CONTRIBUTION AGREEMENT
dated as of March 8, 2000
between
SHREE ASSOCIATES, JSK II ASSOCIATES, SHREEJI ASSOCIATES,
KUNJ ASSOCIATES, SHANTI III ASSOCIATES, DEVI ASSOCIATES,
NEIL H. SHAH, DAVID L. DESFOR, AND SHREENATHJI ENTERPRISES, LTD.
as Contributors,
and
HERSHA HOSPITALITY LIMITED PARTNERSHIP,
a Virginia limited partnership,
as Acquiror
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of the 8th day of March,
2000, between SHREE ASSOCIATES ("Shree"), JSK II ASSOCIATES ("JSK II"), SHREEJI
ASSOCIATES ("Shreeji"), KUNJ ASSOCIATES ("Kunj"), SHANTI III ASSOCIATES ("Shanti
III"), DEVI ASSOCIATES ("Devi") all Pennsylvania limited partnerships, NEIL H.
SHAH ("Shah"), DAVID L. DESFOR ("Desfor"), AND SHREENATHJI ENTERPRISES, LTD.
("SEL"), a Pennsylvania corporation (collectively, the "Contributors"), and
HERSHA HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership (the
"Acquiror"), provides:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1 Definitions. The following terms shall have the indicated
meanings:
"Act of Bankruptcy" shall mean if a party hereto or any general
partner thereof shall (a)apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (b)admit in writing its
inability to pay its debts as they become due, (c)make a general assignment for
the benefit of its creditors, (d)file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect), (e)be adjudicated a bankrupt or insolvent, (f)file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
(g)fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case or proceeding
under the Federal Bankruptcy Code (as now or hereafter in effect), or (h)take
any corporate or partnership action for the purpose of effecting any of the
foregoing; or if a proceeding or case shall be commenced, without the
application or consent of a party hereto or any general partner thereof, in any
court of competent jurisdiction seeking (1)the liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts, of such
party or general partner, (2)the appointment of a receiver, custodian, trustee
or liquidator or such party or general partner or all or any substantial part of
its assets, or (3)other similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts,
and such proceeding or case shall continue undismissed; or an order (including
an order for relief entered in an involuntary case under the Federal Bankruptcy
Code, as now or hereafter in effect) judgment or decree approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.
"Shree Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby Shree assigns and the Acquiror
assumes the Shree Interest.
"JSK II Assignment and Assumption Agreement" shall mean that 1
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certain assignment and assumption agreement whereby JSK II assigns and the
Acquiror assumes the JSK II Interest.
"Shreeji Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shreeji assigns and the
Acquiror assumes the Shreeji Interest.
"Kunj Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby Kunj assigns and the Acquiror
assumes the Kunj Interest.
"Shanti III Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Shanti III assigns and the
Acquiror assumes the Shanti Interest.
"Devi Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby Devi assigns and the Acquiror
assumes the Devi Interest.
"Shah Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby Shah assigns and the Acquiror
assumes the Shah Interest.
"Desfor Assignment and Assumption Agreement" shall mean that
certain assignment and assumption agreement whereby Desfor assigns and the
Acquiror assumes the Desfor Interest.
"SEL Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement whereby SEL assigns and the Acquiror assumes
the SEL Interest.
"Assignment and Assumption Agreements" shall mean the Shree
Assignment and Assumption Agreement , JSK II Assignment and Assumption
Agreement, the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption Agreement, the Shanti III Assignment and Assumption Agreement,
the Devi Assignment and Assumption Agreement, the Shah Assignment and Assumption
Agreement, the Desfor Assignment and Assumption Agreement, and the SEL
Assignment and Assumption Agreement.
"Authorizations" shall mean all licenses, permits and approvals
required by any governmental or quasi-governmental agency, body or officer for
the ownership, operation and use of the Property or any part thereof.
"Closing" shall mean the Closing of the contribution and
acquisition of the Interests pursuant to this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
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"Consideration" shall mean $1.8 million payable to the Contributors
at Closing in the manner described in Section 2.3.
"Continuing Liabilities" shall include liabilities arising under
operating agreements, equipment leases, loan agreements, or proration credits at
Closing, but shall exclude any liabilities arising from any other arrangement,
agreement or pending litigation.
"Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.
"FIRPTA Certificates" shall mean the affidavit of each of the
Contributors under Section 1445 of the Internal Revenue Code certifying that
such Contributor is not a foreign corporation, foreign partnership, foreign
trust, foreign estate or foreign person (as those terms are defined in the
Internal Revenue Code and the Income Tax Regulations), in form and substance
satisfactory to the Acquiror.
"Governmental Body" means any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
"Hotel" shall mean the hotel and related amenities located on
the Land.
"Improvements" shall mean the Hotel and all other buildings,
improvements, fixtures and other items of real estate located on the Land.
"Shree Interest" shall mean all right, title and interest of
Shree in the Partnership, consisting of a 5% limited partnership interest in the
Partnership.
"JSK II Interest" shall mean all right, title and interest of
JSK II in the Partnership, consisting of a 20% limited partnership interest in
the Partnership.
"Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership, consisting of a 12% limited partnership interest in
the Partnership.
"Kunj Interest" shall mean all right, title and interest of
Kunj in the Partnership, consisting of a 12% limited partnership interest in the
Partnership.
"Shanti III Interest" shall mean all right, title and interest
of Shanti III in the Partnership, consisting of a 20% limited partnership
interest in the Partnership.
"Devi Interest" shall mean all right, title and interest of
Devi in the Partnership, consisting of a 6% limited partnership interest in the
Partnership.
"Shah Interest" shall mean all right, title and interest of
Shah in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.
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"Desfor Interest" shall mean all right, title and interest of
Desfor in the Partnership, consisting of a 4% limited partnership interest in
the Partnership.
"SEL Interest" shall mean all right, title and interest of SEL
in the Partnership, consisting of a 1% general partnership interest in the
Partnership.
"Insurance Policies" shall mean those certain policies of
insurance described on Exhibit C attached hereto.
"Intangible Personal Property" shall mean all intangible
personal property owned or possessed by the Contributors and used in connection
with the ownership, operation, leasing, occupancy or maintenance of the
Property, including, without limitation, the right to use the trade name
"Comfort Inn" and all variations thereof, the Authorizations, escrow accounts,
insurance policies, general intangibles, business records, plans and
specifications, surveys and title insurance policies pertaining to the Real
Property and the Personal Property, all licenses, permits and approvals with
respect to the construction, ownership, operation, leasing, occupancy or
maintenance of the Property, any unpaid award for taking by condemnation or any
damage to the Land by reason of a change of grade or location of or access to
any street or highway, and the share of the Tray Ledger as hereinafter defined,
excluding (a) any of the aforesaid rights the Acquiror elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.
"Interests" shall mean the Shree Interest, the JSK II
Interest, the Shreeji Interest, the Kunj Interest, the Shanti III Interest, the
Devi Interest, the Shah Interest, the Desfor Interest and the SEL Interest.
"Inventory" shall mean all "inventories of merchandise" and
"inventories of supplies", as such terms are defined in the Uniform System of
Accounts for Hotels [9th Revised Edition] as published by the Hotel Association
of New York City, Inc., as revised, and similar consumable supplies.
"Land" shall mean that certain parcel of real estate lying and
being at HCR 2-Box 11, Deep Creek Drive, McHenry, Maryland, more commonly known
as the Deep Creek Comfort Inn, as more particularly described on Exhibit A
attached hereto, together with all easements, rights, privileges, remainders,
reversions and appurtenances thereunto belonging or in any way appertaining, and
all of the estate, right, title, interest, claim or demand whatsoever of the
Contributors therein, in the streets and ways adjacent thereto and in the beds
thereof, either at law or in equity, in possession or expectancy, now or
hereafter acquired.
"Leases" shall mean those leases of real property attached as
Exhibit D attached hereto.
"Manager" shall mean Hersha Hospitality Management L.P.
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"Operating Agreements" shall mean the management agreements,
service contracts, supply contracts, leases (other than the Leases) and other
agreements, if any, in effect with respect to the construction, ownership,
operation, occupancy or maintenance of the Property. All of the Operating
Agreements in force and effect as of the date hereof are listed on Exhibit E
attached hereto.
"Organizational Documents" shall mean the current partnership
agreement and certificate of limited partnership of each of the limited
partnership Contributors, true and correct copies of which are attached hereto
as Exhibits F and G and Articles of Incorporation and Bylaws of SEL, true and
correct copies of which are attached hereto as Exhibits O and P.
"Shree's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shree, true and
correct copies of which are attached hereto as Exhibits F and G.
"JSK II's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of JSK II, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shreeji's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Shreeji, true
and correct copies of which are attached hereto as Exhibits F and G.
"Kunj's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.
"Shanti III's Organizational Documents" shall mean the
current partnership agreement and certificate of limited partnership of Shanti
III, true and correct copies of which are attached hereto as Exhibits F and G.
"Devi's Organizational Documents" shall mean the current
partnership agreement and certificate of limited partnership of Devi, true and
correct copies of which are attached hereto as Exhibits F and G.
"SEL's Organizational Documents" shall mean the current
Articles of Incorporation and Bylaws of SEL, true and correct copies of which
are attached hereto as Exhibits O and P.
"Owner's Title Policy" shall mean an owner's policy of title
insurance issued to the Acquiror by the Title Company, pursuant to which the
Title Company insures the Acquiror's ownership of fee simple title to the Real
Property (including the marketability thereof) subject only to Permitted Title
Exceptions. The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.
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"Partnership" shall mean 1544 Associates, a Pennsylvania
limited partnership that owns as its sole assets land and hotel improvements
situate in McHenry, Garrett County, Maryland.
"Partnership Units" shall mean the limited partnership units
of Hersha Hospitality Limited Partnership.
"Permitted Title Exceptions" shall mean those exceptions to
title to the Real Property that are satisfactory to the Acquiror as determined
pursuant to Section 2.2.
"Property" shall mean collectively the Real Property, the
Inventory, the Reservation System, the Tangible Personal Property and the
Intangible Personal Property.
"Real Property" shall mean the Land and the Improvements.
"Reservation System" shall mean the Contributors' Reservation
Terminal and Reservation System equipment and software, if any.
"Tangible Personal Property" shall mean the items of tangible
personal Property consisting of all furniture, fixtures and equipment situated
on, attached to, or used in the operation of the Hotel, and all furniture,
furnishings, equipment, machinery, and other personal property of every kind
located on or used in the operation of the Hotel and owned by the Contributors;
provided, however, that the Acquiror agrees that, all Inventory shall be
conveyed to the Acquiror's property manager.
"Title Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.
"Title Company" shall mean Sentinel Agency, 2146 North
Second Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.
"Tray Ledger" shall mean the final night's room revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective Date, exclusive
of food, beverage, telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.
"Utilities" shall mean public sanitary and storm sewers,
natural gas, telephone, public water facilities, electrical facilities and all
other utility facilities and services necessary for the operation and occupancy
of the Property as a hotel.
1.2 Rules of Construction. The following rules shall apply to the
construction and interpretation of this Agreement:
(a) Singular words shall connote the plural number as well as
the singular and vice versa, and the masculine shall include the feminine and
the neuter.
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(b) All references herein to particular articles, sections,
subsections, clauses or exhibits are references to articles, sections,
subsections, clauses or exhibits of this Agreement.
(c) The headings contained herein are solely for convenience
of reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(d) Each party hereto and its counsel have reviewed and
revised (or requested revisions of) this Agreement, and therefore any usual
rules of construction requiring that ambiguities are to be resolved against a
particular party shall not be applicable in the construction and interpretation
of this Agreement or any exhibits hereto.
ARTICLE II
CONTRIBUTION AND ACQUISITION; PAYMENT OF CONSIDERATION AND
CONTINGENT CONSIDERATION
2.1 Contribution and Acquisition. Each of the Contributors agrees to
contribute, assign and transfer its Interest to the Acquiror and the Acquiror
agrees to accept each Contributor's Interest in exchange for the Consideration
and the Contingent Consideration and in accordance with the other terms and
conditions set forth herein.
2.2 Intentionally Omitted.
2.3 Payment of the Consideration. The consideration shall be paid to
the Contributor in the following manner:
(a) The Acquiror shall receive a credit against the Consideration in an
amount equal to the Contributor's closing costs assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.
(b) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance (principal, interest, fees and the
like), as of the date of Closing, of the existing mortgage loan encumbering the
property as such balance is evidenced by a letter from the lender, which loan
the Acquiror shall take subject to or, if requested, assume.
(c) The Acquiror shall receive a credit against the Consideration in an
amount equal to the outstanding balance ( principal, interest, fees and the
like), as of the date of Closing, of the Contributor's loan to Shreenathji
Enterprises, Ltd. as such balance is evidenced by a letter from the lender,
which loan the Acquiror shall assume.
(d) The Acquiror shall pay the balance of the Consideration, as
adjusted by the prorations pursuant to Section 6.5 hereof, in the form of units
of Partnership Units or in the lawful money of the United States or in any
combination thereof as acceptable to the Contributors.
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The parties agree that the transfer of the assets to the Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution of such assets solely in exchange for a partnership interest in
Acquiror that qualifies as a tax-free contribution under Section 721 of the
Internal revenue Code of 1986, as amended.
2.4. Determination of Number of Partnership Units. For purposes of
determining the number of Partnership Units to be delivered by the Acquiror at
the Closing, each Partnership Unit shall be deemed to have a value equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.
2.5 Contributors' Distribution of Partnership Units. On the Closing
Date, the Partnership Units shall be distributed among the Contributors, as set
forth on Exhibit K attached hereto , in the amount specified on Exhibit K. On
the date hereof, Contributors shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each of the Contributors. On the
Closing Date, Acquiror shall issue certificates reflecting each of the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership Units will bear appropriate legends indicating (i) that the
Partnership Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's Partnership Agreement
restricts the transfer of Partnership Units. The Acquiror shall assume no
responsibility for any allocation of the consideration, including Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs, claims, damages and expenses, including reasonable attorney's fees,
incurred by Acquiror in connection with such allocations. Upon receipt of
Partnership Units, the Acquiror's Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.
2.6 Intentionally Omitted.
2.7 Intentionally Omitted.
2.8 Redemption. The Partnership Units may be redeemed upon delivery of
a notice ("Redemption Notice") from the Contributors , for common shares
("Common Shares") of beneficial interest in Hersha Hospitality Trust (the
"REIT") or for cash, in accordance with the Hersha Hospitality Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.
2.9 Registration of Common Shares.
The Contributors acknowledge that the issuance of the Common
Shares issuable upon redemption of the Partnership Units shall not have been
registered under the applicable provisions of the Securities Act, as of the
Closing Date. The REIT shall have the Common Shares issuable upon redemption
registered in accordance with the Hersha Hospitality Limited Partnership
Agreement attached hereto as Exhibit M and incorporated herein.
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2.10 Consideration Contingency.
The Contributors shall value the Hotel on December 31, 2001. The value
of the Hotel shall be computed by applying a 12% capitalization rate to the
audited trailing 12 months net operating income, adjusted for a 2% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.
If the then current value of the Hotel exceeds the consideration paid
by Acquiror hereunder, the Acquiror will issue additional Partnership Units at
$6.00 per Partnership Unit or the lawful money of the United States equal to the
difference between the then current value and the consideration paid hereunder
and all distributions paid on those units since Closing Date.
If the then current value of the Hotel is less than the Consideration
paid by the Acquiror hereunder, the Contributors will return to the Acquirer
Partnership Units at $6.00 per Partnership Unit or the lawful money of the
United States equal to the difference between the then current value of the
Hotel and the Consideration paid hereunder and all distributions paid on those
units since the Closing Date.
ARTICLE III
CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Acquiror to enter into this Agreement and to acquire the
Interests, the Contributors hereby make the following representations,
warranties and covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:
3.1 Organization and Power. The Contributors are limited partnerships
duly formed, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite powers and all governmental licenses, authorizations,
consents and approvals necessary to carry on its business as now conducted, to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Contributors hereunder, to perform their obligations under this Agreement
and any such other documents or instruments and to consummate the transactions
contemplated hereby.
3.2 Authorization, No Violations and Notices.
(a) The execution, delivery and performance of this Agreement by
the Contributors, and the consummation of the transactions
contemplated hereby have been duly authorized, adopted and
approved by the partners of the Contributors for those
Contributors that are partnerships to the extent required by
their organizational documents and applicable law. No other
proceedings are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed by Shree, JSK II, Shreeji, Kunj, Shanti III, Devi, Shah,
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Desfor and SEL and is a valid and binding obligation enforceable
against them in accordance with its terms.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that, which,
with or lapse of time or both, would constitute a default)
under, result in the termination of, accelerate the
performance required by, or result in a right of termination
or acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the properties
or assets of the Partnership, under any of the terms,
conditions, or provisions of, its Partnership, or any note,
bond, mortgage, indenture, deed of trust, license, lease,
agreement, or other instrument, or obligation to which the
Partnership is a party, or by which the Partnership may be
bound, or to which the Partnership or its properties or
assets may be subject; or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or its property or assets that would not be
violated by the execution, delivery or performance of this
Agreement or the transactions contemplated hereby by the
Contributors or compliance by the Contributors with any of
the provisions hereof.
3.3 Litigation with respect to Contributors. There is no action, suit,
claim or proceeding pending or, to the Contributors' knowledge, threatened
against or affecting the Contributors or their assets in any court, before any
arbitrator or before or by any governmental body or other regulatory authority
(i) that would adversely affect the Interests, (ii) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or the
transactions contemplated hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment, decree, injunction, rule or order of any court relating to the
Contribtuors' participation in the transactions contemplated by this Agreement.
3.4 Interests. The Interests will be free and clear of all liens and
encumbrances on the Closing Date and the Contributors have good, merchantable
title thereto and the right to convey same in accordance with the terms of this
Agreement. Upon delivery of the Assignment and Assumption Agreements to the
Acquiror at Closing, good valid and merchantable title to the Interests, free
and clear of all liens and encumbrances, will pass to the Acquiror.
3.5 Bankruptcy with Respect to Contributors. No Act of Bankruptcy has
occurred with respect to the Contributors.
3.6 Brokerage Commission. The Contributors have not engaged the
services of, nor are they or will they or Acquiror become liable to, any real
estate agent, broker, finder or any other person or entity for any brokerage or
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finder's fee, commission or other amount with respect to the transactions
described herein on account of any action by the Contributors.
3.7 The Partnership.
(a) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the Commonwealth
of Pennsylvania and has all requisite powers necessary to carry
on its business as now conducted, to own, lease and operate its
properties.
(b) Neither the execution, delivery, or performance by the
Contributors of this Agreement, nor the consummation of the
transactions contemplated hereby, nor compliance by the
Contributors with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event that, with
notice or lapse of time or both, would constitute a default)
under, result in the termination of, accelerate the
performance required by, or result in a right of termination
or acceleration, or the creation of any lien, security
interest, charge, or encumbrance upon any of the properties
or assets of the Partnership, under any of the terms,
conditions, or provisions of, their articles of
incorporation or bylaws, or any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, or
other instrument or obligation to which the Partnership is a
party, or by which the Partnership may be bound, or to which
the Partnership or its properties or assets may be subject;
or
(ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule, or regulation applicable to the
Partnership or any of the Partnership's properties or
assets.
(c) Except for the Contributors, no party has any interest in the
Partnership or the right or option to acquire any interest in the
Partnership or the property or any portion thereof. The
Partnership has no subsidiaries and does not directly or
indirectly own any securities of or interest in any other entity,
including, without limitation, any partnership or joint venture.
3.8 Liabilities, Debts and Obligations. Except for the Continuing
Liabilities, the Partnership has no liability, debt or obligation.
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3.9 Tax Matters with respect to Partnership.
(a) The Partnership has filed all income tax information returns on
IRS Form 1065 (including K-1s for each partner) and applicable state
and local income tax forms required to be filed with the United States
Government and with all states and political subdivisions thereof
where any such returns are required to be filed and where the failure
to file such return or report would subject the Partnership or its
partners to any material liability or penalty. All taxes (other than
sale taxes, rental taxes or the equivalent and real property taxes)
imposed by the United States, or by any foreign country, or by any
state, municipality, subdivision, or instrumentality of the United
States or of any foreign country or by any other taxing authority,
which are due and payable by the Partnership have been paid in full or
adequately provided for by reserves shown in their records and books
of account and in the Partnership's financial information. The
Partnership has not obtained or received any extension of time (beyond
the Closing Date) for the assessment of deficiencies for any years or
waived or extended the statute of limitations for the determination or
collection of any tax. To the Contributors' knowledge no unassessed
tax deficiency is proposed or threatened against the Partnership.
(b) All taxes, rental taxes or the equivalent, and all interest and
penalties due thereon, required to be paid or collected by the
Partnership in connection with the operation of the Property as of the
Closing Date will have been collected and/or paid to the appropriate
governmental authorities, as required or such amounts shall be
pro-rated as of the Closing Date. The Partnership shall file, all
necessary returns and petitions required to be filed through the
Closing Date. The Partnership shall prepare and file all federal and
state income tax returns for the tax period ending on the Closing
Date, which shall reflect the termination for tax purposes of the
Partnership. If requested by the Acquiror, the Contributors shall
cause the Partnership to make an election under Section 754 of the
Code for the period ending on the Closing Date.
3.10 Contracts and Agreements. There is no loan agreement, guarantee,
note, bond, indenture and other debt instrument, lease and other contract to
which the Partnership is a party or by which its assets are bound other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.
3.11 No Special Taxes. The Contributors have no actual knowledge of,
nor have they received any written notice of, any special taxes or assessments
relating to the Partnership or Property or any part thereof or any planned
public improvements that may result in a special tax or assessment against the
Property.
3.12 Compliance with Existing Laws. The Partnership possesses all
Authorizations, each of which is valid and in full force and effect, and, to
Contributors' actual knowledge, no provision, condition or limitation of any of
the Authorizations has been breached or violated. The Partnership has not
misrepresented or failed to disclose any relevant fact in obtaining all
Authorizations, and the Contributors have no actual knowledge of any change in
the circumstances under which those Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years, of any existing violation of any provision of any applicable building,
zoning, subdivision, environmental or other governmental ordinance, resolution,
statute, rule, order or regulation, including but not limited to those of
environmental agencies or insurance boards of underwriters, with respect to the
ownership, operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.
3.13 Operating Agreements. The Partnership has performed all of its
obligations under each of the Operating Agreements and no fact or circumstance
has occurred which, by itself or with the passage of time or the giving of
notice or both, would constitute a material default under any of the Operating
Agreements. The Partnership shall not enter into any new management agreement,
maintenance or repair contract, supply contract, lease in which it is lessee or
other agreements with respect to the Property, nor shall the Partnership enter
into any agreements modifying the Operating Agreements, unless (a) any such
agreement or modification will not bind the Acquiror or the Property after the
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date of Closing or (b) the Contributors have obtained the Acquiror's prior
written consent to such agreement or modification, which consent shall not be
unreasonably withheld or delayed.
3.14 Warranties and Guaranties. The Partnership shall not before
Closing, release or modify any warranties or guarantees, if any, of
manufacturers, suppliers and installers relating to the Improvements and the
Personal Property or any part thereof, except with the prior written consent of
the Acquiror, which consent shall not be unreasonably withheld or delayed. A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.
3.15 Insurance. All of the Partnership's Insurance Policies are valid
and in full force and effect, all premiums for such policies were paid when due
and all future premiums for such policies (and any replacements thereof) shall
be paid by the Partnership on or before the due date therefor. The Partnership
shall pay all premiums on, and shall not cancel or voluntarily allow to expire,
any of the Partnership's Insurance Policies prior to the Closing Date unless
such policy is replaced, without any lapse of coverage, by another policy or
policies providing coverage at least as extensive as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.
3.16 Condemnation Proceedings; Roadways. The Partnership has received
no written notice of any condemnation or eminent domain proceeding pending or
threatened against the Property or any part thereof. The Contributors have no
actual knowledge of any change or proposed change in the route, grade or width
of, or otherwise affecting, any street or road adjacent to or serving the Real
Property.
3.17 Litigation with respect to Partnership. Except as set forth on
Exhibit I there is no action, suit or proceeding pending or known to be
threatened against or affecting the Partnership or its property in any court,
before any arbitrator or before or by any governmental agency which (a) in any
manner raises any question affecting the validity or enforceability of this
Agreement or any other material agreement or instrument to which the Partnership
are a party or by which they are bound and that is or is to be used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely affect the business, financial position or results of operations of
the Partnership, (c) could materially and adversely affect the ability of the
Partnership perform its obligations hereunder, or under any document to be
13
delivered pursuant hereto, (d) could create a lien on the Property, any part
thereof or any interest therein, or (e) could otherwise materially adversely
affect the Property, any part thereof or any interest therein or the use,
operation, condition or occupancy thereof.
3.18 Labor Disputes and Agreements. The Partnership currently has no
labor disputes pending or, threatened as to the operation or maintenance of the
Property or any part thereof. The Partnership is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership, operation or maintenance of the Property. The Acquiror will not
be obligated to give or pay any amount to any employee of the Partnership, and
the Acquiror shall not have any liability under any pension or profit sharing
plan that the Partnership may have established with respect to the Property or
their or its employees.
3.19 Financial Information. To the best of the Contributors' knowledge
except as otherwise disclosed in writing to the Acquiror prior to the closing,
for each of the Partnership's accounting years, when a given year is taken as a
whole, all of the Partnership's financial information previously delivered or to
be delivered to the Acquiror is and shall be correct and complete in all
material respects and presents accurately the results of the operations of the
Property for the periods indicated, except such statements do not have footnotes
or schedules that may otherwise be required by GAAP. If requested by the
Acquiror, Contributors will forward promptly all four-week period ending
financial information they receive from the Partnership. Contributors' financial
information is prepared based on information provided by the Partnership based
on books and records maintained by the Partnership in accordance with the
Partnership's accounting system. Partnership financial information provided by
the Acquiror has been provided to the Acquiror without any changes or alteration
thereto. To the best of Contributors' knowledge, since the date of the last
financial statement included in the Partnership's financial information, there
has been no material adverse change in the financial condition or in the
operations of the Property.
3.20 Organizational Documents. The Partnership's Organizational
Documents are in full force and effect and have not been modified or
supplemented, and no fact or circumstance has occurred that, by itself or with
the giving of notice or the passage of time or both, would constitute a default
thereunder.
3.21 Operation of Property. The Contributors covenant that between the
date hereof and the date of Closing they will make good faith efforts to cause
the Partnership to (a) operate the Property only in the usual, regular and
ordinary manner consistent with the Partnership's prior practice, (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting principles applied on a basis consistent with
the basis used in keeping its books in prior years, and (c) use all reasonable
efforts to preserve intact their present business organization, keep available
the services of their present officers and employees and preserve their
relationships with suppliers and others having business dealings with them. The
Contributors shall make good faith efforts to encourage the Partnership to
continue to make good efforts to take guest room reservations and to book
functions and meetings and otherwise to promote the business of the Property in
generally the same manner as the Partnership did prior to the execution of this
Agreement. Except as otherwise permitted hereby, from the date hereof until
Closing, the Contributors shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a material adverse effect on the Property or the Acquiror's
ability to continue the operation thereof after the date of Closing in
substantially the same manner as presently conducted, (ii) reduce or cause to be
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reduced any room rents or any other charges over which Contributors have
operational control, or (iii) would cause any of the representations and
warranties contained in this Article III to be untrue as of Closing.
3.22 Intentionally Omitted.
3.23 Bankruptcy with respect to Partnership. No Act of Bankruptcy has
occurred with respect to the Partnership.
3.24 Hazardous Substances. Except for matters in Partnership's or
Acquiror's audits, Contributors have no knowledge: (a) of the presence of any
"Hazardous Substances" (as defined below) on the Property, or any portion
thereof, or, (b) of any spills, releases, discharges, or disposal of Hazardous
Substances that have occurred or are presently occurring on or onto the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving, or stored on, the Property, or any portion thereof, and Contributors
have no actual knowledge of any failure to comply with any applicable local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling, transport and disposal of any Hazardous Substances (as used herein,
"Hazardous Substances" shall mean any substance or material whose presence,
nature, quantity or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials is either: (1) potentially injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated, monitored or
defined as a hazardous or toxic substance or waste by any Environmental
Authority, or (3) a basis for liability of the owner of the Property to any
Environmental Authority or third party, and Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or components thereof, and asbestos). Notwithstanding
anything to the contrary contained herein Contributors shall have no liability
to Acquiror for any Hazardous Substances of which Contributors have no actual
knowledge.
3.25 Room Furnishings. All public spaces, lobbies, meeting rooms, and
each room in the Hotel available for guest rental is furnished in
accordance with Licensor's standards for the Hotel and room type.
3.26 License. The license from Choice Hotels International (the
"Licensor") with respect to the Hotel (the "License") is, and at Closing will
be, valid and in full force and effect, and Contributors will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).
3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission") and to enable them to prepare report or disclosure statement for
filing with the Commission. Contributors shall also provide to Acquiror's
15
representatives a signed representative letter and a hold harmless letter which
would be sufficient to enable an independent public accountant to render an
opinion on the financial statements related to the Property.
3.28 Bulk Sale Compliance. Contributors shall indemnify Acquiror
against any claim, loss or liability arising under the bulk sales law in
connection with the transaction contemplated herein.
3.29 Intentionally Omitted.
3.30 Sufficiency of Certain Items. The Property contains not less
than:
(a) a sufficient amount of furniture, furnishings, color
television sets, carpets, drapes, rugs, floor coverings, mattresses, pillows,
bedspreads and the like, to furnish each guest room, so that each such guest
room is, in fact, fully furnished; and
(b) a sufficient amount of towels, washcloths and bed linens,
so that there are three sets of towels, washcloths and linens for each guest
room (one on the beds, one on the shelves, and one in the laundry), together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials, as are reasonably adequate for the current operation of
the Hotel.
3.31 Noncompetition. If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement, within 15
miles of any facility owned or to be owned by the Acquiror, the Contributors
shall give the Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.
3.32 Leases. True, complete copies of the Leases, if any, are attached
as Exhibit D hereto. The Leases are, and will at Closing be, in full force and
effect and Contributors, is not in default and will make good faith efforts not
to be in default with respect thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing, freely assignable
by Contributors and Contributors will have obtained all necessary consents
of any third party.
3.33 Securities Law Matters. Contributors further represent and warrant
that they have (i) received, reviewed, been given the opportunity to ask
questions of representatives of the Operating Partnership and the REIT
regarding, and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii) Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.
3.34 Tax Matters with Respect to Contributors. The Contributors
represent and warrant that they (and each of its partners) have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership Interest to the Acquiror and the receipt of Partnership Units or
16
lawful money of the United States as consideration therefor, (ii) the
Contributors' admission as partners of the Acquiror, and (iii) any other
transaction contemplated by this Agreement. The Contributors further represent
and warrant that they have not relied on the Acquiror or the Acquiror's
representatives or counsel for such advice.
3.35 Noncontravention. The execution and delivery of, and the
performance by the Contributors of their obligations under this Agreement do not
and will not contravene, or constitute a default under, any provision of
applicable law or regulation, the Contributors' Organizational Documents or any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Contributors, or result in the creation of any lien or other encumbrance on
any asset of the Contributor. There are no outstanding agreements (written or
oral) pursuant to which the Contributors (or any predecessor to or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.
Each of the representations, warranties and covenants contained in this
Article III and its various subparagraphs are intended for the benefit of the
Acquiror and may be waived in whole or in part, by the Acquiror, but only by an
instrument in writing signed by the Acquiror. Each of said representations,
warranties and covenants shall survive the closing of the transaction
contemplated hereby for twenty-four (24) months, and no investigation, audit,
inspection, review or the like conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such representations, warranties and
covenants, it being understood that the Acquiror has the right to rely thereon
and that each such representation, warranty and covenant constitutes a material
inducement to the Acquiror to execute this Agreement and to close the
transaction contemplated hereby and to pay the Consideration to the
Contributors. Acquiror acknowledges and agrees that, except for the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS, WHERE-IS" with no representations or warranties by or from
Contributors or any of its affiliates, express or implied, or any nature
whatsoever.
ARTICLE IV
ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following representations, warranties
and covenants with respect to the Property, upon each of which the Acquiror
acknowledges and agrees that the Contributors are entitled to rely and have
relied:
4.1 Organization and Power. The Acquiror is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has all partnership powers and all governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or instrument required to be executed and delivered on behalf of
the Acquiror hereunder.
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4.2 Noncontravention. The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene, or constitute a default under, any provisions of applicable law or
regulation, the Acquiror's partnership agreement or any agreement, judgment,
injunction, order, decree or other instrument binding upon the Acquiror or
result in the creation of any lien or other encumbrance on any asset of the
Acquiror.
4.3 Litigation. There is no action, suit or proceeding, pending or
known to be threatened, against or affecting the Acquiror in any court or before
any arbitrator or before any Governmental Body which (a) in any manner raises
any question affecting the validity or enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in connection with, or is contemplated by, this
Agreement, (b) could materially and adversely affect the business, financial
position or results of operations of the Acquiror, (c) could materially and
adversely affect the ability of the Contributors to perform their obligations
hereunder, or under any document to be delivered pursuant hereto, (d) could
create a lien on the Property, any part thereof or any interest therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.
4.4 Bankruptcy. No Act of Bankruptcy has occurred with respect to the
Acquiror.
4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker, finder or any other
person or entity for any brokerage or finder's fee, commission or other amount
with respect to the transaction described herein.
ARTICLE V
CONDITIONS AND ADDITIONAL COVENANTS
The Acquiror's obligations hereunder are subject to the satisfaction of
the following conditions precedent and the compliance by the Contributors with
the following covenants:
5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the Acquiror, as the case may be, on or before the date of
Closing, all of the documents and other information required of Contributors
pursuant to Section 6.2.
5.2 Representations, Warranties and Covenants; Obligations of
Contributors; Certificate. All of the Contributors' representations and
warranties made in this Agreement shall be true and correct as of the date
hereof and as of the date of Closing as if then made, there shall have occurred
no material adverse change in the financial condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other obligations under this Agreement and the Contributors shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.
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5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property shall be insurable as such by the Title Company at or below its
regularly scheduled rates subject only to Permitted Title Exceptions as
determined in accordance with Section 2.2.
5.4 Intentionally Omitted.
5.5 Condition of Improvements. The Improvements and the Tangible
Personal Property (including but not limited to the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air conditioning
and ventilating equipment, elevators, boilers, equipment, roofs, structural
members and furnaces) shall be in the same condition at Closing as they are as
of the date hereof, reasonable wear and tear excepted. Prior to Closing, the
Contributors shall not have diminished the quality or quantity of maintenance
and upkeep services heretofore provided to the Real Property and the Tangible
Personal Property and the Contributors shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible Personal Property unless
the same is replaced, prior to Closing, with similar items of at least equal
quality and acceptable to the Acquiror.
5.6 Utilities. All of the Utilities shall be installed in and operating
at the Property, and service shall be available for the removal of garbage and
other waste from the Property.
5.7 Intentionally Omitted.
5.8 License. From the date hereof to and including the Closing Date,
Contributors shall comply with and perform all of the duties and obligations of
licensee under the License.
5.9 Intentionally Omitted.
ARTICLE VI
CLOSING
6.1 Closing. Closing shall be held at a location that is mutually
acceptable to the parties, on or before March 8, 2000.
6.2 Contributors' Deliveries. At Closing, the Contributors shall
deliver to Acquiror all of the following instruments, each of which shall have
been duly executed and, where applicable, acknowledged on behalf of the
Contributors and shall be dated as of the date of Closing:
(a) The certificate required by Section 5.2.
(b) The Assignment and Assumption Agreements.
(c) Certificate(s)/Registration of Title for any vehicle
owned by the Contributors and used in connection with the Property.
19
(d) Such agreements, affidavits or other documents as may be
required by the Title Company to issue the Owner's Title Policy with affirma-
tive coverage over mechanics' and materialmen's liens.
(e) The FIRPTA Certificates.
(f) True, correct and complete copies of all warranties, if
any, of manufacturers, suppliers and installers possessed by the Contri-
butors and relating to the Improvements and the Personal Property, or
any part thereof.
(g) Certified copies of the Contributors' and the
Partnership's Organizational Documents.
(h) Appropriate resolutions of the partners of the
Contributors, together with all other necessary approvals and consents of the
Contributors, authorizing (A) the execution on behalf of the Contributors of
this Agreement and the documents to be executed and delivered by the
Contributors prior to, at or otherwise in connection with Closing, and (B) the
performance by the Contributors of its obligations hereunder and under such
documents.
(i) Valid, final and unconditional certificate(s) of
occupancy for the Real Property and Improvements, issued by the appropriate
governmental authority.
(j) The written consent of the Licensor to the transfer of
the license, if applicable, and if so required.
(k) Such proof as the Acquiror may reasonably require with
respect to Contributors' compliance with the bulk sales laws or similar
statutes.
(l) A written instrument executed by the Contributors,
conveying and transferring to the Acquiror all of the Contributors' right, title
and interest in any telephone numbers and facsimile numbers relating to the
Property, and, if the Contributors maintains a post office box, conveying to the
Acquiror all of its interest in and to such post office box and the number
associated therewith, so as to assure a continuity in operation and
communication.
(m) All current real estate and personal property tax bills
in the Contributors' possession or under its control.
(n) A complete set of all guest registration cards, guest
transcripts, guest histories, and all other available guest information.
(o) An updated schedule of employees, showing salaries and
duties with a statement of the length of service of each such employee, brought
current to a date not more than 48 hours prior to the Closing.
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(p) A complete list of all advance room reservations,
functions and the like, in reasonable detail so as to enable the Acquiror to
honor the Contributors' commitments in that regard.
(q) A list of the Contributors' outstanding accounts
receivable as of midnight on the date prior to the Closing, specifying the name
of each account and the amount due the Contributors.
(r) Intentionally Omitted
(s) All keys for the Property.
(t) All books, records, operating reports, appraisal
reports, files and other materials in the Contributors' possession or control
which are necessary in the Acquirors discretion to maintain continuity of
operation of the Property.
(u) To the extent permitted under applicable law, documents
of transfer necessary to transfer to the Acquiror the Contributors' employment
rating for workmens' compensation and state unemployment tax purposes.
(v) An assignment of all warranties and guarantees from all
contractors and subcontractors, manufacturers, and suppliers in effect with
respect to the Improvements.
(w) Complete set of "as-built" drawings for the
Improvements.
(x) Such agreements, affidavits or other documents as may be
required by the Title Company in order to issue affirmative mechanics lien
coverage in the Owner's Title Policy for the Property.
(y) a completed version of the Questionnaire from the
Contributors and each Transferee.
(z) Any other document or instrument reasonably requested by
the Acquiror or required hereby.
6.3 Acquiror's Deliveries. At Closing, the Acquiror shall pay or deliver
to the Contributors the following:
(a) The Consideration described in Section 2.3.
(b) The Assignment and Assumption Agreements.
(c) The certificates described in Section 2.5 evidencing the
Transferees ownership of the Partnership Units and the admission of the
Transferees as limited partners in the Acquiror.
21
(d) Any other document or instrument reasonably requested by
the Contributors or required hereby.
6.4 Closing Costs. The Acquiror shall pay all legal fees and expenses.
All filing fees for the recording or other similar taxes due with respect to the
transfer of title and all charges for title insurance premiums shall be paid by
the Acquiror. The Acquiror shall pay reasonable fees for the preparation of the
documents to be delivered by the Contributor hereunder. Contributor shall pay
for the releases of any deeds of trust, mortgages and other financing
encumbering the Property and for any costs associated with any corrective
instruments. The Acquiror shall pay all other costs, including all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.
6.5 Income and Expense Allocations. All income, except any Intangible
Personal Property, and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting principles consistently applied, shall be allocated between the
Contributors and the Acquiror. The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused expendables), and
responsible for all expenses for the period of time up to but not including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and responsible for all expenses for the period of time from, after and
including the Closing Date. Only adjustments for ground rent, if applicable, and
real estate taxes shall be shown on the settlement statements (with such
supporting documentation as the parties hereto may require being attached as
exhibits to the settlement statements) and shall increase or decrease (as the
case may be) the amount payable by the Acquiror. All other such adjustments
shall be made by separate agreement between the parties and shall be payable by
check or wire directly between the parties. Without limiting the generality of
the foregoing, the following items of income and expense shall be allocated as
of the Closing Date:
(a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.
(b) Real estate and personal property taxes.
(c) Amounts under the Operating Agreements.
(d) Utility charges (including but not limited to charges
for water, sewer and electricity).
(e) Wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed at the Property who the Acquiror
elects to employ.
(f) Value of fuel stored on the Property at the price paid
for such fuel by the Contributors, including any taxes.
22
(g) All prepaid reservations and contracts for rooms
confirmed by Contributors prior to the Closing Date for dates after the Closing
Date, all of which Acquiror shall honor.
The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.
Acquiror shall not be obligated to collect any accounts receivable or
revenues accrued prior to the Closing Date for Contributors, but if Acquiror
collects same, such amounts will be promptly remitted to Contributors in the
form received.
If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the parties shall allocate such income or expenses at Closing on the best
available information, subject to adjustment upon receipt of the final bill or
other evidence of the applicable income or expense. Any income received or
expense incurred by the Contributors or the Acquiror with respect to the
Property after the date of Closing shall be promptly allocated in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The Contributors shall pay at Closing all special assessments and taxes
applicable to the Property.
The certificates evidencing the Contributors' ownership of the
Partnership Units will be dated as of the Closing Date, and the Contributors
will be entitled to any dividends accruing thereon on and after the Closing
Date.
ARTICLE VII
CONDEMNATION; RISK OF LOSS
7.1 Condemnation. In the event of any actual or threatened taking,
pursuant to the power of eminent domain, of all or any portion of the Real
Property, or any proposed sale in lieu thereof, the Contributors shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives notice thereof. If all or any part of the Real Property is, or is to
be, so condemned or sold, the Acquiror shall have the right to terminate this
Agreement pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement, all proceeds, awards and other payments arising out of such
condemnation or sale (actual or threatened) shall be paid or assigned, as
applicable, to the Acquiror at Closing.
7.2 Risk of Loss. The risk of any loss or damage to the Property prior
to the Closing shall remain upon the Contributors. If any such loss or damage to
more than twenty five percent (25%) of the value of the improvements occurs
prior to Closing, the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.
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ARTICLE VIII
LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
TERMINATION RIGHTS
8.1 Liability of Acquiror. Except for any obligation expressly assumed
or agreed to be assumed by the Acquiror hereunder and in the Assignment and
Assumption Agreement, the Acquiror does not assume any obligation of the
Contributors or any liability for claims arising out of any occurrence prior to
Closing.
8.2 Indemnification by Contributors. The Contributors hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs, penalties, damages, losses, liabilities and expenses (including
reasonable attorneys' fees), subject to Section 9.11 that may at any time be
incurred by the Acquiror, whether before or after Closing, as a result of any
breach by the Contributors of any of its representations, warranties, covenants
or obligations set forth herein or in any other document delivered by the
Contributors pursuant hereto.
8.3 Termination by Acquiror. If any condition set forth herein cannot
or will not be satisfied prior to Closing, or upon the occurrence of any other
event that would entitle the Acquiror to terminate this Agreement and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror, the Acquiror, at its
option and as its sole remedy, shall elect either (a) to terminate this
Agreement and all other rights and obligations of the Contributors and the
Acquiror hereunder shall terminate immediately, or (b) to waive its right to
terminate and, instead, to proceed to Closing.
8.4 Termination by Contributors. If, prior to Closing, the Acquiror
defaults in performing any of its obligations under this Agreement (including
its obligation to purchase the Property), and the Acquiror fails to cure any
such default within ten business days after notice thereof from the
Contributors, then the Contributors' sole remedy for such default shall be to
terminate this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Completeness; Modification. This Agreement constitutes the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior discussions, understandings,
agreements and negotiations between the parties hereto. This Agreement may be
modified only by a written instrument duly executed by the parties hereto.
9.2 Assignments. The Acquiror may assign its rights hereunder to any
affiliate of Acquiror without the consent of the Contributors. No such
assignment shall relieve the Acquiror of any of its obligations and liabilities
hereunder.
9.3 Successors and Assigns. The benefits and burdens of this Agreement
shall inure to the benefit of and bind the Acquiror and the Contributors and
their respective party hereto.
24
9.4 Days. If any action is required to be performed, or if any notice,
consent or other communication is given, on a day that is a Saturday or Sunday
or a legal holiday in the jurisdiction in which the action is required to be
performed or in which is located the intended recipient of such notice, consent
or other communication, such performance shall be deemed to be required, and
such notice, consent or other communication shall be deemed to be given, on the
first business day following such Saturday, Sunday or legal holiday. Unless
otherwise specified herein, all references herein to a "day" or "days" shall
refer to calendar days and not business days.
9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
9.6 Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signature on behalf of both parties hereto appear on each counterpart
hereof. All counterparts hereof shall collectively constitute a single
agreement.
9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
9.8 Costs. Regardless of whether Closing occurs hereunder, and except
as otherwise expressly provided herein, each party hereto shall be responsible
for its own costs in connection with this Agreement and the transactions
contemplated hereby, including without limitation fees of attorneys, engineers
and accountants.
9.9 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission, sent prepaid by Federal Express (or a comparable
overnight delivery service) or sent by the United States mail, certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as designated below. Any notice, request, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.
25
If to the Contributors: Kiran P. Patel
Hersha Enterprises, Ltd.
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
With a copy to: Jay H. Shah, Esquire
The Shah Law Firm
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia. PA 19106
Phone:(215) 238-1045
Fax:(215) 238-0157
If to the Acquiror:
Hasu P. Shah
Hersha Hospitality Trust
148 Sheraton Drive, Box A
New Cumberland, PA 17070
Phone:(717) 770-2405
Fax:(717) 774-7383
With a copy to: Jay H. Shah, Esquire
The Shah Law Firm
The Lafayette Building
437 Chestnut Street, Suite 615
Philadelphia, PA 19106
Phone: (215) 238-1045
Fax: (215) 238-0157
Or to such other address as the intended recipient may have specified in a
notice to the other party. Any party hereto may change its address or designate
different or other persons or entities to receive copies by notifying the other
party and the Escrow Agent in a manner described in this Section.
9.10 Incorporation by Reference. All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.
9.11 Survival. All of the representations, warranties, covenants and
agreements of the Contributors and the Acquiror made in, or pursuant to, this
Agreement, including the confidentiality provision of Article 9.15 of this
Agreement, shall survive for a period of twenty-four (24) months following
Closing and shall not merge into any document or instrument executed and
delivered in connection herewith.
26
9.12 Further Assurances. The Contributors and the Acquiror each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered, and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements, instruments, papers, deeds,
acts or things, supplemental, confirmatory or otherwise, as may be reasonably
required by either party hereto for the purpose of or in connection with
consummating the transactions described herein.
9.13 No Partnership. This Agreement does not and shall not be construed
to create a partnership, joint venture or any other relationship between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.
9.14 Time of Essence. Time is of the essence with respect to every
provision hereof.
27
9.15 Confidentiality. Except as hereinafter provided, from and after
the execution of this Agreement, the Acquiror and the Contributors shall keep
the terms, conditions and provisions of this Agreement confidential and neither
shall make any public announcements hereof unless the other first approves of
same in writing, nor shall either disclose the terms, conditions and provisions
hereof, except to persons who "need to know", such as their respective
attorneys, accountants, engineers, surveyors, financiers and bankers.
Notwithstanding the foregoing, it is acknowledged that the general partner of
the Acquiror has elected to be a real estate investment trust ("REIT") and that
the REIT has sold shares and may seek to sell additional shares to the general
public and that in connection therewith, the Acquiror will have the absolute and
unbridled right to market such securities and prepare and file all necessary or
reasonably required registration statements, disclosure statements, and other
papers, documents and instruments necessary or reasonably required in the
Acquiror's judgment and that of its attorneys and underwriters with respect to
the REIT's shares with the U.S. Securities and Exchange Commission and/or
similar state authorities and to cause same to become effective and to disclose
therein and thus to its underwriters, to the U.S. Securities and Exchange
Commission and/or to similar state authorities and to the public all of the
terms, conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the Contributors and the Acquiror have caused this
Agreement to be executed in their names by their respective duly-authorized
representatives.
CONTRIBUTORS:
SHREE ASSOCIATES, a Pennsylvania limited partnership
By: _______________________
Hasu P. Shah, General Partner
JSK II ASSOCIATES, a Pennsylvania limited partnership
By: _______________________
Jay H. Shah, General Partner
SHREEJI ASSOCIATES, a Pennsylvania limited partnership
By: ______________________________
Rajendra O. Gandhi, General Partner
28
KUNJ ASSOCIATES a Pennsylvania limited partnership
By: ______________________________
Kiran P. Patel, General Partner
SHANTI III ASSOCIATES a Pennsylvania limited partnership
By: ________________________
K. D. Patel, General Partner
DEVI ASSOCIATES a Pennsylvania limited partnership
By: ___________________________
Bharat C. Mehta, General Partner
NEIL H. SHAH, individually
By: ______________________
Neil H. Shah
DAVID L. DESFOR, individually
By: _______________________
David L. Desfor
SHREENATHJI ENTERPRISES, LTD., a Pennsylvania
corporation
By: _____________________
Kiran P. Patel, Secretary
ACQUIROR:
HERSHA HOSPITALITY LIMITED PARTNERSHIP, a Virginia
limited partnership
By: HERSHA HOSPITALITY TRUST, a Maryland
business trust, its sole general partner
By:
------------------------------------
Hasu P. Shah, President
29
EXHIBIT A
LEGAL DESCRIPTION
EXHIBIT B
EMPLOYMENT AGREEMENTS
EXHIBIT C
INSURANCE POLICIES
EXHIBIT D
LEASES
EXHIBIT E
OPERATING AGREEMENTS
EXHIBIT F
CONTRIBUTORS' PARTNERSHIP AGREEMENT
EXHIBIT G
CONTRIBUTORS' CERTIFICATE OF LIMITED PARTNERSHIP
EXHIBIT H
CONTRIBUTORS' WARRANTIES AND GUARANTIES
EXHIBIT I
LITIGATION SCHEDULE
NONE
EXHIBIT J
ALLOCATION OF CONSIDERATION
Hotel:
Land $____________
Tangible Personal Property ____________
Intangible Personal Property ____________
____________
TOTAL $
------------
------------
EXHIBIT K
Transferee Number of Partnership Units
- ---------- ---------------------------
EXHIBIT L
INVESTOR QUESTIONNAIRE
AND AGREEMENT
AGREEMENT AND INVESTOR QUESTIONNAIRE
THIS AGREEMENT AND INVESTOR QUESTIONNAIRE is dated as of ,
2000 by and between (the "Investor") and Hersha Hospitality Limited
Partnership, a Virginia limited partnership (the "Partnership").
WHEREAS, the Investor has entered into a certain Contribution
Agreement dated as of , 2000 (the "Contribution Agreement"), pursuant
to which the Investor is contributing certain assets described in the
Contribution Agreement (the "Assets") in exchanges for Limited Partner Units
("Units") issued by the Partnership; and
WHEREAS, in order to comply with certain exemptions from registration
under the Securities Act of 1933, as amended (the "Securities Act") and state
securities laws, the Partnership must determine whether the Investor qualifies
as an "accredited investor" (as defined in Regulation D promulgated pursuant to
the Securities Act);
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the Investor and the Partnership agree as follows:
1. Representations and Agreements of the Investor
(a) The Investor acknowledges, represents and warrants to the
Partnership that the Investor, pursuant to and by reason of the knowledge and
experience of the Investor in business and financial matters in general, and
investments in the same type of security or issuer as the securities of the
Company in particular (which experience, education and business background is
summarized in the responses to the questions set forth below), the undersigned
is capable of evaluating and has in fact evaluated an investment in the Units.
(b) The Investor acknowledges that he, she or it has had the
opportunity to request, has received and reviewed, and fully understands any
information the Investor deems necessary or appropriate to evaluate the merits
and risks of the exchange of the Assets for the Units. The undersigned further
acknowledges that he, she or it has had sufficient opportunity to ask questions
of, and receive answers from, representatives of the Partnership concerning the
terms of the exchange pursuant to the Contribution Agreement and the information
received concerning the Partnership.
(c) To the best of the knowledge of the undersigned, all of the
statements made by the Investor in the Investor Questionnaire attached hereto as
Exhibit A are true, complete and accurate.
(d) The Investor hereby acknowledges and understands that the Units
will be issued pursuant to an exemption from registration under the Securities
Act and the securities laws of the state where the Investor maintains his or her
domicile (if the Investor is an individual) or principal place of business (if
-42-
the Investor is not a natural person), and that the Units may not be offered or
sold unless first registered under the Securities Act and any applicable state
securities laws or unless such offer or sale is exempt from such registration.
(e) The Investor is acquiring the Units for investment purposes, has no
current intention to sell the Units, and will not sell the Units in violation of
applicable state and federal securities laws.
(f) The Investor has full power and authority to execute and deliver
this Investor Questionnaire and Agreement, the Investor Questionnaire and the
Power of Attorney and to carry out the transactions contemplated hereby, and
this Agreement, the Investor Questionnaire Power of Attorney constitute the
valid and binding obligations of the Investor, enforceable against the Investor
in accordance with their terms.
IN WITNESS WHEREOF, the Investor and the Partnership have duly executed
this Agreement, or have caused this Agreement to be duly executed on their
behalf, as of the date and year first above written.
Witness:
- ----------------------------- -------------------------------------------
[Investor]
HERSHA HOSPITALITY LIMITED PARTNERSHIP
Attest: By: Hersha Hospitality Trust, a Maryland
business trust, its General Partner
_____________________________ By:_________________________________________
Name:____________________________________
Title:___________________________________
-43-
EXHIBIT A
INVESTOR SUITABILITY EVALUATION QUESTIONNAIRE
1) Investor
Name:____________________________________
2) Investor
Address:_________________________________
_________________________________________
_________________________________________
_________________________________________
Address of
Principal
Residence (if Investor is an individual and if different from above):
_________________________________________
_________________________________________
_________________________________________
_________________________________________
3) Phone Number:
Business:________________________
Principal
Residence:_______________________
4) Social Security Number or Taxpayer Identification Number:___________
5) Occupation (if Investor is an individual) or nature of business
(if Investor is an entity):__________________________________________
6) Previous Illiquid Investment Activity:
Please describe your investment activities in illiquid investments
(e.g., private placements of securities, investment partnerships, venture
capital investments, real estate investments) during the past three years
(Attach additional sheets if necessary):
- ------------------------------------- ----------------------------------- -----------------------------------
Type of Investment Date of investment Aggregate Dollar Amount
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
7) Education Background (if Investor is an individual):
_____ High School Degree
_____ College Degree Major: __________________
_____ Graduate Degree Major: __________________
_____ Other (describe): _________________________
8) Type Of Entity (if Investor is an entity):
Corporation ______
General Partnership ______
Limited Partnership ______
Limited Liability Company ______
Limited Liability Partnership _______
Trust _______
Other entity (describe): ____________________________
Exhibit L
Page 2
(a) Owners of or parties in interest of such entity (add additional sheets if
required):
- ------------------------------------- ----------------------------------- -----------------------------------
Name of owner Address % of entity owned
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
(b) Such entity was incorporated or organized on: _____________ and
currently exists under the laws of the state of ______________.
(c) The primary purpose for which this entity was formed is:__________
________________________________________________________________________________
9) Investor Representations: Investor should initial the appropriate blanks
to which an affirmative representation can be made:
_____ I am an individual and have a net worth, or joint net worth with my
spouse, of One Million Dollars ($1,000,000) or more.
_____ I am an individual and have an individual income of Two Hundred Thousand
Dollars ($200,000) or more in each 1998 and 1999, or a joint income with my
spouse, of at least Three Hundred Thousand Dollars ($300,000) in each of same
years, and reasonably expect income in such amount during 2000.
_____ The value of the asset(s) which I am contributing to the Partnership does
not exceed Twenty Percent (20%) of my net worth or joint net worth of my spouse,
if married, exclusive of personal residence, furnishings and automobiles.
_____ Investor is a private venture capital firm which is a "Business
Development Company."
_____ Investor is a corporation, trust, partnership non-profit charitable
organization or other entity with total assets greater than Five Million Dollars
($5,000,000).
_____ Investor is an employee benefit plan subject to ERISA which has either a
corporate trustee or Five Million Dollars ($5,000,000) in assets.
_____ Investor is an entity which is owned One Hundred Percent (100%) by
"accredited investors" (i.e., persons or entities meeting any of the
classifications listed above).
Exhibit L
Page 3
EXHIBIT M
HERSHA HOSPITALITY LIMITED PARTNERSHIP AGREEMENT
EXHIBIT N
CONTINGENT PURCHASE
PRICE CALCULATION
EXHIBIT O
SHREENATHJI ENTERPRISES, LTD
ARTICLES OF INCORPORATION
EXHIBIT P
SHREENATHJI ENTERPRISES, LTD.
BYLAWS