-----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, SUyhJPj/HmkOxB3+Muoh0m8SKTHu4qD5LozJiF972+a85J/F12jN3PNmChQHJfY6 thBnSBr3eKtAy60FZRn3Ag== 0000950133-99-002583.txt : 19990806 0000950133-99-002583.hdr.sgml : 19990806 ACCESSION NUMBER: 0000950133-99-002583 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUMPHREY HOSPITALITY TRUST INC CENTRAL INDEX KEY: 0000929545 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521889548 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25060 FILM NUMBER: 99678490 BUSINESS ADDRESS: STREET 1: 12301 OLD COLUMBIA PIKE CITY: SILVER SPRING STATE: MD ZIP: 20904 BUSINESS PHONE: 3016804343 MAIL ADDRESS: STREET 1: 12301 OLD COLUMBIA PIKE CITY: SILVE SPRING STATE: MD ZIP: 20904 10-Q 1 HUMPHREY HOSPITALITY TRUST INC. FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 Commission File Number: 0-25060 HUMPHREY HOSPITALITY TRUST, INC. (Exact name of registrant as specified in its charter) Virginia 52-1889548 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 12301 Old Columbia Pike, Silver Spring MD 20904 (301) 680-4343 (Address of principal executive offices) (Registrant's telephone number (zip code) including area code)
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 ------- ------ The number of shares of Common Stock, $.01 par value per share, outstanding on August 4, 1999 was 4,631,700. Page 1 of 25 2 HUMPHREY HOSPITALITY TRUST, INC. INDEX
PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION Item 1. HUMPHREY HOSPITALITY TRUST, INC. -------------------------------- Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the three and six months ended June 30, 1999 and June 30, 1998 4 Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30, 1998 5 Notes to Consolidated Financial Statements 6 HUMPHREY HOSPITALITY MANAGEMENT, INC. ------------------------------------- Balance Sheets as of June 30, 1999 and December 31, 1998 12 Summary Statements of Operations and Changes in Retained Earnings (Deficit) for the three and six months ended June 30, 1999 and June 30, 1998 13 Statement of Cash Flows for the six months ended June 30, 1999 and June 30, 1998 14 Notes to Financial Statements 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 24 PART II. OTHER INFORMATION Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 25
-2- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HUMPHREY HOSPITALITY TRUST, INC. CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 December 31, 1998 ------------- ----------------- (Unaudited) (Audited) ASSETS Investment in hotel properties, net of accumulated depreciation $ 71,434,793 $ 72,804,561 Cash and cash equivalents 5,675 541,864 Note receivable from sale of asset 250,000 -- Accounts receivable from Lessee 2,890,719 3,024,585 Deferred expenses, net of accumulated amortization 1,456,766 1,778,083 Other assets 851,815 695,197 ----------- ------------ Total assets $ 76,889,768 $ 78,844,290 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage notes and bonds payable $ 42,328,471 $ 44,195,724 Due to affiliates 1,293,686 -- Accounts payable and accrued expenses 1,429,733 1,733,211 ------------ ------------ Total liabilities 45,051,890 45,928,935 ----------- ----------- Minority interest 5,027,266 5,197,334 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares issued and outstanding -- -- Common stock. $.01 par value, 25,000,000 shares authorized, 4,631,700 shares issued and outstanding 46,317 46,317 Additional paid-in capital 29,039,282 29,039,282 Distributions in excess of net earnings (2,274,987) (1,367,578) ------------- -------------- 26,810,612 27,718,021 ----------- ----------- Total liabilities and shareholders' equity $ 76,889,768 $ 78,844,290 =========== ==========
- ----------------------- See notes to consolidated financial statements. -3- 4 HUMPHREY HOSPITALITY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 (Unaudited)
Three months ended Six Months ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenue Percentage lease revenue $ 3,192,465 $ 2,354,422 $ 6,040,233 $ 4,258,727 Other revenue 3,978 3,831 13,114 7,357 --------- --------- ---------- ---------- Total revenue 3,196,443 2,358,253 6,053,347 4,266,084 --------- --------- --------- --------- Expenses Interest 870,435 486,884 1,749,191 1,145,880 Property operating expenses 266,703 169,021 518,683 345,950 General and administrative 124,708 147,277 233,446 249,694 Depreciation and amortization 1,026,333 563,291 2,076,014 1,115,551 --------- ------- --------- --------- Total expenses 2,288,179 1,366,473 4,577,334 2,857,075 --------- --------- --------- --------- Income from operations 908,264 991,780 1,476,013 1,409,009 Gain (loss) on sale of asset (78,487) 195,001 (78,487) 195,001 Income allocated to minority interest (131,022) (163,071) (220,669) (229,327) --------- --------- --------- ----------- Net income $ 698,755 $ 1,023,710 $ 1,176,857 $ 1,374,683 Distributions in excess of net earnings, beginning of period (1,931,611) (577,992) (1,367,578) (223,920) Distributions declared (1,042,131) (1,007,395) (2,084,266) (1,712,440) ----------- ----------- ----------- ----------- Distributions in excess of net earnings, end of period $(2,274,987) $ (561,677) $(2,274,987) $ (561,677) =========== =========== =========== =========== Basic earnings per common share $ 0.15 $ 0.24 $ 0.25 $ 0.35 Diluted earnings per common share $ 0.15 $ 0.24 $ 0.25 $ 0.35 Weighted average shares : Basic 4,631,700 4,303,129 4,631,700 3,894,683 Diluted 5,500,004 (2) 4,989,734(1) 5,500,004 (2) 4,566,753 (1)
- --------------------- (1) Includes 746,043 units, which are redeemable on a one-for-one basis for shares of common stock. (2) Includes 868,304 units, which are redeemable on a one-for-one basis for shares of common stock. See notes to consolidated financial statements. -4- 5 HUMPHREY HOSPITALITY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 (UNAUDITED)
1999 1998 ---- ---- Cash flows from operating activities Net income $ 1,176,857 $1,374,683 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,076,014 1,115,551 Income allocated to minority interest 220,669 229,327 Loss (gain) on sale of asset 78,487 (195,001) Changes in assets and liabilities Decrease in accounts receivable from Lessee 133,866 120,990 Increase in other assets (91,242) (16,966) Franchise costs paid -- (204,500) Increase in due to affiliates 19,276 -- Increase in accounts payable and accrued expenses 63,131 219,770 ------------ ---------- Net cash provided by operating activities 3,677,058 2,643,854 --------- --------- Cash flows from investing activities Investment in hotel properties (714,293) (11,791,873) Proceeds from sale of hotel 1,131,443 1,457,603 Deposit to replacement reserve (689,516) (480,061) Withdrawals from replacement reserve 624,141 628,285 ------- ------- Net cash provided by (used in) investing activities 351,775 (10,186,046) ------- ------------ Cash flows from financing activities Draw on line of credit 3,182,566 11,810,000 Repayment of line of credit (6,260,183) (11,954,942) Principal payments on long-term debt (48,634) (50,000) Principal payments on capital leases (14,178) (34,184) Net proceeds from issuance of stock -- 10,929,599 Proceeds from long term debt 5,054,000 -- Repayment of bonds payable (3,795,000) -- Financing costs paid (210,266) (100,000) Distributions paid (2,473,327) (1,753,948) ----------- ----------- Net cash provided by financing activities (4,565,022) 8,846,525 ----------- --------- Net (decrease) increase in cash and cash equivalents (536,189) 1,304,333 Cash and cash equivalents, beginning of period 541,864 204,065 ------- ------- Cash and cash equivalents, end of period $ 5,675 $1,508,398 ======= ========== Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 1,968,797 $1,234,328 =========== ==========
Supplemental disclosure of non-cash investing and financing activities: During 1999, the Company acquired $51,894 of equipment subject to capital leases. As of June 30, 1999, investment in hotel property includes $1,274,410 of amounts included in due to affiliates. During 1999, the Company received a note receivable in the amount of $250,000 in connection with the sale of hotel assets. See notes to consolidated financial statements. -5- 6 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 Note 1. Organization and Summary of Significant Accounting Policies Humphrey Hospitality Trust, Inc. was incorporated under the laws of the Commonwealth of Virginia on August 23, 1994. The Company is a self-administered real estate investment trust ("REIT") for federal income tax purposes. Humphrey Hospitality Trust, Inc., through its wholly-owned subsidiary Humphrey Hospitality REIT Trust (collectively, the "Company") owns a controlling partnership interest in Humphrey Hospitality Limited Partnership (the "Partnership") and through the Partnership owns interests in twenty-five existing limited-service hotels (including seven hotel properties acquired during 1998). The Partnership owns a 99% general partnership interest and the Company owns a 1% limited partnership interest in Solomons Beacon Inn Limited Partnership (the "Subsidiary Partnership"). As of June 30, 1999, the Company owns an 84.21% interest in the Partnership. The Company began operations on November 29, 1994. Since inception, the Partnership has leased all of its hotel facilities to Humphrey Hospitality Management, Inc. (the "Lessee"), a corporation majority owned by James I. Humphrey, Jr., the President and Chairman of the Board of the Company. The Lessee operates and leases the hotel properties pursuant to separate percentage lease agreements (the "Percentage Leases"), which provide for both fixed rents and percentage rents based on the revenues of the hotels. The Company has completed the following public offerings since its inception:
------------------------------------------------------------------------------------------------------------------ Offering price per Net proceeds Offering Date completed share Shares sold (in thousands) ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Initial public offering November 29, 1994 $ 6.00 1,321,700 $ 6,950 ------------------------------------------------------------------------------------------------------------------ Second offering July 21, 1995 $ 7.75 1,010,000 $ 6,957 ------------------------------------------------------------------------------------------------------------------ Third offering December 6, 1996 $ 8.25 1,150,000 $ 8,645 ------------------------------------------------------------------------------------------------------------------ Fourth offering April 24, 1998 $ 10.50 1,150,000 $ 10,945 ------------------------------------------------------------------------------------------------------------------
On April 1, 1999, the Company paid off the bonds secured by its Rodeway Inn hotel located in Wytheville, VA. The Company utilized funds from its credit facility with Mercantile Safe Deposit and Trust Company (the "Mercantile Credit Facility") and obtained a short term loan with Crestar Bank to pay off the bonds. The Crestar Bank loan is for a period of one year and bears interest at the rate of LIBOR plus 300 basis points. On April 17, 1999, the Company chose to reduce its loan commitment from BankBoston from $35 million to $20 million. The remaining terms of the commitment are unchanged. In connection with the reduction in the commitment, $83,409 in unamortized loan costs were expensed through amortization on the Statement of Operations. On April 22, 1999, the Company executed an agreement to sell its Rodeway Inn hotel in Wytheville, VA for $1,450,000. The sale of the Rodeway Inn in Wytheville, VA closed on June 24, 1999 for $1,200,000 in cash and $250,000 in a note receivable. The note receivable shall be repaid in equal monthly installments of principal and interest based on a fifteen year amortization schedule, and will bear interest at 6.50% per annum. The Company utilized approximately $759,000 of the cash proceeds to pay off its short-term loan with Crestar Bank. The Company had executed an agreement on December 30, 1998, to sell the Wytheville hotel, to another purchaser for $1,450,000. The purchasers subsequently breached their obligations under the agreement and, on March 19, 1999, the Company filed an action in the Circuit Court of Wythe County, VA against the purchasers to, among other things, compel specific performance and recover damages under the agreement. The Company will continue with its suit for damages against the previous purchaser. On May 5, 1999, Mercantile Safe-Deposit and Trust Company extended the term of the Mercantile Credit Facility for an additional three years. Principles of Consolidation The consolidated financial statements include the accounts of the Company, the Partnership and the Subsidiary Partnership. All significant intercompany balances and transactions have been eliminated. -6- 7 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Hotel Properties The hotel properties are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of the assets, which range from 31 to 40 years for buildings and 5 to 12 years for furniture and equipment. Maintenance and repairs are generally the responsibility of the Lessee and are charged to the Lessee's operations as incurred; major replacements, renewals and improvements are capitalized. Upon disposition, both the asset and accumulated depreciation accounts are relieved and the related gain or loss is credited or charged to the statement of income. The Company reviews the carrying value of each hotel property in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 to determine if circumstances exist indicating an impairment in the carrying value of the investment in the hotel property or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare a projection of the undiscounted future cash flows of the specific hotel property and determine if the investment in the hotel property is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel property based on the discounted future cash flows. The Company does not believe that there are any current facts or circumstances indicating impairment of any of its investment in hotel properties, except as noted above. Revenue Recognition Lease income is recognized when earned from the Lessee under the lease agreements from the date of acquisition of each hotel property. Contingent lease income is deferred until the specified target is achieved. Earnings Per Common Share The Company calculates earning per share in accordance with SFAS No. 128, Earnings Per Share. Distributions The Company intends to pay regular monthly dividends, which are dependent upon the receipt of distributions from the Partnership. Minority Interest Minority interest in the Partnership represents the limited partners' proportionate share of the equity of the Partnership. Income is allocated to minority interest based on weighted average percentage ownership throughout the year. Income Taxes The Company intends to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Accordingly, no provision for Federal income taxes has been reflected in the financial statements. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, do not include all of the disclosures normally required by generally accepted accounting principles or those made in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The financial -7- 8 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 information has been prepared in accordance with the Company's customary accounting practices. In the opinion of management, the information presented reflects all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's financial position as of June 30, 1999, and the results of operations for the three and six months ended June 30, 1999 and June 30, 1998. The results of operations for the three and six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measures those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company is currently in the process of evaluating the effect this new standard will have on its financial statements. Note 2. Merger Information On June 11, 1999 the Company announced plans to merge with Supertel Hospitality, Inc. ("Supertel"). Supertel owns and operates limited service hotel properties under the Super 8, Comfort Inn and Wingate Inn names located primarily in the Midwest and Texas. Under the merger agreement, Humphrey Hospitality would exchange 1.30 shares of Humphrey Hospitality Trust, Inc. common stock for each share of Supertel common stock. The boards of both companies have approved the merger. The merger is subject to a number of conditions, including approval by the shareholders of Humphrey Hospitality Trust, Inc. and the stockholders of Supertel. The Company has scheduled a shareholders meeting to vote on the merger on September 27, 1999, in Richmond, Virginia. Completion of the merger is expected in the fall of 1999. The merger agreement provides for the stockholders of Supertel to receive a pre-closing dividend of Supertel's earnings and profits, which Supertel presently expects to be in the range of $4.50 to $4.80 per share. The special dividend would be payable only if the merger occurs. Supertel has the right to terminate the agreement if the dividend is less than $4.00 per share of Supertel common stock. Under the merger agreement, the Company would acquire the hotel assets of Supertel. The 63 hotels (containing 4,558 rooms) and one office building acquired by the Company under the merger will be leased to a subsidiary of Humphrey Hospitality Management, Inc. Humphrey Hospitality Management, Inc. also leases and manages 25 hotels owned by the Company. After the merger, the Company will own 88 hotels with approximately 6,200 rooms located in 19 states. -8- 9 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 The following pro forma information for the six months ended June 30, 1999 is presented for informational purposes as if the merger with Supertel had occurred on January 1, 1999. Humphrey Hospitality Trust, Inc. SELECTED PRO FORMA FINANCIAL DATA
Six months ended June 30, 1999 ------------- Revenues $16,351,000 Expenses 12,070,000 Minority Interest 309,000 ------------ Net income $ 3,972,000 ============ Earnings per common share $ 0.36 ============
Note 3. Distributions The Company declares and pays dividends to its shareholders on a monthly basis. On June 30, 1999, the Company paid a $.075 per share distribution on each share of Common Stock outstanding (including the distribution to minority interest) to shareholders of record as of May 31, 1999. The distribution declared for shareholders of record as of June 30, 1999 was paid on July 30, 1999, at a rate of $.075 per share. Note 4. Commitments and Contingencies Pursuant to the Humphrey Hospitality Limited Partnership Agreement, the limited partners have certain redemption rights (the "Redemption Rights"), which enable them to cause the Partnership to redeem their Units in exchange for shares of Common Stock or for cash at the election of the Company. The Redemption Rights may be exercised by the limited partners at any time. At June 30, 1999, the aggregate number of shares of Common Stock issuable to the limited partners upon exercise of the Redemption Rights is 868,304. The number of shares issuable upon exercise of the Redemption Rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro rata share transactions, that otherwise would have the effect of diluting the ownership interests of the limited partners or the shareholders of the Company. The Company is the sole general partner in the Partnership, which is the sole general partner in the Subsidiary Partnership and, as such, is liable for all recourse debt of the partnerships to the extent not paid by the partnerships. In the opinion of management, the Company does not anticipate any losses as a result of its general partner obligations. The Company has entered into percentage leases with the Lessee relating to each of the hotels. Each such lease has a term of 10 years, with a five-year renewal option at the option of the Lessee. Pursuant to the terms of the Percentage Leases, the Lessee is required to pay both base rent and percentage rent and certain other additional charges and is entitled to all profits from the operations of the hotels after the payment of certain specified operating expenses. Also pursuant to the terms of the Percentage Leases, the Company is obligated to make available to the Lessee an amount equal to 6% of room revenue on a quarterly, cumulative basis for capital improvements and refurbishments. The Company has future lease commitments from the Lessee through September 2008. Minimum future rental income under these noncancelable operating leases at December 31, 1998 is as follows: -9- 10 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999
Year (in thousands) ---- -------------- 1999 5,352 2000 5,352 2001 5,352 2002 5,352 2003 5,352 Thereafter 15,977 ------ $42,737 =======
For the three and six months ended June 30, 1999, the Company earned base rents of $1,409,070 and $2,813,473, respectively, as compared to base rents of $1,032,702 and $2,053,185 for the three and six months ended June 30, 1998. For the three and six months ended June 30, 1999, the Company earned percentage rents of $1,783,395 and $3,226,760, respectively, as compared to percentage rents of $1,321,720 and $2,205,542, for the three and six months ended June 30, 1998. As of June 30, 1999, $2,890,719 was due from the Lessee. The percentage rents are based on a percentage of gross room and other revenue. During the six months ended June 30, 1999, the Lessee provided for capital improvements totaling $1,843,913, which are the responsibility of the Company and have been capitalized and included in investment in hotel properties. As of June 30, 1999, $1,274,410 of that amount remained payable and is recorded in due to Lessee. The hotel properties are operated under franchise agreements with various franchisors assumed by the Lessee that have an eight to twenty year life but may be terminated by the franchisor on certain anniversary dates specified in the agreements. The agreements require annual payments for franchise royalties, reservation, and advertising services, which are based upon percentages of gross room revenue. These fees are paid by the Lessee. Note 5. Mortgages and Bonds Payable The Company can borrow up to $25.5 million under the Mercantile Credit Facility which was renewed in May 1999 and has a term of three years. The Mercantile Credit Facility bears interest at the prime rate plus 25 basis points (presently 8.25%) and will mature on April 11, 2002. The Mercantile Credit Facility is secured by the Company's hotels located in Solomons, MD; Farmville, VA (2 hotels); Culpeper, VA; New Castle, PA; Harlan, KY; Danville, KY; Murphy, NC; Chambersburg, PA; Allentown, PA; Morgantown, WV and Rocky Mount, VA. On August 18, 1998, the Company obtained a $35 million credit facility from BankBoston (the "BankBoston Credit Facility"). On April 17, 1999 the Company reduced the commitment from $35 million to $20 million. In connection with the reduction in the commitment , $83,409 in unamortized loan costs were expensed through amortization on the Statement of Operations. The term of the BankBoston Credit Facility is for three years and bears interest at LIBOR plus between 165 and 215 basis points. The Company entered into an interest swap agreement that fixed the interest rate on a notional amount of approximately $11.2 million at a ceiling of 7.79%. The line is cross-collaterized by the Company's hotels located in Jackson, TN; Key Largo, FL; Ellenton, FL (2 hotels); Shelby, NC; Cleveland, TN; Dahlgren, VA; Princeton, WV and Dover, DE. On February 8, 1999, the Company obtained a $5.054 million, ten year, 7.75% fixed rate mortgage, from Susquehanna Bank on the Company's Comfort Inn and Holiday Inn Express hotels located in Gettysburg, PA. On February 26, 1999, the Company satisfied the bonds secured by its Comfort Inn hotel located in Morgantown, WV. This hotel was subsequently placed as additional collateral on the Mercantile Credit Facility. In connection with this transaction, $97,225 in unamortized loan costs were expensed through amortization on the Statement of Operations. On April 1, 1999, the Company paid off the bonds secured by the Rodeway Inn hotel located in Wytheville, VA. The Company utilized funds from the Mercantile Credit Facility and executed a short term note with Crestar Bank of approximately $763,000 (the "Note") to pay off the bonds. The Note bears interest at LIBOR plus 300 basis points and was paid off on June 24, 1999 with proceeds from the sale of the Rodeway Inn hotel in Wytheville, VA. -10- 11 HUMPHREY HOSPITALITY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 Note 6. Pro Forma Financial Information The following pro forma information for the six months ended June 30, 1998 is presented for informational purposes as if the acquisition of all hotels by the Partnership and the commencement of the Percentage Leases had occurred on January 1, 1998. Historical information is presented for the six months ended June 30, 1999. Humphrey Hospitality Trust, Inc. PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six months ended Six months ended June 30, 1999 June 30, 1998 ------------- ------------- (Historical) (Proforma) Total revenue 6,053,347 6,050,556 Total expenses 4,577,334 4,079,945 --------- --------- Income from operations 1,476,013 1,970,611 Loss on sale of asset (78,487) -- Income allocated to minority interest (220,669) (311,159) -------- -------- Net income $ 1,176,857 $ 1,659,452 ============= ============== Earnings per common share $ 0.25 $ 0.36 ============= ============== Weighted average shares 4,631,700 4,631,700
-11- 12 HUMPHREY HOSPITALITY MANAGEMENT, INC. BALANCE SHEETS
June 30, December 31, 1999 1998 ---- ---- (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash and cash equivalents $2,625,924 $3,262,524 Accounts receivable 492,346 389,536 Prepaid expenses 9,797 41,095 Due from affiliates 1,313,637 405,765 Other assets 67,114 71,973 --------- --------- Total current assets $4,508,818 $4,170,893 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 561,435 $ 426,685 Accrued expenses 777,686 465,666 Advance deposit 20,603 24,669 Prepaid slip rental 76,767 32,817 Due to affiliates 2,890,719 3,024,324 --------- --------- Total current liabilities 4,327,210 3,974,161 --------- --------- COMMITMENTS -- -- SHAREHOLDERS' EQUITY Common stock, $.01 par value, 1,000 shares authorized, 134 and 100 shares, respectively issued and outstanding 1 1 Paid-in capital 50,369 -- Retained earnings 171,238 196,731 ----------- ---------- 221,608 196,732 Less: Note receivable - shareholder (40,000) -- ------------ ---------- Total shareholders' equity 181,608 196,732 ---------- ---------- Total liabilities and shareholders' equity $4,508,818 $4,170,893 ========= =========
See notes to financial statements. -12- 13 HUMPHREY HOSPITALITY MANAGEMENT, INC. STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS (DEFICIT) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Three months ended Six Months ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenue Room revenue $7,306,385 $5,413,665 $13,159,236 $9,075,645 Telephone revenue 110,070 83,221 221,174 157,633 Slip revenue 89,311 90,528 149,175 162,246 Interest revenue 11,805 15,229 25,507 25,124 Other revenue 146,133 145,231 316,105 234,931 ------- ------- ------- ------- Total revenue 7,663,704 5,747,874 13,871,197 9,655,579 --------- --------- ---------- --------- Expenses Salaries and wages 1,827,838 1,252,186 3,396,097 2,373,000 Room expense 499,888 295,581 895,959 511,153 Telephone 114,058 73,544 222,764 151,362 Marina expense 7,835 8,415 18,073 15,696 General and administrative 424,205 274,711 749,204 489,785 Marketing and promotion 272,632 190,688 500,078 364,246 Utilities 307,512 231,578 631,598 465,891 Repairs and maintenance 215,990 142,755 375,130 240,119 Taxes and insurance 69,303 85,648 177,659 158,010 Franchise fees 389,257 272,427 658,981 461,611 Lease payments 3,307,923 2,354,422 6,271,147 4,258,727 --------- --------- --------- --------- Total expenses 7,436,441 5,181,955 13,896,690 9,489,600 --------- --------- ---------- --------- Net income (loss) $ 227,263 $ 565,919 $ (25,493) $ 165,979 Retained earnings (deficit), beginning of period (56,025) (214,996) 196,731 184,944 Distributions paid -- (90,000) -- (90,000) ----------- -------- ----------- -------- Retained earnings, end of period $ 171,238 $ 260,923 $ 171,238 $ 260,923 =========== =========== =========== ===========
See notes to financial statements. -13- 14 HUMPHREY HOSPITALITY MANAGEMENT, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
1999 1998 ---- ---- Cash flows from operating activities Net income (loss) $ (25,493) $ 165,979 Adjustments to reconcile net income (loss) to net cash used in operating activities Changes in assets and liabilities Increase in accounts receivable (102,810) (248,351) Decrease in prepaid expenses 31,298 55,916 Decrease (increase) in other assets 4,859 (3,175) Increase (decrease) in accounts payable 134,750 (1,505) Increase in prepaid slip rentals 43,950 43,310 Decrease in due to affiliates (133,605) (105,453) Increase (decrease) in accrued expenses 312,020 (2,155) (Decrease) increase in advance deposits (4,066) 14,543 ------------ ---------- Net cash provided by (used in) operating activities 260,903 (80,891) ----------- ----------- Cash flows from investing activities Advances to affiliates (907,872) -- --------- ---------- Net cash used in investing activities (907,872) -- ---------- ---------- Cash flows from financing activities Issuance of common stock 10,369 -- Distributions paid -- (90,000) Advance from shareholder 400,000(a) 200,000 Repayment of advance from shareholder (400,000)(a) (200,000) ----------- -------- Net cash provided by (used in) financing activities 10,369 (90,000) --------- --------- Net decrease in cash and cash equivalents (636,600) (170,891) Cash and cash equivalents, beginning of period 3,262,524 2,483,403 --------- --------- Cash and cash equivalents, end of period $2,625,924 $2,312,512 ========= ==========
- --------------------- (a) Mr. Humphrey provided a $400,000 line of credit to the Lessee in January 1999, at an interest rate equal to the prime rate plus 25 basis points. The line of credit was repaid to Mr. Humphrey in April 1999. See notes to financial statements. -14- 15 HUMPHREY HOSPITALITY MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 Note 1. Organization and Summary of Significant Accounting Policies Humphrey Hospitality Management, Inc. (the "Lessee") was incorporated under the laws of the State of Maryland on August 18, 1994 to lease and operate hotel properties from Humphrey Hospitality Limited Partnership. As of December 31, 1998, James I. Humphrey, Jr. was the sole shareholder of the Lessee. On June 1, 1999, the Lessee sold shares of stock to certain of its officers, constituting a 25% interest in the company, in exchange for $10,369 in cash and a $40,000 note receivable. Basis of Presentation The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q and accordingly, do not include all of the disclosures normally required by generally accepted accounting principles. The financial information has been prepared in accordance with the Lessee's customary accounting practices. In the opinion of management, the information presented reflects all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Lessee's financial position as of June 30, 1999, and the results of operations for the three and six months ended June 30, 1999 and June 30, 1998. The results of operations for the three and six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The unaudited financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in Humphrey Hospitality Trust, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. Accounts Receivable The Lessee considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. Income Taxes The Lessee has elected to be treated as an S Corporation for federal and state income tax purposes. Therefore, no provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the shareholders individually. Lease Expense Lease expense is recognized when accrued under the lease agreements from the date of acquisition of each hotel property. Contingent lease expense is accrued based on the probability of the future revenue target being achieved, in accordance with Emerging Issues Task Force ("EITF") 98-9. Note 2. Related Party Transactions Shared Expenses Humphrey Associates, Inc. and HAI Management, Inc., affiliates of the Lessee, share certain operating expenses with the Lessee. Expenditures are allocated based on each entity's pro rata share of the expense. At June 30, 1999, $39,227 was due from affiliates for such allocated expenses. During the six months ended June 30, 1999, the Lessee provided for capital improvements totaling $1,843,913, which are the responsibility of the Company and have been capitalized and included in investment in hotel properties. As of June 30, 1999, $1,274,410 of that amount remained payable and is recorded as due from affiliates. Note 3. Commitments The Lessee has entered into percentage leases with the Partnership and the Subsidiary Partnership relating to each of -15- 16 HUMPHREY HOSPITALITY MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 their hotels. Each such lease has a term of 10 years with a 5 year renewal option at the option of the Lessee. Pursuant to the terms of the Percentage Leases, the Lessee is required to pay both base rent and percentage rent and certain other additional charges. The Lessee has future lease commitments through September 2008. Minimum future lease payments due under these noncancellable operating leases at December 31, 1998 are as follows:
Year ---- 1999 $ 5,351,650 2000 5,351,650 2001 5,351,650 2002 5,351,650 2003 5,351,650 Thereafter 15,976,885 ---------- $42,735,135 ===========
For the three months and six months ended June 30, 1999, the Lessee incurred base rents of $1,409,070 and $2,813,473 respectively, as compared to base rents of $1,032,702 and $2,053,185 for the three and six months ended June 30, 1998. For the three and six months end June 30, 1999 the Company incurred percentage rents of $1,898,853 and $3,457,674 which includes contingent rents of $115,458 and $230,914 respectively, as compared to percentage rents of $1,321,720 and $2,205,542 for the three and six months ended June 30, 1998. As of June 30, 1999, the amount due the Partnership and the Subsidiary Partnership for lease payments was $2,890,719 collectively, and is included in due to affiliates on the balance sheet. -16- 17 HUMPHREY HOSPITALITY MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED JUNE 30, 1999 Note 4. Pro Forma Financial Information The following pro forma information for the six months ended June 30, 1998 is presented for informational purposes as if the acquisition of all hotels by the Partnership and the commencement of the Percentage Leases had occurred on January 1, 1998. Historical information is presented for the six months ended June 30, 1999. Humphrey Hospitality Management, Inc. PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
Six months ended Six months ended June 30, 1999 June 30, 1998 ------------- ------------- (Historical) (Pro Forma) Revenues Room revenue $ 13,159,236 $ 13,190,231 Telephone revenue 221,174 246,091 Slip revenue 149,175 162,246 Interest revenue 25,507 25,124 Other revenue 316,105 289,282 ------- ------- Total revenue 13,871,197 13,912,974 ---------- ---------- Expenses Salaries and wages 3,396,097 3,328,773 Room expense 895,959 763,925 Telephone 222,764 220,503 Marina expense 18,073 15,696 General and administrative 749,204 702,654 Marketing and promotion 500,078 496,462 Utilities 631,598 656,874 Repairs and maintenance 375,130 368,954 Taxes and insurance 177,659 235,271 Franchise fees 658,981 668,453 Lease payments 6,271,147 6,043,199 --------- --------- Total expenses 13,896,690 13,500,764 ---------- ---------- Net (loss) income $ (25,493) $ 412,210 ============ ============
-17- 18 Item 2. HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are identified by phrases such as the Company "expects" or "anticipates" and words of similar import. The Company's actual results may differ materially from those projected. Factors that could cause such differences include difficulties in integrating and operating acquired properties; termination of franchise agreements; default of the Lessee under operating leases; and general risks associated with investments in real estate, including the effect of changes in economic, competitive and other market conditions in the markets where the Company's properties are concentrated, the inability of properties to generate adequate cash flow to fund debt service and operating expenses, financing and refinancing risks related to the Company's floating rate debt and new debt necessary to support growth. The Company cautions readers not to place undue reliance on any such forward-looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Humphrey Hospitality Trust, Inc. is a Virginia corporation that operates as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). The Company, through Humphrey Hospitality REIT Trust, the Company's wholly-owned subsidiary, is the sole general partner of Humphrey Hospitality Limited Partnership and owns an 84.21% interest in the Partnership at June 30, 1999. As of June 30, 1999, the Partnership owned directly or indirectly twenty-five hotel properties (the "Hotels"). Eight of the Hotels were acquired by the Company in connection with its initial public stock offering in November 1994, one Hotel was acquired in July 1995, one Hotel was developed in 1996 and opened for business in January 1997, ten Hotels were acquired between February 1997 and September 1997 and seven Hotels were acquired between June 1998 and September 1998. One Hotel was sold in June 1998 and one in June 1999. In order for the Company to qualify as a REIT under the Code, neither the Company nor the Partnership can operate hotels. Therefore, the Partnership leases the Hotels pursuant to percentage leases to Humphrey Hospitality Management, Inc., which is substantially owned by James I. Humphrey, a limited partner in the Partnership and Chairman of the Board of Directors and President of the Company. The Partnership's, and therefore the Company's, principal source of revenue is lease payments by the Lessee under the Percentage Leases. The Lessee's ability to make payments to the Partnership under the Percentage Leases is dependent on its ability to generate cash flow from the operation of the Hotels. RESULTS OF OPERATIONS Three months ended June 30, 1999 compared to the three months ended June 30, 1998 The Company's total revenues for the three month period ended June 30, 1999, substantially consisted of Lease revenue recognized pursuant to the Leases. The Company's revenue during the three month period ended June 30, 1999 was $3,196,443 an increase of $838,190, or 35.6%, as compared to Company revenue of $2,358,253 for the same period during 1998. The improvement in revenues is primarily attributable to additional Lease revenue derived from the increase through acquisitions, in the total number of Hotels. Net income declined by $324,955, or 31.7% to $698,755, for the three months ended June 30, 1999, as compared to net income of $1,023,710 for the same period during 1998. The decline in net income is primarily attributable to adjustments to amortization expense of $83,409, due to the reduction in the BankBoston line of credit from $35 million to $20 million and $97,225 from the early retirement of bonds secured by the Comfort Inn-Morgantown, WV and the recognition of a $78,487 loss on the sale of the Rodeway Inn Hotel in Wytheville, VA. The decline is also the result of additional interest and depreciation and amortization expense, associated with the financing and acquisition of new Hotels. Depreciation expense also increased due to over $1 million of capital improvements during 1999. Net income for the three month period ended June 30, 1998 was aided by the $195,001 gain on the sale of the Comfort Inn located in Elizabethton, TN. The Lessee's room revenues from the Hotels increased by $1,892,720, or 34.9%, to $7,306,385 for the three months ended June 30, 1999, as compared to $5,413,665 of room revenue for the same period of 1998. The improvement in revenues is primarily attributable to the increase in the total number of Hotels leased. The average daily rate of the Hotels increased to $60.52 for the three months ended June 30, 1999, as compared to the pro forma average daily rate of $58.96 for the same period of 1998. Revenue per available room ("Revpar") was $45.07 for the three months ended June 30, 1999 as compared to pro forma Revpar of $44.10 for the same period of 1998, an increase of 2.2%. Lessee operating expenses increased by $2,254,486, or 43.5% primarily as the result of the increased number of Hotels under management, to $7,436,441, for the three months ended June 30, 1999, as compared to $5,181,955 for the same period of 1998. The net income for the three months ended June 30, 1999 was $227,263 as compared to a net income of $565,919 for the same period in 1998. The reduction in net income is primarily the result of the increase in the number of hotels and partly because of the -18- 19 HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Lessee accrued $115,457 in contingent leases for the three months ended June 30, 1999. Six months ended June 30, 1999 compared to the six months ended June 30, 1998 The Company's total revenues for the six month period ended June 30, 1999, substantially consisted of Lease revenue recognized pursuant to the Leases. The Company's revenue during the six month period ended June 30, 1999 was $6,053,347 an increase of $1,787,263, or 41.9%, as compared to revenue of $4,266,084 for the same period during 1998. The improvement in revenues is attributed to the additional Lease revenue derived from the increase through acquisitions, in the number of Hotels. Net income decreased by $197,826 to $1,176,857, or 14.4% for the six months ended June 30, 1999 as compared to net income of $1,374,683 for the same period of 1998. The decline in net income is primarily attributable to adjustments to amortization expense of $83,409 due to the reduction in the BankBoston line of credit from $35 million to $20 million and $97,225 from the early retirement of bonds secured by the Comfort Inn- Morgantown, WV and the recognition of a $78,487 loss on the sale of the Rodeway Inn-Wytheville, VA. The decline is also the result of additional interest, depreciation and amortization expense associated with the financing and acquisition of new hotels. Depreciation expense also increased due to over $1 million of capital improvements during 1999. June 30, 1998 net income was aided by the $195,001 gain on the sale of the Comfort Inn-Elizabethton, TN. The Lessee's room revenues from the Hotels increased by $4,083,591, or 45%, to $13,159,236 for the six months ended June 30, 1999, as compared to $9,075,645 of room revenue for the same period of 1998. The improvement in revenues is primarily attributable to the increase in the number of Hotels. The average daily rate of the Hotels increased to $59.50 for the six months ended June 30, 1999, as compared to pro forma average daily rate of $58.42 for the same period of 1998. REVPAR was $40.72 for the six months ended June 30, 1999 as compared to pro forma REVPAR of $39.76 for the same period during 1998. Lessee operating expenses increased by $4,407,090, to $13,896,690 for the six months ended June 30, 1999, as compared to $9,489,600 or 46.4% for the same period during 1998. The Lessee experienced a net loss for the six months ended June 30, 1999 primarily due to the accrual of $230,914 in contingent lease payments. The following table shows certain other pro forma information as if the hotels acquired by the Partnership during 1998 had occurred on January 1, 1998. Historical information is presented for the three and six months ended June 30, 1999.
Three Months ended Six Months ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Occupancy rate 74% 75% 68% 68% ADR $60.52 $58.96 $59.50 $58.42 REVPAR $45.07 $44.10 $40.72 $39.76 Room Revenues $7,306,385 $7,179,459 $13,159,236 $12,875,746 Room nights available 162,099 162,799 323,109 323,809 Room nights occupied 120,734 121,757 221,101 220,384 Operating Hotels (at period end) 25 22 25 22 Rooms available (at period end) 1,687 1,470 1,687 1,470
LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to shareholders, is its share of the Partnership's cash flow. The Partnership's principal source of revenue is rent payments under the Leases. The Lessee's obligations under the Leases are unsecured. The Lessee's ability to make rent payments, and the Company's liquidity, including its ability to make distributions to common shareholders, is dependent on the Lessee's ability to generate sufficient cash flow from the operation of the Hotels. For the three and six months ended June 30, 1999, the Company expended approximately $1.3 and 1.8 million respectively, for capital improvements to the Hotels. During the quarter, the Company's -19- 20 HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Hotels located in Jackson, TN; Allentown, PA; Cleveland, TN; Brandon, FL; Shelby, NC; and Gettysburg, PA, underwent substantial capital improvements. The hotel business is seasonal, with hotel revenue generally greater in the second and third quarters than in the first and fourth quarters, with the exception of the Company's Hotels in Florida. These Hotels are busiest in the first and fourth quarters of the year. To the extent that cash flow from operating activities is insufficient to provide all of the estimated monthly distributions (particularly in the first quarter), the Company anticipates that it will be able to fund any such deficit from future working capital. As of June 30, 1999, the Company's cash and current accounts receivable balances exceed its current obligations by $210,691. The Company's Funds From Operations (net income plus minority interest and depreciation and amortization) ("FFO") was $1,735,319 for the three months ended June 30, 1999, which is an increase of $212,764, or 14% over FFO in the comparable period in 1998, which was $1,522,555. For the six months ended June 30, 1999, the Company's FFO was $3,140,314 which is an increase of $680,761, or 27.8% over FFO in the comparable period in 1998, which was $2,459,553. The improvements in FFO can be attributed to the addition of seven Hotels purchased during 1998. Management considers FFO to be a market accepted measure of an equity REIT's operating performance, which management believes reflects on the value of real estate companies such as the Company in connection with the evaluation of other measures of operating performances. All REITs do not calculate FFO in the same manner, therefore, the Company's calculation may not be the same as the calculation of FFO for similar REITs. Beginning with the year ended December 31, 1997, the Company changed the way it computes FFO. The Company believes that its new method of computing FFO is more consistent with the guidelines established by the National Association of Real Estate Investment Trusts ("NAREIT") for calculating FFO. FFO, as defined under the NAREIT standard, consists of net income, computed in accordance with generally accepted accounting principles ("GAAP"), excluding non-recurring items, gains or losses from debt restructuring and sales of properties, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The computation of historical FFO is as follows:
Historical Three Historical Three Month Period Ended Month Period Ended June 30, 1999 Per Share June 30, 1998 Per Share ------------- --------- ------------- --------- Net income applicable to common shares $ 698,755 $ 1,023,710 Add (less): Minority interest 131,022 163,071 Amortization of franchise costs 25,580 13,231 Depreciation 801,475 517,544 Loss (gain) on sale of asset 78,487 (195,001) ----------- ------------ Funds From Operations $ 1,735,319 $ .32 $ 1,522,555 $ .31 =========== ===== ============ =====
-20- 21 HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Historical Six Historical Six Month Period Ended Month Period Ended June 30, 1999 Per Share June 30, 1998 Per Share ------------- --------- ------------- --------- Net income applicable to common shares $ 1,176,857 $ 1,374,683 Add (less): Minority interest 220,669 229,327 Amortization of franchise costs 50,959 27,536 Depreciation 1,613,342 1,023,008 Loss (gain) on sale of asset 78,487 (195,001) ----------- ------------ Funds From Operations $ 3,140,314 $ .57 $ 2,459,553 $ .54 =========== ===== ============ =====
Long-term debt as of June 30, 1999, of approximately $42.3 million, consisted of: Approximately $2.3 million, secured by a first deed of trust on the Comfort Inn Hotel located in Dublin, VA. The outstanding balance bears interest at a rate equal to 7.75% per annum with additional underwriters' fees increasing the interest rate to approximately 8%. Approximately $2.9 million, secured by a first deed of trust on the Hampton Inn Hotel located in Brandon, FL. The outstanding balance bears interest at a rate of 8% per annum. Approximately $5 million, secured by a mortgage on the Comfort Inn and Holiday Inn Express Hotels located in Gettysburg, PA. The outstanding balance bears interest at a rate of 7.75%. Approximately $10.9 million, under the BankBoston Credit Facility, which is secured and cross-collateralized by the Company's Hotels located in Jackson, TN; Ellenton, FL (2 hotels): Shelby, NC; Key Largo, FL; Cleveland, TN; Dahlgren, VA; Princeton, WV and Dover, DE. The interest rate on the BankBoston Credit Facility is LIBOR plus between 165 and 215 basis points. The Company entered into an interest rate swap agreement that fixes the interest on approximately $11.2 at a ceiling of 7.79%. The rate at June 30, 1999 was 7.79%. Approximately $21.2 million, under the Mercantile Credit Facility which is secured and cross-collateralized by, and cross-defaulted on the Company's Hotels located in Solomons, MD; Farmville, VA (2 hotels); Culpeper, VA; New Castle, PA; Harlan, KY; Danville, KY; Murphy, NC; Chambersburg, PA; Allentown, PA, Morgantown, WV, and Rocky Mount, VA . The interest rate on the Mercantile Credit Facility is variable at 25 basis points above the prime rate. The rate was 8% at June 30, 1999. The Company's debt policy provides that it may not carry consolidated indebtedness in excess of 55% of the aggregate purchase prices of the Hotels in which it has invested. The aggregate total purchase price paid by the Company for the Hotels as of June 30, 1999 is approximately $78.7 million. As of June 30, 1999, the Company's total outstanding indebtedness represents approximately 53.7% of the aggregate amount paid by the Company for the Hotels. The Board of Directors has adopted a policy that will govern all of the Company's investment in hotel properties (the "Investment Policy") including the acquisition of existing hotels and the development of hotels, until such time as the Board amends such policy. Under the Investment Policy, the Company will make no investment in a hotel property unless the Company can demonstrate that it can reasonably expect an annual return on its investment (net of insurance, real estate and personal property taxes and reserves for furniture, fixtures and capital expenditures of 4% of room revenue ("FFE Reserves")), that is greater than or equal to 12% of the total purchase price to be paid by the Company for such property. Under the Bylaws, the approval of a majority of the Board of Directors, including a majority of the Independent Directors, is required for the Company to acquire any property. In addition, the Investment Policy will be applied to a hotel property prior to its acquisition -21- 22 HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS or development by the Company, and therefore, there can be no assurance that increases in insurance rates, real estate or personal property tax rates or FFE Reserves, which are based on room revenues, will not decrease the Company's annual return on its investments in any hotel property to a level below that set out in the Investment Policy. The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. So long as the Company continues to qualify as a REIT, the Company will not be subject to a federal income tax on its net income. REITs are subject to a number of organizational and operational requirements. For example, a REIT, and therefore the Company, is required to pay dividends to its shareholders of at least 95% of its taxable income for federal income tax purposes. The Company intends to pay these dividends from operating cash flows. The Company intends to retain as a reserve such amounts as it considers necessary for the acquisition, expansion and renovation of hotel properties consistent with continuing to distribute to its shareholders amounts sufficient to maintain the Company's qualification as a REIT. The Company expects to meet its short-term liquidity requirements generally through net cash provided by operations and existing cash balances. The Company believes that its net cash provided by operations will be adequate to fund both operating requirements and payment of dividends by the Company in accordance with REIT requirements. The Company expects to meet its long-term liquidity requirements, such as scheduled debt maturities and property acquisitions, through long-term secured and unsecured borrowings, the issuance of additional equity securities of the Company, or, in connection with acquisitions of hotel properties, issuance of units of limited partnership interest in the Partnership. Seasonality of Hotel Business and the Hotels The hotel industry is seasonal in nature. Generally, hotel revenues for hotels operating in the geographic areas in which the Hotels operate are greater in the second and third quarters than in the first and fourth quarters, with the exception of the Company's Florida Hotels. The Company's Florida Hotels are busiest in the first and fourth quarters of the year. The Hotels' operations historically reflect this trend. Although the hotel business is seasonal in nature, the Company believes that it generally will be able to make its expected distributions by using undistributed cash flow from the second and third quarters to fund any shortfall in cash flow from operating activities from the Hotels in the first and fourth quarters. YEAR 2000 Until recently, many computer systems and software products used only two digit entries to define a year. As a result, computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Computer programs that do not recognize the proper date could generate erroneous data or cause systems to fail. In response to the Year 2000 issue, the Company modified its existing information systems during 1998 to make them year 2000 compliant. The Company believes it has made all necessary modifications to its existing systems and does not expect that additional costs associated with Year 2000 compliance, if any, will be material to the Company's results of operations or financial condition. Because of the interdependence of information systems today, Year 2000 compliant companies may be affected by the Year 2000 readiness of their material suppliers, customers and other third parties, including the Lessee. The Lessee has completed an assessment of its information systems and is in the process of replacing noncompliant systems. Approximately 90% of the systems are currently compliant and the Lessee expects to replace all remaining noncompliant systems by early in the third fiscal quarter. The Company does not have any material suppliers or customers, however, as part of the Company's evaluation of the Year 2000 readiness of the Lessee, the Company has required that the Lessee obtain written assurances from its material suppliers and third party vendors that they have Year 2000 readiness programs in place as well as an affirmation that they will be compliant when necessary. Responses to these inquiries are currently being gathered and reviewed. To date, no such parties have informed the Lessee that they do not expect to be Year 2000 compliant in a timeframe that would expose the Lessee and, therefore, the Company to material business risks. -22- 23 HUMPHREY HOSPITALITY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS While the Company believes its efforts are adequate to address its Year 2000 concerns, the Company could experience a material adverse effect on its results of operations and financial condition if the Lessee's Year 2000 compliance schedule is not met or if the Lessee encounters serious problems in its Year 2000 remediation efforts. Therefore, the Company and the Lessee are in the process of developing plans to address such contingencies. Such contingency plan will include, among other things, the development of back-up procedures. The Company and the Lessee expect to complete their contingency plans in the third quarter of 1999. -23- 24 Item 3. Quantitative and Qualitative Disclosures about Market Risk Market Risks & Sensitivity Analysis The Company is exposed to various market risks, including fluctuations in interest rates. To manage these natural business exposures, the Company has entered into derivative transactions. The Company does not hold or issue derivative instruments for trading purposes. These contracts are entered into with major financial institutions thereby minimizing the risk of credit loss. The following analyses presents the sensitivity of the market value, earnings and cash flows of the Company's financial instruments to hypothetical changes in the interest rates as if these changes occurred at June 30, 1999. Market values are the present values of projected future cash flows based on the interest rate assumptions. These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments. They do not include other potential effects that could impact the Company's business as a result of these changes in interest rates. Interest Rate and Debt Sensitivity Analysis At June 30, 1999, the Company has debt totaling $42,328,471, including fixed rate debt totaling $7,984,560 and variable rate debt totaling $34,343,911. Included in the variable rate debt is $10,891,345 of debt subject to an interest rate swap agreement which effectively changes the characteristics of the interest rate without actually changing the debt instrument. At June 30, 1999, the Company's interest rate swap agreement converted outstanding variable rate debt totaling $10,891,345 to fixed rate debt for a period of time. At June 30, 1999, after adjusting for the effect of the interest rate swap agreement, the Company had fixed rate debt of $18,875,905 and variable rate debt of $23,452,566. Holding other variables constant, a one percentage point increase in interest rates would decrease the fair value of the fixed rate debt by $600,004. However , for variable rate debt, interest rate changes do not affect the fair value of the debt but do impact future earnings and cash flows. The earnings and cash flow impact for the next year resulting from a one percentage point increase in interest rates would be $118,023, holding other variables constant. PART II. OTHER INFORMATION Item 5. Other Information On June 11, 1999, the Company entered into an Agreement and Plan of Merger with Supertel Hospitality, Inc. Under the terms of the merger agreement, Supertel will merge with and into the Company. See Note 2 to the Notes to Consolidated Financial Statements. As a result of the proposed merger with Supertel, and the shareholders vote in conjunction therewith, the date of the Company's 1999 annual meeting of shareholders has been postponed to September 27, 1999. Since the 1999 annual meeting of shareholders is scheduled for a date that is more than thirty days from the anniversary of the Company's 1998 annual meeting of shareholders, pursuant to Rules 14a-5(f) and 14a-8(c), shareholder proposals that are to be included in the proxy materials related to the Company's 1999 annual meeting of shareholders must be received at the Company's principal executive offices on or before August 9, 1999. Item 6. Exhibits and Reports on Form 8-K Exhibits - 2.1 Agreement and Plan of Merger dated June 11, 1999 between the Company and Supertel Hospitality, Inc. (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on June 14, 1999). 3.1 Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 33-83658)). 3.2 Second Amended and Restated Bylaws of the Registrant. 10.1 Declaration of Trust of Humphrey Hospitality REIT Trust (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.2 Bylaws of Humphrey Hospitality REIT Trust (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.3 Second Amended and Restated Agreement of Limited Partnership of Humphrey Hospitality Limited Partnership (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.4 Second Amended and Restated Agreement of Limited Partnership of Solomons Beacon Inn Limited Partnership (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-11 (Registration No. 33-93346)). 10.5 Agreement of Purchase and Sale dated March 26, 1997, between 344 Associates Limited Partnership and Humphrey Hospitality Limited Partnership for the Comfort Inn-Gettysburg, Pennsylvania (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.6 Agreement of Purchase and Sale dated March 26, 1997, between 144 Associated Limited Partnership and Humphrey Hospitality Limited Partnership for the Holiday Inn Express-Gettysburg, Pennsylvania (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.7 Purchase Agreement dated March 26, 1997, between 644 Associates Limited Partnership and Humphrey Hospitality Limited Partnership for the Holiday Inn Express - Allentown, Pennsylvania (incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.8 Purchase Agreement, dated March 26, 1997, between 544 Associates Limited Partnership and Humphrey Hospitality Limited Partnership for the Comfort Inn-Chambersburg, Pennsylvania Hotel (incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-11 (Registration No. 333-48583)). 10.9 Option Agreement (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-11 (Registration No. 33-83658)). 10.10 Non-Competition Agreement (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-11 (Registration No. 33-83658)). 10.11 Services Agreement dated as of January 1, 1996 between the Company and Humphrey Hospitality Management, Inc. (incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-11 (Registration No. 333-15897)). 10.12 First Amendment to Services Agreement, dated as of October 1, 1996, between the Company and Humphrey Hospitality Management, Inc. (incorporated by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-11 (Registration No. 333-15897)). 10.13 Development Services Agreement, dated as of April 4, 1996, between Humphrey Hospitality Limited Partnership and Humphrey Development (incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-11 (Registration No. 333-15897)). 10.14 First Amendment to Development Services Agreement dated November 6, 1996 between the Partnership and Humphrey Development (incorporated by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-11 (Registration No. 333-15897)). 10.15 Agreement of Purchase and Sale dated May 31, 1998 between Allen Investments, Inc. and Humphrey Hospitality Limited Partnership for the Best Western - Ellenton, FL, the Shoney's Inn, Ellenton, FL and the Hampton Inn, Brandon, FL (incorporated by reference to Exhibit 2.1 to Form 8-K/A filed August 6, 1998). 10.16 Revolving Credit and Guaranty Agreement dated August 18,1998 among the Company, Humphrey Hospitality Limited Partnership, Humphrey Hospitality REIT Trust and Solomons Beacon Limited Partnership and BankBoston, N.A. and other banks that may become parties to the agreement (incorporated by reference to Exhibit 10.8 to Form 10-K405 filed on March 31, 1999). 10.17 First Amendment to BankBoston Revolving Credit and Guaranty Agreement dated November 30, 1998 (incorporated by reference to Exhibit 10.9 to Form 10-K405 filed on March 31, 1999). 10.18 Shareholders' Agreement dated June 11, 1999, between Supertel Hospitality, Inc., Jeffrey Zwerdling, George R. Whittemore, Leah T. Robinson and Andrew A. Mayer. 10.19 Shareholders' Agreement dated June 11, 1999, between the Company, Supertel Hospitality, Inc., Paul J. Schulte and Steve H. Borgmann. 10.20 Agreement dated June 11, 1999 between the Company, Humphrey Hospitality Limited Partnership, Supertel Hospitality, Inc. and James I. Humphrey, Jr. 10.21 Right of First Opportunity Agreement dated June 10, 1999, between the Company, Humphrey Hospitality Limited Partnership and Humphrey Hospitality Management, Inc. 27.1 Financial Data Schedule Reports on Form 8-K - On June 14, 1999, the Company filed a Report on Form 8-K reporting that it had executed an Agreement and Plan of Merger with Supertel Hospitality Inc., whereby Supertel will merge with and into Humphrey Hospitality Trust Inc. -24- 25 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. HUMPHREY HOSPITALITY TRUST, INC. By: /s/ James I Humphrey, Jr ------------------------- James I. Humphrey, Jr. Chairman of the Board, President and Secretary Date: 8/04/99 ----------------------- -25- EX-3.2 2 SECOND AMENDED AND RESTATED BYLAWS OF REGISTRANT 1 EXHIBIT 3.2 SECOND AMENDED AND RESTATED BYLAWS OF HUMPHREY HOSPITALITY TRUST, INC. 2 TABLE OF CONTENTS
Page ARTICLE I Offices...........................................................................1 Section 1. Principal Office.....................................................1 Section 2. Additional Offices...................................................1 Section 3. Fiscal and Taxable Years.............................................1 ARTICLE II Meetings of Shareholders.........................................................2 Section 1. Place................................................................2 Section 2. Annual Meeting.......................................................2 Section 3. Special Meetings.....................................................2 Section 4. Notice...............................................................3 Section 5. Scope of Notice......................................................4 Section 6. Organization.........................................................4 Section 7. Quorum...............................................................4 Section 8. Voting...............................................................5 Section 9. Proxies..............................................................5 Section 10. Voting of Shares by Certain Holders.................................6 Section 11. Inspectors..........................................................7 Section 12. Fixing Record Date..................................................7 Section 13. Action Without a Meeting............................................8 Section 14. Voting by Ballot....................................................8 Section 15. Voting List.........................................................8 Section 16. Shareholder Proposals...............................................9 ARTICLE III Directors......................................................................10 Section 1. General Powers......................................................10 Section 2. Number, Tenure and Qualifications...................................10 Section 3. Changes in Number; Vacancies........................................11 Section 4. Resignations........................................................11 Section 5. Removal of Directors................................................12 Section 6. Annual and Regular Meetings.........................................12 Section 7. Special Meetings....................................................12 Section 8. Notice..............................................................12 Section 9. Quorum..............................................................13 Section 10. Voting.............................................................13 Section 11. Telephone Meetings.................................................13 Section 12. Action Without a Meeting...........................................14 Section 13. Compensation.......................................................14 Section 14. Policies and Resolutions...........................................14 Section 15. Nominations........................................................15
3 ARTICLE IV Committees......................................................................16 Section 1. Committees of the Board.............................................16 Section 2. Telephone Meetings..................................................17 Section 3. Action By Committees Without a Meeting..............................18 ARTICLE V Officers.........................................................................18 Section 1. General Provisions..................................................18 Section 2. Subordinate Officers, Committees and Agents.........................18 Section 3. Removal and Resignation.............................................19 Section 4. Vacancies...........................................................19 Section 5. General Powers......................................................19 Section 6. Duties of the Chairman of the Board.................................19 Section 7. Duties of the President.............................................20 Section 8. Duties of the Vice-Presidents.......................................21 Section 9. Duties of the Treasurer.............................................21 Section 10. Duties of the Secretary............................................21 Section 11. Other Duties of Officers...........................................22 Section 12. Salaries...........................................................22 ARTICLE VI Contracts, Notes, Checks and Deposits...........................................22 Section 1. Contracts...........................................................22 Section 2. Checks and Drafts...................................................22 Section 3. Deposits............................................................23 ARTICLE VII Shares of Stock................................................................23 Section 1. Certificates of Stock...............................................23 Section 2. Lost Certificate....................................................24 Section 3. Transfer Agents and Registrars......................................24 Section 4. Transfer of Stock...................................................24 Section 5. Stock Ledger........................................................25 ARTICLE VIII Dividends.....................................................................25 Section 1. Declaration.........................................................25 Section 2. Contingencies.......................................................26 ARTICLE IX Seal............................................................................26 Section 1. Seal................................................................26 Section 2. Affixing Seal.......................................................26
- ii - 4 ARTICLE X Waiver of Notice.................................................................26 ARTICLE XI Amendment of Bylaws.............................................................27 Section 1. By Directors........................................................27 Section 2. By Shareholders.....................................................27
- iii - 5 SECOND AMENDED AND RESTATED BYLAWS OF HUMPHREY HOSPITALITY TRUST, INC. The Board of Directors of Humphrey Hospitality Trust, Inc. (the "Corporation") hereby sets out the Bylaws of the Corporation in their entirety, as follows: ARTICLE I Offices Section 1. Principal Office. The principal office of the Corporation shall be located at 12301 Old Columbia Pike, Silver Spring, Maryland 20904, or at any other place or places as the Board of Directors may designate. Section 2. Additional Offices. The Corporation may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 3. Fiscal and Taxable Years. The fiscal and taxable years of the Corporation shall begin on January 1 and end on December 31. 6 ARTICLE II Meetings of Shareholders Section 1. Place. All meetings of shareholders shall be held at 12301 Old Columbia Pike, Silver Spring, Maryland 20904, or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. Annual Meeting. The President or the Board of Directors may fix the time of the annual meeting of the shareholders for the election of Directors and the transaction of any business as may be properly brought before the meeting, but if no such date and time is fixed by the President or the Board of Directors, the meeting for any calendar year shall be held on the fourth Thursday in May, if that day is not a legal holiday. If that day is a legal holiday, the annual meeting shall be held on the next succeeding business day that is not a legal holiday. Section 3. Special Meetings. The Chairman of the Board, the President, a majority of the Board of Directors or a majority of the Independent Directors may call special meetings of the shareholders. Special meetings of shareholders also shall be called by the Secretary upon the written request of the holders of shares entitled to cast not less than ten percent (10%) of all the votes entitled to be cast at such meeting. Such request shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The Secretary shall inform such shareholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Corporation of such costs, the Secretary shall give notice to each shareholder entitled to notice of the meeting. Unless requested by shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting, a special meeting need not be called - 2 - 7 to consider any matter which is substantially the same as a matter voted on at any annual or special meeting of the shareholders held during the preceding twelve months. Section 4. Notice. Not less than 10 nor more than 60 days before each meeting of shareholders, the Secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by statute, the purpose for which the meeting is called, either by mail or by presenting it to such shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notice of a meeting of shareholders to act on (i) an amendment of the Articles of Incorporation of the Corporation (the "Articles of Incorporation"), (ii) plan of merger or share exchange, (iii) the sale, lease, exchange or other disposition of all, or substantially all, the property of the Corporation otherwise than in the usual and regular course of its business, or (iv) the dissolution of the Corporation, shall be given in the manner provided above, to each shareholder, whether or not entitled to vote, not less than twenty-five nor more than sixty days before the date of the meeting. Any such notice shall state that one of the purposes of the meeting is to consider the particular extraordinary corporate act and, when applicable, shall be accompanied by a copy of the (i) proposed amendment, (ii) plan of merger or share exchange, or (iii) agreement pursuant to which the disposition of all or substantially all of the Corporation's property will be effected. - 3 - 8 Section 5. Scope of Notice. No business shall be transacted at a special meeting of shareholders except that specifically designated in the notice of the meeting. Subject to the provisions of Section 16 of this Article II, any business of the Corporation may be transacted at the annual meeting without being specifically designated in the notice, except such business as is required by statute to be stated in such notice. Section 6. Organization. At every meeting of the shareholders, the Chairman of the Board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board, one of the following officers present shall conduct the meeting and act as Chairman in the order stated: the Vice Chairman of the Board, if there be one, the President, the Vice Presidents in their order of rank and seniority, or a Chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast. The Secretary, or, in his absence, an assistant secretary, or in the absence of both the Secretary and assistant secretaries, a person appointed by the Chairman shall act as Secretary. Section 7. Quorum. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this Section 7 shall not affect any requirement under any statute, the Articles of Incorporation or these Bylaws for the vote necessary for the adoption of any measure. If such quorum shall not be present at any meeting of the shareholders, the shareholders representing a majority of the shares entitled to vote at such meeting, present in person or by proxy, may vote to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting until such - 4 - 9 quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Any meeting at which Directors are to be elected shall be adjourned only from day to day, as may be directed by shareholders representing a majority of the shares who are present in person or by proxy and who are entitled to vote on the election of Directors. Section 8. Voting. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a director. There shall be no cumulative voting. Each share of stock may be voted for as many individuals as there are Directors to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute, by the Articles of Incorporation or by these Bylaws. Each shareholder of record shall have the right, at every meeting of shareholders, to one vote for each share held. Section 9. Proxies. A shareholder may vote the shares of stock owned of record by him, either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. - 5 - 10 Section 10. Voting of Shares by Certain Holders. Shares registered in the name of another corporation, if entitled to be voted, may be voted by the president, a vice president or a proxy appointed by the president or a vice president of such other corporation, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the board of directors of such other corporation presents a certified copy of such bylaw or resolution, in which case such person may vote such shares. Any fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy. Shares of its own stock indirectly owned by this Corporation shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time. The Board of Directors may adopt by resolution a procedure by which a shareholder may certify in writing to the Corporation that any shares of stock registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set - 6 - 11 forth in the certification, the shareholder of record of the specified stock in place of the shareholder who makes the certification. Section 11. Inspectors. At any meeting of shareholders, the Chairman of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or entitled to receive payment for any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of - 7 - 12 Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section such determination shall apply to any adjournment thereof. Section 13. Action Without a Meeting. Any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if a consent in writing, setting forth such action, is signed by each shareholder entitled to vote on the matter and any other shareholder entitled to notice of a meeting of shareholders (but not to vote thereat) has waived in writing any right to dissent from such action, and such consent and waiver are filed with the minutes of proceedings of the shareholders. Section 14. Voting by Ballot. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. Section 15. Voting List. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. Such list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation or at its principal place of business or at the office of its transfer agent or registrar and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be - 8 - 13 subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. If the requirements of this section have not been substantially complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until the requirements are complied with. Section 16. Shareholder Proposals. To be properly brought before an annual meeting of shareholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than ninety (90) days in advance of the annual meeting. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting (including the specific proposal to be presented) and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. - 9 - 14 In the event that a shareholder attempts to bring business before an annual meeting without complying with the provisions of this Section 16, the Chairman of the meeting shall declare to the meeting that the business was not properly brought before the meeting in accordance with the foregoing procedures, and such business shall not be transacted. No business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 16; provided, however, that nothing in this Section 16 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. ARTICLE III Directors Section 1. General Powers. The Board of Directors shall have full power to conduct, manage, and direct the business and affairs of the Corporation, and all powers of the Corporation, except those specifically reserved or granted to the shareholders by statute or by the Articles of Incorporation or these Bylaws, shall be exercised by, or under the authority of, the Board of Directors. Section 2. Number, Tenure and Qualifications. The number of Directors of the Corporation shall be not less than three (3) nor more than nine (9). Directors need not be shareholders in the Corporation. At all times (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a Director prior to expiration of the Director's term of office), a majority of the Board of Directors shall be comprised of Independent Directors. - 10 - 15 Section 3. Changes in Number; Vacancies. Any vacancy occurring on the Board of Directors may, subject to the provisions of Section 5 of this Article III, be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum; provided, however, that a majority of Independent Directors shall nominate replacements for vacancies among the Independent Directors, which replacements must be elected by a majority of the Directors, including a majority of the Independent Directors. Any vacancy occurring by reason of an increase in the number of Directors may be filled by action of a majority of the entire Board of Directors including a majority of Independent Directors. If the shareholders of any class or series are entitled separately to elect one or more Directors, a majority of the remaining Directors elected by that class or series or the sole remaining Director elected by that class or series may fill any vacancy among the number of Directors elected by that class or series. A Director elected by the Board of Directors to fill a vacancy shall be elected to hold office for the balance of the term of the Director he is replacing or until his successor is elected and qualified. The Board of Directors may declare vacant the office of a Director who has been declared of unsound mind by an order of court, who has pled guilty or nolo contendere to, or been convicted of, a felony involving moral turpitude, or who has willfully violated the Company's Articles of Incorporation or these Bylaws. Section 4. Resignations. Any Director or member of a committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time be specified, at the time of the receipt by the Chairman of the Board, the President or the Secretary. - 11 - 16 Section 5. Removal of Directors. The shareholders may, at any time, remove any Director, with or without cause, by the affirmative vote of the holders of not less than a majority of all the shares entitled to vote on the election of Directors and may elect a successor to fill any resulting vacancy for the balance of the term of the removed Director. Section 6. Annual and Regular Meetings. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this bylaw being necessary. The Board of Directors may provide, by resolution, the time and place, either within or without the Commonwealth of Virginia, for the holding of regular meetings of the Board of Directors without other notice than such resolution. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President, a majority of the Board of Directors or a majority of the Independent Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the Commonwealth of Virginia, as the place for holding any special meeting of the Board of Directors called by them. Section 8. Notice. Notice of any special meeting of the Board of Directors shall be given by written notice delivered personally, telegraphed, telecopied or mailed to each Director at his business or resident address. Personally delivered, telegraphed or telecopied notices shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice - 12 - 17 shall be deemed to be given when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws. Section 9. Quorum. Subject to the provisions of Section 10 of this Article III, a majority of the entire Board of Directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a quorum is present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. Subject to the provisions of Section 10 of this Article III, the Directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum. Section 10. Voting. The action of the majority of the Directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by the Articles of Incorporation, these Bylaws, or applicable statute. Section 11. Telephone Meetings. Members of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. - 13 - 18 Section 12. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each Director and such written consent is filed with the minutes of proceedings of the Board of Directors. Section 13. Compensation. Directors shall receive such reasonable compensation for their services as Directors as the Board of Directors may fix or determine from time to time; such compensation may include a fixed sum, shares of capital stock of the Corporation and reimbursement of reasonable expenses incurred in traveling to and from or attending regular or special meetings of the Board of Directors or of any committee thereof. Section 14. Policies and Resolutions. It shall be the duty of the Board of Directors to insure that the purchase, sale, retention and disposal of the Corporation's assets, the investment policies and the borrowing policies of the Corporation and the limitations thereon or amendment thereof are at all times: (a) consistent with such policies, limitations and restrictions as are contained in these Bylaws, or in the Corporation's Articles of Incorporation, or as described in the Corporation's ongoing periodic reports filed with the SEC, subject to revision from time to time at the discretion of the Board of Directors without shareholder approval unless otherwise required by law; and (b) in compliance with the restrictions applicable to real estate investment trusts pursuant to the Internal Revenue Code of 1986, as amended. - 14 - 19 Section 15. Nominations. Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for the election of Directors shall be made by the Company's notice of the meeting of shareholders for such election, the Board of Directors, or by any shareholder entitled to vote in the election of Directors generally. Any shareholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if written notice of such shareholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, ninety (90) days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of Directors, the close of business on the seventh (7th) day following the date on which notice of such meeting is first given to shareholders. Each notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee - 15 - 20 been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a Director of the Corporation if so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. ARTICLE IV Committees Section 1. Committees of the Board. The Board of Directors may appoint from among its members an executive committee and other committees comprised of two or more Directors. A majority of the members of any committee so appointed shall be Independent Directors. The Board of Directors shall appoint (i) an acquisition committee which is comprised of not less than two members, a majority of whom are Independent Directors and (ii) an audit committee of which is comprised entirely of Independent Directors. The Board of Directors may delegate to any committee any of the powers of the Board of Directors except the power to elect Directors, declare dividends or distributions on stock, recommend to the shareholders any action which requires shareholder approval, amend or repeal these Bylaws, approve any merger or share exchange which does not require shareholder approval, or issue stock. However, if the Board of Directors has given general authorization for the issuance of stock, a committee of the Board of Directors, in accordance with a general formula or method specified by the Board of Directors by resolution or by adoption of a stock option plan, may fix the terms of stock, subject to classification or reclassification, and the terms on which any stock may be issued. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. - 16 - 21 One-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board of Directors may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of such absent or disqualified members; provided, however, that in the event of the absence or disqualification of an Independent Director, such appointee shall be an Independent Director. Each committee shall keep minutes of its proceedings and shall report the same to the Board of Directors at the meeting next succeeding, and any action by the committees shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternative members to replace any absent or disqualified member, or to dissolve any such committee. Section 2. Telephone Meetings. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. - 17 - 22 Section 3. Action By Committees Without a Meeting. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. ARTICLE V Officers Section 1. General Provisions. The officers of the Corporation may consist of a Chairman of the Board, a Vice Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, one or more assistant treasurers, a Secretary, and one or more assistant secretaries and such other officers as may be elected in accordance with the provisions of Section 2 of this Article V. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In its discretion, the Board of Directors may leave unfilled any office except that of President and Secretary. Election or appointment of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent. Section 2. Subordinate Officers, Committees and Agents. The Board of Directors may from time to time elect such other officers and appoint such committees, employees, other agents as the business of the Corporation may require, including one or more assistant secretaries, and - 18 - 23 one or more assistant treasurers, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws, or as the Board of Directors may from time to time determine. The Directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents. Section 3. Removal and Resignation. Any officer or agent of the Corporation may be removed by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Any resignation shall take effect at the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Section 4. Vacancies. A vacancy in any office may be filled by the Board of Directors for the balance of the term. Section 5. General Powers. All officers of the Corporation as between themselves and the Corporation shall, respectively, have such authority and perform such duties in the management of the property and affairs of the Corporation as may be determined by resolution of the Board of Directors, or in the absence of controlling provisions in a resolution of the Board of Directors, as may be provided in these Bylaws. Section 6. Duties of the Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall be primarily responsible for the execution of - 19 - 24 policies of the Board of Directors. He shall have authority over the general management and direction of the business and operations of the Corporation and its divisions, if any, subject only to the ultimate authority of the Board of Directors. He may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law otherwise to be signed or executed. In addition, he shall perform all duties incident to the office of the Chairman of the Board and such other duties as from time to time may be assigned to him by the Board of Directors. Section 7. Duties of the President. In the absence of a Chairman of the Board, the President shall be the chief executive officer of the Corporation and shall be primarily responsible for the execution of policies of the Board of Directors and shall have authority over the general management and direction of the business and operations of the Corporation and its divisions, if any, subject only to the ultimate authority of the Board of Directors. In the absence of the Chairman of the Board, or if there are no such officers, the President shall preside at all corporate meetings and he may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law otherwise to be signed or executed. In addition, he shall perform all duties incident to the office of the President and such other duties as from time to time may be assigned to him by the Board of Directors. - 20 - 25 Section 8. Duties of the Vice-Presidents. Each Vice-President, if any, shall have such powers and duties as may from time to time be assigned to him by the President or the Board of Directors. Any Vice-President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors, except where the signing and execution of such documents shall be expressly delegated by the Board of Directors or the President to some other officer or agent of the Corporation or shall be required by law or otherwise to be signed or executed. Section 9. Duties of the Treasurer. The Treasurer shall have such powers and duties as may be assigned to him by the President of the Board of Directors. The Treasurer may sign and execute in the name of the Corporation share certificates, deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law or otherwise to be signed or executed. Section 10. Duties of the Secretary. The Secretary shall act as secretary of all meetings of the Board of Directors, the Executive Committee and all other Committees of the Board and shareholders of the Corporation. He shall keep and preserve the minutes of all such meetings in the proper book or books provided for that purpose. He shall see that all notices required to be given by the Corporation are duly given and served; shall have custody of the seal of the Corporation and shall affix the seal or cause it to be affixed to all share certificates of the Corporation and to all documents the execution of which on behalf of the Corporation under its corporate seal is duly authorized in accordance with law or the provisions of these Bylaws; shall have custody of all deeds, leases, contracts and other important corporate documents; shall have - 21 - 26 charge of the books, records and papers of the Corporation relating to its organization and management as a Corporation; shall see that all reports, statements and other documents required by law (except tax returns) are properly filed; and shall, in general perform, all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the President. Section 11. Other Duties of Officers. Any officer of the Corporation shall have, in addition to the duties prescribed herein or by law, such other duties as from time to time shall be prescribed by the Board of Directors or the President. Section 12. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Director of the Corporation. ARTICLE VI Contracts, Notes, Checks and Deposits Section 1. Contracts. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Section 2. Checks and Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by the Board of Directors. - 22 - 27 Section 3. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may designate. ARTICLE VII Shares of Stock Section 1. Certificates of Stock. Each shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each kind and class of shares held by him in the Corporation. Each certificate shall be signed by the Chairman of the Board or the President or a Vice President and countersigned by the Secretary or an assistant secretary or the Treasurer or an assistant treasurer and may be sealed with the corporate seal. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Corporation shall, from time to time, issue several classes of stock, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing stock which is restricted as to its transferability or voting powers, which is preferred or limited as to its dividends or as to its share of the assets upon liquidation or which is redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Corporation may set forth upon the face or back of the certificate a statement that the Corporation will furnish to any shareholder, upon request and without charge, a full statement of such information. - 23 - 28 Section 2. Lost Certificate. The Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or his legal representative to advertise the same in such manner as it shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 3. Transfer Agents and Registrars. At all such times that the Corporation's securities are listed on a national securities exchange or qualified for trading in the over-the-counter market, the Board of Directors shall appoint one or more banks or trust companies in such city or cities as the Board of Directors may deem advisable, from time to time, to act as transfer agents and/or registrars of the shares of stock of the Corporation; and, upon such appointments being made, no certificate representing shares shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. Section 4. Transfer of Stock. No transfers of shares of stock of the Corporation shall be made if (i) void ab initio pursuant to any provision of the Corporation's Articles of Incorporation or (ii) the Board of Directors, pursuant to any provision of the Corporation's Articles of Incorporation, shall have refused to permit the transfer of such shares. Permitted transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon the instruction of the registered holder thereof, or by his attorney thereunto authorized by - 24 - 29 power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and upon surrender of the certificate or certificates, if issued, for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, as to any transfers not prohibited by any provision of the Corporation's Articles of Incorporation or by action of the Board of Directors thereunder, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. Stock Ledger. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each shareholder and the number of shares of stock of each class held by such shareholder. ARTICLE VIII Dividends Section 1. Declaration. Dividends upon the shares of stock of the Corporation may be declared by the Board of Directors, subject to applicable provisions of law and the Articles of Incorporation. Dividends may be paid in cash, property or shares of the Corporation, subject to applicable provisions of law and the Articles of Incorporation. - 25 - 30 Section 2. Contingencies. Before payment of any dividends, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends, for repairing or maintaining the property of the Corporation, its subsidiaries or any partnership for which it serves as general partner, or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE IX Seal Section 1. Seal. The Corporation may have a corporate seal, which may be altered at will by the Board of Directors. The Board of Directors may authorize one or more duplicate or facsimile seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Corporation is required to place its corporate seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a corporate seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Corporation. ARTICLE X Waiver of Notice Whenever any notice is required to be given pursuant to the Articles of Incorporation or - 26 - 31 these Bylaws of the Corporation or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE XI Amendment of Bylaws Section 1. By Directors. The Board of Directors shall have the power to adopt, alter or repeal any Bylaws of the Corporation and to make new Bylaws, except that the Board of Directors shall not alter or repeal this Article XI or any Bylaws made by the shareholders and provided that any amendment to Section 2, Section 3, Section 5 or Section 9 of Article III requires the affirmative vote of 80% of the entire Board of Directors, including a majority of the Independent Directors. Section 2. By Shareholders. The shareholders shall have the power to adopt, alter or repeal any Bylaws of the Corporation and to make new Bylaws, provided that any amendment to Section 2, Section 3, Section 5 or Section 9 of Article III requires the affirmative vote of the holders of two-thirds of all outstanding shares entitled to vote on the election of Directors, voting separately as a class. - 27 - 32 The foregoing are certified as the Bylaws of the Corporation adopted by the Board of Directors and the Shareholders of the Corporation effective June 10, 1999. /s/ James I. Humphrey, Jr. --------------------------------- Secretary - 28 - EX-10.18 3 ZWERDLING, WHITTMORE SHAREHOLDER'S AGREEMENT 1 EXHIBIT 10.18 SHAREHOLDERS' AGREEMENT THIS SHAREHOLDERS' AGREEMENT (this "Agreement") is made and entered into as of June 11, 1999 by and among SUPERTEL HOSPITALITY, INC., a Delaware corporation ("STH"), JEFFREY ZWERDLING, GEORGE R. WHITTEMORE, LEAH T. ROBINSON, and ANDREW A. MAYER (in their individual capacities and on behalf of their respective Affiliates listed on Attachment 1 hereto). Each of Messrs. Zwerdling, Whittemore, Mayer and Dr. Robinson and their respective Affiliates is hereinafter referred to individually as a "Shareholder" and collectively as the "Shareholders." WHEREAS, the Shareholders desire that Humphrey Hospitality Trust, Inc. ("HHTI") and STH enter into an Agreement and Plan of Merger dated the date hereof (as the same may be amended or supplemented, the "Merger Agreement") with respect to the merger of STH with and into HHTI (the "Merger"); and WHEREAS, the Shareholders are executing this Agreement as an inducement to STH to enter into and execute the Merger Agreement; NOW, THEREFORE, in consideration of the execution and delivery by STH of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Definitions. The following terms as used in this Agreement shall have the following meanings (applicable in both the singular and plural forms of the terms defined): a. "Affiliate" means (i) any person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other person, (ii) any person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other person, (iii) any person directly or indirectly controlling, controlled by, or under common control with such other person, (iv) any executive officer, director, trustee or general partner of such other person, and (v) any legal entity for which such person acts as an executive officer, director, trustee or general partner. The term "person" means and includes any natural person, corporation, partnership, association, limited liability company or any other legal entity. An indirect relationship shall include circumstances in which a person's spouse is associated with a person. b. Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned to them in the Merger Agreement. 2. Representations and Warranties. Each Shareholder represents and warrants to STH as follows: a. The Shareholder is the record and beneficial owner of the number of shares (such "Shareholder's Shares") of common stock, $.01 par value, of HHTI ("HHTI Stock") 2 set forth below such Shareholder's name on the signature page hereof. Except for the Shareholder's Shares, the Shareholder is not the record or beneficial owner of any shares of HHTI Stock. This Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder, enforceable in accordance with its terms. b. Neither the execution and delivery of this Agreement nor the consummation by the Shareholder of the transactions contemplated hereby will result in a violation of, or a default under, or conflict with, any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which the Shareholder is a party or bound or to which the Shareholder's Shares are subject. If the Shareholder is married and the Shareholder's Shares constitute community property, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder's spouse, enforceable against such person in accordance with its terms. Consummation by the Shareholder of the transactions contemplated hereby will not violate, or require any consent, approval, or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to the Shareholder or the Shareholder's Shares. c. The Shareholder's Shares and the certificates representing such Shares are now, and at all times prior to the Merger will be, held by the Shareholder, or by a nominee or custodian for the benefit of such Shareholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. d. No broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Shareholder. e. The Shareholder understands and acknowledges that STH is entering into the Merger Agreement in reliance upon the Shareholder's execution and delivery of this Agreement. The Shareholder acknowledges that the irrevocable proxy set forth in Section 4 is granted in consideration for the execution and delivery of the Merger Agreement by STH. 3. Voting Agreements. The Shareholder agrees with, and covenants to, STH as follows: a. At any meeting of shareholders of HHTI called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Merger and the Merger Agreement is sought (the "Shareholders Meeting"), the Shareholder shall vote (or cause to be voted) the Shareholder's Shares in favor of the Merger, the execution and delivery by STH of the Merger Agreement, and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, including the amendment and restatement of the Articles of Incorporation and Bylaws of HHTI, as set forth on Exhibits M and N to the Merger Agreement. -2- 3 b. At any meeting of shareholders of HHTI or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, the Shareholder shall vote (or cause to be voted) such Shareholder's Shares against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by STH or (ii) any amendment of HHTI's Articles of Incorporation or Bylaws or other proposal or transaction involving HHTI or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). 4. Grant of Irrevocable Proxy; Appointment of Proxy. a. The Shareholder hereby irrevocably grants to, and appoints, STH and Paul J. Schulte, individually and in his capacity as an officer of STH, and any individual who shall hereafter succeed to such office of STH, the Shareholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Shareholder, to vote the Shareholder's Shares, or grant a consent or approval in respect of such Shares (i) in favor of the Merger, the execution and delivery of the Merger Agreement and approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, including the amendment and restatement of the Articles of Incorporation and Bylaws of HHTI, as set forth on Exhibits M and N to the Merger Agreement, provided that the terms of the Merger Agreement shall not have been amended to materially and adversely impair the Shareholder's rights or increase the Shareholder's obligations thereunder, and (ii) against any Competing Transaction. The proxy granted pursuant to this Section 4 shall be strictly limited to the matters set forth herein and the Shareholder shall have the right to vote the Shareholder's Shares with respect to all other matters. b. The Shareholder represents that any proxies heretofore given in respect of the Shareholder's Shares are not irrevocable, and that any such proxies are hereby revoked. c. The Shareholder hereby affirms that the irrevocable proxy set forth in this Section 4 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Shareholder under this Agreement. The Shareholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. The Shareholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the laws of the Commonwealth of Virginia. -3- 4 5. Certain Events. The Shareholder agrees that this Agreement and the obligations hereunder shall attach to the Shareholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including without limitation the Shareholder's successors or assigns. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of HHTI affecting the HHTI Stock, or the acquisition of additional shares of HHTI Stock or other voting securities of HHTI by any Shareholder, the number of Shares subject to the terms of this Agreement shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional shares of HHTI Stock or other voting securities of HHTI issued to or acquired by the Shareholder. 6. Further Assurances. The Shareholder shall, upon request of STH, execute and deliver any additional documents and take such further actions as may reasonably be deemed by STH to be necessary or desirable to carry out the provisions hereof and to vest the power to vote such Shareholder's Shares as contemplated by Section 4 in STH and the other irrevocable proxies described therein at the expense of STH. 7. Termination. This Agreement and all rights and obligations of the parties hereunder shall terminate upon the first to occur of (x) the Effective Time of the Merger or (y) the date upon which the Merger Agreement is terminated in accordance with its terms. 8. Miscellaneous. a. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to STH, to the address provided in the Merger Agreement; and (ii) if to the Shareholder; to its address shown below its signature on the last page hereof. b. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. c. This Agreement may be executed in multiple counterparts, all of which shall be considered one and the same agreement. d. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. e. As to the rights and obligations relating to STH, this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its rules of conflicts of laws. As to the rights and obligations relating to HHTI Stock and the holders thereof, this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Virginia without regard to its rules of conflicts of laws. -4- 5 f. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except as expressly contemplated by Section 5. Any assignment in violation of the foregoing shall be void. g. The Shareholder agrees that irreparable damage would occur and that STH would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that STH shall be entitled to an injunction or injunctions to prevent breaches by the Shareholder of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Virginia or in Virginia state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the Commonwealth of Virginia or any Virginia state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the Commonwealth of Virginia or a Virginia state court. h. If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. i. No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [SIGNATURE PAGE FOLLOWS] -5- 6 IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Shareholders' Agreement as of the day and year first above written. SUPERTEL HOSPITALITY, INC. By: /s/ Paul J. Schulte --------------------------------- Paul J. Schulte President and Chief Executive Officer JEFFREY ZWERDLING: /s/ Jeffrey Zwerdling ------------------------------------- Address: ----------------------------- ------------------------------------- Number of HHTI Shares Beneficially Owned: 22,936 ------------------ GEORGE R. WHITTEMORE: /s/ George R. Whittemore ------------------------------------- Address: ----------------------------- ------------------------------------- Number of HHTI Shares Beneficially Owned: 90,825 ------------------ -6- 7 LEAH T. ROBINSON: /s/ Leah T. Robinson ---------------------------------- Address: -------------------------- ---------------------------------- Number of HHTI Shares Beneficially Owned: 86,814 --------------- ANDREW A. MAYER: /s/ Andrew A. Mayer ---------------------------------- Address: -------------------------- ---------------------------------- Number of HHTI Shares Beneficially Owned: 90,551 --------------- -7- EX-10.19 4 SCHULTE, BORGMANN SHAREHOLDER'S AGREEMENT 1 EXHIBIT 10.19 SHAREHOLDERS' AGREEMENT THIS SHAREHOLDERS' AGREEMENT (this "Agreement") is made and entered into as of June 11, 1999 by and among HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation ("HHTI"), SUPERTEL HOSPITALITY, INC., a Delaware corporation ("STH"), PAUL J. SCHULTE and STEVE H. BORGMANN (in the case of Messrs. Schulte and Borgmann, in their individual capacities and on behalf of their respective Affiliates listed on Attachment 1 hereto). Each of Messrs. Schulte and Borgmann and their respective Affiliates is hereinafter referred to individually as a "Shareholder" and collectively as the "Shareholders". WHEREAS, the Shareholders desire that HHTI and STH enter into an Agreement and Plan of Merger dated the date hereof (as the same may be amended or supplemented, the "Merger Agreement") with respect to the merger of STH with and into HHTI (the "Merger"); and WHEREAS, pursuant to the Merger Agreement and in connection with the Merger, shares of common stock of HHTI ("HHTI Shares") will be issued to the Shareholders of record of STH on the Effective Date of the Merger in exchange for all of the shares of common stock of STH held by such Shareholders; and WHEREAS, the Shareholders and STH are executing this Agreement as an inducement to HHTI to enter into and execute the Merger Agreement; NOW, THEREFORE, in consideration of the execution and delivery by HHTI of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Definitions. The following terms as used in this Agreement shall have the following meanings (applicable in both the singular and plural forms of the terms defined): a. "Affiliate" means (i) any person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other person, (ii) any person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other person, (iii) any person directly or indirectly controlling, controlled by, or under common control with such other person, (iv) any executive officer, director, trustee or general partner of such other person, and (v) any legal entity for which such person acts as an executive officer, director, trustee or general partner. The term "person" means and includes any natural person, corporation, partnership, association, limited liability company or any other legal entity. An indirect relationship shall include circumstances in which a person's spouse is associated with a person. b. "Transfer" shall include, without limitation, for the purposes of this Agreement, any offer to sell, sale, gift, pledge or other disposition; provided however, the term "Transfer" shall not include (i) any bona fide gift, pledge or other disposition to a charitable organization, as defined by Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or (ii) any Transfer upon the death of a Shareholder. 2 c. Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned to them in the Merger Agreement. 2. Representations and Warranties. Each Shareholder represents and warrants to HHTI as follows: a. The Shareholder is the record and beneficial owner of the number of shares (such "Shareholder's Shares") of common stock, $.01 par value, of STH ("STH Stock") set forth below such Shareholder's name on the signature page hereof. Except for the Shareholder's Shares, the Shareholder is not the record or beneficial owner of any shares of STH Stock. This Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder, enforceable in accordance with its terms. b. Neither the execution and delivery of this Agreement nor the consummation by the Shareholder of the transactions contemplated hereby will result in a violation of, or a default under, or conflict with, any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which the Shareholder is a party or bound or to which the Shareholder's Shares are subject. If the Shareholder is married and the Shareholder's Shares constitute community property, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder's spouse, enforceable against such person in accordance with its terms. Consummation by the Shareholder of the transactions contemplated hereby will not violate, or require any consent, approval, or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to the Shareholder or the Shareholder's Shares. c. The Shareholder's Shares and the certificates representing such Shares are now, and at all times prior to the Merger will be, held by the Shareholder, or by a nominee or custodian for the benefit of such Shareholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. d. No broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Shareholder. e. The Shareholder understands and acknowledges that HHTI is entering into the Merger Agreement in reliance upon the Shareholder's execution and delivery of this Agreement. The Shareholder acknowledges that the irrevocable proxy set forth in Section 5 is granted in consideration for the execution and delivery of the Merger Agreement by HHTI. 3. Voting Agreements. The Shareholder agrees with, and covenants to, STH and HHTI as follows: a. At any meeting of shareholders of STH called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a -2- 3 vote, consent or other approval with respect to the Merger and the Merger Agreement is sought (the "Shareholders Meeting"), the Shareholder shall vote (or cause to be voted) the Shareholder's Shares in favor of the Merger, the execution and delivery by STH of the Merger Agreement, and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement. b. At any meeting of shareholders of STH or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, the Shareholder shall vote (or cause to be voted) such Shareholder's Shares against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by STH or (ii) any amendment of STH's Certificate of Incorporation or Bylaws or other proposal or transaction involving STH or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). 4. Covenants. Each Shareholder agrees with, and covenants to, HHTI as follows: a. The Shareholder shall not (i) Transfer, or consent to any Transfer of, any or all of the Shareholder's Shares or any interest therein, except pursuant to the Merger; (ii) enter into any contract, option or other agreement or understanding with respect to any Transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power of attorney or other authorization in or with respect to such Shares, except for this Agreement, or (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares; provided, that the Shareholder may Transfer up to 15,000 Shares per year of the Shareholder's Shares to any other person who is on the date hereof, or to any family member of a person who prior to the Shareholders Meeting and prior to such Transfer becomes, a party to this Agreement bound by all the obligations of the "Shareholder" hereunder. b. If a majority of the holders of STH Stock approve the Merger and the Merger Agreement, the Shareholder's Shares shall, pursuant to the terms of the Merger Agreement, be exchanged for the consideration provided in the Merger Agreement. The Shareholder hereby waives any rights of appraisal, or rights to dissent from the Merger, that such Shareholder may have. c. The Shareholder shall not, without the prior written consent of HHTI, Transfer, or consent to any Transfer of, any or all of the HHTI Common Stock issued to the Shareholder in the Merger for a period of 180 days following the Effective Date of the Merger. 5. Grant of Irrevocable Proxy; Appointment of Proxy. a. The Shareholder hereby irrevocably grants to, and appoints, HHTI and James I. Humphrey, Jr., individually and in his capacity as an officer of HHTI, and any individual who shall hereafter succeed to such office of HHTI, the Shareholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Shareholder, to vote -3- 4 the Shareholder's Shares, or grant a consent or approval in respect of such Shares (i) in favor of the Merger, the execution and delivery of the Merger Agreement and approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, provided that the terms of the Merger Agreement shall not have been amended to materially and adversely impair the Shareholder's rights or increase the Shareholder's obligations thereunder, and (ii) against any Competing Transaction. The proxy granted pursuant to this Section 5 shall be strictly limited to the matters set forth herein and the Shareholder shall have the right to vote the Shareholder's Shares with respect to all other matters. b. The Shareholder represents that any proxies heretofore given in respect of the Shareholder's Shares are not irrevocable, and that any such proxies are hereby revoked. c. The Shareholder hereby affirms that the irrevocable proxy set forth in this Section 5 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Shareholder under this Agreement. The Shareholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. The Shareholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with Delaware law. 6. Certain Events. The Shareholder agrees that this Agreement and the obligations hereunder shall attach to the Shareholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including without limitation the Shareholder's successors or assigns. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of STH affecting the STH Stock, or the acquisition of additional shares of STH Stock or other voting securities of STH by any Shareholder, the number of Shares subject to the terms of this Agreement shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional shares of STH Stock or other voting securities of STH issued to or acquired by the Shareholder. 7. Stop Transfer; Legends. STH agrees with, and covenants to, HHTI that STH shall not register the transfer of any certificate representing any of the Shareholder's Shares, unless such transfer is made to HHTI or otherwise in compliance with this Agreement. Each Shareholder covenants and agrees that any and all certificates representing HHTI Shares issued to and in the name of the Shareholder as a result of the Merger shall bear the following legend: "The shares of Common Stock, $.01 par value, of Supertel Hospitality, Inc. represented by this certificate are subject to a Shareholders' Agreement dated as of ____________, 1999, and may not be sold or otherwise transferred, except in accordance therewith. Copies of such Agreement may be obtained at the principal executive offices of Humphrey Hospitality Trust Inc. at 12301 Old Columbia Pike, Silver Spring, Maryland 20904." Upon the expiration of the 180-day period described in Section 4(c), the Company will, at the request of the Shareholder, cause the foregoing legend to be removed. -4- 5 8. Registration Rights. To the extent the shares of HHTI Stock issued to a Shareholder as a result of the Merger are subject to any resale restrictions under the federal securities laws, rules or regulations, and such resale restrictions remain effective after expiration of the 180-day period following the Effective Time, if HHTI shall propose to file on its own behalf and/or on the behalf of any other shareholders a registration statement under the Securities Act for an offering of HHTI Stock solely for cash on a form that would also permit registration of shares of HHTI Stock held by the Shareholder, HHTI shall give notice of such proposed registration to the Shareholder as promptly as possible, but in any event, at least forty-five (45) days before the initial filing with the SEC of such registration statement, which notice shall set forth the intended method of disposition of the shares proposed to be registered by HHTI. The notice shall offer to include in such filing the aggregate number of shares of HHTI Common Stock as the Shareholder may request (not to exceed the aggregate number of shares received by the Shareholder in the Merger, less the number of shares as to which the Shareholder has previously exercised registration rights pursuant to this Section), subject to this Section 8. The Shareholder desiring to have HHTI Stock registered under this Section 8 shall advise HHTI in writing within ten business days after the date of notice of such offer from HHTI, setting forth the amount of such HHTI Stock for which registration is requested. HHTI shall thereupon include in such filing the number of shares of HHTI Stock for which registration is so requested, subject to the provisions of Section 8(i)-(vii), and shall use its best efforts to effect registration under the Securities Act of such shares. Notwithstanding the foregoing: (i) HHTI shall not be required to give notice or to include shares in any such registration if the proposed registration is (A) a registration of a dividend reinvestment, stock option, employee benefit or compensation plan or of securities issued or issuable pursuant to any such plan, or (B) a registration of securities proposed to be issued in exchange for securities or assets of, or in connection with a merger or consolidation with, another entity; (ii) HHTI may exclude from registration shares owned by the Shareholder to the extent that the total number of shares requested to be included by the Shareholders pursuant to this Section 8 exceeds 15 percent of the total number of shares to be registered in the proposed offering; (iii) if HHTI is advised in writing by its underwriters that the inclusion of all or any portion of such shares would in their reasonable opinion jeopardize the success of the proposed offering, HHTI may exclude all or such portion of such shares from registration; (iv) the offering of such shares by the Shareholder shall be on the same terms as the offering by HHTI; (v) in the event other parties have similar registration rights at the time of the offering, the number of shares to be registered may be limited by HHTI pursuant to clause (ii) and (iii) of this Section 8 on a pro rata basis according to the total amount of shares owned by such parties or on such other basis as may be agreed upon by such parties; provided, that no limitation shall apply to shares offered by HHTI for its own account; (vi) HHTI may, without the consent of the Shareholder, withdraw such registration statement and abandon the proposed offering in which such persons had requested to participate; and (vii) HHTI shall be under no obligation to the Shareholder pursuant to this Section 8 unless such person accepts the terms of underwriting agreed upon by HHTI and its underwriters. -5- 6 9. Regulatory Approvals. Each of the provisions of this Agreement is subject to compliance with applicable regulatory conditions and receipt of any required regulatory approvals. 10. Further Assurances. The Shareholder shall, upon request of HHTI, execute and deliver any additional documents and take such further actions as may reasonably be deemed by HHTI to be necessary or desirable to carry out the provisions hereof and to vest the power to vote such Shareholder's Shares as contemplated by Section 5 in HHTI and the other irrevocable proxies described therein at the expense of HHTI. 11. Termination. This Agreement, and all rights and obligations of the parties hereunder, except the rights and obligations set out in Sections 4(c), 7 and 8 shall terminate upon the first to occur of (x) the Effective Time of the Merger or (y) the date upon which the Merger Agreement is terminated in accordance with its terms. If the Merger becomes effective in accordance with the terms of the Merger Agreement, the provisions contained in Sections 4(c), 7 and 8 shall survive the Effective Time of the Merger in accordance with their terms. 12. Miscellaneous. a. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to HHTI, to the address provided in the Merger Agreement; and (ii) if to the Shareholder; to its address shown below its signature on the last page hereof. b. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. c. This Agreement may be executed in multiple counterparts, all of which shall be considered one and the same agreement. d. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. e. As to the rights and obligations relating to STH, the STH Stock and the holders thereof, this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its rules of conflicts of laws. As to the rights and obligations relating to HHTI Shares and the holders thereof, this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Virginia without regard to its rules of conflicts of laws. f. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of -6- 7 the parties without the prior written consent of the other parties, except as expressly contemplated by Section 6. Any assignment in violation of the foregoing shall be void. g. The Shareholder agrees that irreparable damage would occur and that HHTI would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that HHTI shall be entitled to an injunction or injunctions to prevent breaches by the Shareholder of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Virginia or in Virginia state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the Commonwealth of Virginia or any Virginia state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the Commonwealth of Virginia or a Virginia state court. h. If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. i. No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [SIGNATURE PAGE FOLLOWS] -7- 8 IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Shareholders' Agreement as of the day and year first above written. HUMPHREY HOSPITALITY TRUST, INC By: /s/ James I. Humphrey, Jr. -------------------------------------------- Name: James I. Humphrey, Jr. Title: President and Chief Executive Officer SUPERTEL HOSPITALITY, INC. By: /s/ Paul J. Schulte -------------------------------------------- Name: Paul J. Schulte Title: President and Chief Executive Officer PAUL J. SCHULTE: /s/ Paul J. Schulte ------------------------------------------------ Address: ---------------------------------------- ------------------------------------------------ Number of STH Shares Beneficially Owned: 712,635 ----------------------------- STEVE H. BORGMANN: /s/ Steve H. Borgmann ------------------------------------------------ Address: ---------------------------------------- Number of STH Shares Beneficially Owned: 771,958 ----------------------------- -8- 9 Attachment 1 Affiliates Paul J. Schulte: Karen Schulte Supertel, Inc. Steve H. Borgmann: Supertel, Inc. EX-10.20 5 AGREEMENT DATED JUNE 11, 1999 1 EXHIBIT 10.20 AGREEMENT THIS AGREEMENT (this "Agreement") is made and entered into as of June 11, 1999 by and among HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership ("HHLP"), HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation ("HHTI"), SUPERTEL HOSPITALITY, INC., a Delaware corporation ("STH") and JAMES I. HUMPHREY, JR. (in his individual capacity and on behalf of his Affiliates listed on Attachment 1 hereto) (the "Shareholder"). WHEREAS, the Shareholder desires that HHTI and STH enter into an Agreement and Plan of Merger dated the date hereof (as the same may be amended or supplemented, the "Merger Agreement") with respect to the merger of STH with and into HHTI (the "Merger"); and WHEREAS, pursuant to the Merger Agreement and in connection with the Merger, shares of common stock of HHTI ("HHTI Shares") will be issued to the Shareholders of record of STH on the Effective Date of the Merger in exchange for all of the shares of common stock of STH held by such Shareholders; and WHEREAS, the Shareholders are executing this Agreement as an inducement to STH to enter into and execute the Merger Agreement; NOW, THEREFORE, in consideration of the execution and delivery by STH of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Definitions. The following terms as used in this Agreement shall have the following meanings (applicable in both the singular and plural forms of the terms defined): a. "Affiliate" means (i) any person directly or indirectly owning, controlling, or holding, with power to vote ten percent or more of the outstanding voting securities of such other person, (ii) any person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other person, (iii) any person directly or indirectly controlling, controlled by, or under common control with such other person, (iv) any executive officer, director, trustee or general partner of such other person, and (v) any legal entity for which such person acts as an executive officer, director, trustee or general partner. The term "person" means and includes any natural person, corporation, partnership, association, limited liability company or any other legal entity. An indirect relationship shall include circumstances in which a person's spouse is associated with a person. b. "Transfer" shall include, without limitation, for the purposes of this Agreement, any offer to sell, sale, gift, pledge or other disposition; provided however, the term "Transfer" shall not include (i) any bona fide gift, pledge or other disposition to a charitable 2 organization, as defined by Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or (ii) any Transfer upon the death of the Shareholder. c. Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned to them in the Merger Agreement. 2. Representations and Warranties. The Shareholder represents and warrants to STH as follows: a. The Shareholder is the record and beneficial owner of the number of units of limited partnership interest in HHLP (the "Shareholder's Units") set forth below such Shareholder's name on the signature page hereof, which Shareholder's Units are convertible into an equal number of shares of common stock, $.01 par value, of HHTI ("HHTI Stock"). Except for the Shareholder's Units, the Shareholder is not the record or beneficial owner of any shares of HHTI Stock or other securities convertible into shares of HHTI Stock. This Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder, enforceable in accordance with its terms. b. Neither the execution and delivery of this Agreement nor the consummation by the Shareholder of the transactions contemplated hereby will result in a violation of, or a default under, or conflict with, any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind to which the Shareholder is a party or bound or to which the Shareholder's Units are subject. If the Shareholder is married and the Shareholder's Units constitute community property, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Shareholder's spouse, enforceable against such person in accordance with its terms. Consummation by the Shareholder of the transactions contemplated hereby will not violate, or require any consent, approval, or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to the Shareholder or the Shareholder's Units. c. The Shareholder's Units and any certificates representing such Units are now, and at all times prior to the Merger will be, held by the Shareholder, or by a nominee or custodian for the benefit of such Shareholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. d. No broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Shareholder. e. The Shareholder understands and acknowledges that STH is entering into the Merger Agreement in reliance upon the Shareholder's execution and delivery of this Agreement. The Shareholder acknowledges that the irrevocable proxy set forth in Section 5 is granted in consideration for the execution and delivery of the Merger Agreement by STH. -2- 3 3. Voting Agreements. The Shareholder agrees with, and covenants to, STH and HHTI as follows: a. In the event that Shareholder acquires shares of HHTI Stock on or prior to the record date for any meeting of HHTI shareholders called to vote on the Merger and Merger Agreement, at any such meeting of shareholders of HHTI or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Merger and the Merger Agreement is sought (the "Shareholders Meeting"), the Shareholder shall vote (or cause to be voted) the shares of HHTI Stock owned by him in favor of the Merger, the execution and delivery by HHTI of the Merger Agreement, and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement. b. At any meeting of shareholders of HHTI or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought and at which Shareholder is entitled to vote, the Shareholder shall vote (or cause to be voted) any shares of HHTI Stock owned by him against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by HHTI or (ii) any amendment of HHTI"s Certificate of Incorporation or Bylaws or other proposal or transaction involving HHTI or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). 4. Covenants. The Shareholder agrees with, and covenants to, STH as follows: The Shareholder shall not (i) Transfer, or consent to any Transfer of, any or all of the Shareholder's Units or any interest therein, or any shares of HHTI Stock owned by him; (ii) enter into any contract, option or other agreement or understanding with respect to any Transfer of any or all of such Units or any interest therein, or any shares of HHTI Stock owned by him; (iii) grant any proxy, power of attorney or other authorization in or with respect to such any shares of HHTI Stock owned by him, except for this Agreement, or (iv) deposit any shares of HHTI Stock owned by him into a voting trust or enter into a voting agreement or arrangement with respect to such shares of HHTI Stock; provided, that the Shareholder may Transfer his Shareholder's Units or shares of HHTI Stock to any other person who is on the date hereof, or to any family member of a person who prior to the Shareholders Meeting and prior to such Transfer becomes, a party to this Agreement bound by all the obligations of the "Shareholder" hereunder. 5. Grant of Irrevocable Proxy; Appointment of Proxy. a. The Shareholder hereby irrevocably grants to, and appoints, STH and Paul J. Schulte individually and in his capacity as an officer of STH, and any individual who shall hereafter succeed to such office of STH, the Shareholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Shareholder, to vote any shares of HHTI Stock acquired by Shareholder on or prior to the record date for the Shareholders Meeting, or grant a consent or approval in respect of such shares (i) in favor of the Merger, the -3- 4 execution and delivery of the Merger Agreement and approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement, provided that the terms of the Merger Agreement shall not have been amended to materially and adversely impair the Shareholder's rights or increase the Shareholder's obligations thereunder, and (ii) against any Competing Transaction. The proxy granted pursuant to this Section 5 shall be strictly limited to the matters set forth herein and the Shareholder shall have the right to vote any shares of HHIT Common Stock owned by him with respect to all other matters. b. The Shareholder hereby affirms that the irrevocable proxy set forth in this Section 5 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Shareholder under this Agreement. The Shareholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. The Shareholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with Virginia law. 6. Certain Events. The Shareholder agrees that this Agreement and the obligations hereunder shall attach to the Shareholder's Units and any shares of HHTI Stock owned by him and shall be binding upon any person or entity to which legal or beneficial ownership of such Units or shares shall pass, whether by operation of law or otherwise, including without limitation the Shareholder's successors or assigns. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of HHTI or HHLP affecting the HHTI Stock or Shareholder's Units, or the acquisition of additional units of interest in HHLP or shares of HHTI Stock or other voting securities of HHTI by the Shareholder, the number of Shareholder's Units and shares of HHTI Stock subject to the terms of this Agreement shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional Units and shares of HHTI Stock or other voting securities of HHTI issued to or acquired by the Shareholder. 7. Stop Transfer; Legends. HHLP agrees with, and covenants to, STH that HHLP shall not register the transfer of any certificate representing any of the Shareholder's Units, and HHTI agrees with, and covenants to, STH that HHTI shall not register the transfer of any certificate representing any shares of HHTI Stock owned by the Shareholder, unless such transfer is made to STH or otherwise in compliance with this Agreement. -4- 5 8. Regulatory Approvals. Each of the provisions of this Agreement is subject to compliance with applicable regulatory conditions and receipt of any required regulatory approvals. 9. Further Assurances. The Shareholder shall, upon request of STH, execute and deliver any additional documents and take such further actions as may reasonably be deemed by STH to be necessary or desirable to carry out the provisions hereof and to vest the power to vote any shares of HHTI Stock owned by the Shareholder as contemplated by Section 5 in STH and the other irrevocable proxies described therein at the expense of STH. 10. Termination. This Agreement, and all rights and obligations of the parties hereunder shall terminate upon the first to occur of (x) the Effective Time of the Merger or (y) the date upon which the Merger Agreement is terminated in accordance with its terms. 11. Miscellaneous. a. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to HHTI, to the address provided in the Merger Agreement; (ii) if to STH, to the address provided in the Merger Agreement, (iii) if to HHLP, to Humphrey Hospitality Limited Partnership, 12301 Old Columbia Pike, Silver Spring, MD 20904, Attn: Mr. James I. Humphrey, Jr., and (iv) if to the Shareholder; to its address shown below his signature on the last page hereof. b. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. c. This Agreement may be executed in multiple counterparts, all of which shall be considered one and the same agreement. d. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. e. As to the rights and obligations relating to HHTI, the Shareholder's Units, the HHTI Stock and the holders thereof, this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia without regard to its rules of conflicts of laws. f. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except as expressly contemplated by Section 6. Any assignment in violation of the foregoing shall be void. g. The Shareholder agrees that irreparable damage would occur and that STH would not have any adequate remedy at law in the event that any of the provisions of this -5- 6 Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that STH shall be entitled to an injunction or injunctions to prevent breaches by the Shareholder of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Virginia or in Virginia state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the Commonwealth of Virginia or any Virginia state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the Commonwealth of Virginia or a Virginia state court. h. If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. i. No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [SIGNATURE PAGE FOLLOWS] -6- 7 IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Agreement as of the day and year first above written. HUMPHREY HOSPITALITY TRUST, INC. By: /s/ James I. Humphrey, Jr. ----------------------------------------- James I. Humphrey, Jr. President and Chief Executive Officer HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, L.P. By: Humphrey Hospitality REIT Trust, a Maryland business Trust By: /s/ James I. Humphrey, Jr. ----------------------------------------- James I. Humphrey, Jr. President and Chief Executive Officer SUPERTEL HOSPITALITY, INC. By: /s/ Paul J. Schulte ----------------------------------------- Paul J. Schulte President and Chief Executive Officer JAMES I. HUMPHREY, JR.: /s/ James I. Humphrey, Jr. ------------------------------------ Address: ---------------------------- ------------------------------------ Number of HHLP Units Beneficially Owned: 708,798 ----------------- -7- 8 Attachment 1 Affiliates Humphrey Development, Inc. 12301 Old Columbia Pike, Suite 300 Silver Spring, MD 20904 Humphrey Associates, Inc. 12301 Old Columbia Pike, Suite 300 Silver Spring, MD 20904 EX-10.21 6 RIGHT OF FIRST OPPORTUNITY AGREEMENT 1 EXHIBIT 10.21 RIGHT OF FIRST OPPORTUNITY AGREEMENT THIS RIGHT OF FIRST OPPORTUNITY AGREEMENT (the "Agreement") is made and entered into as of the 10th day of June, 1999, by and between Humphrey Hospitality Trust, Inc. ("HHTI"), Humphrey Hospitality Limited Partnership, a Virginia limited partnership (the "Operating Partnership") (HHTI and the Operating Partnership are sometimes referred to herein collectively as the "REIT Entities" and individually as a "REIT Entity") and Humphrey Hospitality Management, Inc., a Maryland corporation ("HHMI"). W I T N E S S E T H: WHEREAS, HHTI owns, directly or indirectly, a 84.21 percent partnership interest in the Operating Partnership; WHEREAS, the REIT Entities may in certain circumstances determine that they are precluded from pursuing, or is limited in the manner in which they pursue, various business opportunities due to the status of HHTI as a real estate investment trust ("REIT") under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, HHMI is a corporation that was formed for the purposes of, among other things, becoming a lessee and operator of various types of assets, including real estate owned by the REIT Entities and others; WHEREAS, Supertel Hospitality, Inc. ("STH") has entered into, or will enter into, an agreement to merge with and into HHTI (the "Merger") and as a precondition to the Merger, HHMI will enter into leases relating to hotels owned by STH on terms and conditions agreed upon by the parties (the "STH Hotel Leases") and will purchase certain assets of STH (the "Asset Purchase"); and WHEREAS, the REIT Entities acknowledge that they are executing this Agreement in connection with, and as an inducement to, HHMI to complete the Asset Purchase and enter into the STH Hotel Leases, and have determined that, in connection with the Merger, it is desirable to provide HHMI with a right of first opportunity with respect to certain business opportunities available to the REIT Entities. NOW, THEREFORE, in consideration of the premises and mutual undertakings herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the undersigned parties hereby agree as follows: 1. Definitions. Except as may be otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below: (a) "Tenant Opportunity" means the opportunity to become the lessee under a "master" lease arrangement of a property owned or subsequently acquired by a REIT Entity if such REIT Entity, in its sole discretion, determines that, consistent with the status of HHTI as a REIT, such 2 REIT Entity is required to enter into such a "master" lease arrangement for such property, including, without limitation, a hotel or similar type of facility, so long as such REIT Entity determines, in its reasonable discretion, that HHMI or an entity that HHMI controls is qualified to be the lessee based on experience in the industry and financial and legal qualifications, provided that all determinations relating to both (i) the ability or inability of a REIT Entity to pursue an opportunity or acquire assets and (ii) the necessity for a REIT Entity to enter into a "master" lease arrangement for a property, shall be made by such REIT Entity in its sole discretion. A Tenant Opportunity shall not include (1) a property which already has an existing "master" lessee as of the date of this Agreement (or, with respect to a property acquired subsequent to the date of this Agreement, which has an existing binding "master" lessee arrangement that predates the acquisition of the property by a REIT Entity), provided that the REIT Entity shall offer any such "master" lessee interest to HHMI if the lessee interest subsequently becomes available, or (2) an opportunity in which the seller of the property (or any affiliate or designee of the seller) desires to enter into a "master" lease agreement with one of the REIT Entities. (b) "REIT-Qualified Investment" means an investment, the income for which would be qualifying income under applicable provisions of federal income tax law, the ownership of which would not cause a REIT to violate the asset limitations set forth in applicable provisions of federal income tax law, and which otherwise meets the federal income tax requirements applicable to REITs. Any expenses incurred that are directly related to structuring an investment as a REIT-Qualified Investment shall be borne solely by the applicable REIT Entity. 2. HHMI Right of First Opportunity for Tenant Opportunity. (a) During the term of this Agreement, if a REIT Entity develops a Tenant Opportunity, or if a Tenant Opportunity otherwise becomes available to a REIT Entity, such REIT Entity shall first offer such Tenant Opportunity to HHMI. The offer shall be made by written notice (the "REIT Entity Notice") from the REIT Entity to HHMI, which REIT Entity Notice shall contain a detailed description of the material terms and conditions under which such REIT Entity proposes to offer such Tenant Opportunity to HHMI. Such REIT Entity shall thereafter provide or cause to be provided promptly to HHMI such additional information relating to the Tenant Opportunity as HHMI reasonably may request. For a period of 30 days after the date that a REIT Entity delivers a REIT Entity Notice to HHMI, such REIT Entity and HHMI shall negotiate with each other on an exclusive basis with respect to such Tenant Opportunity. If such REIT Entity and HHMI are unable to enter into a mutually satisfactory arrangement with respect to the Tenant Opportunity within such 30-day period, or if HHMI indicates that it is not interested in pursuing such Tenant Opportunity (in which event HHMI shall provide written notice to such REIT Entity as soon as HHMI decides against pursuing such opportunity), then the REIT Entity shall be free for a period of one year after the expiration of such 30-day period to enter into a binding agreement with respect to such Tenant Opportunity with any party at a price and on terms and conditions that are not more favorable to such REIT Entity in any material respect than the price, terms and conditions last proposed in writing by such REIT Entity to HHMI. If such REIT Entity does not enter into a binding agreement with respect to such Tenant Opportunity within such one-year period, or if the price, terms and conditions are more favorable to the REIT Entity in 2 3 any material respect than the price, terms and conditions last proposed in writing by the REIT Entity to HHMI, the REIT Entity shall again be required to comply with the procedures set forth above in this Section 3(a) if it desires to pursue such Tenant Opportunity. (b) Notwithstanding anything to the contrary contained in this Agreement, (1) a REIT Entity shall not be required to offer to HHMI any Tenant Opportunity in connection with a proposed acquisition until a binding contract has been entered into with respect to such acquisition, and the consummation of any agreement between a REIT Entity and HHMI with respect to a Tenant Opportunity shall be subject to the actual closing of such acquisition by the REIT Entity, (2) each REIT Entity shall have the right in its sole discretion to decide not to pursue, or to discontinue at any time pursuing, any investment opportunity, even if such opportunity, if pursued, would create a Tenant Opportunity, and (3) the REIT Entities shall have no obligation to offer any opportunity other than a Tenant Opportunity to HHMI. (c) HHMI agrees to cooperate with the REIT Entities in structuring all dealings with outside parties in connection with any Tenant Opportunity that HHMI and a REIT Entity agree to enter into pursuant to Section 3(a) above. HHMI agrees to cooperate with the REIT Entities in structuring any Tenant Opportunity with a REIT Entity as a REIT-Qualified Investment for such REIT Entity. Each REIT Entity shall have the right, in its sole discretion, to structure any investment as a REIT-Qualified Investment, even if such structuring prevents the REIT Entity from creating a Tenant Opportunity for HHMI. 3. General Terms and Conditions for Right of First Opportunity. (a) Unless waived or unless agreed to as part of an investment, each party shall bear its own expenses with respect to any opportunity to which this Agreement is applicable, and each party agrees that it shall not be entitled to any compensation from the other party with respect to any such opportunity. (b) The REIT Entities shall not be required to comply with the right of first opportunity set forth in this Agreement during any period in which HHMI or any Controlled Affiliate of HHMI (as hereinafter defined) is in default of this Agreement or any other agreement entered into by the parties hereto or any of their Controlled Affiliates, if such default is material and remains uncured for thirty days after receipt of notice thereof. A "Controlled Affiliate" of a party means any entity controlled by, controlling or under common control with such party. (c) Any opportunity which is offered to and accepted by HHMI under this Agreement may be entered into by or on behalf of HHMI or by any designee which is a Controlled Affiliate of HHMI. (d) The right of first opportunity set forth in this Agreement shall be subordinated to any seller consent and confidentiality requirements; the REIT Entities shall not be required to comply with the first opportunity right set forth in this Agreement if such compliance would violate any seller consent or confidentiality requirements. 3 4 (e) While it is the intention of the parties to align their businesses in accordance with the terms of this Agreement, each party shall act independently in its own best interests, and neither party shall be considered a partner or agent of the other party or to owe any fiduciary or other common law duties to the other party. (f) Specific Performance. Each party hereto hereby acknowledges that the obligations undertaken by it pursuant to this Agreement are unique and that the other parties hereto would likely have no adequate remedy at law if such party shall fail to perform its obligations hereunder, and such party therefor confirms that the other party's right to specific performance of the terms of this Agreement is essential to protect the rights and interests of the other party. Accordingly, in addition to any other remedies that a party hereto may have at law or in equity, such party shall have the right to have all obligations, covenants, agreements and other provisions of this Agreement specifically performed by the other party hereto and the right to obtain a temporary restraining order or a temporary or permanent injunction to secure specific performance and to prevent a breach or threatened breach of this Agreement by the other party hereto. Each party submits to the jurisdiction of the courts of the Commonwealth of Virginia for this purpose. 4. Affiliates. Each party hereto shall cause all entities that are under its control to comply with the terms hereof. HHTI, by its signature below, hereby agrees that it and Humphrey Hospitality REIT Trust shall comply with the terms of this Agreement applicable to the Operating Partnership. 5. Term. The term of the Agreement shall commence as of the date first written above and, unless sooner terminated pursuant to this paragraph, shall terminate on December 31, 2009. Notwithstanding the foregoing, (A) a party hereto may terminate this Agreement if the other party or any Controlled Affiliate of such other party is in default of this Agreement or any other agreement entered into by the parties hereto or any of their Controlled Affiliates, if such default is material and remains uncured for thirty days after receipt of notice thereof, (B) the REIT Entities may terminate this Agreement if the Agreement and Plan of Merger between HHTI and Supertel is not executed or is terminated, and (C) the REIT Entities may terminate this Agreement if James I. Humphrey and his Controlled Affiliates no longer control at least 50 percent of the outstanding capital stock of HHMI. 6. Miscellaneous. (a) Notices. Notices shall be sent to the parties at the following addresses: To HHMI: Mr. Randy P. Smith Humphrey Hospitality Management, Inc. 12301 Old Columbia Pike Silver Spring, MD 20904 4 5 To HHTI: Mr. James I. Humphrey, Jr. Humphrey Hospitality Trust, Inc. 12301 Old Columbia Pike Silver Spring, MD 20904 To the Operating Partnership: Mr. James I. Humphrey, Jr. Humphrey Hospitality Limited Partnership 12301 Old Columbia Pike Silver Spring, MD 20904 Notices may be sent be certified mail, return receipt requested, Federal Express or comparable overnight delivery service, or facsimile. Notice will be deemed received on the fourth business day following deposit in U.S. mail and on the first business day following deposit with Federal Express or other overnight delivery service, or transmission by facsimile. Any party to this Agreement may change its address for notice by giving written notice to the other party at the address and in accordance with the procedures provided above. (b) Reasonable and Necessary Restrictions. Each of the parties hereto hereby acknowledges and agrees that the restrictions, prohibitions and other provisions of this Agreement are reasonable, fair and equitable in scope, term and duration, are necessary to protect the legitimate business interests of the parties hereto and are a material inducement to the parties hereto to enter into the transactions described in and contemplated by the recitals hereto. Each party hereto covenants that it will not sue to challenge the enforceability of this Agreement or raise any equitable defense to its enforcement. (c) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Agreement shall not be assigned without the express written consent of each of the parties hereto. Notwithstanding the foregoing, this Agreement may be assigned without the consent of any party hereto in connection with any merger, consolidation, reorganization or other combination of a party with or into another entity where the party is not the surviving entity. (d) Amendments; Waivers. No termination, cancellation, modification, amendment, deletion, addition or other change in this Agreement, or any provision hereof, or waiver of any right or remedy herein provided, shall be effective for any purpose unless such change or waiver is specifically set forth in a writing signed by the party or parties to be bound thereby. The waiver of any right or remedy with respect to any occurrence on one occasion shall not be deemed a waiver of such right or remedy with respect to such occurrence on any other occasion. 5 6 (e) Choice of Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by the laws of the Commonwealth of Virginia, without regard to the principles of choice of law thereof. (f) Severability. In the event that one or more of the terms or provisions of this Agreement or the application thereof to any person(s) or in any circumstance(s) shall, for any reason and to any extent be found by a court of competent jurisdiction to be invalid, illegal or unenforceable, such court shall have the power, and hereby is directed, to substitute for or limit such invalid term(s), provision(s) or application(s) and to enforce such substituted or limited terms or provisions, or the application thereof. Subject to the foregoing, the invalidity, illegality or enforceability of any one or more of the terms or provisions of this Agreement, as the same may be amended from time to time, shall not affect the validity, legality or enforceability of any other term or provision hereof. (g) Entire Agreement; No Third-Party Beneficiaries. This Agreement (i) constitutes the entire agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral, between the parties hereto with respect to the subject matter hereof, so that no such external or separate agreement relating to the subject matter of this Agreement shall have any effect or be binding, unless the same is referred to specifically in this Agreement or is executed by the parties after the date hereof; and (ii) is not intended to confer upon any other person any rights or remedies hereunder, and shall not be enforceable by any party not a signatory to this Agreement. (h) Gender; Number. As the context requires, any word used herein in the singular shall extend to and include the plural, any word used in the plural shall extend to and include the singular and any word used in any gender or the neuter shall extend to and include each other gender or be neutral. (i) Headings. The headings of the sections hereof are inserted for convenience of reference only and are not intended to be a part of or affect the meaning or interpretation of this Agreement or of any term or provision hereof. (j) Counterparts. This Agreement may be executed in two or more counterparts, each of which together shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement. 6 7 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by one of its duly authorized corporate officers, as of the date first above written. HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership By: Humphrey Hospitality REIT Trust a Maryland business trust, its sole general partner By: /s/ James I. Humphrey , Jr. ---------------------------------------------- Name: James I. Humphrey, Jr. Title: President and Chief Executive Officer HUMPHREY HOSPITALITY MANAGEMENT, INC., a Maryland corporation By: /s/ Randy P. Smith ---------------------------------------------- Name: Randy P. Smith Title: President HUMPHREY HOSPITALITY TRUST, INC. a Virginia corporation By: /s/ James I. Humphrey, Jr. ---------------------------------------------- Name: James I. Humphrey, Jr. Title: President and Chief Executive Officer 7 8 The undersigned, in its capacity as the sole shareholder of Humphrey Hospitality REIT Trust, hereby agrees to the restrictions imposed upon Humphrey Hospitality REIT Trust pursuant to Section 4 of the Agreement. HUMPHREY HOSPITALITY TRUST, INC. a Virginia corporation By: /s/ James I. Humphrey, Jr. ---------------------------------------------- Name: James I. Humphrey, Jr. Title: President and Chief Executive Officer 8 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JUN-30-1999 5,675 0 3,140,719 0 0 5,454,975 77,654,360 (6,219,567) 76,889,768 2,723,419 42,328,471 0 0 46,317 29,039,282 76,889,768 0 6,053,347 0 0 4,577,334 0 0 1,476,013 0 1,476,013 0 0 0 1,176,857 0.25 0.25
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