XML 80 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
Commitments and Contingencies
9 Months Ended
Sep. 30, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Certain leases and operating agreements within the lodging segment require the Company to reserve funds relating to replacements and renewals of the hotels' furniture, fixtures and equipment. As of September 30, 2014 the Company has funded $88,129 in reserves for future improvements. This amount is included in restricted cash and escrows on the consolidated balance sheet as of September 30, 2014.
The SEC is conducting a non-public, formal, fact-finding investigation ("SEC Investigation") to determine whether there have been violations of certain provisions of the federal securities laws regarding the Company's Business Manager fees, property management fees, transactions with its affiliates, timing and amount of distributions paid to its investors, determination of property impairments, and any decision regarding whether it might become a self-administered REIT. The Company has not been accused of any wrongdoing by the SEC. The Company has also been informed by the SEC that the existence of this investigation does not mean that the SEC has concluded that anyone has broken the law or that the SEC has a negative opinion of any person, entity, or security. The Company has been cooperating fully with the SEC.
The Company cannot reasonably estimate the timing of the investigation, nor can it predict whether or not the investigation might have a material adverse effect on its business.
The Company also received related demands (“Derivative Demands”) by stockholders to conduct investigations regarding
claims that the officers, the board of directors, the former Business Manager, and affiliates of the former Business Manager (the
“Inland American Parties”) breached their fiduciary duties to Company in connection with the matters that the Company
disclosed are subject to the SEC Investigation. The first Derivative Demand claims that the Inland American Parties (i) falsely
reported the value of its common stock until September 2010; (ii) caused it to purchase shares of common stock from
stockholders at prices in excess of its value; and (iii) disguised returns of capital paid to stockholders as REIT income, resulting
in the payment of fees to the former Business Manager for which it was not entitled. The three stockholders in that demand
contend that legal proceedings should be instituted by the Company to seek recovery of damages in an unspecified amount allegedly sustained by it. The second Derivative Demand by another shareholder makes similar claims and further alleges that the Inland American Parties (i) caused it to engage in transactions that unduly favored related parties, (ii) falsely disclosed the timing and amount of distributions, and (iii) falsely disclosed whether the Company might become a self-administered REIT. The Company also received a letter from another stockholder that fully adopts and joins in the first Derivative Demand, but makes no additional demands on the Company to perform investigation or pursue claims.

Upon receiving the first of the Derivative Demands, the full board of directors responded by authorizing the independent directors to investigate the claims contained in the first Derivative Demand, any subsequent stockholder demands, as well as any other matters the independent directors see fit to investigate, including matters related to the SEC Investigation. Pursuant to this authority, the independent directors have formed a special litigation committee that comprises solely independent directors to review and evaluate the matters referred by the full board of directors to the independent directors, and to recommend to the full board of directors any further action as is appropriate. The special litigation committee is investigating these claims with the assistance of independent legal counsel and will make a recommendation to the board of directors after the committee has completed its investigation.
On March 21, 2013, counsel for the stockholders who made the first Derivative Demand filed a derivative lawsuit in the Circuit Court of Cook County, Illinois, on behalf of the Company. The case has been stayed pending completion of the special litigation committee's investigation. The Company cannot predict the timing of the special litigation committee investigation or the Derivative Demands, nor can the Company predict whether or not the special litigation committee investigation or Derivative Demands might have a material adverse impact on its business.
On August 11, 2014, Xenia Hotels and Resorts, Inc. ("Xenia"), a wholly-owned subsidiary of the Company, formerly known as Inland American Lodging Group, Inc., filed a preliminary registration statement on Form 10 (as amended from time to time, the "Form 10") with the SEC related to its potential spin-off into a new, publicly-traded lodging REIT (the "Spin-Off"). If the Spin-Off is consummated, Xenia would become a self-managed REIT and apply to list its shares of common stock on the New York Stock Exchange. Xenia's filing of the Form 10 is a first step in an ongoing process and the Spin-Off may or may not occur. The Spin-Off is subject to the satisfaction of several conditions, including that the SEC shall have declared the Form 10 effective, Xenia’s common stock shall have been authorized for listing by the New York Stock Exchange and the Company's board of directors determining, at the time of the effectiveness of the Spin-Off, that the Spin-Off remains in the Company's best interest.
In connection with Xenia's filing of the Form 10 and its potential separation from the Company, the Company entered into an Indemnity Agreement with Xenia on August 8, 2014. Pursuant to the Indemnity Agreement, the Company agreed, to the fullest extent allowed by law or government regulation, to absolutely, irrevocably and unconditionally indemnify, defend and hold harmless Xenia and its subsidiaries, directors, officers, agents, representatives and employees (in each case, in such person’s respective capacity as such) and their respective heirs, executors, administrators, successors and assigns from and against all against losses, including but not limited to “actions” (as defined in the Indemnity Agreement), arising from: the ongoing non-public, formal, fact-finding investigation by the SEC as described in the Company's public filings with the SEC; the three related demands (including the Derivative Lawsuit described below) received by the Company from stockholders to conduct investigations regarding claims similar to the matters that are subject to the SEC Investigation and as described in the Company’s public filings with the SEC; the derivative lawsuit filed on March 21, 2013 on behalf of the Company by counsel for stockholders who made the first Derivative Demand (the “Derivative Lawsuit”); and the investigation by the Special Litigation Committee of the board of directors of the Company. In each case, regardless of when or where the loss took place, or whether any such loss, claim, accident, occurrence, event or happening is known or unknown, and regardless of whether such loss, claim, accident, occurrence, event or happening giving rise to the loss existed prior to, on or after Xenia’s separation from the Company or relates to, arises out of or results from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to, on or after Xenia’s separation from the Company.
While, to the best of its knowledge, the Company does not presently anticipate Xenia or Xenia’s subsidiaries, directors, officers, agents, representatives and employees to be made a party to any actions related to the above matters, in connection with the separation of Xenia from the Company, the Company has determined that it is in the best interests of the Company to enter into the Indemnity Agreement.
The Company is subject, from time to time, to various legal proceedings and claims that arise in the ordinary course of
business. While the resolution of these matters cannot be predicted with certainty, management believes, based on currently
available information, that the final outcome of such matters will not have a material adverse effect on the financial statements
of the Company.