Person which is a partnership, any partner in such partnership, (b) in the case of any such Person which is a limited liability company, any member of such company, (c) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (a) and (b), (d) any other Person who is an officer, director, trustee or employee of, or partner in or member of, such Person or any Person referred to in the preceding clauses (a), (b) and (c), and (e) any other Person who is a member of the Immediate Family of such Person or of any Person referred to in the preceding clauses (a) through (d). 1.6 "Agreement" shall mean this Lease Agreement, including Exhibits A-1 through A-15, B and C hereto, as it and they may be amended from time to time as herein provided. 1.7 "Applicable Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health (except those requirements which, by definition, are solely the responsibility of employers) or the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature. 1.8 "Assignment Agreement" shall mean the Assignment of Rights under Agreements of Purchase and Sale, dated as of the date hereof, between Patriot American Hospitality Partnership, L.P., a Delaware partnership, and Landlord. 1.9 "Award" shall mean all compensation, sums or other value awarded, paid or received by virtue of a total or partial Condemnation of any of the Leased Property (after deduction of all reasonable legal fees and other reasonable costs and expenses, including, without limitation, expert witness fees, incurred by Landlord, in connection with obtaining any such award). 1.10 "Base Total Hotel Sales" with respect to each Property shall mean Total Hotel Sales for such Property for the Base Year; provided, however, that in the event that, with respect to any Lease Year, or portion thereof, for any reason (including, without limitation, a casualty or Condemnation) there shall be, for two hundred seventy (270) days or more in any Lease Year, a reduction in the number of rooms at any Hotel or a change in the services provided at any Hotel (including, without limitation, closing of restaurants or the discontinuation of food or beverage services) from the number of rooms or the services provided during the Base Year, in -3- determining Additional Rent payable with respect to such Lease Year, Base Total Hotel Sales for such Property shall be reduced as follows: (a) in the event of and for the duration of a complete closing of such Hotel following application of any business interruption or Award proceeds collected with respect thereto, Total Hotel Sales during the applicable period of the Base Year throughout the period of such closing shall be subtracted from Base Total Hotel Sales for such Property; (b) in the event of a partial closing of such Hotel affecting any number of guest rooms in such Hotel and following application of any business interruption or Award proceeds collected with respect thereto, Total Hotel Sales for such Property attributable to guest room occupancy or guest room services at such Hotel during the Base Year shall be ratably allocated among all guest rooms in service at such Hotel during the Base Year and all such Total Hotel Sales attributable to rooms no longer in service shall be subtracted from Base Total Hotel Sales throughout the period of such closing; and (c) in the event of any other change in circumstances affecting such Hotel, Base Total Hotel Sales shall be equitably adjusted in such manner as Landlord and Tenant shall reasonably agree. 1.11 "Base Year" shall mean, with respect to each Property, the 1998 Fiscal Year. 1.12 "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in The Commonwealth of Massachusetts or the State of Texas are authorized by law or executive action to close. 1.13 "Capital Addition" shall mean any renovation, repair or improvement to the Leased Property (or portion thereof), the cost of which constitutes a Capital Expenditure. 1.14 "Capital Expenditure" shall mean any expenditure treated as capital in nature in accordance with GAAP. 1.15 "Claim" shall have the meaning given such term in Article 8. 1.16 "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as from time to time amended. 1.17 "Commencement Date" shall mean the date of this Agreement. 1.18 "Condemnation" shall mean, with respect to any Property, (a) the exercise of any governmental power with respect to such Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of such Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of all or part of such Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other eminent domain proceeding affecting such Property, whether or not the same shall have actually been commenced. 1.19 "Condemnor" shall mean any public or quasi-public authority, or private corporation or Person, having the power of Condemnation. 1.20 "Consolidated Financials" shall mean: -4- (a) for any Fiscal Year or other accounting period of Tenant, annual audited and quarterly unaudited financial statements of Tenant, including Tenant's balance sheet and the related statements of income and cash flow; and (b) for any Fiscal Year or other accounting period of SF Hotel Company, L.P. ending prior to the Patriot Acquisition Date, annual audited and quarterly unaudited financial statements of SF Hotel Company, L.P. prepared on a consolidated basis, including SF Hotel Company, L.P.'s consolidated balance sheet and related statements of income and cash flow; and (c) for any Fiscal Year or other accounting period of Patriot and Wyndham ending after to the Patriot Acquisition Date, annual audited and quarterly unaudited financial statements of Patriot and Wyndham prepared on a consolidated basis, including Patriot's and Wyndham's combined balance sheet and the related statements of income and cash flow; in each case in reasonable detail and setting forth in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, and prepared in accordance with GAAP throughout the periods reflected. 1.21 "Date of Taking" shall mean the date the Condemnor has the right to possession of such Property, or any portion thereof, in connection with a Condemnation. 1.22 "Default" shall mean any event or condition which with the giving of notice and/or lapse of time may ripen into an Event of Default. 1.23 "Disbursement Rate" shall mean an annual rate of interest equal to the greater of, as of the date of determination, (i) the Interest Rate and (ii) the per annum rate for ten (10) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred fifty (350) basis points. 1.24 "Distribution" shall mean (a) any declaration or payment of any dividend (except dividends payable 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. 1.25 "Encumbrance" shall have the meaning given such term in Section 19.1. 1.26 "Entity" shall mean any corporation, general or limited partnership, limited liability company or partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency or political subdivision thereof or any other entity. -5- 1.27 "Environment" shall mean soil, surface waters, ground waters, land, stream, sediments, surface or subsurface strata and ambient air. 1.28 "Environmental Obligation" shall have the meaning given such term in Section 4.3.1. 1.29 "Environmental Notice" shall have the meaning given such term in Section 4.3.1. 1.30 "Event of Default" shall have the meaning given such term in Section 12.1. 1.31 "Excess Total Hotel Sales" shall mean, with respect to any Lease Year, or portion thereof, the amount of Total Hotel Sales for such Lease Year, or portion thereof, in excess of Base Total Hotel Sales for the equivalent period. 1.32 "Extended Terms" shall have the meaning given such term in Section 2.4. 1.33 "FF&E Bank" means Bank One Texas, N.A. or other bank designated by Tenant and approved by Landlord. 1.34 "FF&E Estimate" shall have the meaning given such term in Section 5.1.2(c). 1.35 "FF&E Funded Amount" shall mean $2,000,000. 1.36 "FF&E Reserve" shall have the meaning given such term in Section 5.1.2(a). 1.37 "Financial Officer's Certificate" shall mean, as to any Person, a certificate of the chief financial officer or chief accounting officer (or such officers' authorized designee) of such Person, duly authorized, accompanying the financial statements required to be delivered by such Person pursuant to Section 17.2, in which such officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of such Person at and as of the dates thereof and the results of its and their operations for the periods covered thereby, and (b) certify that no Event of Default has occurred and is continuing hereunder. 1.38 "Fiscal Year" shall mean the calendar year. 1.39 "Fixed Term" shall have the meaning given such term in Section 2.3. 1.40 "Fixtures" shall have the meaning given such term in Section 2.1(d). 1.41 "GAAP" shall mean generally accepted accounting principles consistently applied. 1.42 "Government Agencies" shall mean any court, agency, authority, board (including, without limitation, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or any State or any county or any political subdivision of -6- any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or such Property or any portion thereof or the Hotel operated thereon. 1.43 "Hazardous Substances" shall mean any substance: (a) the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or (b) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" or "pollutant" or "contaminant" under any present or future federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.) and the regulations promulgated thereunder; or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (d) the presence of which on such Property causes or materially threatens to cause an unlawful nuisance upon such Property or to adjacent properties or poses or materially threatens to pose a hazard to such Property or to the health or safety of persons on or about such Property; or (e) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or (f) without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or (g) without limitation, which contains or emits radioactive particles, waves or material; or (h) without limitation, constitutes materials which are now or may hereafter be subject to regulation pursuant to any Applicable Laws promulgated by any Government Agencies. 1.44 "Hotel" shall mean, with respect to any Property described on Exhibits A-1 through A-15, the all suites hotel being operated on such Property. 1.45 "Hotel Mortgage" shall mean any Encumbrance placed upon the Leased Property in accordance with Article 19. -7- 1.46 "Hotel Mortgagee" shall mean the holder of any Hotel Mortgage. 1.47 "Immediate Family" shall mean, with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. 1.48 "Impositions" shall mean collectively, all taxes (including, without limitation, all taxes imposed under the laws of the relevant State, as such laws may be amended from time to time, and all ad valorem, sales and use, or similar taxes as the same relate to or are imposed upon Landlord, Tenant or the business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof), water, sewer or other rents and charges, excises, tax levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Tenant (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Landlord's interest in the Leased Property, (b) the Leased Property or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Leased Property or the leasing or use of the Leased Property or any part thereof by Tenant; provided, however, that nothing contained herein shall be construed to require Tenant to pay (i) any tax based on net income imposed on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee or other tax imposed with respect to the sale, exchange or other disposition by Landlord of the Leased Property or the proceeds thereof, (iv) any single business, gross receipts tax, transaction privilege, rent or similar taxes as the same relate to or are imposed upon Landlord, (v) any interest or penalties imposed on Landlord as a result of the failure of Landlord to file any return or report timely and in the form prescribed by law or to pay any tax or imposition, except to the extent such failure is a result of a breach by Tenant of its obligations pursuant to Section 3.1.3, (vi) any Impositions imposed on Landlord that are a result of Landlord not being considered a "United States person" as defined in Section 7701(a)(30) of the Code, (vii) any Impositions that are enacted or adopted by their express terms as a substitute for any tax that would not have been payable by Tenant pursuant to the terms of this Agreement or (viii) any Impositions imposed as a result of a breach of covenant or representation by Landlord in any agreement governing Landlord's conduct or operation or as a result of the gross negligence or willful misconduct of Landlord. 1.49 "Incidental Documents" shall mean, collectively, the Assignment Agreement, the Agreement to Lease, the Tenant Security Agreement, the Tenant Pledge Agreement, the Tenant General Partner Pledge Agreement and the Tenant FF&E Security Agreement; after the Patriot Acquisition Date, the term "Incidental Documents" shall also be deemed to include all Patriot Acquisition Documents delivered pursuant to Section 16.4 1.50 "Increased Amount" shall have the meaning given such term in Section 3.5. -8- 1.51 "Indebtedness" shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor's balance sheet as liabilities. 1.52 "Insurance Requirements" shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant or the Leased Property. 1.53 "Interest Rate" shall mean ten percent (10%) per annum. 1.54 "Land" shall have the meaning given such term in Section 2.1(a). 1.55 "Landlord" shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns. 1.56 "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. 1.57 "Lease Year" shall mean any Fiscal Year or portion thereof, commencing with the 1998 Fiscal Year, during the Term. 1.58 "Leased Improvements" shall have the meaning given such term in Section 2.1(b). 1.59 "Leased Intangible Property" shall mean all hotel licensing agreements and other service contracts, equipment leases, booking agreements and other arrangements or agreements affecting the ownership, repair, maintenance, management, leasing or operation of the Leased Property to which Landlord is a party; all books, records and files relating to the leasing, maintenance, management or operation of the Leased Property belonging to Landlord; all transferable or assignable permits, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, rights to deposits, trade names, service marks, telephone exchange numbers identified with the Leased Property, and all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character belonging to Landlord with respect to the Leased Property. 1.60 "Leased Personal Property" shall have the meaning given such term in Section 2.1(e). 1.61 "Leased Property" shall have the meaning given such term in Section 2.1. -9- 1.62 "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting any Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, certificates and regulations necessary to operate any Property for its Permitted Use, and (b) all covenants, agreements, restrictions and encumbrances contained in any instruments at any time in force affecting any Property, including those which may (i) require material repairs, modifications or alterations in or to any Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord's status as a real estate investment trust. 1.63 "Lien" shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors. 1.64 "Management Agreements" shall mean the Management Agreements, each dated the date hereof, between Tenant and Manager, together with all permitted amendments, modifications and supplements thereto. 1.65 "Manager" shall mean, prior to the Patriot Acquisition Date, Summerfield Suites Lease Company, L.P., and at all times thereafter Wyndham Management Corporation (or other direct or indirect Subsidiary of Wyndham or Patriot), and its permitted successors and assigns. 1.66 "Minimum Rent" shall mean, with respect to each calendar month, the sum of $2,083,334, which amount shall be allocated among the Properties in accordance with their Allocable Purchase Prices 1.67 "Notice" shall mean a notice given in accordance with Section 22.10. 1.68 "Officer's Certificate" shall mean a certificate signed by an officer of the certifying Entity duly authorized by the board of directors of the certifying Entity. 1.69 "Overdue Rate" shall mean, on any date, a per annum rate of interest equal to the lesser of fifteen percent (15%) and the maximum rate then permitted under applicable law. 1.70 "Parent" shall mean, with respect to any Person, any Person which owns directly, or indirectly through one or more Subsidiaries or Affiliated Persons, five percent (5%) or more of the voting or beneficial interest in, or otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person. 1.71 "Patriot" shall mean Patriot American Hospitality, Inc., a Delaware corporation, and all permitted successors and assignees of such corporation. 1.72 "Patriot Acquisition Date" shall mean the closing date under the Patriot Contribution Agreement. -10- 1.73 "Patriot Acquisition Documents" shall have the meaning given such term in Section 16.4. 1.74 "Patriot Contribution Agreement" shall mean that certain Contribution Agreement dated as of March __, 1998 by and between Patriot and SF Hotel Company, L.P., pursuant to which Patriot will acquire, among other things, the management business and brand name in the Leased Property, together with all of the right, title and interest of the partners of SF Hotel Company, L.P. in certain other real property as described therein. 1.75 "Patriot LP" shall mean Patriot American Hospitality Partnership, L.P., a Delaware limited partnership. 1.76 "Permitted Encumbrances" shall mean, with respect to each Property, all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner's title insurance policy issued to Landlord on the date hereof, plus any other such encumbrances as may have been consented to in writing by Landlord from time to time. 1.77 "Permitted Liens" shall mean any Liens granted in accordance with Section 20.9(a). 1.78 "Permitted Use" shall mean, with respect to any Property any use of the Leased Property permitted pursuant to Section 4.1.1. 1.79 "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. 1.80 "Property" shall have the meaning given such term in Section 2.1. 1.81 "Purchase Agreements" shall mean those fifteen Agreements of Purchase and Sale, each dated as of March __, 1998, by and between Patriot and the Kansas limited partnership identified therein as "Summerfield". 1.82 "Records" shall have the meaning given such term in Section 7.2. 1.83 "Rent" shall mean, collectively, the Minimum Rent, Additional Rent and Additional Charges. 1.84 "SEC" shall mean the Securities and Exchange Commission. 1.85 "Security Deposit" shall have the meaning given such term in Section 3.5. 1.86 "SHC" shall mean Summerfield Hotel Corporation, a Delaware corporation. 1.87 "Special Charter Document Provisions" shall mean, collectively, provisions similar to Sections 1.02 and 3.03 of the Agreement of Limited Partnership of GHALP Partnership, L.P. and Sections 3, 9, 10 and 13 of the Certificate of Incorporation of GHALP GP, Inc. -11- 1.88 "Special Purpose Conditions Date" shall have the meaning given such term in Section 3.5. 1.89 "State" shall mean, with respect to any Property, the state, commonwealth or district in which the such Property is located. 1.90 "Subsidiary" shall mean, with respect to any Person, any Entity (a) in which such Person owns directly, or indirectly through one or more Subsidiaries, more than fifty percent (50%) of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise). 1.91 "Subtenant" shall have the meaning set forth in Section 16.4. 1.92 "Subtenant General Partner" shall have the meaning set forth in Section 16.4. 1.93 "Successor Landlord" shall have the meaning given such term in Section 19.2. 1.94 "Tangible Net Worth" shall mean the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with GAAP, excluding, however, from the determination of total assets: (a) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles; (b) all deferred charges or unamortized debt discount and expense; (c) all reserves carried and not deducted from assets; (d) treasury stock and capital stock, obligations or other securities of, or capital contributions to, or investments in, any Subsidiary; (e) securities which are not readily marketable; (f) any write-up in the book value of any asset resulting from a revaluation thereof subsequent to the Commencement Date; (g) deferred gain; and (h) any items not included in clauses (a) through (g) above that are treated as intangibles in conformity with GAAP; excluding, however, from the determination of total liabilities accrued fees payable to the Manager in accordance with the Management Agreement that are subordinated to the payment of Rents hereunder in accordance with Section 5.4. 1.95 "Tenant" shall have the meaning given such term in the preambles to this Agreement and shall also include its permitted successors and assigns. 1.96 "Tenant FF&E Security Agreement" shall mean the Assignment and Security Agreement, dated as of the date hereof, made by Tenant for the benefit of Landlord. 1.97 "Tenant General Partner" shall mean Summerfield Lease Company L.L.C., a Delaware limited liability company. 1.98 "Tenant Pledge Agreement" shall mean the Partnership Interest Pledge Agreement, dated as of the date hereof, made by the partners of Tenant to Landlord. 1.99 "Tenant General Partner Pledge Agreement" shall mean the Membership Interest Pledge Agreement, dated as of the date hereof, made by SFHC Lease Company, L.P., the sole member of Tenant General Partner, to Landlord. -12- 1.100 "Tenant Security Agreement" shall mean the Pledge and Security Agreement, dated as of the date hereof, made by Tenant for the benefit of Landlord. 1.101 "Tenant's Personal Property" shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, movable walls and partitions, equipment and machinery and all other tangible personal property of Tenant, if any, acquired by Tenant on and after the date hereof and located at the Leased Property or used in Tenant's business at the 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. 1.102 "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. 1.103 "Total Hotel Sales" shall mean, with respect to each Property, for each Fiscal Year during the Term, all revenues and receipts of every kind derived by Tenant or any subtenant from operating such Property and parts thereof, including, but not limited to: income (from both cash and credit transactions) (after deductions for bad debts, and discounts for prompt or cash payments and refunds) from rental of rooms, stores, offices, meeting, exhibit or sales space of every kind; license, lease and concession fees and rentals (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixture and equipment no longer necessary to the operation of any Hotel, which shall be deposited in the FF&E Reserve); service charges, to the extent not distributed to the employees at such Hotel as gratuities; and proceeds, if any, from business interruption or other loss of income insurance; provided, however, that Total Hotel Sales shall not include the following: gratuities to Hotel employees; federal, state or municipal excise, sales, use or similar taxes collected directly from patrons or guests or included as part of the sales price of any goods or services; insurance proceeds (other than proceeds from business interruption or other loss of income insurance); Award proceeds (other than for a temporary Condemnation); any proceeds from any sale of such Property or from the refinancing of any debt encumbering such Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of such Hotel; interest which accrues on amounts deposited in the FF&E Reserve; and recoveries against predecessors in title to the extent such recoveries are compensation attributable to items not otherwise includable in the calculation of Total Hotel Sales. 1.104 "Uniform System of Accounts" shall mean A Uniform System of Accounts for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of New York City, as the same may be further revised from time to time. 1.105 "Unsuitable for Its Permitted Use" shall mean, with respect to any Hotel, a state or condition of such Hotel such that (a) following any damage or destruction involving such Hotel, such Hotel cannot be operated in the good faith judgment of Tenant on a commercially practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to -13- substantially the same condition as existed immediately before such damage or destruction, and as otherwise required by Section 10.2.4, within twelve (12) months following such damage or destruction or such shorter period of time as to which business interruption insurance is available to cover Rent and other costs related to the Leased Property following such damage or destruction, or (b) as the result of a partial taking by Condemnation, such Hotel cannot be operated, in the good faith judgment of Tenant or the Manager on a commercially practicable basis for its Permitted Use. 1.106 "Work" shall have the meaning given such term in Section 10.2.4. 1.107 "Wyndham" shall mean Wyndham International, Inc., a Delaware corporation, and its permitted successors and assigns. ARTICLE 2 LEASED PROPERTY AND TERM 2.1 Leased Property. Upon and subject to the terms and conditions hereinafter set forth, Landlord leases to Tenant and Tenant leases from Landlord all of Landlord's right, title and interest in and to all of the following (each of items (a) through (g) below which, as of the Commencement Date, relates to any single Hotel, a "Property" and, collectively, the "Leased Property"): (a) those certain tracts, pieces and parcels of land, as more particularly described in Exhibits A-1 through A-15 attached hereto and made a part hereof (the "Land"); (b) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Fixtures"); -14- (e) all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property, except items, if any, included within the category of Fixtures, but specifically excluding all items included within the category of Tenant's Personal Property (collectively, the "Leased Personal Property"); (f) all of the Leased Intangible Property; and (g) any and all leases of space (including any security deposits held by Tenant or the Manager pursuant thereto) in the Leased Improvements to tenants thereof. 2.2 Condition of Leased Property. Tenant acknowledges receipt and delivery of possession of the Leased Property and Tenant accepts the Leased Property in its "as is" condition, subject to the rights of parties in possession, the existing state of title, including all covenants, conditions, restrictions, reservations, mineral leases, easements and other matters of record or that are visible or apparent on the Leased Property, all applicable Legal Requirements, the lien of any financing instruments, mortgages and deeds of trust existing prior to the Commencement Date or permitted by the terms of this Agreement, and such other matters which would be disclosed by an inspection of the Leased Property and the record title thereto or by an accurate survey thereof. TENANT REPRESENTS THAT IT HAS INSPECTED THE LEASED PROPERTY AND ALL OF THE FOREGOING AND HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH RESPECT THERETO AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN RESPECT OF THE CONDITION OF THE LEASED PROPERTY. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. To the maximum extent permitted by law, however, Landlord hereby assigns to Tenant all of Landlord's rights to proceed against any predecessor in title for breaches of warranties or representations or for latent defects in the Leased Property. Landlord shall fully cooperate with Tenant in the prosecution of any such claims, in Landlord's or Tenant's name, all at Tenant's sole cost and expense. Tenant shall indemnify, defend, and hold harmless Landlord from and against any loss, cost, damage or liability (including reasonable attorneys' fees) incurred by Landlord in connection with such cooperation. 2.3 Fixed Term. The initial term of this Agreement (the "Fixed Term") shall commence on the Commencement Date and shall expire December 31, 2015. 2.4 Extended Term. Provided that no Event of Default shall have occurred and be continuing, this Agreement shall be in full force and effect, the Term shall be automatically -15- extended for four (4) consecutive renewal terms of twelve (12) years each (collectively, the "Extended Terms"), unless Tenant shall give Landlord Notice, not later than two (2) years prior to the scheduled expiration of the then current Term of this Agreement (Fixed or Extended, as the case may be), that Tenant elects not so to extend the term of this Agreement (and time shall be of the essence with respect to the giving of such Notice). Each Extended Term shall commence on the day succeeding the expiration of the Fixed Term or the preceding Extended Term, as the case may be. All of the terms, covenants and provisions of this Agreement shall apply to each such Extended Term, except that Tenant shall have no right to extend the Term beyond the expiration of the Extended Terms. If Tenant shall give Notice that it elects not to extend the Term in accordance with this Section 2.4, this Agreement shall automatically terminate at the end of the Term then in effect and Tenant shall have no further option to extend the Term of this Agreement. Otherwise, the extension of this Agreement shall be automatically effected without the execution of any additional documents; it being understood and agreed, however, that Tenant and Landlord shall execute such documents and agreements as either party shall reasonably require to evidence the same. ARTICLE 3 RENT 3.1 Rent. Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this Agreement), Minimum Rent and Additional Rent to Landlord and Additional Charges to the party to whom such Additional Charges are payable, during the Term. All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion. Rent for any partial Accounting Period shall be prorated on a per diem basis. 3.1.1 Minimum Rent. (a) Minimum Rent shall be paid in advance on the first Business Day of each month; provided, however, that the first payment of Minimum Rent shall be payable on the Commencement Date (and, if applicable, such payment shall be prorated as provided in the last sentence of the first paragraph of Section 3.1). (b) Adjustments of Minimum Rent Following Disbursements Under Sections 5.1.3(b), 10.2.3 or 11.2. Effective on the date of each disbursement to pay for the cost of any repairs, maintenance, renovations or replacements pursuant to Sections 5.1.3(b), 10.2.3 or 11.2 with respect to any Property, the Minimum Rent shall be increased by a per annum amount equal to the Disbursement Rate times the amount so disbursed. If any such disbursement is made during any month on a day other than the first day of a month, Tenant shall pay to Landlord on the first day of the immediately following month (in addition to the amount of Minimum Rent payable with respect to such month, as adjusted pursuant to this paragraph (b)) the amount by which Minimum Rent for the preceding -16- month, as adjusted for such disbursement on a per diem basis, exceeded the amount of Minimum Rent paid by Tenant for such preceding month. (c) Adjustments of Minimum Rent Following Partial Lease Termination. If this Lease shall terminate with respect to any Property but less than all of the Leased Property, Minimum Rent shall be reduced by the affected Property's allocable share of Minimum Rent. (d) Credits Against Minimum Rent. On the date on which Minimum Rent is payable pursuant to this Agreement, Landlord shall credit against the Minimum Rent then due accrued interest on the Increased Amount pursuant to Section 3.5. 3.1.2 Additional Rent. (a) Amount. Commencing with the second Lease Year, for each Lease Year or portion thereof, Tenant shall pay an aggregate amount of additional rent ("Additional Rent") with respect to each Property for such Lease Year in an amount, not less than zero, equal to seven and one-half percent (7.5%) of Excess Total Hotel Sales for such Property. (b) Monthly Installments. Installments of Additional Rent for each Lease Year or portion thereof shall be calculated and paid monthly in arrears. Such payment shall be accompanied by an Officer's Certificate setting forth the calculation of Additional Rent due and payable for such month. (c) Reconciliation of Additional Rent. On or before April 30, 1999, Tenant shall deliver to Landlord an Officer's Certificate setting forth Total Hotel Sales for each Property for the Base Year, together with an audit thereof by Ernst & Young LLP, Arthur Anderson and Co., or another "Big Six," so-called, firm of independent certified public accountants proposed by Tenant and approved by Landlord (which approval shall not be unreasonably withheld or delayed) (the "Accountants"). In addition, on or before April 30 of each year, commencing April 30, 2000, Tenant shall deliver to Landlord an Officer's Certificate setting forth the Total Hotel Sales for each Property for the preceding Lease Year and the Additional Rent payable with respect to such Property for such Lease Year, together with an audit thereof, conducted by the Accountants. If the annual Additional Rent for such preceding Lease Year as shown in the Officer's Certificate exceeds the amount previously paid with respect thereto by Tenant, Tenant shall pay such excess to Landlord at such time as the Officer's Certificate is delivered, together with interest at the Interest Rate, which interest shall accrue from the close of such preceding Lease Year until the date that such certificate is required to be delivered and, thereafter, such interest shall accrue at the Overdue Rate, until the amount of such difference shall be paid or otherwise discharged. If the annual Additional Rent 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 -17- Interest Rate, which interest shall accrue from the date of payment by Tenant until the date such credit is applied or paid, as the case may be. If such credit cannot be made because the Term has expired prior to application in full thereof, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment by Landlord. (d) Confirmation of Additional Rent. Tenant shall utilize, or cause to be utilized, an accounting system for each Property in accordance with its usual and customary practices and in accordance with GAAP, which will accurately record all Total Hotel Sales and Tenant shall retain, for at least three (3) years after the expiration of each Lease Year, reasonably adequate records conforming to such accounting system showing all Total Hotel Sales for such Property for such Lease Year. Landlord, at its own expense, except as provided hereinbelow, shall have the right, exercisable by Notice to Tenant within one (1) year after receipt of the applicable Officer's Certificate, by its accountants or representatives to audit the information set forth in the Officer's Certificate referred to in subparagraph (c) above and, in connection with such audits, to examine Tenant's and the Manager's books and records with respect thereto (including supporting data and sales and excise tax returns). If any such audit discloses a deficiency in the payment of Additional Rent and, either Tenant agrees with the result of such audit or the matter is otherwise compromised with Landlord, Tenant shall forthwith pay to Landlord the amount of the deficiency, as finally agreed or determined, together with interest at the Interest Rate, from the date such payment should have been made to the date of payment thereof. If such deficiency, as agreed upon or compromised as aforesaid, is more than four percent (4%) of the Total Hotel Sales reported by Tenant for such Lease Year and, as a result, Landlord did not receive at least ninety-five percent (95%) of the Additional Rent payable with respect to such Lease Year, Tenant shall pay the reasonable cost of such audit and examination. If any such audit discloses that Tenant paid more Additional Rent for any Lease Year than was due hereunder, and either Landlord agrees with the result of such audit or the matter is otherwise determined, provided no Event of Default has occurred and is continuing, Landlord shall grant Tenant a credit equal to the amount of such overpayment against the Rent next coming due in the amount of such difference, as finally agreed or determined, together with interest at the Interest Rate, which interest shall accrue from the time of payment by Tenant until the date such credit is applied or paid, as the case may be. If such a credit cannot be made because the Term has expired before the credit can be applied in full, provided no Event of Default has occurred and is continuing, Landlord shall pay the unapplied balance of such credit to Tenant, together with interest at the Interest Rate, which interest shall accrue from the date of payment by Tenant until the date of payment from Landlord. Any proprietary information obtained by Landlord with respect to Tenant pursuant to the provisions of this Agreement shall be treated as confidential, except that 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 -18- of Tenant and Landlord contained in this Section 3.1.2 shall survive the expiration or earlier termination of this Agreement. 3.1.3 Additional Charges. In addition to the Minimum Rent and Additional Rent payable hereunder, Tenant shall pay to the appropriate parties and discharge as and when due and payable the following (collectively, "Additional Charges"): (a) Impositions. Subject to Article 8 relating to permitted contests, Tenant shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost (other than any opportunity cost as a result of a failure to take advantage of any discount for early payment) may be added for non-payment, such payments to be made directly to the taxing authorities where feasible, and shall promptly, upon request, furnish to Landlord copies of official receipts or other reasonably satisfactory proof evidencing such payments. If any such Imposition may, at the option of the taxpayer, lawfully be paid in installments (whether or not interest shall accrue on the unpaid balance of such Imposition), Tenant may exercise the option to pay the same (and any accrued interest on the unpaid balance of such Imposition) in installments and, in such event, shall pay such installments during the Term as the same become due and before any fine, penalty, premium, further interest or cost may be added thereto. Landlord, at its expense, shall, to the extent required or permitted by Applicable Law, prepare and file all tax returns and pay all taxes due in respect of Landlord's net income, gross receipts, sales and use, single business, transaction privilege, rent, ad valorem, franchise taxes and taxes on its capital stock, and Tenant, at its expense, shall, to the extent required or permitted by Applicable Laws and regulations, prepare and file all other tax returns and reports in respect of any Imposition as may be required by Government Agencies. Provided no Event of Default shall have occurred and be continuing, if any refund shall be due from any taxing authority in respect of any Imposition paid by Tenant, the same shall be paid over to or retained by Tenant. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property as may be necessary to prepare any required returns and reports. In the event Government Agencies classify any property covered by this Agreement as personal property, Tenant shall file all personal property tax returns in such jurisdictions where it may legally so file. Each party shall, to the extent it possesses the same, provide the other, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Landlord is legally required to file personal property tax returns for property covered by this Agreement, Landlord shall provide Tenant with copies of assessment notices in sufficient time for Tenant to file a protest. All Impositions assessed against such personal property shall be (irrespective of whether Landlord or Tenant shall file the relevant return) paid by Tenant not later than the last date on which the same may be made without interest or penalty. Landlord shall give prompt Notice to Tenant of all Impositions payable by Tenant hereunder of which Landlord at any time has knowledge; provided, however, that Landlord's failure to give any such notice shall in no way diminish Tenant's obligation hereunder to pay such Impositions (other than any penalties that accrue due to the failure of Landlord to promptly notify Tenant), unless such failure continues for more than twelve (12) months after the date Landlord learned of such Imposition. -19- (b) Utility Charges. Tenant shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in connection with the Leased Property. (c) Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. (d) Obligations under Purchase Agreements. Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), imposed upon or incurred by or asserted against Landlord under any Purchase Agreement or the Assignment Agreement, excluding, however, (i) the payment of the Purchase Price by Landlord specified in Part 3 of Schedule A1 of each Purchase Agreement, and (ii) any liability of Landlord arising under any Purchase Agreement that is determined, in a final non-appealable judgment by a court of competent jurisdiction, to have resulted from the gross negligence, wilful misconduct or failure of Landlord to perform the obligations of purchaser thereunder that arise after the effective date of the Assignment Agreement. (e) Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations with respect to the Leased Property and this Agreement, including, without limitation, all amounts payable under any equipment leases and all agreements to indemnify Landlord under Sections 4.3.3 and 9.7. (f) Reimbursement for Additional Charges. If Tenant pays or causes to be paid property taxes or similar or other Additional Charges attributable to periods after the end of the Term, whether upon expiration or sooner termination of this Agreement (other than termination by reason of an Event of Default), Tenant may, within a reasonable time after the end of the Term, provide Notice to Landlord of its estimate of such amounts. Landlord shall promptly reimburse Tenant for all payments of such taxes and other similar Additional Charges that are attributable to any period after the Term of this Agreement. 3.2 Late Payment of Rent, Etc. If any installment of Minimum Rent, Additional Rent or Additional Charges (but only as to those Additional Charges which are payable directly to Landlord) shall not be paid within ten (10) days after its due date, Tenant shall pay Landlord, on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Tenant pays any Additional Charges directly to Landlord or any Hotel Mortgagee pursuant to any requirement of this Agreement, Tenant shall 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. -20- In the event of any failure by Tenant to pay any Additional Charges when due, Tenant shall promptly pay and discharge, as Additional Charges, every fine, penalty, interest and cost which is added for non-payment or late payment of such items. Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Agreement or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Minimum Rent and Additional Rent. 3.3 Net Lease. The Rent shall be absolutely net to Landlord so that this Agreement shall yield to Landlord the full amount of the installments or amounts of the Rent throughout the Term, subject to any other provisions of this Agreement which expressly provide otherwise, including those provisions for adjustment or abatement of such Rent. 3.4 No Termination, Abatement, Etc. Except as otherwise specifically provided in this Agreement, each of Landlord and Tenant, to the maximum extent permitted by law, shall remain bound by this Agreement in accordance with its terms and shall not take any action without the consent of the other to modify, surrender or terminate this Agreement. In addition, except as otherwise expressly provided in this Agreement, Tenant shall not seek, or be entitled to, any abatement, deduction, deferment or reduction of the Rent, or set-off against the Rent, nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of (a) any damage to or destruction of the Leased Property or any portion thereof from whatever cause or any Condemnation, (b) the lawful or unlawful prohibition of, or restriction upon, Tenant's use of the Leased Property, or any portion thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (c) any claim which Tenant may have against Landlord by reason of any default (other than a monetary default) or breach of any warranty by Landlord under this Agreement or any other agreement between Landlord and Tenant, or to which Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee or transferee of Landlord; or (e) for any other cause whether similar or dissimilar to any of the foregoing (other than a monetary default by Landlord); provided, however, that the foregoing shall not apply or be construed to restrict Tenant's rights in the event of any act or omission by Landlord constituting gross negligence or willful misconduct. Except as otherwise specifically provided in this Agreement, Tenant hereby waives all rights arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law (a) to modify, surrender or terminate this Agreement or quit or surrender the Leased Property or any portion thereof, or (b) which would entitle Tenant to any abatement, reduction, suspension or deferment of the Rent or other sums payable or other obligations to be performed by Tenant hereunder. The obligations of each party hereunder shall be separate and independent covenants and agreements, and the Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Agreement. In any instance where, after the occurrence of an Event of Default, Landlord retains funds which, but for the occurrence of such Event of Default, would be payable to Tenant, Landlord shall refund such funds to Tenant to the extent the amount thereof exceeds the amount necessary to compensate Landlord for any cost, loss or damage incurred in connection with such Event of Default. 3.5 Security Deposit. Upon execution of this Agreement, Tenant shall deposit with Landlord, in immediately available funds, the amount of Fifteen Million Dollars ($15,000,000) -21- (as such amount may be increase in accordance with the succeeding sentence, the "Security Deposit"). Unless the Special Purpose Conditions (as hereinafter defined) have been satisfied prior to the earlier of July 1, 1998 or the Patriot Acquisition Date (the "Special Purpose Conditions Date"), the amount of the Security Deposit required hereunder shall increase, effective the Special Purpose Conditions Date, by Ten Million Dollars ($10,000,000) (the "Increased Amount") to Twenty Five Million Dollars ($25,000,000), and Tenant shall deposit with Landlord such additional amount by wire transfer of immediately available funds. The Security Deposit shall be held by Landlord as security for the faithful observance and performance by Tenant of all the terms, covenants and conditions of this Agreement by Tenant to be observed and performed. The Security Deposit shall not be mortgaged, assigned, transferred or otherwise encumbered by Tenant without the prior written consent of Landlord, and any such act on the part of Tenant without first having obtained Landlord's consent (which consent may be given or withheld by Landlord in Landlord's sole and absolute discretion) shall be without force and effect and shall not be binding upon Landlord. As used herein the term "Special Purpose Conditions" shall mean, collectively, (i) the amendment of the agreement of limited partnership of Tenant and the operating agreement of Tenant General Partner to add the relevant Special Charter Document Provisions thereto, and (ii) the receipt by Landlord of an opinion of Locke Purnell Rain Harrell (A Professional Corporation) or other counsel selected by Tenant and reasonably acceptable to Landlord, to the effect that the Tenant and the Tenant General Partner should not be subject to substantive consolidation in a bankruptcy proceeding involving related entities, subject to standard and customary qualifications and assumptions. The cost and expenses of such counsel shall be for the account of Tenant. If any Event of Default shall occur and be continuing, Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply the entire Security Deposit or so much thereof as may be necessary to compensate Landlord (Increased Amount, if any, first) toward the payment of the Rent or other sums or loss or damage sustained by Landlord due to such breach by Tenant and Tenant shall, upon demand, restore the Security Deposit to the original sum deposited. It is understood and agreed that the Security Deposit is not to be considered as prepaid rent, nor shall damages be limited to the amount of the Security Deposit. Should Tenant comply with all the terms, covenants and conditions of this Agreement, the Security Deposit shall be returned in full to Tenant at the end of the Term. Landlord shall have no obligation to pay interest on the Security Deposit and shall have the right to commingle the same with Landlord's other funds; provided, however that so long as no Event of Default shall have occurred and be continuing, Landlord shall credit Tenant or its assigns with interest on any unapplied balance of the Increased Amount at a rate of 11.11% per annum. Such interest shall be credited in arrears and pro rated with respect to any partial month. If Landlord conveys Landlord's interest under this Agreement, the Security Deposit, or any part thereof not previously applied, may be turned over by Landlord to Landlord's grantee, and, if so turned over, Tenant shall look solely to such grantee for proper application of the Security Deposit in accordance with the terms of this Section 3.5 and the return thereof in accordance herewith. No Hotel Mortgagee shall be responsible to Tenant for the return or application of the Security Deposit, whether or not it succeeds to the position of Landlord hereunder, unless the Security Deposit shall have been received in hand by such holder. -22- In the event of bankruptcy or other creditor-debtor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of the Rent and other charges due Landlord for all periods prior to the filing of such proceedings. ARTICLE 4 USE OF THE LEASED PROPERTY 4.1 Permitted Use. 4.1.1 Permitted Use. (a) Tenant shall, at all times during the Term and at any other time that Tenant shall be in possession of the Leased Property, continuously use and operate, and cause the Manager to use and operate, each Property as a Summerfield Suites Hotel and any uses incidental thereto. Tenant shall not use (and shall direct the Manager not to use) the Leased Property or any portion thereof for any other use without the prior written consent of Landlord. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy is available), nor shall Tenant sell or otherwise provide or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. Tenant shall, at its sole cost (except as expressly provided in Section 5.1.3(b)), comply (or direct the Manager to comply) with all Insurance Requirements. Tenant shall not take or omit to take (and Tenant shall direct the Manager not to take or omit to take) any action, the taking or omission of which materially impairs the value or the usefulness of any Property or any part thereof for its Permitted Use. (b) Notwithstanding the foregoing, in the event that, in the reasonable determination of Tenant, it shall no longer be economically practical to operate any Property as an all suites hotel, Tenant shall give Landlord Notice thereof, which Notice shall set forth in reasonable detail the reasons therefor. Thereafter, Landlord and Tenant shall negotiate in good faith to agree on an alternative use for the Property or a replacement property therefor (in which event the affected Property shall be transferred to Tenant or Tenant's designee), appropriate adjustments to the Additional Rent and other related matters; provided, however, in no such event shall the Minimum Rent be reduced or abated. 4.1.2 Necessary Approvals. Tenant shall proceed with all due diligence and exercise best efforts to obtain and maintain, and shall direct the Manager to obtain and maintain, all approvals necessary to use and operate, for its Permitted Use, each Property and the Hotel located thereon under applicable law. -23- 4.1.3 Lawful Use, Etc. Tenant shall not, and shall direct the Manager not to, use or suffer or permit the use of the Leased Property or Tenant's Personal Property, if any, for any unlawful purpose. Tenant shall not, and shall direct the Manager not to, commit or suffer to be committed any waste on any Property, or in the related Hotel, nor shall Tenant cause or permit any unlawful nuisance thereon or therein. Tenant shall not, and shall direct the Manager not to, suffer nor permit any Property, or any portion thereof, to be used in such a manner as (i) might reasonably impair Landlord's title thereto or to any portion thereof, or (ii) may reasonably allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of such Property or any portion thereof. 4.2 Compliance with Legal/Insurance Requirements, Etc. Subject to the provisions of Article 8 and Section 5.1.3(b), Tenant, at its sole expense, shall (or shall direct the Manager or (following the Patriot Acquisition Date) Subtenant to) (i) comply with all material Legal Requirements and Insurance Requirements in respect of the use, operation, maintenance, repair, alteration and restoration of the Leased Property and with the terms and conditions of any ground lease affecting the Leased Property and (ii) procure, maintain and comply with all appropriate licenses, and other authorizations and agreements required for any use of the Leased Property and Tenant's Personal Property, if any, then being made, and for the proper erection, installation, operation and maintenance of the Leased Property or any part thereof. 4.3 Environmental Matters. 4.3.1 Restriction on Use, Etc. During the Term and any other time that Tenant shall be in possession of the Leased Property, Tenant shall not (and shall direct the Manager not to) store, spill upon, dispose of or transfer to or from the Leased Property any Hazardous Substance, except in quantities that are customary in normal operation and maintenance of hotel properties, and then only in compliance with all Applicable Laws. During the Term and any other time that Tenant shall be in possession of any Property, Tenant shall maintain (and shall direct the Manager to maintain) such Property at all times free of any Hazardous Substance (except in quantities that are customary in normal operation and maintenance of hotel properties, and then only in compliance with all Applicable Laws). Tenant shall promptly: (a) upon receipt of notice or knowledge and shall direct the Manager upon receipt of notice or knowledge promptly to, notify Landlord in writing of any material change in the nature or extent of Hazardous Substances at the Leased Property, (b) transmit to Landlord a copy of any Community Right to Know or similar report which is required to be filed by Tenant or the Manager with respect to the Leased Property pursuant to SARA Title III or any other Applicable Law, and any release notification form filed by Tenant or the Manager with respect to the Leased Property pursuant to CERCLA or any other Applicable Law, (c) transmit to Landlord copies of any citations, orders, notices or other governmental communications received by Tenant or the Manager or their respective agents or representatives with respect thereto (collectively, "Environmental Notice"), which Environmental Notice requires a written response or any action to be taken and/or if such Environmental Notice gives notice of and/or presents a material risk of any material violation of any Applicable Law and/or presents a material risk of any material cost, expense, loss or damage (an "Environmental Obligation"), (d) observe and comply (and direct the Manager to observe and comply) with all Applicable Laws relating to the use, maintenance and disposal of Hazardous Substances and all orders or directives from any official, court or agency of competent jurisdiction relating to the use or maintenance or requiring the removal, -24- treatment, containment or other disposition thereof, and (e) pay or otherwise dispose of any fine, charge or Imposition related thereto, unless Tenant or the Manager shall contest the same in good faith and by appropriate proceedings and the right to use and the value of the Leased Property is not materially and adversely affected thereby. If, at any time prior to the termination of this Agreement, Hazardous Substances in amounts or concentrations requiring investigation or cleanup (other than those maintained in accordance with Applicable Laws) are discovered on the Leased Property, subject to Tenant's and the Manager's right to contest the same in accordance with Article 8, Tenant shall take (and shall direct the Manager to take) all actions and incur any and all expenses, as are required by any Government Agency and by Applicable Law, (i) to clean up and remove from and about the Leased Property all Hazardous Substances thereon, (ii) to contain and prevent any further release or threat of release of Hazardous Substances on or about the Leased Property and (iii) to use good faith efforts to eliminate any further release or threat of release of Hazardous Substances on or about the Leased Property. 4.3.2 Environmental Report. From time to time during the Term, Landlord shall have the right to require an update of the Phase I environmental site assessment reports furnished to Landlord prior to the date hereof with respect to the Leased Property, which report shall be prepared by an environmental engineering firm selected by Landlord. The costs and expenses of such engineering firm shall be divided equally between Landlord and Tenant. 4.3.3 Indemnification of Landlord. Tenant shall protect, indemnify and hold harmless Landlord and each Hotel Mortgagee, their trustees, officers, agents, employees and beneficiaries, and any of their respective successors or assigns with respect to this Agreement (collectively, the "Indemnitees" and, individually, an "Indemnitee") for, from and against any and all debts, liens, claims, causes of action, administrative orders or notices, costs, fines, penalties or expenses (including, without limitation, reasonable attorney's fees and expenses) imposed upon, incurred by or asserted against any Indemnitee resulting from, either directly or indirectly, the presence during the Term (or any other time Tenant shall be in possession of the Leased Property) in, upon or under the soil or ground water of the Leased Property or any properties surrounding the Leased Property of any Hazardous Substances in violation of any Applicable Law or otherwise, provided that any of the foregoing arises by reason of any failure by Tenant, the Manager or any Person claiming by, through or under Tenant or the Manager to perform or comply with any of the terms of this Section 4.3, except to the extent the same arise from the acts or omissions of Landlord or any other Indemnitee or during any period that Landlord or a Person designated by Landlord (other than Tenant) is in possession of the Leased Property. Tenant's duty herein includes, but is not limited to, costs associated with personal injury or property damage claims as a result of the presence prior to the expiration or sooner termination of the Term and the surrender of the Leased Property to Landlord in accordance with the terms of this Agreement of Hazardous Substances in, upon or under the soil or ground water of the Leased Property. Upon Notice from Landlord and any other of the Indemnitees, Tenant shall undertake the defense, at Tenant's sole cost and expense, of any indemnification duties set forth herein, in which event, Tenant shall not be liable for payment of any duplicative attorneys' fees incurred by any Indemnitee. -25- Tenant shall, upon demand, pay to Landlord, as an Additional Charge, any cost, expense, loss or damage (including, without limitation, reasonable attorneys' fees) reasonably incurred by Landlord and arising from a failure of Tenant to observe and perform the requirements of this Section 4.3, which amounts shall bear interest from the date ten (10) days after written demand therefor is given to Tenant until paid by Tenant to Landlord at the Overdue Rate. 4.3.4 Survival. The provisions of this Section 4.3 shall survive the expiration or sooner termination of this Agreement. ARTICLE 5 MAINTENANCE AND REPAIRS 5.1 Maintenance and Repair. 5.1.1 Tenant's General Obligations. Tenant shall, at its sole cost and expense (except as expressly provided in Sections 5.1.3(b), 10.2.3 or 11.2), or shall direct the Manager or (following the Patriot Acquisition Date) Subtenant to, keep the Leased Property and all private roadways, sidewalks and curbs appurtenant thereto (and Tenant's Personal Property) in good order and repair, reasonable wear and tear excepted (whether or not the need for such repairs occurs as a result of Tenant's or the Manager's use, any prior use, the elements or the age of the Leased Property or Tenant's Personal Property or any portion thereof), and shall promptly make (or cause the Manager to make) all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term (concealed or otherwise). All repairs shall be made in a good, workmanlike manner, consistent with the Manager's and industry standards for like hotels in like locales, in accordance with all applicable federal, state and local statutes, ordinances, by-laws, codes, rules and regulations relating to any such work. Tenant shall not take or omit to take (and shall direct the Manager not to take or omit to take) any action, the taking or omission of which would materially and adversely impair the value or the usefulness of the Leased Property or any part thereof for its Permitted Use. Tenant's obligations under this Section 5.1.1 shall be limited in the event of any casualty or Condemnation as set forth in Sections 10.2 and 11.2 and also as set forth in Section 5.1.3(b) and Tenant's obligations with respect to Hazardous Substances are as set forth in Section 4.3. 5.1.2 FF&E Reserve. (a) Concurrently with the execution of this Agreement, Tenant has established a reserve account (the "FF&E Reserve") for each Hotel in the FF&E Bank. The purpose of the FF&E Reserve is to cover the cost of: (i) Replacements and renewals to any Hotel's furnishings, fixtures and equipment; -26- (ii) Certain routine repairs and maintenance to any Hotel building which are normally capitalized under GAAP such as exterior and interior repainting, resurfacing building walls, floors, roofs and parking areas, and replacing folding walls and the like; and (iii) Major repairs, alterations, improvements, renewals or replacements to any Hotel's buildings' structure, roof, or exterior facade, or to its mechanical, electrical, heating, ventilating, air conditioning, plumbing or vertical transportation systems. Tenant agrees that it will, from time to time, execute such reasonable documentation as may be requested by Landlord and any Hotel Mortgagee to assist Landlord and such Hotel Mortgagee in establishing or perfecting the Hotel Mortgagee's security interest in Landlord's residual interest in the funds which are in the FF&E Reserve, it being acknowledged and agreed that the funds in the FF&E Reserve are the property of Tenant; provided, however, that no such documentation shall contain any amendment to or modification of any of the provisions of this Agreement. It is understood and agreed that, during the Term, the FF&E Reserve may not be applied against debts secured by a Hotel Mortgage nor shall any Hotel Mortgagee have the right to approve the release of such funds pursuant to the terms of this Agreement unless and until Landlord shall default in its obligations to such Hotel Mortgagee. (b) Throughout the Term, Tenant shall transfer (as of the end of each month of the Term) into the FF&E Reserve an amount equal to five percent (5%) of Total Hotel Sales for such month. Together with the documentation provided to Landlord pursuant to Section 3.1.2(c), Tenant shall deliver to Landlord an Officer's Certificate setting forth the total amount of deposits made to and expenditures from the FF&E Reserve for the preceding Fiscal Year, together with a reconciliation of such expenditures with the applicable FF&E Estimate. (c) Prior to execution of this Agreement with respect to the 1998 calendar year and, thereafter, each year, on or before December 1 of the preceding year, Tenant shall prepare an estimate (the "FF&E Estimate") of FF&E Reserve expenditures necessary during the 1998 calendar year or the ensuing calendar year, as the case may be, and shall submit such FF&E Estimate to Landlord for its review and approval, which approval shall not be unreasonably withheld or delayed. In the event Landlord shall fail to respond within thirty (30) days after receipt of the FF&E Estimate, such FF&E Estimate shall be deemed approved by Landlord. All expenditures from the FF&E Reserve shall be (as to both the amount of each such expenditure and the timing thereof) both reasonable and necessary, given the objective that each Hotel will be maintained and operated to a standard comparable to competitive hotels. All expenditures from the FF&E Reserve may only be used to pay expenditures entered into on an "arm's length" basis with Persons that are not Affiliated Persons of Tenant, in each case without mark-up or the payment of allocated internal costs of Tenant or any Affiliated Person (except for a purchasing fee that may be paid to an Affiliated Person of Tenant in respect of any item purchased with funds from the FF&E Reserve in an amount not to exceed 3.5% of the lower of cost or the fair market value of such item. -27- (d) Tenant shall, consistent with the FF&E Estimate approved by Landlord, from time to time make expenditures from the FF&E Reserve as it deems necessary provided that Tenant shall not materially deviate from the FF&E Estimate approved by Landlord without the prior approval of Landlord, except in the case of emergency where immediate action is necessary to prevent imminent danger to person or property. (e) Upon the expiration or sooner termination of this Agreement, funds in the FF&E Reserve and all property purchased with funds from the FF&E Reserve during the Term shall be paid, granted and assigned to Landlord as Additional Charges. (f) Upon execution of this Agreement, Tenant has deposited the FF&E Funded Amount into the FF&E Reserve. The FF&E Funded Amount, together with amounts transferred into the FF&E Reserve in accordance with Section 5.1.2(b) hereof during the 1998 calendar year, shall be used to fund the expenditures identified in the FF&E Estimate for the 1998 calendar year, and to the extent of any excess, subsequent years. 5.1.3 Landlord's Obligations. (a) Except as otherwise expressly provided in this Agreement, Landlord shall not, under any circumstances, be required to build or rebuild any improvement on the Leased Property, or to make any repairs, replacements, alterations, restorations or renewals of any nature or description to the Leased Property, whether ordinary or extraordinary, structural or nonstructural, foreseen or unforeseen, or, except as provided in Sections 5.1.3(b), 10.2 and 11.2, to make any expenditure whatsoever with respect thereto, or to maintain the Leased Property in any way. Except as otherwise expressly provided in this Agreement, Tenant hereby waives, to the maximum extent permitted by law, the right to make repairs at the expense of Landlord pursuant to any law in effect on the date hereof or hereafter enacted. Landlord shall have the right to give, record and post, as appropriate, notices of nonresponsibility under any mechanic's lien laws now or hereafter existing. (b) If, at any time, funds in the FF&E Reserve shall be insufficient for necessary and permitted expenditures thereof or, pursuant to the terms of this Agreement, Tenant is required to make any expenditures in connection with any repair, maintenance or renovation with respect to the Leased Property and the amount of such disbursements or expenditures exceeds the amount on deposit in the FF&E Reserve or such repair, maintenance or renovation is not a permitted expenditure from the FF&E Reserve as described in Section 5.1.2(a)(i), (ii) and (iii), Tenant may, at its election, give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required repair, renovation or replacement, the estimated cost thereof and such other information with respect thereto as Landlord may reasonably require. Provided that no Event of Default shall have occurred and be continuing and Tenant shall otherwise comply with the applicable provisions of Article 6, Landlord shall, within ten (10) Business Days after such Notice, subject to and in accordance with the applicable provisions of Article 6, disburse such required funds to Tenant (or, if Tenant shall so -28- elect, directly to the Manager or any other Person performing the required work) and, upon such disbursement, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b); provided, however, that, in the event that Landlord shall elect not to disburse any funds pursuant to this Section 5.1.3(b), Tenant's sole recourse shall be to elect not to make the applicable repair, maintenance or renovation. 5.1.4 Nonresponsibility of Landlord, Etc. All materialmen, contractors, artisans, mechanics and laborers and other persons contracting with Tenant with respect to the Leased Property, or any part thereof, are hereby charged with notice that liens on the Leased Property or on Landlord's interest therein are expressly prohibited and that they must look solely to Tenant to secure payment for any work done or material furnished by Tenant, the Manager or for any other purpose during the term of this Agreement. Nothing contained in this Agreement shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialmen for the performance of any labor or the furnishing of any materials for any alteration, addition, improvement or repair to the Leased Property or any part thereof or as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any lien against the Leased Property or any part thereof nor to subject Landlord's estate in the Leased Property or any part thereof to liability under any Mechanic's Lien Law of any State in any way, it being expressly understood Landlord's estate shall not be subject to any such liability. 5.2 Tenant's Personal Property. Tenant shall provide and maintain throughout the Term all such Tenant's Personal Property as shall be necessary in order to operate in compliance with applicable Legal Requirements and Insurance Requirements and otherwise in accordance with customary practice in the industry for the Permitted Use and all of such Personal Property shall, upon the expiration or earlier termination of this Agreement, become the property of Landlord. If, from and after the Commencement Date, Tenant acquires an interest in any item of tangible personal property (other than motor vehicles) on, or in connection with, the Leased Property which belongs to anyone other than Tenant, Tenant shall require the agreements permitting such use to provide that Landlord or its designee may assume Tenant's rights and obligations under such agreement upon the termination of this Agreement and the assumption of management or operation of the Hotel by Landlord or its designee. 5.3 Yield Up. Upon the expiration or sooner termination of this Agreement, Tenant shall vacate and surrender the Leased Property to Landlord in substantially the same condition in which the Leased Property was in on the Commencement Date, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Agreement, reasonable wear and tear excepted (and casualty damage and Condemnation, in the event that this Agreement is terminated following a casualty or total Condemnation in accordance with Article 10 or Article 11 excepted). In addition, upon the expiration or earlier termination of this Agreement, Tenant shall, at Landlord's sole cost and expense, use its good faith efforts to transfer to and cooperate with Landlord or Landlord's nominee in connection with the processing of all applications for -29- licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental Entities which may be necessary for the use and operation of the Hotel as then operated. If requested by Landlord, Tenant will direct the Manager to continue to manage the Hotel after the expiration of the Term and for up to one hundred twenty (120) days, on such reasonable terms (which shall include a market rate management fee and an agreement to reimburse the Manager for its reasonable out-of-pocket costs and expenses, and reasonable administrative costs), as Landlord shall reasonably request. 5.4 Management Agreement. Tenant shall not, without Landlord's prior written consent, amend or modify the provisions of the Management Agreement which provide (i) that all amounts due from Tenant to the Manager shall be subordinate to all amounts due from Tenant to Landlord (provided that, as long as no Event of Default has occurred and is continuing, Tenant may pay amounts due the Manager under the Management Agreement), (ii) for operation of the Leased Property under the "Summerfield" name, (iii) that the Manager and their Affiliated Persons are prohibited from operating, managing or franchising another Summerfield Suites hotel within the designated area on Exhibit C and (iv) for termination thereof, at Landlord's option, upon the termination of this Agreement. Tenant shall not take any action, grant any consent or permit any action under the Management Agreement which might have a material adverse effect on Landlord, without the prior written consent of Landlord; provided, however, that Landlord's consent shall not be required in connection with any assignment of the Manager's rights under the Management Agreement to (x) any Affiliated Person of the Manager having the full power, right and authority to provide all services and organizational expertise as contemplated and required by the Management Agreement or (y) any Person who acquires all or substantially all of the management contracts of the Manager, provided that, in either such case, the Leased Property will retain the right to use the "Summerfield" name. In the event of an assignment pursuant to clause (y) preceding, provided that the successor Manager (i) assumes, in writing all obligations of the Manager under the Management Agreement, and (ii) has a Tangible Net Worth, as of the date of assignment, equal to the greater of the Tangible Net Worth of the Manager as of the date of this Agreement, and the Tangible Net Worth of the Manager as of the date of such assignment, the Manager shall be released from all liabilities arising under the Management Agreement from and after the effective date of such assignment. Tenant shall not agree to any change in the Manager (except as provided in the preceding sentences), to any change in the Management Agreement (except as provided in the preceding sentences), terminate the Management Agreement or permit the Manager to assign the Management Agreement (except as provided in the preceding sentences) without the prior written approval of Landlord in each instance; provided, however, that the Manager may grant a security interest in its right to receive payments under the Management Agreement without Landlord's prior written approval. -30- ARTICLE 6 IMPROVEMENTS, ETC. 6.1 Improvements to the Leased Property. Tenant shall not make, construct or install (and shall direct the Manager not to construct or install) any Capital Additions (other than Capital Additions of the type described in Section 5.1.2(a)(ii) and approved pursuant to Section 5.1.2(c)) with respect to any Property without, in each instance, obtaining Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned provided that (a) construction or installation of the same would not adversely affect or violate any Legal Requirement or Insurance Requirement applicable to such Property and (b) Landlord shall have received an Officer's Certificate certifying as to the satisfaction of the conditions set out in clause (a) above; provided, however, that no such consent shall be required in the event immediate action is required to prevent imminent danger to person or property. Prior to commencing construction of any Capital Addition, Tenant shall submit, or shall direct the Manager or (following the Patriot Acquisition Date) Subtenant to submit, to Landlord, in writing, a proposal setting forth, in reasonable detail, any such proposed improvement and shall provide to Landlord such plans and specifications, and such permits, licenses, contracts and such other information concerning the same as Landlord may reasonably request. Landlord shall have thirty (30) days to review all materials submitted to Landlord in connection with any such proposal. Failure of Landlord to respond to Tenant's or the Manager's proposal within thirty (30) days after receipt of all information and materials requested by Landlord in connection with the proposed improvement shall be deemed to constitute approval of the same. Without limiting the generality of the foregoing, such proposal shall indicate the approximate projected cost of constructing such proposed improvement and the use or uses to which it will be put. No Capital Addition shall be made which would tie in or connect any Leased Improvement with any other improvements on property adjacent to such Property (and not part of the Land) including, without limitation, tie-ins of buildings or other structures or utilities. Tenant shall not finance, and shall direct the Manager not to finance, the cost of any construction of such improvement by the granting of a lien on or security interest in such Property or such improvement, or Tenant's interest therein, without the prior written consent of Landlord, which consent may be withheld by Landlord in Landlord's sole discretion. Any such improvements shall, upon the expiration or sooner termination of this Agreement, remain or pass to and become the property of Landlord, free and clear of all encumbrances other than Permitted Encumbrances. 6.2 Salvage. All materials which are scrapped or removed in connection with the making of either Capital Additions or non-Capital Additions or repairs required by Article 5 shall be or become the property of the party that paid for such work. ARTICLE 7 LIENS 7.1 Liens. Subject to Article 8, Tenant shall not, directly or indirectly, create or allow to remain and shall promptly discharge, at its expense, any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or Tenant's leasehold interest therein or -31- any attachment, levy, claim or encumbrance in respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions, liens and other encumbrances which are consented to in writing by Landlord, (c) liens for those taxes of Landlord which Tenant is not required to pay hereunder, (d) subleases permitted by Section 16.1, (e) liens for Impositions or for sums resulting from noncompliance with Legal Requirements so long as (i) the same are not yet due and payable, or (ii) are being contested in accordance with Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors incurred in the ordinary course of business that are not yet due and payable or are for sums that are being contested in accordance with Article 8, (g) any Hotel Mortgages or other liens which are the responsibility of Landlord pursuant to the provisions of Article 19, and (h) Landlord Liens and any other voluntary liens created by Landlord. 7.2 Landlord's Lien. In addition to any statutory landlord's lien and in order to secure payment of the Rent and all other sums payable hereunder by Tenant, and to secure payment of any loss, cost or damage which Landlord may suffer by reason of Tenant's breach of this Agreement, Tenant hereby grants unto Landlord a security interest in and an express contractual lien upon Tenant's Personal Property (except motor vehicles and liquor licenses and permits), and Tenant's interest in all ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing) relating to the operation of the Hotels (the "Records") and all proceeds therefrom, subject to any Permitted Encumbrances; and such Tenant's Personal Property shall not be removed from the Leased Property at any time when a Default or an Event of Default has occurred and is continuing. Upon Landlord's request, Tenant shall execute and deliver to Landlord financing statements in form sufficient to perfect the security interest of Landlord in Tenant's Personal Property and the proceeds thereof in accordance with the provisions of the applicable laws of the relevant State. Tenant hereby grants Landlord an irrevocable limited power of attorney, coupled with an interest, to execute all such financing statements in Tenant's name, place and stead. The security interest herein granted is in addition to any statutory lien for the Rent. ARTICLE 8 PERMITTED CONTESTS Tenant shall have the right to contest the amount or validity of any Imposition, Legal Requirement, Insurance Requirement, Environmental Obligation, lien, attachment, levy, encumbrance, charge or claim (collectively, "Claims") as to the Leased Property, by appropriate legal proceedings, conducted in good faith and with due diligence, provided that (a) the foregoing shall in no way be construed as relieving, modifying or extending Tenant's obligation to pay any Claims as finally determined, (b) such contest shall not cause Landlord or Tenant to be in default under any mortgage or deed of trust encumbering the Leased Property (Landlord agreeing that any such mortgage or deed of trust shall permit Tenant to exercise the rights granted pursuant to this Article 8) or any interest therein or result in or reasonably be expected to result in a lien attaching to the Leased Property, (c) no part of the Leased Property nor any Rent therefrom shall be in any immediate danger of sale, forfeiture, attachment or loss, and (d) Tenant shall indemnify and hold harmless Landlord from and against any cost, claim, damage, penalty or reasonable expense, including reasonable attorneys' fees, incurred by Landlord in connection -32- therewith or as a result of Tenant's exercise of its rights under this Article 8. Landlord agrees to join in any such proceedings if required legally to prosecute such contest, provided that Landlord shall not thereby be subjected to any liability therefor (including, without limitation, for the payment of any costs or expenses in connection therewith) unless Tenant agrees by agreement in form and substance reasonably satisfactory to Landlord, to assume and indemnify Landlord with respect to the same. Tenant shall be entitled to any refund of any Claims and such charges and penalties or interest thereon which have been paid by Tenant or paid by Landlord to the extent that Landlord has been fully reimbursed by Tenant. If Tenant shall fail (x) to pay or cause to be paid any Claims when finally determined, (y) to provide reasonable security therefor, or (z) to prosecute or cause to be prosecuted any such contest diligently and in good faith, Landlord may, upon reasonable notice to Tenant (which notice shall not be required if Landlord shall reasonably determine that the same is not practicable), pay such charges, together with interest and penalties due with respect thereto, and Tenant shall reimburse Landlord therefor, upon demand, as Additional Charges. ARTICLE 9 INSURANCE AND INDEMNIFICATION 9.1 General Insurance Requirements. Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of the Leased Property, keep each Property and all property located therein or thereon, insured against the risks and in the amounts as follows and shall maintain, with respect to each Property, the following insurance: (a) "All-risk" property insurance, including insurance against loss or damage by fire, vandalism and malicious mischief, earthquake, explosion of steam boilers, pressure vessels or other similar apparatus, now or hereafter installed in the Hotel located at such Property, with the usual extended coverage endorsements, in an amount equal to one hundred percent (100%) of the then full Replacement Cost thereof (as defined in Section 9.2); (b) Business interruption insurance covering risk of loss during the lesser of the first twelve (12) months of reconstruction or the actual reconstruction period necessitated by the occurrence of any of the hazards described in subparagraph (a) above, in such amounts as may be customary for comparable properties in the area and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer; (c) Comprehensive general liability insurance, including bodily injury and property damage in a form reasonably satisfactory to Landlord (and including, without limitation, broad form contractual liability, independent contractor's hazard and completed operations coverage) in an amount not less than One Million Dollars ($1,000,000) per occurrence, Three Million Dollars ($3,000,000) in the aggregate and umbrella coverage of all such claims in an amount not less than Fifty Million Dollars ($50,000,000); -33- (d) Flood (if such Property is located in whole or in part within an area identified as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, or the Flood Disaster Protection Act of 1973, as amended (or any successor acts thereto)) and such other hazards and in such amounts as may be customary for comparable properties in the area; (e) Worker's compensation insurance coverage if required by applicable law for all persons employed by Tenant on such Property with statutory limits and otherwise with limits of and provisions in accordance with the requirements of applicable local, State and federal law, and employer's liability insurance as is customarily carried by similar employers; and (f) Such additional insurance as may be reasonably required, from time to time, by Landlord or any Hotel Mortgagee and which is customarily carried by comparable lodging properties in the area. 9.2 Replacement Cost. "Replacement Cost" as used herein shall mean the actual replacement cost of the property requiring replacement from time to time, including an increased cost of construction endorsement, less exclusions provided in the standard form of fire insurance policy. In the event either party believes that the then full Replacement Cost has increased or decreased at any time during the Term, such party, at its own cost, shall have the right to have such full Replacement Cost redetermined by an independent accredited appraiser approved by the other, which approval shall not be unreasonably withheld or delayed. The party desiring to have the full Replacement Cost so redetermined shall forthwith, on receipt of such determination by such appraiser, give Notice thereof to the other. The determination of such appraiser shall be final and binding on the parties hereto until any subsequent determination under this Section 9.2, and Tenant shall forthwith conform the amount of the insurance carried to the amount so determined by the appraiser. 9.3 Waiver of Subrogation. Landlord and Tenant agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the relevant State) with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom. In the event that any extra premium is payable by Tenant as a result of this provision, Landlord shall not be liable for reimbursement to Tenant for such extra premium. 9.4 Form Satisfactory, Etc. All insurance policies and endorsements required pursuant to this Article 9 shall be fully paid for, nonassessable and be issued by insurance carriers authorized to do business in the relevant State, having a general policy holder's rating of no less than B++ in Best's latest rating guide. All such policies described in Sections 9.1(a) through (d) shall include no deductible in excess of Two Hundred Fifty Thousand Dollars ($250,000) and, with the exception of the insurance described in Sections 9.1(e), shall name Landlord and any -34- Hotel Mortgagee as additional insureds, as their interests may appear. All loss adjustments shall be payable as provided in Article 10. Tenant shall cause all insurance premiums to be paid and shall deliver policies or certificates of insurance to Landlord prior to their effective date (and, with respect to any renewal policy, prior to the expiration of the existing policy). All such policies shall provide Landlord (and any Hotel Mortgagee if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy. In the event Tenant shall fail to effect such insurance as herein required, to pay the premiums therefor or to deliver such certificates to Landlord or any Hotel Mortgagee at the times required, Landlord shall have the right, but not the obligation, subject to the provisions of Section 12.5, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Charges, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid. 9.5 Blanket Policy. Notwithstanding anything to the contrary contained in this Article 9, Tenant's obligation to maintain the insurance herein required may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, provided, that (a) the coverage thereby afforded will not be reduced or diminished from that which would exist under a separate policy meeting all other requirements of this Agreement, and (b) the requirements of this Article 9 are otherwise satisfied. Without limiting the foregoing, the amounts of insurance that are required to be maintained pursuant to Section 9.1 shall be on a Hotel by Hotel basis, and shall be subject to only a per location aggregate limit, except for flood, earthquake and umbrella coverages. 9.6 No Separate Insurance. Tenant shall not take out separate insurance, concurrent in form or contributing in the event of loss with that required by this Article 9, or increase the amount of any existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of such insurance, including Landlord and all Hotel Mortgagees, are included therein as additional insureds and the loss is payable under such insurance in the same manner as losses are payable under this Agreement. In the event Tenant shall take out any such separate insurance or increase any of the amounts of the then existing insurance, Tenant shall give Landlord prompt Notice thereof. 9.7 Indemnification of Landlord. Notwithstanding the existence of any insurance provided for herein and without regard to the policy limits of any such insurance, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about any Property or adjoining sidewalks or rights of way, (b) any past, present or future use, misuse, non-use, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant, or any prior owner or operator of any Property, of any Property or Tenant's Personal Property or any litigation, proceeding or claim by governmental entities or other third parties to which Landlord is made a party or participant relating to any Property or Tenant's Personal Property or such use, misuse, non-use, condition, management, maintenance, or repair thereof including, failure to perform obligations (other than Condemnation proceedings) to which Landlord is made a party, (c) any Impositions that are the obligations of Tenant to pay pursuant to the applicable -35- provisions of this Agreement, and (d) any failure on the part of Tenant or anyone claiming under Tenant to perform or comply with any of the terms of this Agreement. Tenant, at its expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Landlord (and shall not be responsible for any duplicative attorneys' fees incurred by Landlord) or may compromise or otherwise dispose of the same, with Landlord's prior written consent (which consent may not be unreasonably withheld or delayed). In the event Landlord shall unreasonably withhold or delay its consent, Tenant shall not be liable pursuant to this Section 9.7 for any incremental increase in costs or expenses resulting therefrom. The obligations of Tenant under this Section 9.7 are in addition to the obligations set forth in Section 4.3 and shall survive the termination of this Agreement. ARTICLE 10 CASUALTY 10.1 Insurance Proceeds. Except as provided in the last clause of this sentence, all proceeds payable by reason of any loss or damage to any Property, or any portion thereof, and insured under any policy of insurance required by Article 9 (other than the proceeds of any business interruption insurance) shall be paid directly to Landlord (subject to the provisions of Section 10.2) and all loss adjustments with respect to losses payable to Landlord shall require the prior written consent of Landlord; provided, however, that, so long as no Event of Default shall have occurred and be continuing, all such proceeds less than or equal to Two Hundred Fifty Thousand Dollars ($250,000), calculated on a Property by Property basis, shall be paid directly to Tenant and such losses may be adjusted without Landlord's consent. If Tenant is required to reconstruct or repair such Property as provided herein, such proceeds shall be paid out by Landlord from time to time for the reasonable costs of reconstruction or repair of such Property necessitated by such damage or destruction, subject to and in accordance with the provisions of Section 10.2.4. Provided no Default or Event of Default has occurred and is continuing, any excess proceeds of insurance remaining after the completion of the restoration shall be paid to Tenant. In the event that the provisions of Section 10.2.1 are applicable, the insurance proceeds shall be retained by the party entitled thereto pursuant to Section 10.2.1. All salvage resulting from any risk covered by insurance shall belong to Landlord, provided any rights to the same have been waived by the insurer. 10.2 Damage or Destruction. 10.2.1 Damage or Destruction of Leased Property. If, during the Term, any Property shall be totally or partially destroyed and the Hotel located thereon is thereby rendered Unsuitable for Its Permitted Use, either Landlord or Tenant may, by the giving of Notice thereof to the other, terminate this Agreement with respect to such Property, in which event, whereupon, this Agreement shall terminate with respect to the affected Property, Landlord shall be entitled to retain the insurance proceeds payable on account of such damage and Tenant shall thereafter have no obligation to pay Rent as to such Property for periods arising after the effective date of termination. -36- 10.2.2 Partial Damage or Destruction. If, during the Term, any Property shall be totally or partially destroyed but the Hotel is not rendered Unsuitable for Its Permitted Use, Tenant shall promptly restore such Hotel as provided in Section 10.2.4 unless this Agreement is terminated as to such Hotel as provided in Section 10.2.3. 10.2.3 Insufficient Insurance Proceeds. If this Agreement is not otherwise terminated pursuant to this Article 10 and the cost of the repair or restoration of any Property exceeds the amount of insurance proceeds received by Landlord and Tenant pursuant to Section 9.1(a), (c), (d) or, if applicable, (f), Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that, if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement). In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord's sole election by Notice to Tenant, given within sixty (60) days after Tenant's notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property by Notice to the other, whereupon, this Agreement shall terminate with respect to the affected Property as provided in Section 10.2.1. It is expressly understood and agreed, however, that, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall, upon any insurable loss, pay over the amount of such deductible to Landlord at the time and in the manner herein provided for payment of the applicable proceeds to Landlord. 10.2.4 Disbursement of Proceeds. In the event Tenant is required to restore any Property pursuant to Section 10.2, Tenant shall (or shall direct the Manager or (following the Patriot Acquisition Date) Subtenant to) commence promptly and continue diligently to perform the repair and restoration of any Property (hereinafter called the "Work"), so as to restore such Property in compliance with all Legal Requirements and so that such Property shall be, to the extent practicable, substantially equivalent in value and general utility to its general utility and value immediately prior to such damage or destruction. Subject to the terms hereof, Landlord shall advance the insurance proceeds and any additional amounts payable by Landlord pursuant to Section 10.2.3 to Tenant regularly during the repair and restoration period so as to permit payment for the cost of any such restoration and repair. Any such advances shall be made not more than monthly within ten (10) Business Days after Tenant submits to Landlord a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord). Landlord may, at its option, condition advancement of said insurance proceeds and other amounts on (i) the absence of any Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, if available, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. -37- Landlord's obligation to disburse insurance proceeds under this Article 10 during the last two (2) years of the Term shall be subject to the release of such proceeds by any Hotel Mortgagee to Landlord; otherwise each such Hotel Mortgagee shall be obligated to make such funds available for Landlord's use in accordance with the terms of this Agreement. If any Hotel Mortgagee shall be unwilling to disburse insurance proceeds in accordance with the terms of this Agreement, Tenant shall have the right, by the giving of Notice thereof to Landlord within ten (10) Business Days after Tenant learns of such unwillingness, to treat such Property as rendered Unsuitable for its Permitted Use for purposes of Section 10.2.1. Tenant's obligation to restore the applicable Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Hotel Mortgagee to Landlord or directly to Tenant. Tenant's obligation to restore the affected Property pursuant to this Article 10 shall be subject to the release of available insurance proceeds by the applicable Hotel Mortgagee to Landlord or directly to Tenant and, in the event such proceeds are insufficient, Landlord electing to make such deficiency available therefor (and disbursement of such deficiency). 10.3 Damage Near End of Term. Notwithstanding any provisions of Section 10.1 or 10.2 to the contrary, if damage to or destruction of any Property occurs during the last twelve (12) months of the Term (including any exercised Extended Terms) and if such damage or destruction cannot reasonably be expected to be fully repaired and restored prior to the date that is six (6) months prior to the end of such Term, the provisions of Section 10.2.1 shall apply as if such Property had been totally or partially destroyed and the Hotel rendered Unsuitable for its Permitted Use. 10.4 Tenant's Property. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property shall be paid to Tenant and, to the extent necessary to repair or replace Tenant's Personal Property in accordance with Section 10.5, Tenant shall hold such proceeds in trust to pay the cost of repairing or replacing damaged Tenant's Personal Property. 10.5 Restoration of Tenant's Property. If Tenant is required to restore any Property as hereinabove provided, Tenant shall either (a) restore all alterations and improvements made by Tenant and Tenant's Personal Property, or (b) replace such alterations and improvements and Tenant's Personal Property with improvements or items of the same or better quality and utility in the operation of such Property. 10.6 No Abatement of Rent. Unless terminated by either party pursuant to this Article 10 (and then only with respect to the affected Property), this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any damage involving any Property (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder). The provisions of this Article 10 shall be considered an express agreement governing any cause of damage or destruction to any Property and, to the maximum extent permitted by law, no local or State statute, laws, rules, regulation or ordinance -38- in effect during the Term which provide for such a contingency shall have any application in such case. 10.7 Waiver. Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of any Property or any portion thereof. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation, Etc. If either (i) the whole of any Property shall be taken by Condemnation or (ii) a Condemnation of less than the whole of any Property renders any Property Unsuitable for Its Permitted Use, this Agreement shall terminate with respect to such Property, Tenant and Landlord shall seek the Award for their interests in the applicable Property as provided in Section 11.5 and, as the effective date of taking, the Minimum Rent payable hereunder shall be reduced by such Property's allocable share thereof. 11.2 Partial Condemnation. In the event of a Condemnation of less than the whole of any Property such that such Property is still suitable for its Permitted Use, Tenant shall, to the extent of the Award actually received by Tenant and any additional amounts disbursed by Landlord as hereinafter provided, commence promptly and continue diligently to restore the untaken portion of the Leased Improvements so that such Leased Improvements shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the Leased Improvements existing immediately prior to such Condemnation, in full compliance with all Legal Requirements, subject to the provisions of this Section 11.2. If the cost of the repair or restoration of such Property exceeds the amount of the Award, Tenant shall give Landlord Notice thereof which notice shall set forth in reasonable detail the nature of such deficiency and whether Tenant shall pay and assume the amount of such deficiency (Tenant having no obligation to do so, except that if Tenant shall elect to make such funds available, the same shall become an irrevocable obligation of Tenant pursuant to this Agreement). In the event Tenant shall elect not to pay and assume the amount of such deficiency, Landlord shall have the right (but not the obligation), exercisable at Landlord's sole election by Notice to Tenant given within sixty (60) days after Tenant's Notice of the deficiency, to elect to make available for application to the cost of repair or restoration the amount of such deficiency; provided, however, in such event, upon any disbursement by Landlord thereof, the Minimum Rent shall be adjusted as provided in Section 3.1.1(b). In the event that neither Landlord nor Tenant shall elect to make such deficiency available for restoration, either Landlord or Tenant may terminate this Agreement with respect to the affected Property, whereupon, the entire Award shall be retained by Landlord and Tenant shall thereafter have no obligation to pay Rent for periods arising after the effective date of termination. Subject to the terms hereof, Landlord shall contribute to the cost of restoration that part of the Award necessary to complete such repair or restoration, together with severance and other damages awarded for the taken Leased Improvements and any deficiency Landlord has agreed to disburse, to Tenant regularly during the restoration period so as to permit payment for the cost of such repair or restoration. Landlord may, at its option, condition advancement of such Award -39- and other amounts on (i) the absence of any Event of Default, (ii) its approval of plans and specifications of an architect satisfactory to Landlord (which approval shall not be unreasonably withheld or delayed), (iii) general contractors' estimates, (iv) architect's certificates, (v) unconditional lien waivers of general contractors, if available, (vi) evidence of approval by all governmental authorities and other regulatory bodies whose approval is required and (vii) such other certificates as Landlord may, from time to time, reasonably require. Landlord's obligation under this Section 11.2 to disburse the Award and such other amounts shall be subject to (x) the collection thereof by Landlord and (y) during the last two (2) years of the Term, the release of such Award by the applicable Hotel Mortgagee; otherwise each such Hotel Mortgagee shall be obligated to make such funds available for Landlord's use in accordance with the terms of this Agreement. If any Hotel Mortgagee shall be unwilling to disburse Award proceeds in accordance with the terms of this Agreement, by the giving of Notice thereof to Landlord within ten (10) Business Days after Tenant learns of such unwillingness, to treat such Property as rendered Unsuitable for its Permitted Use for purposes of Section 11.1. Tenant's obligation to restore the Leased Property shall be subject to the release of the Award by the applicable Hotel Mortgagee to Landlord or directly to Tenant. 11.3 Abatement of Rent. Unless terminated by either party pursuant to this Article 11 (and then only with respect to the affected Property), this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving any Property. The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving any Property and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such a contingency shall have any application in such case. 11.4 Temporary Condemnation. In the event of any temporary Condemnation of any Property or Tenant's interest therein, this Agreement shall continue in full force and effect and Tenant shall continue to pay, in the manner and on the terms herein specified, the full amount of the Rent. Tenant shall continue to perform and observe all of the other terms and conditions of this Agreement on the part of Tenant to be performed and observed. Provided no Event of Default has occurred and is continuing, the entire amount of any Award made for such temporary Condemnation allocable to the Term, whether paid by way of damages, rent or otherwise, shall be paid to Tenant. Tenant shall, promptly upon the termination of any such period of temporary Condemnation, at its sole cost and expense, restore such Property to the condition that existed immediately prior to such Condemnation, in full compliance with all Legal Requirements, unless such period of temporary Condemnation shall extend beyond the expiration of the Term, in which event Tenant shall not be required to make such restoration. For purposes of this Section 11.4, a Condemnation shall be deemed to be temporary if the period of such Condemnation is not expected to, and does not, exceed twelve (12) months. 11.5 Allocation of Award. Except as provided in Section 11.4 and the second sentence of this Section 11.5, the total Award shall be solely the property of and payable to Landlord. Any portion of the Award made for the taking of Tenant's leasehold interest in any Property, loss of business during the remainder of the Term, the taking of Tenant's Personal Property, or Tenant's removal and relocation expenses shall be the sole property of and payable to Tenant -40- (subject to the provisions of Section 11.2). In any Condemnation proceedings, Landlord and Tenant shall each seek its own Award in conformity herewith, at its own expense. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) should Tenant fail to make any payment of the Rent or any other sum (including, but not limited to, funding of the FF&E Reserve) payable hereunder when due; or (b) should Tenant fail to maintain the insurance coverages required under Article 9 and such failure shall continue for ten (10) Business Days after Notice thereof (except that no Notice shall be required if any such insurance coverages shall have lapsed); or (c) should Tenant default in the due observance or performance of any of the terms, covenants or agreements contained herein to be performed or observed by it (other than as specified in clauses (a) and (b) above) and such default shall continue for a period of fifteen (15) Business Days after Notice thereof from Landlord to Tenant; provided, however, that if such default is susceptible of cure but such cure cannot be accomplished with due diligence within such period of time and if, in addition, Tenant commences to cure or cause to be cured such default within fifteen (15) Business Days after Notice thereof from Landlord and thereafter prosecutes the curing of such default with all due diligence, such period of time shall be extended to such period of time (not to exceed an additional one hundred eighty (180) days in the aggregate) as may be necessary to cure such default with all due diligence; or (d) should an event of default by Tenant or any Affiliated Person as to Tenant occur and be continuing beyond the expiration of any applicable cure period under any of the Incidental Documents or the Management Agreement; or (e) should any material representation or warranty made by Tenant or any Affiliated Person as to Tenant under or in connection with this Agreement or any Incidental Document or in any document, certificate or agreement delivered in connection herewith or therewith prove to have been false or misleading in any material respect on the date when made or deemed made and the same shall continue for five (5) Business Days after Notice thereof from Landlord; or (f) should Tenant generally not be paying its debts as they become due or should Tenant make a general assignment for the benefit of creditors; or -41- (g) should any petition be filed by or against Tenant under the Federal bankruptcy laws, or should any other proceeding be instituted by or against Tenant seeking to adjudicate Tenant a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of Tenant's debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Tenant or for any substantial part of the property of Tenant and such proceeding is not dismissed within ninety (90) days after institution thereof, or should Tenant take any action to authorize or effect any of the actions set forth above in this paragraph; or (h) should Tenant cause or institute any proceeding for its dissolution or termination; or (i) should the estate or interest of Tenant in any Property or any part thereof be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of (x) one hundred and twenty (120) days after commencement thereof, unless the amount in dispute is less than $250,000, in which case Tenant shall give notice to Landlord of the dispute but Tenant may defend in any suitable way, and (y) thirty (30) days after receipt by Tenant of Notice thereof from Landlord (unless Tenant shall be contesting such lien or attachment in good faith in accordance with Article 8); or (j) should more than two-thirds (2/3) of the common stock of Patriot or Wyndham outstanding from time to time cease to be paired and traded together as a single unit and Landlord determines, in its reasonable judgement, that the occurrence of such event could have a material adverse effect on the ownership of operation of any Property or on Landlord; or (k) should any of Tenant or Manager, at any time prior to the Patriot Acquisition Date, cease to be a direct or indirect Subsidiary of SHC; or (l) should any of Tenant, Subtenant or Manager at any time after the Patriot Acquisition Date cease to be a direct or indirect Subsidiary of Patriot or Wyndham (provided, however that it shall not be an Event of Default if Manager ceases to be a direct or indirect Subsidiary of Wyndham or Patriot as a consequence of a transaction in which a Person acquires all or substantially all of the management contracts of Manager, provided, that each Hotel will retain the right to use the "Summerfield Suites" name); or (m) should any provision of the Special Charter Document Provisions be violated or modified after the Special Purpose Conditions Date, and such violation or modification continues for ten (10) Business Days after Notice thereof; then, and in any such event, Landlord, in addition to all other remedies available to it, may terminate this Agreement with respect to any or all of the Leased Property by giving Notice thereof to Tenant and upon the expiration of the time, if any, fixed in such Notice, this Agreement shall terminate with respect to all or the designated portion of the Leased Property -42- 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. 12.2 Remedies. None of (a) the termination of this Agreement pursuant to Section 12.1, (b) the repossession of the Leased Property or any portion thereof, (c) the failure of Landlord to re-let the Leased Property or any portion thereof, nor (d) the reletting of all or any of portion of the Leased Property, shall relieve Tenant of its liability and obligations hereunder, all of which shall survive any such termination, repossession or re-letting. In the event of any such termination, Tenant shall forthwith pay to Landlord all Rent due and payable with respect to the Leased Property through and including the date of such termination. Thereafter, Tenant, until the end of what would have been the Term of this Agreement in the absence of such termination, and whether or not the Leased Property or any portion thereof shall have been re-let, shall be liable to Landlord for, and shall pay to Landlord, as current damages, the Rent and other charges which would be payable hereunder for the remainder of the Term had such termination not occurred, less the net proceeds, if any, of any re-letting of the Leased Property, after deducting all reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Minimum Rent would have been payable hereunder if this Agreement had not been so terminated with respect to such of the Leased Property. At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages beyond the date of such termination, at Landlord's election, Tenant shall pay to Landlord an amount equal to the present value (discounted at the Interest Rate) of the excess, if any, of the Rent and other charges which would be payable 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 -43- 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 decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Subject to the last sentence of this paragraph, Landlord shall in no event be liable in any way whatsoever for any failure to relet all or any portion of the Leased Property, or, in the event that the Leased Property is relet, for failure to collect the rent under such reletting. To the maximum extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Leased Property, by reason of the occurrence and continuation of an Event of Default hereunder. Landlord covenants and agrees, in the event of any termination of this Agreement as a result of an Event of Default, to use reasonable efforts to mitigate its damages. 12.3 Tenant's Waiver. IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2, TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN THIS ARTICLE 12, AND THE BENEFIT OF ANY LAWS NOW OR HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT. 12.4 Application of Funds. Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant's current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the relevant State. 12.5 Landlord's Right to Cure Tenant's Default. If an Event of Default shall have occurred and be continuing, Landlord, after Notice to Tenant (which Notice shall not be required if Landlord shall reasonably determine immediate action is necessary to protect person or property), without waiving or releasing any obligation of Tenant and without waiving or releasing any Event of Default, may (but shall not be obligated to), at any time thereafter, make such payment or perform such act for the account and at the expense of Tenant, and may, to the -44- 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. 12.6 Sublease Termination or Modification. Notwithstanding anything to the contrary contained in this Agreement or any of the Incidental Documents: (a) a termination of the Sublease or any Incidental Document executed by Subtenant in connection with the termination of the Sublease, shall not be a default or Event of Default under this Agreement, provided that Tenant or a successor subtenant provides Landlord with reasonably acceptable substitute collateral to replace collateral pledged by Subtenant to secure Tenant's obligations under the leases; (b) a modification of Rent payable under the Sublease or the Term of the Sublease (including, without limitation, one or more renewals thereof) shall not be a Default or an Event of Default under this Agreement, provided that the Sublease Rent may not be less than the Rent payable under this Agreement, and the Sublease Term may not exceed the Term of this Agreement, and Tenant and Subtenant may enter into such modifications without Landlord's consent, but upon not less than ten (10) Business Days prior written notice; (c) at any time after the termination of the Sublease, Tenant shall be entitled to enter into a new sublease with an entity that is, directly or indirectly, a Subsidiary of Patriot or Wyndham, on such terms and subject to such documentation as Landlord reasonably requires, including, but not limited to, collateral documents pledging Subtenant's interest in the FF&E, FF&E Reserve, and similar security documents reasonably acceptable to Landlord; and (d) upon a termination of this Agreement, the Sublease shall immediately terminate. Notwithstanding the foregoing, Landlord does not waive any breach or default under this Agreement or the Incidental Documents, and Tenant shall not be excused from the performance of any obligations under this Agreement or the Incidental Documents due to the default by Subtenant under the Sublease. 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 -45- Rent and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all damages (direct or indirect) sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Agreement, to the extent applicable. Nothing contained herein shall constitute the consent, express or implied, of Landlord to the holding over of Tenant after the expiration or earlier termination of this Agreement. ARTICLE 14 LANDLORD'S NOTICE OBLIGATIONS; LANDLORD DEFAULT 14.1 Landlord Notice Obligation. Landlord shall give prompt Notice to Tenant of any matters affecting the Leased Property of which Landlord receives written notice or actual knowledge and, to the extent Tenant otherwise has no notice or actual knowledge thereof, Landlord shall be liable for any liabilities arising from the failure to deliver such Notice to Tenant. 14.2 Landlord's Default. If Landlord shall default in the performance or observance of any of its covenants or obligations set forth in this Agreement or any obligation of Landlord, if any, under any agreement affecting the Leased Property, the performance of which is not Tenant's obligation pursuant to this Agreement, and any such default shall continue for a period of ten (10) days after Notice thereof with respect to monetary defaults and thirty (30) days after Notice thereof with respect to non-monetary defaults from Tenant to Landlord and any applicable Hotel Mortgagee, or such additional period as may be reasonably required to correct the same, Tenant may declare the occurrence of a "Landlord Default" by a second Notice to Landlord and to such Hotel Mortgagee. Thereafter, Tenant may forthwith cure the same and, subject to the provisions of the following paragraph, invoice Landlord for costs and expenses (including reasonable attorneys' fees and court costs) incurred by Tenant in curing the same, together with interest thereon (to the extent permitted by law) from the date Landlord receives Tenant's invoice, at the Overdue Rate. Tenant shall have no right to terminate this Agreement for any default by Landlord hereunder and no right, for any such default, to offset or counterclaim against any Rent or other charges due hereunder. If Landlord shall in good faith dispute the occurrence of any Landlord Default and Landlord, before the expiration of the applicable cure period, shall give Notice thereof to Tenant, setting forth, in reasonable detail, the basis therefor, no Landlord Default shall be deemed to have occurred and Landlord shall have no obligation with respect thereto until final adverse determination thereof; provided, however, that in the event of any such adverse determination, Landlord shall pay to Tenant interest on any disputed funds at the Interest Rate, from the date demand for such funds was made by Tenant until the date of final adverse determination and, 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. -46- ARTICLE 15 PURCHASE RIGHTS 15.1 First Refusal to Purchase. Provided, (a) no Default or Event of Default shall have occurred and be continuing, (b) this Agreement shall be of full force and effect, and (c) other than as expressly permitted or required by Section 16 or consented to by Landlord (which consent may be given or withheld by Landlord in its sole discretion), Tenant shall not have assigned this Agreement or subleased all or any portion of the Leased Property, Tenant shall have a first refusal option to purchase the Leased Property upon the same price, terms and conditions as Landlord shall propose to sell the Leased Property, or upon the same price, terms and conditions of any offer from a third party to purchase the Leased Property which Landlord intends to accept (or has accepted subject to Tenant's right of first refusal herein provided); provided, however, that, if the proposed purchase price is for other than cash, Tenant shall have the right to purchase the Leased Property on cash equivalent terms determined by the agreement of the parties or, if they cannot agree within ten (10) Business Days, by arbitration in accordance with the rules of the American Arbitration Association then in effect. If, during the Term, Landlord reaches such agreement with a third party or proposes to offer the Leased Property for sale, Landlord shall promptly give written notice to Tenant of the purchase price and all other material terms and conditions of such agreement or proposed sale and Tenant shall have sixty (60) days thereafter to exercise Tenant's option to purchase by written notice to Landlord thereof. Failure of Tenant to respond within such 60-day period shall be deemed a waiver of Tenant's right to purchase the Leased Property with respect to such offer pursuant to this Section 15.1. If Tenant exercises its option, the sale to Tenant shall be consummated upon the same terms and conditions as contained in such agreement or Landlord's notice of the proposed sale. If Tenant shall not exercise its option to purchase within the time period and in the manner above provided, Landlord shall be free to sell the Leased Property to such third party at the price and upon terms substantially similar to those offered to Tenant. The rights granted to Tenant pursuant to this Section 15.1 shall not apply to any financing or sale-leaseback transaction or any transaction pursuant to which Landlord is merged or consolidated with another Person; provided, however, that any Person who shall acquire the Leased Premises shall acquire them subject to, and shall be bound by, the provisions of this Section 15.1. The provisions of this Section 15.1 shall inure to the benefit of Tenant and any permitted successors and assigns of Tenant pursuant to this Agreement. 15.2 Purchase by Tenant. In the event that, in the reasonable determination of Tenant, it shall no longer be economically practical to operate any Property as an "all suites" hotel, and Tenant and Landlord have not agreed on an alternative use for such Property or on the substitution of one or more other properties for such Property as provided in Section 4.1.1(b), Tenant may permanently cease operation of such Property (notwithstanding Section 4.1.1(a)) and concurrently give Landlord irrevocable written Notice (i) of Tenant's election to terminate this Agreement with respect to such Property and simultaneously purchase such Property from Landlord for a purchase price equal to one hundred twenty five percent (125%) of the Adjusted Purchase Price for such Property (the "Buyout Price") and (ii) certifying that Tenant has permanently ceased operating such Property as an "all suites" hotel. Such purchase shall occur on the Business Day designated in such Notice, which shall be a date not later than ninety (90) days after the date of such Notice (the "Purchase Date"). Landlord shall, upon receipt from -47- Tenant of the Buyout Price for such Property, together with full payment of any unpaid Rent and other charges due and payable with respect to any period ending on or before the Purchase Date, and so long as no Default or Event of Default shall have occurred and be continuing at such time, deliver to Tenant an appropriate deed and other instruments, conveying the entire interest of Landlord in and to such Property to Tenant, free and clear of all encumbrances created through the act or omission of Landlord, and such other documents as are customarily and reasonably required of sellers by title companies or purchasers. This Agreement shall thereupon terminate as to such Property. The Buyout Price and all other amounts to be paid to Landlord on the Purchase Date shall be paid in immediately available funds as directed by Landlord. Other than as specifically provided above, such Property shall be conveyed to Tenant on an "as is" basis, and in its then physical condition. The closing of any such sale shall be contingent upon and subject to Tenant's obtaining any required governmental consents and approvals for such transfer, provided that Landlord shall reasonably cooperate with Tenant in obtaining such consents and approvals. All expenses of such conveyance, including, without limitation, all transfer and sales taxes, documentary fees, the fees and expenses of counsel to Landlord and the cost of any title examination or title insurance, shall be for the account of Tenant. 15.3 Landlord's Option to Purchase Tenant's Personal Property; Transfer of Licenses. Landlord shall have the option to purchase Tenant's Personal Property, at the expiration or termination of this Agreement, for an amount equal to the then net market value thereof (current replacement cost as determined by appraisal less accumulated depreciation on Tenant's books pertaining thereto), subject to, and with appropriate price adjustments for, all equipment leases, conditional sale contracts, UCC-1 financing statements and other encumbrances to which such Personal Property is subject. Upon the expiration or sooner termination of this Agreement, Tenant shall use its best efforts to transfer and assign to Landlord or its designee, or assist Landlord or its designee in obtaining, any contracts, licenses, and certificates required for the then operation of the Leased Property. ARTICLE 16 SUBLETTING AND ASSIGNMENT 16.1 Subletting and Assignment. Except as provided in Section 16.3 and Section 16.4, Tenant shall not, without Landlord's prior written consent (which consent may be given or withheld in Landlord's sole and absolute, good faith, discretion), assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Agreement or sublease (which term shall be deemed to include the granting of concessions, licenses and the like), all or any part of the Leased Property or suffer or permit this Agreement or the leasehold estate created hereby or any other rights arising under this Agreement to be assigned, transferred, mortgaged, pledged, hypothecated or encumbered, in whole or in part, whether voluntarily, involuntarily or by operation of law, or permit the use or operation of the Leased Property by anyone other than Tenant and the Manager, or the Leased Property to be offered or advertised for assignment or subletting. For purposes of this Section 16.1, an assignment of this Agreement shall be deemed to include any direct or indirect transfer of any interest in Tenant such that Tenant shall cease to be a direct or indirect Subsidiary of SHC at any time prior to the Patriot Acquisition Date, or of Wyndham or Patriot at any time after the Patriot Acquisition Date, or any transaction pursuant to -48- which Tenant is merged or consolidated with another Entity or pursuant to which all or substantially all of Tenant's assets are transferred to any other Entity, as if such change in control or transaction were an assignment of this Agreement. If this Agreement is assigned or if the Leased Property or any part thereof are sublet (or occupied by anybody other than Tenant, the Manager and their respective employees or hotel guests) Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Section 16.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Agreement. No subletting or assignment shall in any way impair the continuing primary liability of Tenant hereunder (unless Landlord and Tenant expressly otherwise agree that Tenant shall be released from all obligations hereunder), and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the prohibition set forth in this Section 16.1. No assignment, subletting or occupancy shall affect any Permitted Use. Any subletting, assignment or other transfer of Tenant's interest under this Agreement in contravention of this Section 16.1 shall be voidable at Landlord's option. 16.2 Required Sublease Provisions. Any sublease of all or any portion of the Leased Property entered into on or after the date hereof shall provide (a) that it is subject and subordinate to this Agreement and to the matters to which this Agreement is or shall be subject or subordinate; (b) that in the event of termination of this Agreement or reentry or dispossession of Tenant by Landlord under this Agreement, Landlord may, at its option, terminate such sublease or take over all of the right, title and interest of Tenant, as sublessor under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any Hotel Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such mortgagee succeeds to that position, shall (i) be liable for any act or omission of Tenant under such sublease, (ii) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, (iii) be bound by any previous modification of such sublease not consented to in writing by Landlord or by any previous prepayment of more than one (1) month's Rent, (iv) be bound by any covenant of Tenant to undertake or complete any construction of the Leased Property or any portion thereof, (v) be required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, (vi) be bound by any obligation to make any payment to such subtenant or grant any credits, except for services, repairs, maintenance and restoration provided for under the sublease that are performed after the date of such attornment, (vii) be responsible for any monies owing by Tenant to the credit of such subtenant, or (viii) be required to remove any Person occupying any portion of the Leased Property; and (c), in the event that such subtenant receives a written Notice from Landlord or any Hotel Mortgagee stating that an Event of Default has occurred and is continuing, such subtenant 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 -49- subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn. An original counterpart of each such sublease and assignment and assumption, duly executed by Tenant and such subtenant or assignee, as the case may be, in form and substance reasonably satisfactory to Landlord, shall be delivered promptly to Landlord and (a) in the case of an assignment, the assignee shall assume in writing and agree to keep and perform all of the terms of this Agreement on the part of Tenant to be kept and performed and shall be, and become, jointly and severally liable with Tenant for the performance thereof and (b) in case of either an assignment or subletting, Tenant shall remain primarily liable, as principal rather than as surety, for the prompt payment of the Rent and for the performance and observance of all of the covenants and conditions to be performed by Tenant hereunder. The provisions of this Section 16.2 shall not be deemed a waiver of the provisions set forth in the first paragraph of Section 16.1. 16.3 Permitted Sublease. Notwithstanding the foregoing, including, without limitation, Section 16.1, but subject to the provisions of Section 16.5 and any other express conditions or limitations set forth herein Tenant may, in each instance after Notice to Landlord, sublease space at the Leased Property for newsstand, gift shop, parking garage, health club, restaurant, bar or commissary purposes or similar concessions in furtherance of the Permitted Use, so long as such subleases do not demise, in the aggregate, in excess of two thousand (2,000) square feet per Property, will not violate or affect any Legal Requirement or Insurance Requirement, and Tenant shall provide such additional insurance coverage applicable to the activities to be conducted in such subleased space as Landlord and any Hotel Mortgagee may reasonably require. 16.4 Patriot Acquisition. Notwithstanding the foregoing, including, without limitation, Section 16.1, but subject to the provisions of Section 16.5 and any other express conditions or limitations set forth herein, neither the transfer of interests in the Tenant and the General Partner, nor the sublease of the Leased Property to a Delaware limited partnership, the sole general partner of which is a Delaware corporation, each of which shall be is a direct or indirect Subsidiary of Patriot or Wyndham (the "Subtenant" and the "Subtenant General Partner," respectively) , in either case as contemplated in the Patriot Contribution Agreement, shall be deemed to violate any provision of this Agreement or any Incidental Document, provided that the following conditions shall have been satisfied to the satisfaction of Landlord prior to such transfer or sublease: (a) Landlord shall have received the following agreements (collectively, the "Patriot Acquisition Documents"), each duly executed by the parties thereto, and each in form and substance reasonably satisfactory to Landlord: (i) a sublease agreement between Tenant and Subtenant; (ii) a pledge and security agreement by Subtenant for the benefit of Landlord granting a security interest in the assets of Subtenant, and otherwise similar in form to the Tenant Security Agreement; (iii) an assignment and security agreement by Subtenant for the benefit of Landlord granting a security interest and lien in Subtenant's interest in the -50- FF&E Reserve, and otherwise similar in form to the Tenant FF&E Security Agreement; (iv) a partnership interest pledge agreement by all partners in Subtenant (including, without limitation, the Subtenant General Partner) for the benefit of Landlord granting a lien and security interest in their interests in Subtenant, and otherwise similar in form to the Tenant Pledge Agreement; (v) a pledge agreement by all partners and/or members in Subtenant General Partner for the benefit of Landlord granting a lien and security interest in their interests in Subtenant General Partner; and (vi) a guaranty agreement by Subtenant, Subtenant General Partner and Tenant General Partner in favor of the Landlord guaranteeing all obligations of Tenant; and (vii) amendments to the Tenant Pledge Agreement and the Tenant General Partner Pledge Agreement, reflecting, among other things, the transfer of the limited partnership interest in Tenant and the membership interest in Tenant General Partner to Patriot LP and the assumption by Patriot LP of the obligations of "Assignor" thereunder; (b) Each party to each Patriot Acquisition Documents shall have taken such action as Landlord shall have requested in order to perfect, or continue the perfection of, the security interests and pledges created pursuant to the Patriot Acquisition Documents or the other Incidental Documents, as amended, with the priority required thereby; (c) Landlord shall have received evidence satisfactory to it that charter or other organizational documents of Subtenant and Subtenant General Partner contain Special Charter Document Provisions; (d) The Patriot Acquisition shall have been consummated in accordance with the terms of the Patriot Contribution Agreement, without waiver of condition that could reasonably be expected to have a material adverse effect upon any Property or the interests of Landlord under this Agreement or any Incidental Document; (e) Giving effect to the Patriot Acquisition, no Default or Event of Default shall have occurred and be continuing; (f) Landlord shall have received a certificate of a senior executive officer of Patriot confirming satisfaction of the conditions described in paragraphs (d) and (e) above; (g) Landlord shall have received such other documents, opinions and certificates (including without limitation, evidence of licensure and permits, opinions of counsel to Patriot, and certificates of public officials and of officers of parties to the -51- Patriot Acquisition Documents) as Landlord shall have reasonably requested, each of which shall be in form and substance reasonably satisfactory to Landlord; and (h) Tenant shall have paid or caused to be paid all out-of-pocket costs and expenses of Landlord incurred in connection with the Patriot Acquisition. 16.5 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 17.1 Estoppel Certificates. At any time and from time to time, upon not less than ten (10) Business Days prior Notice by either party, the party receiving such Notice shall furnish to the other an Officer's Certificate certifying that this Agreement is unmodified and in full force and effect (or that this Agreement is in full force and effect as modified and setting forth the modifications), the date to which the Rent has been paid, that no Default or an Event of Default has occurred and is continuing or, if a Default or an Event of Default shall exist, specifying in reasonable detail the nature thereof, and the steps being taken to remedy the same, and such additional information as the requesting party may reasonably request. Any such certificate furnished pursuant to this Section 17.1 may be relied upon by the requesting party, its lenders and any prospective purchaser or mortgagee of the Leased Property or the leasehold estate created hereby. 17.2 Financial Statements. Tenant shall furnish or cause to have furnished, as applicable, the following statements to Landlord: (a) within forty-five (45) days after each of the first three quarters of any Fiscal Year, the most recent Consolidated Financials, accompanied by the Financial Officer's Certificate; (b) within ninety (90) days after the end of each Fiscal Year, the most recent Consolidated Financials for such year, certified by an independent certified public accountant reasonably satisfactory to Landlord and accompanied by a Financial Officer's Certificate; (c) within thirty (30) days after the end of each month, an unaudited operating statement, prepared on a Hotel by Hotel basis and a combined basis, including occupancy percentages and average rate, accompanied by a Financial Officer's Certificate; -52- (d) promptly after the sending or filing thereof, copies of all reports which Tenant, SHC (prior to the Patriot Acquisition Date) or Patriot (following the Patriot Acquisition Date), sends to its security holders generally, and copies of all periodic reports which Tenant, SHC (prior to the Patriot Acquisition Date) or Patriot (following the Patriot Acquisition Date) files with the SEC or any stock exchange on which its shares are listed or traded; (e) at any time and from time to time upon not less than twenty (20) days Notice from Landlord, any Consolidated Financials or any other financial reporting information required to be filed by Landlord with any securities and exchange commission, the SEC or any successor agency, or any other governmental authority, or required pursuant to any order issued by any court, governmental authority or arbitrator in any litigation to which Landlord is a party, for purposes of compliance therewith; and (f) promptly, upon Notice from Landlord, such other information concerning the business, financial condition and affairs of Tenant, SHC (prior to the Patriot Acquisition Date) and Patriot and Wyndham (following the Patriot Acquisition Date), as Landlord reasonably may request from time to time. Landlord may at any time, and from time to time, provide any Hotel Mortgagee with copies of any of the foregoing statements. In addition, Landlord shall have the right, from time to time at Landlord's sole cost and expense, upon reasonable Notice, during Tenant's customary business hours, to cause Tenant's books and records with respect to the Leased Property to be audited by auditors selected by Landlord at the place where such books and records are customarily kept. 17.3 General Operations. Tenant shall furnish to Landlord: (a) Within thirty (30) days after receipt or modification thereof, copies of all licenses with respect to any Hotel authorizing Tenant and/or the Manager to operate such Hotel for its Permitted Use; (b) Not less than thirty (30) days after the commencement of any Fiscal Year, proposed annual income and ordinary expense and capital improvement budgets, setting forth projected income and costs and expenses projected to be incurred by Tenant in managing, owning, maintaining and operating the Hotels, on both a combined and a Hotel-by-Hotel basis, during the next succeeding Fiscal Year; and (c) Promptly after receipt or sending thereof, copies of all notices given or received by Tenant under the Management Agreement. -53- ARTICLE 18 LANDLORD'S RIGHT TO INSPECT Tenant shall permit, and shall direct the Manager to permit, Landlord and its authorized representatives to inspect the Leased Property during usual business hours upon not less than twenty-four (24) hours' notice and to make such repairs as Landlord is permitted or required to make pursuant to the terms of this Agreement, provided that any inspection or repair by Landlord or its representatives will not unreasonably interfere with Tenant's use and operation of the Leased Property and further provided that in the event of an emergency, as determined by Landlord in its reasonable discretion, prior Notice shall not be necessary. ARTICLE 19 HOTEL MORTGAGES 19.1 Landlord May Grant Liens. Without the consent of Tenant, Landlord may, subject to the terms and conditions set forth in this Section 19.1, from time to time, directly or indirectly, create or otherwise cause to exist any lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased Property, or any portion thereof or interest therein, whether to secure any borrowing or other means of financing or refinancing. Notwithstanding anything to the contrary set forth in Section 19.2, any such Encumbrance shall include the right to prepay (whether or not subject to a prepayment penalty) and shall provide (subject to Section 19.2) that it is subject to the rights of Tenant under this Agreement. 19.2 Subordination of Lease. Subject to Section 19.1 and this Section 19.2, this Agreement, any and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages and deeds of trust, which may now or hereafter affect the Leased Property or any improvements thereon and/or any of such leases, whether or not such mortgages or deeds of trust shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages and deeds of trust, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and deeds of trust and all consolidations of such mortgages and deeds of trust. This section shall be self-operative and no further instrument of subordination shall be required provided that Tenant has received a nondisturbance and attornment agreement from each Superior Mortgagee and/or Superior Landlord, consistent with the provisions of this Section 19.2 and otherwise in form and substance reasonably satisfactory to Tenant. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or the trustee or beneficiary of any deed of trust or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Agreement is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest at the time referred to, is herein called "Superior Landlord" and any mortgage or deed of trust to which this Agreement is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder, trustee or beneficiary of a Superior Mortgage is -54- herein called "Superior Mortgagee". Tenant shall have no obligations under any Superior Lease or Superior Mortgage other than those expressly set forth in this Section 19.2. If any Superior Landlord or Superior Mortgagee or the nominee or designee of any Superior Landlord or Superior Mortgagee shall succeed to the rights of Landlord under this Agreement (any such person, "Successor Landlord"), whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, such Successor Landlord shall recognize Tenant's rights under this Agreement as herein provided and Tenant shall attorn to and recognize the Successor Landlord as Tenant's landlord under this Agreement and Tenant shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment (provided that such instrument does not alter the terms of this Agreement), whereupon, this Agreement shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Agreement, except that the Successor Landlord (unless formerly Landlord under this Agreement or its nominee or designee) shall not be (a) liable in any way to Tenant for any act or omission, neglect or default on the part of any prior Landlord under this Agreement, (b) responsible for any monies owing by or on deposit with any prior Landlord to the credit of Tenant (except to the extent actually paid or delivered to the Successor Landlord), (c) subject to any counterclaim or setoff which theretofore accrued to Tenant against any prior Landlord, (d) bound by any modification of this Agreement subsequent to such Superior Lease or Mortgage, or by any previous prepayment of Minimum Rent or Additional Rent for more than one (1) month in advance of the date due hereunder, which was not approved in writing by the Superior Landlord or the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor Landlord's interest in the Leased Property and the rents, income, receipts, revenues, issues and profits issuing from the Leased Property, (f) responsible for the performance of any work to be done by Landlord under this Agreement to render the Leased Property ready for occupancy by Tenant (subject to Landlord's obligations under Section 5.1.3(b) or with respect to any insurance or Condemnation proceeds), or (g) required to remove any Person occupying the Leased Property or any part thereof, except if such person claims by, through or under the Successor Landlord. Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid and Landlord agrees to provide Tenant with an instrument of nondisturbance and attornment from each such Superior Mortgagee and Superior Landlord in form and substance reasonably satisfactory to Tenant. Nothing contained in this Section 19.2 shall relieve Landlord from any liability to Tenant under this Agreement following the exercise of remedies by a Superior Mortgagee. 19.3 Notice to Mortgagee and Superior Landlord. Subsequent to the receipt by Tenant of Notice from Landlord as to the identity of any Hotel Mortgagee or Superior Landlord under a lease with Landlord, as ground lessee, which includes the Leased Property as part of the demised premises and which complies with Section 19.1 and 19.2 (which Notice shall be accompanied by a copy of the applicable mortgage or lease), no notice from Tenant to Landlord as to the Leased Property shall be effective unless and until a copy of the same is given to such Hotel Mortgagee or Superior Landlord at the address set forth in the above described Notice, and the curing of any of Landlord's defaults by such Hotel Mortgagee or Superior Landlord shall be treated as performance by Landlord. -55- ARTICLE 20 ADDITIONAL COVENANTS OF TENANT 20.1 Prompt Payment of Indebtedness. Tenant shall (a) pay or cause to be paid when due all payments of principal of and premium and interest on Tenant's Indebtedness for money borrowed and shall not permit or suffer any such Indebtedness to become or remain in default beyond any applicable grace or cure period, (b) pay or cause to be paid when due all lawful claims for labor and rents with respect to the Leased Property, (c) pay or cause to be paid when due all trade payables and (d) pay or cause to be paid when due all other of Tenant's Indebtedness upon which it is or becomes obligated, except, in each case, other than that referred to in clause (a), to the extent payment is being contested in good faith by appropriate proceedings in accordance with Article 8 and if Tenant shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP, if appropriate, or unless and until foreclosure, distraint sale or other similar proceedings shall have been commenced. 20.2 Conduct of Business. Tenant shall not engage in any business other than the leasing and operation of the Leased Property and shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate or partnership existence, as applicable, and its rights and licenses necessary to conduct such business. 20.3 Maintenance of Accounts and Records. Tenant shall keep true records and books of account of Tenant in which full, true and correct entries will be made of dealings and transactions in relation to the business and affairs of Tenant in accordance with GAAP, where applicable, Tenant shall apply accounting principles in the preparation of the financial statements of Tenant which, in the judgment of and the opinion of its independent public accountants, are in accordance with GAAP, where applicable, except for changes approved by such independent public accountants. Tenant shall provide to Landlord either in a footnote to the financial statements delivered under Section 17.2 which relate to the period in which such change occurs, or in separate schedules to such financial statements, information sufficient to show the effect of any such changes on such financial statements. 20.4 Notice of Litigation, Etc. Tenant shall give prompt Notice to Landlord of any litigation or any administrative proceeding to which it may hereafter become a party of which Tenant has notice or actual knowledge which involves a potential uninsured liability equal to or greater than Two Hundred Fifty Thousand Dollars ($250,000) or which, in Tenant's reasonable opinion, may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or condition, financial or other, of Tenant. Forthwith upon Tenant obtaining knowledge of any Default, Event of Default or any default or event of default under any agreement relating to Indebtedness for money borrowed in an aggregate amount exceeding, at any one time, Two Hundred Fifty Thousand Dollars ($250,000), or any event or condition that would be required to be disclosed in a current report filed by Tenant on Form 8-K or in Part II of a quarterly report on Form 10-Q if Tenant were required to file such reports under the Securities Exchange Act of 1934, as amended, Tenant shall furnish Notice thereof to Landlord specifying the nature and period of existence thereof and what action Tenant has taken or is taking or proposes to take with respect thereto. -56- 20.5 Indebtedness of Tenant. Tenant shall not create, incur, assume or guarantee, or permit to exist, or become or remain liable directly or indirectly upon, any Indebtedness except the following: (a) Indebtedness of Tenant to Landlord; (b) Indebtedness of Tenant for Impositions, to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Article 8; (c) Indebtedness of Tenant in respect of judgments or awards (i) which have been in force for less than the applicable appeal period and in respect of which execution thereof shall have been stayed pending such appeal or review, or (ii) which are fully covered by insurance payable to Tenant, or (iii) which are for an amount not in excess of $250,000 in the aggregate at any one time outstanding and (x) which have been in force for not longer than the applicable appeal period, so long as execution is not levied thereunder or (y) in respect of which an appeal or proceedings for review shall at the time be prosecuted in good faith in accordance with the provisions of Article 8, and in respect of which execution thereof shall have been stayed pending such appeal or review; (d) operating liabilities incurred in the ordinary course of Tenant's business; (e) Indebtedness incurred to finance the acquisition of equipment or personal property acquired in accordance with Section 6.1; provided that (i) the terms of such Indebtedness permit assumption by Landlord or an Affiliated Person thereof, and are otherwise approved by Landlord in writing (which approval shall not be unreasonably withheld, delayed or conditioned), and (ii) any Lien securing such Indebtedness is permitted by Section 20.9(a); and (f) fees payable to the Manager pursuant to the Management Agreement; provided however that (i) no fees shall be paid to the Manager upon the occurrence and during the continuance of a Default or Event of Default and (ii) such fees shall be fully subordinated in right of payment the payment of Rent hereunder. 20.6 Financial Condition of Tenant. Tenant shall at all times maintain Tangible Net Worth in an amount of not less than $15,000,000 (provided, however, that it is expressly understood and agreed that the amount of the Security Deposit may for such purpose be counted as equity at the full amount thereof). 20.7 Distributions, Payments to Affiliated Persons, Etc. Tenant shall not declare, order, pay or make, directly or indirectly, any Distribution or payment to, or investment in, any Affiliated Person of Tenant (including payments in the ordinary course of business and payments pursuant to management agreements with any such Affiliated Person) or set apart any sum or property therefor, or agree to do so, if, at the time of such proposed action, or immediately after giving effect thereto, an Event of Default shall exist. Otherwise, as long as no Event of Default shall have occurred and be continuing, Tenant may make Distributions, loans and payments to -57- Affiliated Persons (other than from the FF&E Reserve, which shall be governed by Section 5.1.2) without restriction. 20.8 Prohibited Transactions. Tenant shall not permit to exist or enter into any agreement or arrangement whereby it engages in a transaction of any kind with any Affiliated Person as to Tenant, except on terms and conditions which are commercially reasonable or as otherwise provided in Section 20.5(e). 20.9 Liens and Encumbrances. Except as permitted by Section 7.1, Tenant shall not create or incur or suffer to be created or incurred or to exist any Lien on this Agreement or any of Tenant's assets, properties, rights or income, or any of its interest therein, now or at any time hereafter owned, other than: (a) Liens securing Indebtedness incurred in accordance with Section 20.5(e); provided, however, that (i) such Lien shall at all times be confined solely to the asset in question, and (ii) the aggregate principal amount of Indebtedness secured by any such Lien shall not exceed the cost of acquisition or construction of the property subject thereto; (b) Permitted Encumbrances; and (c) As permitted pursuant to Section 20.5(b) or (c). 20.10 Merger; Sale of Assets; Etc. Except as otherwise permitted by this Agreement, Tenant shall not (i) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, all or any material portion of its assets (including capital stock) or business to any Person, (ii) merge into or with or consolidate with any other Entity, or (iii) sell, lease (as lessor or sublessor), transfer or otherwise dispose of, or abandon, any personal property or fixtures or any real property; provided, however, that, notwithstanding the provisions of clause (iii) preceding, Tenant may dispose of equipment or fixtures which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility (but not necessarily having the same function) have been provided. ARTICLE 21 REPRESENTATIONS AND WARRANTIES 21.1 Representations of Tenant. To induce Landlord to enter into this Agreement, Tenant represents and warrants to Landlord as follows: 21.1.1 Status and Authority of Tenant. Tenant is a limited partnership duly organized, validly existing and in corporate good standing under the laws of the State of Kansas. The Tenant General Partner is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Tenant and the Tenant General Partner Tenant have all requisite power and authority under the laws of its state of formation and -58- its respective charter documents to enter into and perform its obligations under this Agreement and the Incidental Documents and to consummate the transactions contemplated hereby. Each of Tenant and the Tenant General Partner has duly qualified to transact business in each jurisdiction in which the nature of the business conducted by it requires such qualification. 21.1.2 Action of Tenant. Each of Tenant and Tenant General Partner have taken all necessary action to authorize the execution, delivery and performance of this Agreement; this Agreement constitutes the valid and binding obligation and agreement of Tenant, enforceable against Tenant in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. 21.1.3 No Violations of Agreements. Neither the execution, delivery or performance of this Agreement by Tenant, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon Tenant or the Leased Property pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other material agreement or instrument by which Tenant or, to Tenant's knowledge, the Leased Property is bound. 21.1.4 Litigation. To Tenant's knowledge, and except as set forth in sections 3.9 and 3.10 of the Disclosure Schedule attached to the Purchase Agreements, no action or proceeding is pending or threatened and no investigation looking toward such an action or proceeding has begun, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto, will result in any material adverse change in the business, operation, affairs or condition of the Leased Property or Tenant, result in or subject the Leased Property or Tenant to a material liability, or involves condemnation or eminent domain proceedings against any part of the Leased Property. 21.1.5 Existing Leases, Agreements, Etc. To Tenant's knowledge, other than any agreements provided to Landlord prior to the date hereof, there are no material agreements affecting the Leased Property which will be binding on Landlord subsequent to the Commencement Date. 21.1.6 Disclosure. To Tenant's knowledge there is no fact or condition which materially and adversely affects the business or condition of the Leased Property which has not been set forth in this Agreement or in the other documents, certificates or statements furnished to Landlord in connection with the transactions contemplated hereby. 21.1.7 Utilities, Etc. To Tenant's knowledge, all utilities and services necessary for the use and operation of the Leased Property (including, without limitation, road access, gas, water, electricity and telephone) are available thereto, are of sufficient capacity to meet adequately all needs and requirements necessary for the current use and operation of the Leased Property and for its intended purposes. To Tenant's knowledge, no fact, condition or proceeding exists which would result in the termination or material impairment of the furnishing of such utilities to the Leased Property. -59- 21.1.8 Compliance With Law. To Tenant's knowledge, the Leased Property and the use and operation thereof do not violate any material federal, state, municipal and other governmental statutes, ordinances, by-laws, rules, regulations or any other legal requirements, including, without limitation, those relating to construction, occupancy, zoning, adequacy of parking, environmental protection, occupational health and safety and fire safety applicable thereto; and there are presently in effect all material licenses, permits and other authorizations necessary for the current use, occupancy and operation thereof. To Tenant's knowledge, there is no threatened request, application, proceeding, plan, study or effort which would materially adversely affect the present use or zoning of the Leased Property or which would modify or realign any adjacent street or highway in a manner which would materially adversely affect the use and operation of the Leased Property. 21.1.9 Hazardous Substances. Except as disclosed to Landlord in writing or as described in any environmental report delivered to Landlord, to Tenant's knowledge, no tenant or other occupant or user of the Leased Property, or any portion thereof, has stored or disposed of (or engaged in the business of storing or disposing of) or has released or caused the release of any Hazardous Substances, and, to Tenant's knowledge, except as disclosed to Landlord in writing or as described in any environmental report delivered to Landlord, the Leased Property is free from any such Hazardous Substances, except any such materials maintained in accordance with Applicable Law. 21.2 Representations of Landlord. To induce Tenant to enter in this Agreement, Landlord represents and warrants to Tenant as follows: 21.2.1 Status and Authority of Landlord. Landlord is a real estate investment trust duly organized, validly existing and in corporate good standing under the laws of the State of Maryland. Landlord has all requisite power and authority under the laws of its state of formation and its respective charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. Landlord has duly qualified to transact business in each jurisdiction in which the nature of the business conducted by it requires such qualification. 21.2.2 Action of Landlord. Landlord has taken all necessary action to authorize the execution, delivery and performance of this Agreement; this Agreement constitutes the valid and binding obligation and agreement of Landlord, enforceable against Landlord in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. 21.2.3 No Violations of Agreements. Neither the execution, delivery or performance of this Agreement by Landlord, nor compliance with the terms and provisions hereof, will result in any material breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any material property or assets of Landlord pursuant to the terms of any material indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Landlord is bound. -60- 21.2.4 Litigation. No investigation, action or proceeding is pending and, to Landlord's knowledge, no action or proceeding is threatened and no investigation looking toward such an action or proceeding has begun, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto. 21.3 Survival, Etc. The representations and warranties set forth in Sections 21.1.5 shall remain in effect only for a one-year period after the date hereof. Except as otherwise expressly provided in this Agreement, Tenant disclaims the making of any representations or warranties, express or implied, regarding the Leased Property or matters affecting the Leased Property, whether made by Tenant, on Tenant's behalf or otherwise, including, without limitation, the physical condition of the Leased Property, title to or the boundaries of the Land, pest control matters, soil conditions, the presence, existence or absence of hazardous wastes, toxic substances or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering characteristics, traffic patterns, market data, economic conditions or projections, and any other information pertaining to the Leased Property or the market and physical environments in which it is located. Landlord acknowledges (i) that Landlord has entered into this Agreement with the intention of making and relying upon its own investigation or that of third parties with respect to the physical, environmental, economic and legal condition of the Leased Property and (ii) that Landlord is not relying upon any statements, representations or warranties of any kind, other than those specifically set forth in this Agreement or in any document to be delivered to Landlord by Tenant. Landlord further acknowledges that it has not received from or on behalf of Tenant any accounting, tax, legal, architectural, engineering, property management or other advice with respect to this transaction and is relying solely upon the advice of third party accounting, tax, legal, architectural, engineering, property management and other advisors. Subject to the provisions of this Agreement, Landlord shall purchase the Leased Property in its "as is" condition on the date hereof. ARTICLE 22 MISCELLANEOUS 22.1 Limitation on Payment of Rent. All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under applicable law, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount. This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant. -61- 22.2 No Waiver. No failure by Landlord or Tenant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy consequent upon a breach thereof, and no acceptance of full or partial payment of Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term. To the maximum extent permitted by law, no waiver of any breach shall affect or alter this Agreement, which shall continue in full force and effect with respect to any other then existing or subsequent breach. 22.3 Remedies Cumulative. To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord or Tenant, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord or Tenant (as applicable) of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies. 22.4 Severability. Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein. 22.5 Acceptance of Surrender. No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 22.6 No Merger of Title. It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly this Agreement or the leasehold estate created hereby and the fee estate or ground landlord's interest in the Leased Property. 22.7 Conveyance by Landlord. If Landlord or any successor owner of all or any portion of the Leased Property shall convey all or any portion of the Leased Property in accordance with the terms hereof other than as security for a debt, and the grantee or transferee of such of the Leased Property shall expressly assume all obligations of Landlord hereunder arising or accruing from and after the date of such conveyance or transfer, Landlord or such successor owner, as the case may be, shall, provided such successor owner shall have a Tangible Net Worth of not less than Five Million Dollars ($5,000,000), (y) such conveyance shall occur subsequent to the first anniversary of the Commencement Date and (z) Landlord shall transfer in cash any unapplied balance of the Security Deposit to such successor owner, thereupon be released from all future liabilities and obligations of Landlord under this Agreement with respect to such of the Leased Property arising or accruing from and after the date of such conveyance or other transfer and all such future liabilities and obligations shall thereupon be binding upon the new owner. -62- 22.8 Quiet Enjoyment. Provided that no Event of Default shall have occurred and be continuing, Tenant shall peaceably and quietly have, hold and enjoy the Leased Property for the Term, free of hindrance or molestation by Landlord or anyone claiming by, through or under Landlord, but subject to (a) any Encumbrance permitted under Article 19 or otherwise permitted to be created by Landlord hereunder provided that the holder of such Encumbrance has, to the extent appropriate, executed a nondisturbance agreement pursuant to Section 19.2 or a subordination agreement in form and substance reasonably acceptable to Tenant, (b) all Permitted Encumbrances, (c) liens as to obligations of Landlord that are either not yet due or which are being contested in good faith and by proper proceedings, provided the same do not materially interfere with Tenant's ability to operate the Hotel, and (d) liens that have been consented to in writing by Tenant. Except as otherwise provided in this Agreement, no failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Agreement or abate, reduce or make a deduction from or offset against the Rent or any other sum payable under this Agreement, or to fail to perform any other obligation of Tenant hereunder. 22.9 Memorandum of Lease. Neither Landlord nor Tenant shall record this Agreement. However, Landlord and Tenant shall promptly, upon the request of the other, enter into a short form memorandum of this Agreement, in form suitable for recording under the laws of the relevant State in which reference to this Agreement, and all options contained herein, shall be made. The parties shall share equally all costs and expenses of recording such memorandum. 22.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, -63- if to Landlord to: 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 (prior to the Patriot Acquisition Date) to: c/o Summerfield Hotel Corporation 8100 E. 22nd Street North Building 500 Wichita, KS 67226 Attn: John R. Morse Telecopier: (316) 681-5157 -64- with a copy to: Cooley Godward LLP One Maritime Plaza 20th Floor San Francisco, CA 94111-3580 Attn: Paul Churchill if to Tenant (after the Patriot Acquisition Date) to: c/o Wyndham International, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: General Counsel Telecopier: 214-863-1986 with a copy to: Locke, Purnell, Rain, Harrell 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201 Attn: J. Mitchell Bell, Esq. Telecopier No. (214) 740-8800 (d) By notice given as herein provided, the parties hereto and their respective successor and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America. 22.11 Trade Area Restriction. Neither Tenant nor any of its Affiliated Persons shall own, build, franchise, manage or operate any Summerfield Suites hotel within the designated area on Exhibit C, at any time during the Term; it being expressly understood and agreed that hotels other than Summerfield Suites hotels (e.g., garden, full service, Sierra Suites or resort hotels) are not subject to the foregoing restriction. 22.12 Construction. Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration. In no event shall Landlord be liable for any consequential damages suffered by Tenant as the result of a breach of this Agreement by Landlord. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party to be charged. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition. Time is of the essence with respect to the provisions of this Agreement. Except as otherwise set forth in -65- this Agreement, any obligations of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement. 22.13 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Headings in this Agreement are for purposes of reference only and shall not limit or affect the meaning of the provisions hereof. 22.14 Applicable Law, Etc. This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of The Commonwealth of Massachusetts which are to be performed entirely within The Commonwealth of Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (vii) any combination of the foregoing. To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by law; and the parties consent to the jurisdiction of said court or courts located in The Commonwealth of Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law. 22.15 Nonrecourse. Nothing contained in this Agreement shall be construed to impose any liabilities or obligations on SHC or any of its shareholders for the payment or performance of the obligations or liabilities of Tenant under this Agreement. 22.16 Confidentiality. Except to prospective lenders and purchasers or as may be required by law, the SEC or any securities and exchange commission, Landlord shall not disclose any of Tenant's confidential or proprietary information to any Person. 22.17 Nonliability of Trustees. THE DECLARATION OF TRUST ESTABLISHING LANDLORD, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED WITH THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HPTSHC PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF LANDLORD SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, LANDLORD. ALL -66- 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: HPTSHC PROPERTIES TRUST By:___________________________ Its (Vice) President TENANT: SUMMERFIELD HPT LEASE COMPANY, L.P., a Kansas limited partnership By: Summerfield HPT Lease Company L.L.C., its General Partner By: /s/ B.Anthony Isaac Its: President EXHIBITS A-1 THROUGH A-15 The Land [See attached copies.] EXHIBIT B
Allocated Purchase Prices Amount of Amount of Purchase Price Allocated Purchase Price Allocable to Purchase Allocable to Personal Name of Hotel Price Real Estate Property ------------- ----- ----------- -------- Atlanta Buckhead, GA $9,292,317 $8,363,085 $929,232 Atlanta Perimeter, GA $11,504,294 $10,353,865 $1,150,429 Chatsworth, CA $10,006,248 $9,005,623 $1,000,625 Dulles, DC $14,769,565 $13,292,609 $1,476,957 Malvern, PA $16,702,184 $15,031,966 $1,670,218 Orlando International Drive, FL $19,947,407 $17,952,666 $1,994,741 Orlando Lake Buena Vista, FL $22,197,980 $19,978,182 $2,219,798 Princeton, NJ $17,135,363 $15,421,827 $1,713,536 St. Louis, MO $9,329,874 $8,396,887 $932,987 San Francisco Airport, CA $10,723,122 $9,650,810 $1,072,312 San Jose, CA $21,430,335 $19,287,302 $2,143,034 Schaumburg, IL $12,075,270 $10,867,743 $1,207,527 Somerset, NJ $23,607,072 $21,246,365 $2,360,707 Sunnyvale, CA $26,530,762 $23,877,686 $2,653,076 Torrance, CA $14,748,207 $13,273,386 $1,474,821 ----------- ----------- ---------- TOTALS $240,000,000 $216,000,000 $24,000,000 ============ ============ ===========
EXHIBIT C Restricted Trade Area [See attached copy.] EXHIBIT D Disclosure Schedule [See attached copy.] EX-12 13
Exhibit 12 Hospitality Properties Trust Computation of Ratio to Fixed Charges (in thousands, except ratio amounts) For the Period February 7, 1995 (inception) to For the Year For the Year December 31, ended December ended December 1995 31, 1996 31, 1997 Income $11,349 $51,664 $59,153 Fixed Charges 5,063 5,646 15,534 ------- ------- ------- Adjusted Earnings $16,412 $57,310 $74,687 ======= ======= ======= Fixed charges: Interest on indebtedness and amortizaton of deferred finance cost $ 5,063 $ 5,646 $15,534 ------- ------- ------- Total Fixed Charges $ 5,063 $ 5,646 $15,534 ======= ======= ======= Ratio of Earnings to Fixed Charges 3.24x 10.15x 4.81x
EX-21 14 Exhibit 21 Subsidiary State of Incorporation - ----------------------------------------------- ----------------------- HPTCY Corporation Delaware HPTRI Corporation Delaware HPTWN Corporation Delaware Hospitality Properties Mortgage Acceptance Corp. Delaware HPTSLC Corporation Delaware HPTMI Corporation Delaware HPTMI II Properties Trust Maryland HPT Suite Properties Trust Maryland HPT CW Properties Trust Maryland HPTSHC Properties Trust Maryland HPTCY Properties Trust Maryland HPTMI Properties Trust Maryland HPTSLC Properties Trust Maryland HPTRI Properties Trust Maryland HPTWN Properties Trust Maryland EX-23.1 15 EXHIBIT 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports incorporated into this Form 10-K into the Company's previously filed Registration Statement File No. 333-43573. /s/ Arthur Andersen LLP Washington, D.C. March 30, 1998 EX-99 16 EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 11, 1998 HOSPITALITY PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland (State or other 1-11527 04-3262075 jurisdiction of (Commission (IRS Employer incorporation) File Number) Identification No.) 400 Centre Street, Newton, MA 02158 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 617-964-8389 CERTAIN IMPORTANT FACTORS This Current Report contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Current Report and include statements regarding the intent, belief or expectations of Hospitality Properties Trust (the "Company"), its Trustees or its officers with respect to the declaration or payment of dividends, the consummation of additional acquisitions, policies and plans of the Company regarding investments, dispositions, financings, conflicts of interest or other matters, the Company's qualification and continued qualification as a real estate investment trust or trends affecting the Company's or any hotel's financial condition or results of operations. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contained in the forward looking statement as a result of various factors. Such factors include without limitation changes in financing terms, the Company's ability or inability to complete acquisitions and financing transactions, results of operations of the Company's hotels and general changes in economic conditions not presently contemplated. The accompanying information contained in this Form 8-K, including the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations", and in the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1996, including under the captions "Item 5 Business and Properties" and in Exhibit 99 thereof, identifies other important factors that could cause such differences. THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21, 1995 A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 2 Item 5. Other Events A. The Company issued an aggregate of 12,000,000 common shares of beneficial interest in its previously announced and reported public offering. The shares were issued on December 12, 1997, and the gross proceeds were $397 million. The net proceeds were used to pay all outstanding borrowings under the Company's revolving line of credit which were at a floating rate, for hotel acquisitions and for general business purposes. B. The Company entered into an Advisory Agreement (the "New Advisory Agreement") with REIT Management & Research, Inc., a Delaware corporation (the "New Advisor"). The New Advisory Agreement was effective as of January 1, 1998 and replaced the Advisory Agreement dated as of November 20, 1986, as amended (the "Old Advisory Agreement"), between the Company and HRPT Advisors, Inc., a Delaware corporation (the "Old Advisor"). The terms of the New Advisory Agreement are substantially the same as those of the Old Advisory Agreement. The persons who were officers and directors of the Old Advisor as of December 31, 1997 are the officers and directors of the New Advisor, each holding the same office or offices. They are David J. Hegarty, President and Secretary, John G. Murray, Executive Vice President, John A. Mannix, Vice President, Thomas M. O'Brien, Vice President, Ajay Saini, Vice President, David M. Lepore, Vice President and John Popeo, Treasurer, and Gerard M. Martin and Barry M. Portnoy, as Directors. Each of Messrs. Martin and Portnoy own 50% of the outstanding capital stock of both the Old Advisor and the New Advisor. C. Management's Discussion and Analysis of Results of Operations and Financial Condition The following information is provided in connection with the financial statements filed as Item 7 to this Current Report. Overview The Company was organized on February 7, 1995 and commenced operations on March 24, 1995 with the acquisition of its first 21 hotels. The Company completed its initial public offering of shares and acquired an additional 16 hotels on August 22, 1995. Because the Company did not operate for the entire year 1995, the Company believes it is meaningful to an understanding of its operations to discuss the Company's 1995 pro forma results of operations as well as its historical results of operations. The following discussion should be read in conjunction with the financial statements and the notes thereto included elsewhere herein. Pro forma results and percentage relationships set forth in the financial highlights section and in such financial statements may not be indicative of the future operations of the Company. Historical and Pro Forma Results of Operations Year Ended December 31, 1997 versus Year Ended December 31, 1996 The Company's assets increased to $1,313 million as of December 31, 1997 from $872 million as of December 31, 1996. The increase resulted primarily from hotel acquisitions completed in 1997. In January 1997 the Company purchased a full service hotel in Salt Lake City, Utah for $44.0 million. In March 1997 the Company agreed to acquire 10 Residence Inn by Marriott(R) hotels (1,276 suites) and four Courtyard by Marriott(R) hotels (543 rooms) for $149 million and acquired all these properties in 1997 after they opened. In September 1997 the Company agreed to acquire from Marriott six Courtyard by Marriott(R) hotels (829 rooms) and three Residence Inn by Marriott(R) hotels (507 suites) for $129 million. As of February 11, 1998, three of these hotels have been acquired; the remaining six are expected to be acquired periodically during the remainder of 1998. In November 1997 the Company acquired 14 Sumner Suites(R) hotels (1,641 suites) for $140 million. In November 1997 the Company agreed to acquire 15 Candlewood(R) hotels for $100 million. Five of these 15 Candlewood(R) hotels were acquired in 1997. An additional 5 properties were acquired in January 1998. The remaining hotels are expected to be acquired during 1998. These acquisitions were funded through the use of cash on hand, borrowings on the company's line of credit, and the net proceeds from the offering of 12,000,000 common shares of beneficial interest ("Shares") in December 1997. Total revenues in 1997 were $114.1 million versus 1996 revenues of $82.6 million. Total revenues were comprised principally of base and percentage rent of $98.6 million and FF&E reserve income of $14.6 million in 1997 versus $69.5 million and $12.2 million, respectively, in the 1996 period. The Company's results are reflective of the full year impact of 45 hotels acquired in 1996 and the impact of the 1997 completion of 37 of the 53 hotel acquisitions announced in 1997. During 1997 the Company earned percentage rent revenue of $2.5 million ($0.09/Share) versus $1.1 million ($0.05/Share) in 1996, as a result of increases in gross hotel revenues at the Company's hotels. Total expenses in 1997 were $55.0 million (including interest expense and depreciation and amortization of real estate assets of $15.5 and $31.9 million, respectively) versus 1996 expenses of $31.0 million (including interest expense and depreciation and amortization of $5.6 million and $20.4 million, respectively). A portion of the hotels purchased in 1997 were temporarily financed with proceeds from the Company's line of credit which was ultimately repaid with the proceeds of the Company's 12,000,000 Share offering in December 1997. These line of credit proceeds, plus the amounts outstanding on certain prepayable mortgage notes issued by a subsidiary of the Company, gave rise to interest expense of $15.5 million in 1997 versus $5.6 million in 1996 when amounts on the Company's line of credit were smaller, were outstanding for shorter periods and during which the Company's mortgage notes were not in place for the entire period. The substantial increase in the number of hotels owned by 3 the Company has also proportionately increased the Company's general expense levels, including depreciation and general and administrative expenses. The Company incurred $713,000 of costs in 1997 in connection with a terminated acquisition attempt. Net income in 1997 was $59.2 million ($2.15/Share) and cash available for distribution ("CAD") was $79.3 million ($2.88/Share) versus $51.7 million ($2.23 per Share) and CAD of $60.8 million ($2.62/Share). Growth in net income and CAD is primarily related to the effects of acquisitions in 1996 and 1997. Cash flow provided by (used for) operating, investing and financing activities was $81.2 million, ($347.3 million) and $309.7 million, respectively, for the year ended December 31, 1997. Year Ended December 31, 1996 versus Pro Forma Year Ended December 31, 1995 The Company's assets increased to $871.6 million as of December 31, 1996 from $338.9 million at December 31, 1995. The increase primarily resulted from three hotel portfolio acquisitions completed during 1996. In March and April of 1996, the Company acquired 16 Courtyard by Marriott(R) hotels for $176.4 million and 18 Residence Inn(R) by Marriott hotels for $172.2 million. In May 1996, the Company acquired 11 Wyndham Garden(R) hotels for $135.3 million. These acquisitions were funded through the use of cash on hand, borrowings on the Company's line of credit, and the net proceeds from the offering of 14,250,000 Shares in April 1996. Total revenues in 1996 were $82.6 million versus pro forma 1995 revenue of $39.9 million. Total revenues were comprised principally of base and percentage rent of $69.5 million and FF&E reserve income of $12.2 million in 1996 versus $33.3 million and $6.4 million, respectively, in the pro forma period. The Company's results of operations in 1996 are reflective of the growth in the number of owned hotels to 82, from 37 at year end 1995. The leases for the Company's 82 hotels at December 31, 1996 call for base rent of $81.3 million annually, versus $32.9 million for the 37 hotels owned at December 31, 1995. During 1996, the Company earned revenue of approximately $1.1 million ($0.05/Share) in percentage rents from its portfolio of 53 Courtyard hotels, reflective of continued increases in Total Hotel Sales at these properties. Total expenses in 1996 were $31.0 million, including interest expense and depreciation and amortization of $5.6 million and $20.4 million, respectively, versus pro forma 1995 expenses of $11.8 million, including depreciation and amortization of $9.2 million. A portion of the hotels purchased in 1996 were financed with proceeds from the Company's line of credit which was ultimately repaid with prepayable floating rate mortgages. Such debt financing in 1996 gave rise to the $5.6 million of interest expense referred to above, versus zero for pro forma 1995, when the Company did not use third-party debt. The substantial increase in the number of hotels owned by the Company has also proportionately increased the Company's general expense levels, including depreciation and amortization and general and administrative expenses. Net income in 1996 was $51.7 million ($2.23 per Share) and CAD for the period was $60.8 million ($2.62 per Share), based in both cases on average outstanding Shares for the period of 23,170,000. This compares with pro forma 1995 net income of $28.0 million ($2.22 per Share) and CAD of $30.8 million ($2.45 per Share), based in both cases upon 12,600,900 outstanding Shares. This 7% growth in CAD is primarily related to the effects of the Company's 1996 hotel acquisitions and related financing activity as well as growth in percentage rent to $1.1 million in 1996 from $0.4 million in the 1995 pro forma period. During April 1996, the Company completed an offering of 14,250,000 Shares raising net proceeds of approximately $358 million to fund its acquisitions and more than doubling its equity capitalization and shares outstanding. Cash flow provided by (used for) operating, investing and financing activities was $61.7 million, ($448.7 million) and $422.9 million, respectively, for the year ended December 31, 1996. February 7, 1995 (Inception) Through December 31, 1995 Total revenues from Inception through December 31, 1995 were $23.6 million, which included base and percentage rent of $19.5 million and FF&E reserve income of $4.0 million. Total expenses for the period were $12.3 million, including interest expense and depreciation and amortization of $5.0 million and $5.8 million, respectively. Net income for the period was $11.3 million ($2.51 per Share) and CAD for the period was $13.2 million ($2.91 per Share), based in both cases on average outstanding Shares for the period of 4,515,000. From Inception until completion of its initial public offering on August 22, 1995, the Company was a 100% owned subsidiary of Health and Retirement Properties Trust ("HRP") and was initially capitalized with $1 million of equity and $163.3 million of debt. The debt was 4 provided by HRP at rates which were lower than the market rates which the Company would have paid on a stand alone basis. Accordingly, the Company does not believe that its results of operations while it was a wholly owned subsidiary of HRP are comparable to subsequent periods. Cash flow provided by (used for) operating, investing and financing activities was $14.1 million, ($303.7 million) and $291.6 million, respectively, for the year ended December 31, 1996. Pro Forma Year Ended December 31, 1995 The pro forma results of operations assume that the Company's formation transactions, the initial public offering of Shares and the acquisition and leasing of the 37 hotels and related transactions all occurred on January 1, 1995. On this pro forma basis, total revenues would have been $39.9 million (principally base and percentage rents of $33.3 million and FF&E reserve income of $6.4 million). Total expenses would have been $11.8 million (including depreciation and amortization of $9.2 million and general and administrative expenses of $2.6 million). Net income would have been $28.0 million or $2.22 per Share, and CAD would have been $30.8 million or $2.45 per Share, based in both cases upon 12,600,900 Shares outstanding. Liquidity and Capital Resources The Company's primary source of cash to fund its dividends, interest and day to day operations is the base and percentage rent it receives. Base rent is paid monthly in advance and percentage rent is paid either monthly or quarterly in arrears. This flow of funds from rent has historically been sufficient for the Company to pay dividends, interest and meet day to day operating expenses. The Company believes that its operating cash flow will be sufficient to meet its operating expenses, interest and dividend payments. In order to fund acquisitions and to accommodate occasional cash needs which may result from timing differences between the receipt of rents and the need to pay dividends or operating expenses, the Company has entered into a line of credit arrangement was with DLJ Mortgage Capital, Inc. ("DLJMC"). The line of credit (the "DLJMC Line of Credit") is for up to $200 million, all of which was available at December 31, 1997. During 1997 the Company expanded its credit facilities with DLJMC temporarily to provide up to $455 million. Drawings under the DLJMC Line of Credit are secured by first mortgage liens on certain of the Company's hotels. Funds may be drawn, repaid and redrawn until maturity, and no principal repayment is due until maturity. The DLJMC Line of Credit matures on December 31, 1998. Interest on borrowings under the DLJMC Line of Credit are payable until maturity at a spread above LIBOR; and interest during the extended term, if any, will be set at market rates at the time the loan is extended. During 1996, subsidiaries of the Company issued $125 million of mortgage notes (the "Notes") secured by such subsidiaries' assets, including 18 Residence Inn by Marriott(R) and 11 Wyndham Garden(R) hotels. The mortgage loan was financed by the issuance of $125 million commercial mortgage pass-through certificates through a trust created by another of the Company's subsidiaries. The certificates were sold in a Rule 144A private placement to institutional investors. The Notes carry interest that floats with one-month LIBOR plus a spread and are due December 1, 2001, but may be prepaid by the Company at any time without penalty. In connection with this issuance of the Notes, the Company entered into interest rate cap agreements for $125 million (notional amount) with a major financial institution which limit the Company's maximum interest rate exposure to 7.6925% on this debt. The Company expects to use existing cash balances, borrowings under the DLJMC Line of Credit or other lines of credit and/or net proceeds of offerings of equity or debt securities to fund future hotel acquisitions. To the extent the Company borrows on a line of credit, the Company will explore various alternatives in both the timing and method of repayment of such amounts. Such alternatives may include incurring long term debt. On January 15, 1997, the Company's shelf registration statement for up to $2 billion of securities, including debt securities, was declared effective by the Securities and Exchange Commission (the "SEC"). An effective shelf registration statement enables the Company to issue specific securities to the public on an expedited basis by filing a prospectus supplement with the SEC. The Company has recently held preliminary discussions with several banks concerning the possibility of replacing the DLJMC Line of Credit. The Company is also exploring the prepayment of the Notes with the proceeds of an issuance of unsecured term debt securities. No assurance can be made that a new credit facility will be available to the Company on acceptable terms or that a prepayment of the Notes will occur. 5 Although there can be no assurance that the Company will consummate any debt or equity security offerings or other financings, the Company believes it will have access to various types of financing in the future, including debt or equity securities offerings, with which to finance future acquisitions. Seasonality The Company's hotels have historically experienced seasonal differences typical of the hotel industry with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters. This seasonality is not expected to cause fluctuations in the Company's rental income because the Company believes that the revenues generated by its hotels will be sufficient for the lessees to pay rents on a regular basis notwithstanding seasonal fluctuations. Inflation The Company believes that inflation should not have a material adverse effect on the Company. Although increases in the rate of inflation may tend to increase interest rates which the Company may be required to pay for borrowed funds, the Company has a policy of obtaining interest rate caps in appropriate circumstances to protect it from interest rate increases. In addition, the Company's leases provide for the payment of percentage rent to the Company based on increases in total sales, and such rent should increase with inflation. Certain Considerations The discussion and analysis of the Company's financial condition and results of operations requires the Company to make certain estimates and assumptions and contains certain statements of the Company's beliefs, intent or expectation concerning projections, plans, future events and performance. The estimates, assumptions and statements, such as those relating to the Company's ability to expand its portfolio, performance of its assets, the ability to pay dividends, its tax status as a "real estate investment trust," the ability to appropriately balance the use of debt and equity and to access capital markets, depend upon various factors over which the Company and/or the Company's lessees have or may have limited or no control. Those factors include, without limitation, the status of the economy, capital markets (including prevailing interest rates), compliance with the changes to regulations within the hospitality industry, competition, changes to federal, state and local legislation and other factors. The Company cannot predict the impact of these factors, if any. However, these factors could cause the Company's actual results for subsequent periods to be different from those stated, estimated or assumed in this discussion and analysis of the Company's financial condition and results of operations. The Company believes that its estimates and assumptions are reasonable and prudent at this time. Item 7. Financial Statements and Schedule and Exhibits (a) Index to Financial Statements and Financial Statement Schedule (see index on page F-1). (a) List of exhibits. 10 Advisory Agreement by and between REIT Management & Research, Inc. and Hospitality Properties Trust dated January 1, 1998. 12 Ratio of Earnings to Fixed Charges. 23 Consent of Arthur Andersen LLP. 27 Financial data schedule. 6 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.................................. F-2 Consolidated Balance Sheet as of December 31, 1997 and 1996 .............. F-3 Consolidated Statement of Income for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995. F-4 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995...................................................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1997 and 1996 and the period February 7, 1995 (inception) to December 31, 1995.................................................................. F-6 Notes to Consolidated Financial Statements................................ F-7 Report of Independent Public Accountants on Schedule III ................. F-11 Schedule III - Real Estate and Accumulated Depreciation .................. F-12 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders of Hospitality Properties Trust: We have audited the accompanying consolidated balance sheet of Hospitality Properties Trust (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended December 31, 1997, 1996 and the period from February 7, 1995 (inception) to December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hospitality Properties Trust as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, and for the period from February 7, 1995 (inception) to December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Washington, D.C. January 16, 1998 F-2
HOSPITALITY PROPERTIES TRUST CONSOLIDATED BALANCE SHEET As of December 31, ---------------------------- 1997 1996 (in thousands, except Share data) ASSETS Real estate properties, at cost: Land ................................................. $ 179,928 $ 143,462 Buildings and improvements ........................... 1,086,107 699,225 ---------- --------- 1,266,035 842,687 Less accumulated depreciation ........................ (58,167) (26,218) ---------- --------- 1,207,868 816,469 Cash and cash equivalents ............................. 81,728 38,073 Rent receivable ....................................... 1,623 1,671 Restricted cash (FF&E reserve) ........................ 11,165 7,277 Other assets, net ..................................... 10,872 8,113 ---------- --------- $1,313,256 $ 871,603 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Security deposits ..................................... $ 146,662 $ 81,360 Debt .................................................. 125,000 125,000 Dividends payable ..................................... 24,493 15,846 Due to affiliate ...................................... 2,464 2,376 Accounts payable and other ............................ 6,744 1,813 ---------- --------- Total liabilities .................................... 305,363 226,395 Shareholders' equity: Preferred shares of beneficial interest, no par value, 100,000,000 shares authorized, none issued .......... -- -- Common shares of beneficial interest, $.01 par value, 100,000,000 shares authorized, 38,878,295 and 26,856,800 shares issued and outstanding ............ 389 269 Additional paid-in capital ........................... 1,033,073 656,253 Cumulative net income ................................ 122,166 63,013 Dividends (paid or declared) ......................... (147,735) (74,327) ---------- --------- Total shareholders' equity ........................... 1,007,893 645,208 ---------- --------- $1,313,256 $ 871,603 ========== =========
See accompanying notes. F-3
HOSPITALITY PROPERTIES TRUST CONSOLIDATED STATEMENT OF INCOME February 7, 1995 Year Ended December 31, (inception) to --------------------------- December 31, 1997 1996 1995 (in thousands, except per Share data) Revenues: Rental income ............................................... $ 98,561 $ 69,514 $ 19,531 FF&E reserve income ......................................... 14,643 12,169 4,037 Interest income ............................................. 928 946 74 --------- -------- -------- Total revenues ............................................ 114,132 82,629 23,642 --------- -------- -------- Expenses: Interest (including amortization of deferred finance costs of $1,340, $341 and $24, respectively)...................... 15,534 5,646 5,063 Depreciation and amortization of real estate assets ......... 31,949 20,398 5,820 Terminated acquisition costs ................................ 713 -- -- General and administrative .................................. 6,783 4,921 1,410 --------- -------- -------- Total expenses ............................................ 54,979 30,965 12,293 --------- -------- -------- Net income ................................................... $ 59,153 $ 51,664 $ 11,349 ========= ======== ======== Weighted average Shares outstanding .......................... 27,530 23,170 4,515 Net income per Share ......................................... $ 2.15 $ 2.23 $ 2.51 ========= ======== ======== See accompanying notes.
F-4
HOSPITALITY PROPERTIES TRUST CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Additional Cumulative Number Of Common Paid-In Net Shares Shares Capital Income Dividends Total (in thousands, except Share data) Initial capitalization as of February 7, 1995 (inception) . 40,000 $ -- $ 960 $ -- $ -- $ 960 Issuance of Common Shares of Beneficial Interest, net ..... 12,560,000 126 296,980 -- -- 297,106 Stock grants .................. 900 -- 22 -- -- 22 Net income .................... -- -- -- 11,349 -- 11,349 Dividends (paid or declared) .. -- -- -- -- (11,486) (11,486) ---------- ---- ---------- -------- ---------- ---------- Balance at December 31, 1995 .. 12,600,900 $126 $ 297,962 $ 11,349 $ (11,486) $ 297,951 ========== ==== ========== ======== ========== ========== Issuance of Common Shares of Beneficial Interest, net ..... 14,250,000 $143 $ 358,136 $ -- $ -- $ 358,279 Stock grants .................. 5,900 -- 155 -- -- 155 Net income .................... -- -- -- 51,664 -- 51,664 Dividends (paid or declared) .. -- -- -- -- (62,841) (62,841) ---------- ---- ---------- -------- ---------- ---------- Balance at December 31, 1996 .. 26,856,800 $269 $ 656,253 $ 63,013 $ (74,327) $ 645,208 ========== ==== ========== ======== ========== ========== Issuance of Common Shares of Beneficial Interest, net ..... 12,000,000 $120 $ 376,146 $ -- $ -- $ 376,266 Stock grants .................. 21,495 -- 674 -- -- 674 Net income .................... -- -- -- 59,153 -- 59,153 Dividends (paid or declared) .. -- -- -- -- (73,408) (73,408) ---------- ---- ---------- -------- ---------- ---------- Balance at December 31, 1997 .. 38,878,295 $389 $1,033,073 $122,166 $ (147,735) $1,007,893 ========== ==== ========== ======== ========== ==========
See accompanying notes. F-5
HOSPITALITY PROPERTIES TRUST CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended February 7, 1995 December 31, (inception) to ------------------------------ December 31, 1997 1996 1995 (in thousands) Cash flows from operating activities: Net income ................................................... $ 59,153 $ 51,664 $ 11,349 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization .............................. 31,949 20,398 5,820 Amortization of deferred finance costs as interest ......... 1,340 341 24 FF&E reserve income ........................................ (14,643) (12,169) (4,037) Changes in assets and liabilities: Increase in rent receivable and other assets ............. (469) (1,566) (182) Increase in accounts payable and other ................... 3,419 1,926 396 Increase in due to affiliate ............................. 476 1,149 770 ---------- ---------- ---------- Cash provided by operating activities .................... 81,225 61,743 14,140 ---------- ---------- ---------- Cash flows from investing activities: Real estate acquisitions ..................................... (409,799) (491,638) (332,648) Increase in security deposits ................................ 65,302 48,460 32,900 Purchase of FF&E reserve ..................................... (2,794) (5,500) (3,904) ---------- ---------- ---------- Cash used in investing activities ........................ (347,291) (448,678) (303,652) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from issuance of Shares, net ........................ 376,266 358,279 198,088 Draws on credit facility and debt issuance ................... 261,000 240,650 -- Repayments of credit facility ................................ (261,000) (115,650) -- Deferred finance costs incurred .............................. (1,784) (6,481) (1,885) Borrowings and advances from HRP ............................. -- -- 165,241 Payments on borrowings and advances from HRP ................. -- -- (65,241) Dividends paid ............................................... (64,761) (53,925) (4,556) ---------- ---------- ---------- Cash provided by financing activities .................... 309,721 422,873 291,647 ---------- ---------- ---------- Increase in cash and cash equivalents ......................... $ 43,655 $ 35,938 $ 2,135 Cash and cash equivalents at beginning of period .............. 38,073 2,135 -- ---------- ---------- ---------- Cash and cash equivalents at end of period .................... $ 81,728 $ 38,073 $ 2,135 ========== ========== ========== Supplemental cash flow information: Cash paid for interest ....................................... $ 14,086 $ 4,652 $ 5,039 Non-cash investing and financing activities: Property managers' deposits in FF&E reserve .................. 14,213 12,100 3,862 Purchases of fixed assets with FF&E reserve .................. (13,549) (15,665) (2,424) Issuance of Shares to HRP .................................... -- -- 100,000 Cancellation of indebtedness to HRP .......................... -- -- (100,000)
See accompanying notes. F-6 HOSPITALITY PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per Share and percent data) 1. Organization and Commencement of Operations Hospitality Properties Trust (HPT) is a Maryland real estate investment trust organized on February 7, 1995. HPT, which invests in income producing hotel and lodging related real estate, was a 100% owned subsidiary of Health and Retirement Properties Trust (HRP) from its inception through August 22, 1995, when it completed its initial public offering of Shares (the IPO). HRP remains an affiliate of HPT, owning approximately 10.3% of HPT's issued and outstanding Shares as of December 31, 1997. HPT commenced operations on March 24, 1995. At December 31, 1997 HPT, directly and through subsidiaries, had purchased 119 properties and committed to purchase an additional 16 properties. The properties of HPT and its subsidiaries (the Company) are leased to and managed by subsidiaries (the Lessees and the Managers) of companies unaffiliated with HPT: Host Marriott Corporation; Marriott International, Inc. (Marriott); Patriot American Hospitality; Candlewood Hotel Company, Inc.; and ShoLodge, Inc. 2. Summary of Significant Accounting Policies Consolidation. These consolidated financial statements include the accounts of HPT and its subsidiaries. All intercompany transactions have been eliminated. Real estate properties. Real estate properties are recorded at cost. Depreciation is provided for on a straight-line basis over estimated useful lives of 7 to 40 years. The Company periodically evaluates the carrying value of its long-lived assets in accordance with Statement of Financial Accounting Standards No. 121 (FAS 121), which it adopted on January 1, 1996. The adoption of FAS 121 had no effect on the Company's financial statements. Cash and cash equivalents. Highly liquid investments with maturities of three months or less at date of purchase are considered to be cash equivalents. The carrying amount of cash and cash equivalents is equal to its fair value. Deferred finance costs. Costs incurred to secure certain borrowings are capitalized and amortized over the terms of the related borrowing, and were $7,371, $5,352 and $1,861 at December 31, 1997, 1996 and 1995, respectively, net of accumulated amortization of $1,143, $313 and $24, respectively. Financial Instruments--interest rate cap agreements. Certain subsidiaries of HPT have entered interest rate protection agreements to limit the Company's exposure to risks of rising interest rates. The cost of the agreements is included in interest expense ratably over the life of the arrangement. Amounts receivable from the counterparties to the cap agreements are accrued as adjustments to interest expense. At December 31, 1997 and 1996, the net carrying value of such agreements was $1,988 and $2,498, respectively, and the fair value of such agreements was $802 and $2,756, respectively. Interest rates have not exceeded the cap amounts and no balances were receivable under the cap agreements at December 31, 1997 and 1996. Revenue recognition. Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements. Additional rent and interest income is recognized as earned. Net income per share. Net income per share is computed using the weighted average number of shares outstanding during the period. The Company has no common share equivalents. Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Income taxes. The Company is a real estate investment trust under the Internal Revenue Code of 1986. The Company is not subject to Federal income taxes on its net income provided it distributes its taxable income to shareholders and meets certain other requirements. F-7 HOSPITALITY PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except per Share and percent data) New Accounting Pronouncements. The Financial Accounting Standards Board has issued Financial Accounting Standards Board Statement No. 128 "Earnings Per Share" ("FAS 128"), Statement No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"), Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and Statement No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("FAS 131"). FAS 128 and FAS 129 were adopted for the Company's 1997 financial statements. The adoption of each of these had no impact on the Company's financial statements. FAS 130 and FAS 131 must be adopted for the Company's 1998 financial statements. The Company anticipates that FAS 130 and FAS 131 will have no impact on the Company's financial statements. 3. Real Estate Properties The Company's hotel properties are leased pursuant to long term operating leases with initial terms expiring between 2008 and 2014. The leases provide for various renewal terms generally totaling 20-50 years unless the Lessee properly notifies the Company in accordance with the leases. Each lease is a triple net lease and generally requires the Lessee to pay: base rent, percentage rent of between 5% and 10% of increases in total hotel sales over a base year, 5% FF&E reserve escrows, and all operating costs associated with the leased property. Each Lessee has posted a security deposit equal to one year's base rent. Each of the Company's properties is part of a pool of properties leased to a single tenant. At December 31, 1997, the Company maintained seven pools of properties, ranging in number of properties from nine to 53. Each property within a pool is subject to certain lease provisions including all-or-none renewals, cross defaults and the ability to use FF&E reserves generated by all hotels within a pool for the maintenance and refurbishment of any hotel within such pool. The FF&E reserve may be used by the Manager and Lessee to maintain the properties in good working order and repair. If the FF&E reserve is not available to fund such expenditures, the Company may make such expenditures, in which case annual base rent will be increased by a minimum of 10% of the amount so funded. During 1995, the Company purchased and leased 37 hotels for a total purchase price of approximately $329,000. In 1996, the Company purchased and leased an additional 45 hotels for an aggregate purchase price of approximately $484,000. During 1997, the company agreed to purchase and lease up to an additional 53 hotels for an aggregate purchase price of approximately $562,000. As of December 31, 1997, the Company had completed the acquisition and leasing of 119 hotels properties and had outstanding commitments, subject to the satisfaction of certain conditions by the sellers of such properties, to purchase an additional 16 hotel properties for an aggregate purchase price of $155,158. Future minimum lease payments to be received by the Company during the remaining initial terms of its leases total $1,742,784 ($120,062 annually). As of December 31, 1997, the weighted average remaining initial term of the Company's leases was 14 years, and the weighted average remaining total term (including all renewal options) was 53.4 years. 4. Indebtedness As of December 31, 1997 and 1996, the Company had no borrowings outstanding under its $200,000 revolving acquisition credit facility ("Credit Facility") which provides for interest on borrowings at one-month LIBOR plus a premium. Borrowings, if any, may be repaid and reborrowed as necessary until December 31, 1998, at which time outstanding balances may, at the Company's option (subject to lender consent), be either repaid or converted into a 10-year loan. The Credit Facility is secured by certain assets of HPT and one of its subsidiaries. The weighted average interest rate on Credit Facility borrowings outstanding during 1997 and 1996 was 7.27% and 7.05%, respectively. There were no borrowings outstanding at any time under the Credit Facility during the 1995 period. During 1997, the Company temporarily expanded its credit facility with the same lender to provide up to an additional $255,000 (the "Expanded Facility") through December 31, 1997. No amounts were outstanding under the Expanded Facility as of December 31, 1997. During 1996, certain subsidiaries of the Company issued $125,000 of notes (Notes) which require payment of interest only through their maturity in December 2001, at which time the principal balance is due. The Notes are prepayable at any time without penalty. Interest on the Notes is equal to one month LIBOR plus a premium. F-8 HOSPITALITY PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except per Share and percent data) The Notes are non-recourse to HPT and its subsidiaries and are secured by first mortgages on hotels owned by certain subsidiaries of the Company having a net carrying value of $319,538 at December 31, 1997. Approximately $30,820 of annual minimum lease payments are attributed to such hotels. Generally, among other restrictions, the terms of the Notes limit the ability of certain subsidiaries of the Company to incur significant secured or unsecured liabilities and restrict the use of proceeds from any sale or other disposition of the encumbered assets. The Notes carried a weighted average interest rate in 1997 of 6.44% and from their date of issuance to December 31, 1996 of 6.32%. At December 31, 1997 and 1996, the Notes carried an interest rate of 6.69% and 6.07%, respectively. The carrying amount of the Notes is equal to their fair value. 5. Transactions with Affiliates The Company has an agreement with HRPT Advisors, Inc. (the "Advisor") whereby the Advisor provides investment, management and administrative services to the Company. The Advisor is compensated at an annual rate equal to 0.7% of HPT's average real estate investments up to the first $250,000 of such investments and 0.5% thereafter plus an incentive fee based upon improvements in cash available for distribution per Share (as defined). Cash advisory fees earned for the years ended 1997, 1996 and for period from February 7, 1995 (inception) to December 31, 1995 were $5,299, $3,915 and $1,292 respectively. As of December 31, 1997 the Advisor owned 264,595 shares of HPT. Incentive advisory fees are paid to Advisors in restricted Common Shares based on a formula. The Company accrued $551 and $463 in incentive fees during 1997 and 1996 respectively. In February of 1997 the Company issued 14,595 restricted Common Shares to the Advisor satisfying the 1996 fee. The 1997 fee will be paid in restricted Common Shares in 1998. From time to time the Company may seek short term borrowings from the Advisor. During 1997, the Company made one such borrowing of $7,000 which was outstanding for 60 days. Interest paid to the Advisor totaled $62. The Advisor is under no obligation to make funds available to the Company. As of January 1, 1998, the functions of the Advisor were assumed by REIT Management & Research, Inc. ("RMR"), a newly formed affiliate of the Advisor under a new advisory agreement on substantially the same terms as the previous agreement. The Advisor and RMR are each owned by Gerard M. Martin and Barry M. Portnoy, who also serve as Managing Trustees of the Company. 6. Concentration The Company's assets are income producing lodging related real estate located throughout the United States. The Company's lessees are:
Annual Number of Initial % of Minimum % of Subsidiaries of Properties Investment Total Rent Total Host Marriott Corp. .................. 53 $ 505,000 37% $ 50,500 37% Host Marriott Corp. .................. 18 172,000 13% 17,200 13% Patriot American Hospitality ......... 12 180,000 13% 18,000 13% Marriott International, Inc. ......... 14 149,000 11% 14,900 11% Marriott International, Inc. ......... 9 129,000 9% 12,900 9% ShoLodge, Inc. ....................... 14 140,000 10% 14,000 10% Candlewood Hotel Company ............. 15 100,000 7% 10,000 7% -- ---------- -- -------- -- 135 $1,375,000 100% $137,500 100%
At December 31, 1997 the Company was committed to purchase 16 of the properties shown in the table above with allocated initial investment and annual minimum rent of $155,158 and $15,516, respectively. At December 31, 1997 the Company's 119 hotels contain 16,527 rooms and are located in 30 states, with 5% to 11% of its hotels in each of Virginia, Pennsylvania, Massachusetts, Arizona, Georgia, Texas, and California. Including the commitments to purchase 16 properties, the Company's 135 hotels contain 18,497 rooms and are located in 35 states. F-9 HOSPITALITY PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands, except per Share and percent data) 7. Pro Forma Information (Unaudited) In December 1997 the Company agreed to acquire and net lease 53 hotels for a total of $562,000 (including 16 hotels which as of December 31, 1997 had not been acquired). In December 1997 the Company completed an offering of 12,000 Shares. Assuming the acquisition and leasing of these hotels and the completion of the December Shares offering had occurred on January 1, 1997, unaudited pro forma 1997 revenues, net income and earnings per share would have been $153,116, $83,715, and $2.17 respectively. In the opinion of management, all adjustments necessary to reflect the effects of the transactions discussed above have been reflected in the pro forma data. The unaudited pro forma data is not necessarily indicative of what the actual consolidated results of operations for the Company would have been for the years indicated, nor does it purport to represent the results of operations for the Company for future periods. 8. Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations of the Company for 1997, 1996 and 1995.
1997 ---------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Revenues ......................... $25,477 $28,276 $29,017 $31,362 Net Income ....................... 14,910 14,926 15,017 14,300 Net Income per Share ............. .56 .56 .56 .48 Dividends paid per Share (3) ..... .59 .61 .62 .63 1996 --------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Revenues ......................... $10,334 $23,011 $24,878 $24,406 Net Income ....................... 6,622 14,623 15,446 14,973 Net Income per Share ............. .53 .56 .58 .56 Dividends paid per Share (3)...... .58 .58 .59 .59 1995 -------------------------- Third Fourth Quarter(1) Quarter Revenues ......................... $7,853 $9,998 Net income ....................... 3,623 6,989 Net income per Share ............. .24(2) .55 Dividends paid per Share (3)...... .24 .55 - ------------ (1) HPT's IPO occurred August 22, 1995 and accordingly the third quarter 1995 figures for revenues and net income partially relate to periods prior to the IPO. (2) Represents the per Share amount of net income from the IPO date to September 30, 1995. (3) Amounts represent dividends declared with respect to the periods shown.
F-10 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders of Hospitality Properties Trust: We have audited in accordance with generally accepted auditing standards the consolidated financial statements of Hospitality Properties Trust and have issued our report thereon dated January 16, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule on pages F-12 and F-13 is the responsibility of Hospitality Properties Trust's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington, D.C. January 16, 1998 F-11
HOSPITALITY PROPERTIES TRUST SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (Dollars in millions) Gross Amount at Initial Costs December 31, 1997 ---------------------- --------------------------------- Subsequent Buildings & Costs Buildings & Accumulated Date of Description Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation Acquisition 59 Courtyard by Marriott(R) hotels $ -- $ 98 $443 $4 $98 $447 $545 $(24) 1995/1996/1997 29 Residence Inn by Marriott(R) hotels 70 49 221 1 49 222 271 (6) 1996/1997 14 Sumner Suites(R) hotels -- 13 114 -- 13 114 127 -- 1997 12 Wyndham Garden(R) hotels 55 16 153 -- 16 153 169 (6) 1996/1997 5 Candlewood(R) hotels -- 3 30 -- 3 30 33 -- 1997 ------------------------------------------------------------------------------------------------- Total $ 125 $179 $961 $5 $179 $966 $1,145 $(36) ================================================================================================= Date Of Depreciation Description Construction Life 59 Courtyard 1987 by Marriott(R) through hotels 1997 15-40 years 29 Residence Inn by 1989 Marriott(R) through hotels 1997 15-40 years 14 Sumner Suites(R) 1992/1993 hotels 1996/1997 15-40 years 1987 12 Wyndham through Garden(R) hotels 1990 15-40 years 5 Candlewood(R) hotels 1996/1997 15-40 years
The accompanying notes are an integral part of this schedule. F-12 HOSPITALITY PROPERTIES TRUST NOTES TO SCHEDULE III DECEMBER 31, 1997 (In thousands) (A) The change in accumulated depreciation for the period from February 7, 1995 (inception) to December 31, 1997 is as follows:
1997 1996 1995 ---- ---- ---- Balance at beginning of period.................. $ 16,701 $ 3,679 $ -- Additions: Depreciation expense................ 19,241 13,022 3,679 --------- --------- -------- Balance at close of period...................... $ 35,942 $ 16,701 $ 3,679 ========= ========= ========
(B) The change in total cost of properties for the period from January 1, 1996 to December 31, 1997 is as follows:
1997 1996 ---- ---- Balance at beginning of period .......................... $ 773,497 $ 305,447 Additions: Hotel acquisitions and capital expenditures.. 371,476 468,050 ---------- ---------- Balance at close of period .............................. $1,144,973 $ 773,497 ========== ==========
(C) The net tax basis of the Company's real estate properties was $1,108,000 million as of December 31, 1997. F-13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOSPITALITY PROPERTIES TRUST By: /s/ Thomas M. O'Brien ---------------------------------- Thomas M. O'Brien, Treasurer and Chief Financial Officer Date: February 11, 1998 -----END PRIVACY-ENHANCED MESSAGE-----