UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
HERSHA HOSPITALITY TRUST
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
HERSHA HOSPITALITY TRUST
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 27, 2004
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To the shareholders of
HERSHA HOSPITALITY TRUST
The annual meeting of the shareholders (the "Annual Meeting") of Hersha
Hospitality Trust (the "Company"), will be held at the Hampton Inn Hotel at 501
West Edgar Road, Linden NJ on Thursday, May 27, 2004, at 10:00 a.m., Eastern
Standard Time, for the following purposes:
(1) To elect Class I Trustees to serve until the Annual Meeting of
shareholders in 2006;
(2) To approve the Hersha 2004 Equity Incentive Plan; and
(3) To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
Only shareholders of the Company of record as of the close of business on
March 31, 2004, will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof.
There is enclosed, as a part of this Notice, a Proxy Statement that
contains further information regarding the Annual Meeting and the nominees for
election to the Board of Trustees of the Company.
In order that your shares may be represented at the Annual Meeting, you are
urged to promptly complete, sign, date and return the accompanying Proxy in the
enclosed envelope, whether or not you plan to attend the Annual Meeting. If you
attend the Annual Meeting in person, you may vote personally on all matters
brought before the Annual Meeting even if you have previously returned your
proxy.
BY ORDER OF THE BOARD OF TRUSTEES
Kiran P. Patel
Secretary
148 Sheraton Drive
New Cumberland, Pennsylvania 17070
April 20, 2004
HERSHA HOSPITALITY TRUST
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 2004
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GENERAL INFORMATION
This Proxy Statement is provided in connection with the solicitation of
proxies by the Board of Trustees of Hersha Hospitality Trust (the "Company") for
use at the annual meeting of shareholders to be held on May 27, 2004 ("Annual
Meeting") and at any adjournments thereof. The mailing address of the principal
executive offices of the Company is 148 Sheraton Drive, Box A, New Cumberland,
Pennsylvania 17070. This Proxy Statement and the Proxy Form, Notice of Meeting
and the Company's annual report to shareholders, all enclosed herewith, are
first being mailed to the shareholders of the Company on or about April 20,
2004.
THE PROXY
The solicitation of proxies is being made primarily by the use of standard
mail. The cost of preparing and mailing this Proxy Statement and accompanying
material, and the cost of any supplementary solicitations, which may be made by
mail, telephone or personally by employees of the Company, will be borne by the
Company. The shareholder giving the proxy has the power to revoke it by
delivering written notice of such revocation to the Secretary of the Company
prior to the Annual Meeting or by attending the meeting and voting in person.
The proxy will be voted as specified by the shareholder in the spaces provided
on the Proxy Form or, if no specification is made, it will be voted for the
election of all of the nominees as trustees. In voting by proxy in regard to
the election of the trustees, shareholders may vote in favor of the nominees,
withhold their votes as to the nominees or withhold their votes as to a specific
nominee. In voting by proxy in regard to the Hersha 2004 Equity Incentive Plan,
shareholders may vote in favor of or against the plan.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute the solicitation of a
proxy, in any jurisdiction, from any person to whom it is unlawful to make such
solicitation in such jurisdiction. The delivery of this Proxy Statement shall
not, under any circumstances, imply that there has not been any change in the
information set forth herein since the date of the Proxy Statement.
Each outstanding common share of beneficial interest, $.01 par value (a
"Common Share"), is entitled to one vote. Cumulative voting is not permitted.
Only shareholders of record at the close of business on March 31, 2004 will be
entitled to notice of and to vote at the Annual Meeting and at any adjournments
thereof. At the close of business on March 31, 2004, the Company had
outstanding 13,571,665 Common Shares.
No specific provisions of the Company's Declaration of Trust or Bylaws
address the issue of abstentions or broker non-votes. Brokers holding shares
for beneficial owners must vote those shares according to the specific
instructions they receive from the owners. However, brokers or nominees holding
shares for a beneficial owner may not have discretionary voting power and may
not have received voting instructions from the beneficial owner with respect to
voting on certain proposals. In such cases, absent specific voting instructions
from the beneficial owner, the broker may not vote on these proposals. This
results in what is known as a "broker non-vote." A "broker non-vote" has the
effect of a negative vote when a majority of the shares outstanding and entitled
to vote is required for approval of a proposal, and "broker non-votes" will not
be counted as votes cast but will be counted for the purpose of determining the
existence of a quorum. Because the election of trustees is a routine matter for
which specific instructions from beneficial owners will not be required, no
"broker non-votes" will arise in the context of the election of trustees.
However, broker non-votes and abstentions will be equivalent to votes against
the 2004 Equity Incentive Plan.
REPORTS OF BENEFICIAL OWNERSHIP
Under federal securities laws, the Company's trustees and executive
officers are required to report their ownership of Common Shares and any changes
in ownership to the Securities and Exchange Commission (the "SEC"). These
persons are also required by SEC regulations to furnish the Company with copies
of these reports. Based solely on a review of the copies of such reports
received by it, or written representations from certain reporting persons that
no reports were required for those persons, the following reports required by
Section 16(a) of the Exchange Act during 2003 were not timely filed:
Trustee or Officer Description
- ---------------------- -----------
Jay H. Shah Mr. Jay Shah failed to file a Form 3 upon becoming President and Chief
(President and Chief Operating Officer as of September 3, 2003.
Operating Officer)
K.D. Patel Mr. K.D. Patel failed to timely file a Form 4 reporting his redemption for cash
(Trustee) of 362,197 units of limited partnership in our operating partnership as of
October 22, 2003. This Form 4 was filed on January 5, 2004.
Nayana Gandhi Ms. Gandhi failed to file a Form 4 reporting her redemption for cash of
(former owner of more 281,148 units of limited partnership in our operating partnership as of October
than 10% of common 22, 2003. As of that date, Ms. Gandhi no longer owns more than 10% of our
shares) outstanding common shares.
OWNERSHIP OF THE COMPANY'S PRIORITY COMMON SHARES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common shares by (i) each shareholder known by us to beneficially
own more than five percent of our common shares, (ii) each of our trustees and
executive officers, and (iii) all of our trustees and executive officers as a
group, each as of March 18, 2004. Unless otherwise indicated, all shares are
owned directly, and the indicated person has sole voting and investment power.
The number of outstanding common shares at March 18, 2004 was 13,571,665. This
table assumes that all limited partnership units held by such person or group of
persons are redeemed for common shares or, in the case of CNL, exchanged for
common shares. The total number of shares outstanding used in calculating the
percentage assumes that none of the limited partnership units held by other
persons are redeemed for common shares. Limited partnership units generally are
not redeemable for common shares until at least one year following the issuance
of such units.
NUMBER PERCENT OF
NAME OF BENEFICIAL OWNER OF SHARES CLASS
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PERSONS BELIEVED TO OWN IN EXCESS OF 5% OF COMMON SHARES
CNL Hospitality Partners, L.P. (1) 4,008,601 22.80%
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801-3336
2
NUMBER PERCENT OF
NAME OF BENEFICIAL OWNER OF SHARES CLASS
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Deutsche Bank AG and RREEF America, L.L.C.(2) 1,281,500 9.44%
Taunusanlage 12, D-60325
Frankfurt am Main
Federal Republic of Germany
Security Capital Research & Management Incorporated (3) 831,300 6.13%
11 South LaSalle Street, 2nd Floor,
Chicago, Illinois 60603
Delaware Management Holdings(4) 797,800 5.88%
2005 Market Street
Philadelphia PA 19103
K.G. Redding & Associates, LLC (5) 1,645,100 12.12%
One North Wacker Drive, Suite 4343
Chicago, IL 60606-2841
OFFICERS AND TRUSTEES:
Hasu P. Shah(6) 243,837 1.76%
Neil H. Shah(6) 690,905 4.84%
Jay H. Shah(6) 742,719 5.19%
K.D. Patel(6) 282,393 2.04%
Kiran P. Patel(6) 46,969 *
David L. Desfor(7) 90,786 *
Ashish R. Parikh 2,500 *
John M. Sabin 500 *
Thomas S. Capello 7,400 *
Donald J. Landry - -
Michael A. Leven 2,500 *
William Lehr Jr. 1,610 *
Shreenathji Enterprises, Ltd.(6)(8) 15,454 *
TOTAL FOR ALL OFFICERS AND TRUSTEES (12 PERSONS)(9): 2,127,573 13.46%
<FN>
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* Less than 1%
(1) Reflects information on a Schedule 13D filed by CNL Hospitality Partners,
L.P., CNL Hospitality GP Corp., and CNL Hospitality Properties, Inc. on
September 5, 2003. CNL has sole dispositive and voting power over all
4,008,601 shares, which consists of (a) 2,816,460 common shares issuable
upon exchange of 190,266 Series A Preferred Partnership Units in our
operating partnership and (b) 1,192,141 common shares issuable upon
exchange of CNL's interest in our joint venture. CNL may only vote its
shares to the extent they do not exceed 40% of the total issued and
outstanding common shares.
(2) Based solely on Amendment No. 1 to Schedule 13G filed on February 26, 2004.
(3) Based solely on Schedule 13G filed on February 17, 2004.
(4) Based solely on Schedule 13G filed on February 9, 2004.
(5) Bases solely on Schedule 13G filed on January 14, 2004.
(6) Represents limited partnership units owned by such person.
(7) Represents 1,800 Common shares and 88,986 common limited participating
units owned by Mr. Desfor.
(8) Shreenathji Enterprises, Ltd. ("SEL") is a limited partnership owned by
Hasu P. Shah (12%), Kiran P. Patel (13%), Bharat C. Mehta (15%), Nayana
Gandhi (15%), Kanti D. Patel (15%), Jay H. Shah (15%) and Neil H. Shah
(15%). SEL acquired these Units in exchange for contributions of hotel
properties to the Partnership
(9) Includes the limited partnership units owned by Shreenathji Enterprises,
Ltd.
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BOARD OF TRUSTEES AND EXECUTIVE OFFICERS
Certain information regarding the Company's trustees and executive officers is
set forth below.
Name Age Position
- --------------------------- --- --------
Hasu P. Shah (Class II) 59 Chairman of the Board, Chief Executive Officer and Trustee
Jay H. Shah 35 President and Chief Operating Officer
Ashish R. Parikh 34 Chief Financial Officer
Kiran P. Patel 54 Corporate Secretary
David L. Desfor 42 Treasurer
Neil H. Shah 30 Director of Development and Acquisitions
K.D. Patel (Class II) 60 Trustee
John M. Sabin (Class II) 49 Independent Trustee
Michael A. Leven (Class II) 66 Independent Trustee
William Lehr, Jr. (Class I) 63 Independent Trustee
Thomas S. Capello (Class I) 60 Independent Trustee
Donald J. Landry (Class I) 54 Independent Trustee
PROPOSAL ONE - ELECTION OF CLASS I TRUSTEES
The Company's Declaration of Trust divides the Board of Trustees into two
classes. Each Trustee in Class II is serving a term expiring at the 2005 annual
meeting of shareholders and each Trustee in Class I is serving a term expiring
at the Annual Meeting. Generally, one full class of trustees is elected by the
shareholders of the Company at each annual meeting. Each of the nominees
presently is serving as a Class I Trustee.
If any nominee becomes unavailable or unwilling to serve the Company as a
Trustee for any reason, the persons named as proxies in the Proxy Form are
expected to consult with management of the Company in voting the shares
represented by them. The Board of Trustees has no reason to doubt the
availability of any nominee, and each has indicated his willingness to serve as
a trustee of the Company if elected.
The Company's Bylaws provide that a shareholder of record both at the time
of the giving of the required notice set forth in this sentence and at the time
of the Annual Meeting entitled to vote at the Annual Meeting may nominate
persons for election to the Board of Trustees by mailing written notice to the
Secretary of the Company not less than 120 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event the
annual meeting is advanced by more than 30 days or delayed by more than 60 days,
notice must be received not earlier than 90 days prior to the announcement of
the annual meeting. The shareholder's notice must set forth (i) as to each
person whom the shareholder proposes to nominate for election as a trustee, all
information regarding each nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had the nominee
been nominated by the Board of Trustees; (ii) the consent of each nominee to
serve as a trustee of the Company if so elected; (iii) the name and address of
the shareholder and of each person to be nominated; and (iv) the number of each
class of securities that are owned beneficially and of record by the
shareholder.
4
Assuming the presence of a quorum, the affirmative vote of a majority of
the common shares represented at the meeting is required to elect each trustee.
Cumulative voting is not permitted in the election of trustees. Consequently,
each shareholder is entitled to one vote for each common share held in the
shareholder's name. In the absence of instructions to the contrary, the persons
named in the accompanying proxy shall vote the shares represented by that proxy
for each of Messrs. Landry, Capello and Lehr as nominees for election as Class I
Trustees. For purposes of the election of trustees, abstentions will not be
counted as votes cast and will have no effect on the result of the vote,
although they will count towards the presence of a quorum. A nominee holding
shares in street name may vote for the proposal without voting instructions from
the beneficial owner.
NOMINEES FOR ELECTION AS CLASS I TRUSTEES
(TERMS EXPIRING IN 2006)
DONALD J. LANDRY is president and owner of Top Ten, an independent
hospitality industry consulting company. Mr. Landry has over thirty years of
lodging and hospitality experience in a variety of leadership positions. Most
recently, Mr. Landry was the Chief Executive Officer, President and Vice
Chairman of Sunburst Hospitality Inc. Mr. Landry has also served as an
executive officer for Choice Hotels International, Inc., Manor Care Hotel
Division and Richfield Hotel Management. Mr. Landry currently serves on the
corporate advisory boards of Unifocus and Campo Architects and numerous
non-profit boards. Mr. Landry is a frequent guest lecturer at the Harvard
Business School, Cornell University and University of New Orleans. Mr. Landry
has served on the Board of Trustees since our 2001 annual meeting. Mr. Landry
holds a Bachelor of Science from the University of New Orleans and was the
University's Alumnus of the Year in 1999. Mr. Landry is a Certified Hotel
Administrator.
THOMAS S. CAPELLO is a Private Investor and a Consultant specializing in
strategic planning, mergers and acquisitions. From 1988 to 1999, Mr. Capello
was the President, Chief Executive Officer and Director of First Capitol Bank in
York, Pennsylvania. From 1983 to 1988, Mr. Capello served as Vice President and
Manager of the Loan Production Office of The First National Bank of Maryland.
Prior to his service at The First National Bank of Maryland, Mr. Capello served
as Vice President and Senior Regional Lending Officer at Commonwealth National
Bank and worked at the Pennsylvania Development Credit Corporation. Mr. Capello
is the Chairman of the York regional Board of Directors of Community Bank, Inc.
Mr. Capello is an active member for the board of WITF, Martin Library, Motter
Printing Company, and Eastern York Dollars for Scholars. Mr. Capello has served
on the Board of Trustees since the our initial public offering in January 1999.
Mr. Capello is a graduate of the Stonier Graduate School of Banking at Rutgers
University and holds an undergraduate degree with a major in Economics from the
Pennsylvania State University.
WILLIAM LEHR, JR. retired from Hershey Foods Corporation in 1995. He had
been Senior Vice President and Secretary of the Corporation, as well as its
Treasurer. During a 28 year career with Hershey Foods, Mr. Lehr had a multitude
of diverse responsibilities, including senior management, corporate governance,
law, finance, human resources, and public affairs. Mr. Lehr is currently
devoting his time to working with various nonprofit organizations in the
following capacities. He is Chairman of the Board of Trustees of Lebanon Valley
College; Chairman of the Board of the Greater Harrisburg Foundation as well as
Chairman of the Capital Region's Early Childhood Training Institute; a director
and Vice Chairman of Capital Blue Cross; a director and immediate past Chairman
of Americans for the Arts and a director and immediate past President of the
Susquehanna Art Museum. Mr. Lehr holds a Bachelor's degree in Business
Administration from the University of Notre Dame, where he graduated cum laude,
and a law degree from Georgetown University Law Center. Mr. Lehr is also a
graduate of the Stanford Executive Program and successfully completed The
Governing for Nonprofit Excellence Course at Harvard University's Graduate
School of Business Administration.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE IN FAVOR OF EACH OF THE CLASS I TRUSTEE
NOMINEES
5
CLASS II TRUSTEES
HASU P. SHAH has been the Chairman of the Board and Chief Executive Officer
since our inception in 1998. Mr. Shah is also the founder and CEO of the Hersha
Group. Mr. Shah founded Hersha with the purchase of a single hotel in
Harrisburg, Pennsylvania in 1984. In the last twenty years, Mr. Shah has
developed, owned, or managed over fifty hotels across the Eastern United States
and started affiliated businesses in general construction, purchasing, and hotel
management. He has earned numerous awards including the Entrepreneur of the
Year, the Creating a Voice award, and was recently named a Fellow of Penn State
University. Mr. Shah and his wife, Hersha, are active members of the local
community and remain involved with charitable initiatives in India as well. Mr.
Shah has been an active Rotarian for nearly twenty years and continues to serve
as a Trustee of several community service and spiritual organizations including
Vraj Hindu Temple and the India Heritage Research Foundation. Mr. Shah received
a Bachelors of Science degree in Chemical Engineering from Tennessee Technical
University and obtained a Masters degree in Administration from Pennsylvania
State University. Mr. Shah is also an alumnus of the Owner and President's
Management program at Harvard Business School.
MICHAEL A. LEVEN is the Chairman and Chief Executive Officer of US
Franchise Systems, Inc. (USFS), which franchises the Microtel, Hawthorn Suites
and Best Inns & Suites hotel brands. Prior to forming USFS in 1995, he was
President of Holiday Inns Worldwide. During his five-year tenure, the new
Holiday Inn Express brand grew from zero to 330 open hotels. From 1985 to 1990,
Mr. Leven was President of Days Inn of America leading the company from
reorganization of a regional chain to one of the largest brands in the world
with over 1,000 units. Mr. Leven is a co-founder of the Asian American Hotel
Owners Association (AAHOA) which now has over 7,000 members. Mr. Leven is a
Trustee of The Marcus Foundations, serves on the Boards of the Marcus Institute
and the Georgia Aquarium, and the United Jewish Communities. He has received
honorary doctorate degrees from The Johnson & Wales University and The College
of Hospitality and Tourism Management of Niagara University. Mr. Leven has
served on our Board of Trustees since 2001. Mr. Leven holds a Bachelor of Arts
from Tufts University and a Master of Science from Boston University.
K.D. PATEL currently serves as the President of Hersha Hospitality
Management, L.P., the lessee of 14 of our hotels and the manager of all our
hotels. Mr. Patel has been a principal of the Hersha Group since 1989. Mr.
Patel was previously employed by Dupont Electronics from 1973 to 1990. Mr.
Patel is currently a Board member of the International Association of Holiday
Inns and has been a member of the Board of Trustees of the regional chapter of
the American Red Cross and the Advisory Board of Taneytown Bank and Trust. Mr.
Patel has served on our Board of Trustees since our initial public offering in
1999. Mr. Patel received a Bachelor of Science degree in Mechanical Engineering
from the M.S. University of India and earned a Professional Engineering License
from the Commonwealth of Pennsylvania.
JOHN M. SABIN is Chief Financial Officer, General Counsel and Secretary of
NovaScreen Biosciences Corporation, a private bioinformatics and contract
research biotech company. Prior to joining NovaScreen in 2000, he served as
Chief Financial Officer of Hudson Hotels Corporation from 1998 to 1999. From
1997 to 1998, Mr. Sabin was with Vistana, Inc., a public vacation time-share
company where he held positions of Senior Vice President, Treasurer and CFO.
Previously, Mr. Sabin served as an executive with Choice Hotels International,
Inc., Manor Care, Inc. and Marriott International, Inc. Mr. Sabin also serves
on the Board of Competitive Technologies, Inc. Mr. Sabin joined the Board of
Trustees on June 30, 2003.
6
OTHER EXECUTIVE OFFICERS
JAY H. SHAH was named President and Chief Operating Officer of Hersha on
September 3, 2003. Prior to his appointment, Mr. Shah was a principal in the
law firm of Shah & Byler, LLP, which he founded in 1997, and managing director
of the Hersha Group. Mr. Shah previously was a consultant with Coopers &
Lybrand LLP, served the late Senator John Heinz on Capitol Hill, and was
employed by the Philadelphia District Attorney's office and two
Philadelphia-based law firms. Mr. Shah received a Bachelor of Science degree
from the Cornell University School of Hotel Administration, a Masters degree
from the Temple University School of Business Management and a Law degree from
Temple University School of Law. Mr. Shah is the son of Hasu P. Shah, our
Chairman and Chief Executive Officer.
ASHISH R. PARIKH has been Chief Financial Officer of Hersha Hospitality
Trust since 1999. Previously, Mr. Parikh was Assistant Vice President in the
Mergers and Acquisition Group for Fleet Financial Group where he developed
valuable expertise in numerous forms of capital raising activities including
leveraged buyouts, bank syndications and venture financing. Mr. Parikh has also
been employed by Tyco International Ltd and Ernst & Young LLP. Mr. Parikh
received his MBA from New York University and a BBA from the University of
Massachusetts at Amherst. Mr. Parikh is a licensed Certified Public Accountant.
KIRAN P. PATEL is our Secretary and has been a principal of the Hersha
Group since 1993. Prior to Hersha, Mr. Patel was employed by AMP Incorporated
(electrical component manufacturer), in Harrisburg, Pennsylvania. Mr. Patel
serves on various Boards for community service organizations. Mr. Patel
received a Bachelor of Science degree in Mechanical Engineering from M.S.
University of India and obtained a Masters of Science degree in Industrial
Engineering from the University of Texas in Arlington.
DAVID L. DESFOR has served as Treasurer of Hersha since December 2002.
Previously, Mr. Desfor has been a principal and comptroller of the Hersha Group
since 1992. Mr. Desfor previously co-founded and served as President of a hotel
management company focused on conference centers and full service hotels. Mr.
Desfor earned his undergraduate degree from East Stroudsburg University in Hotel
Administration.
NEIL H. SHAH has served as our Director of Acquisitions & Development since
May 2002 and had been a principal of the Hersha Group since 2000. Prior to
joining Hersha, he served in senior management positions with the Advisory Board
Company and the Corporate Executive Board. Mr. Shah graduated with honors from
the University of Pennsylvania and the Wharton School with degrees in Management
and Political Science. Mr. Shah earned his MBA from the Harvard Business
School. Mr. Shah is the son of Hasu P. Shah, our Chairman and Chief Executive
Officer and brother of Jay H. Shah, our President and Chief Operating Officer.
COMMITTEES AND MEETINGS OF THE BOARD OF TRUSTEES
Trustees' Meetings. Our business is under the general management of our
Board of Trustees as provided by our Bylaws and the laws of Maryland. The Board
of Trustees holds regular quarterly meetings during our fiscal year and holds
additional meetings as needed in the ordinary course of business. The Board of
Trustees held four meetings and eight conference calls during 2003. All
trustees attended at least 75% of the aggregate of (i) the total number of the
meetings of the Board of Trustees and (ii) the total number of meetings of all
committees of the Board on which the trustee then served.
We presently have an Audit Committee, Compensation Committee, Nominating
Committee, Acquisition Committee and a Corporate Governance Committee of our
Board of Trustees. We may, from time to time, form other committees as
circumstances warrant. These committees have authority and responsibility as
delegated by the Board of Trustees.
Audit Committee. We have a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee consists of Messrs. Capello
(Chairperson), Landry, Lehr and Sabin, all of whom are independent trustees
defined in Section 121(A) of AMEX's listing standards. The Audit Committee is
responsible for the engagement of independent public accountants, reviews with
the independent public accountants the plans and results of the audit
engagement, approves professional services provided by the independent public
7
accountants, reviews the independence of the independent public accountants,
considers the range of audit and non-audit fees and reviews the adequacy of our
internal accounting controls. The Audit Committee met five times during 2003
and discussed relevant topics regarding financial reporting and auditing
procedures. The Audit Committee Charter adopted by our Board of Trustees was
filed as an appendix to the Proxy Statement for the 2003 annual meeting.
The Board of Trustees has determined that each of Mr. Capello and Mr. Sabin
is an "audit committee financial expert" as that term is defined in the rules
promulgated by the Securities and Exchange Commission pursuant to the
Sarbanes-Oxley Act of 2002. The Board of Trustees has determined that each of
the members of the Audit Committee is financially literate and has accounting or
related financial management expertise, as such terms are interpreted by the
Board of Trustees.
For more information, please see "The Audit Committee Report" beginning on
page 16.
Compensation Committee. The Compensation Committee consists of Messrs.
Leven (Chairperson), Sabin, Landry and Lehr, all of whom are independent
trustees. The Compensation Committee determines compensation for our executive
officers and administers our option plan. Because we only paid compensation to
one officer in recent years, the Compensation Committee is typically able to
address its business in only one meeting during the past years. The
Compensation Committee met one time during 2003 and discussed relevant topics
regarding compensation and established a formal compensation plan for all
officers and trustees for 2004.
Nominating Committee. The Nominating Committee consists of Messrs. Sabin
(Chairperson), Capello and Leven. The Nominating Committee recommends
candidates for election as trustees and in some cases the election of officers.
The Nominating Committee met two times during 2003 as part of the full board's
meetings and discussed relevant topics regarding trustee and officer nominations
at the meetings of the Board of Trustees. Each of the members of the Nominating
Committee is independent as defined in Section 121(A) of the AMEX Listing
Standards. Our Board of Trustees has adopted a Charter for the Nominating
Committee, which is available on our website at www.hersha.com.
Acquisition Committee. The Acquisition Committee consists of Messrs.
Landry (Chairperson), Leven and Sabin. The Acquisition Committee establishes
guidelines for acquisitions to be presented to the Board of Trustees and leads
the Board in its review of potential acquisitions presented by management. The
Acquisition Committee makes recommendations to the Board and senior management
regarding acquisitions and ensures that proper due diligence is conducted on all
properties. The Acquisition Committee was established in January 2004.
Corporate Governance Committee. The Corporate Governance Committee
consists of Messrs. Lehr (Chairperson), Capello and Landry. The Corporate
Governance Committee develops and recommends to the Board of Trustees a set of
Corporate Governance guidelines and annually reviews these guidelines, considers
questions of possible conflicts of interest of Board members and executives and
remains informed about existing and new corporate governance standards mandated
by the SEC and American Stock Exchange as they apply to us. The Corporate
Governance Committee was established in January 2004.
CORPORATE GOVERNANCE MATTERS
The Board Nominating Process. Our Nominating Committee performs the
functions of a nominating committee and will actively seek, identify and
recommend to the Board individuals qualified to become Board members, consistent
with any criteria approved by the Board, and establish such criteria based on
factors it considers appropriate such as strength of character, maturity of
judgment, independence, expertise in the hospitality industry, experience as a
senior executive or with corporate strategy initiatives generally, diversity and
the extent to which the candidate would fill a present need on the Board. The
Nominating Committee Charter describes the Committee's responsibilities,
including seeking, screening and recommending Board candidates for nomination by
the Board of Trustee.
The Nominating Committee evaluates all Trustee candidates. The Nominating
Committee evaluates any candidate's qualifications to serve as a member of the
Board based on the skills and characteristics of individual Board members as
well as the composition of the Board as a whole. In addition, the Nominating
8
Committee will evaluate a candidate's independence and diversity, skills and
experience in the context of the Board's needs.
Trustee Candidate Recommendations and Nominations By Shareholders. The
Nominating Committee Charter provides that the Committee will consider Board
candidate recommendations by shareholders. Shareholders should submit any such
recommendations for the Nominating Committee through the method described under
"Communications With The Board of Trustees" below. In addition, in accordance
with our Bylaws, any shareholder of record entitled to vote for the election of
Trustees at the applicable meeting of shareholders may nominate persons for
election to the Board of Trustees if such shareholder complies with the notice
procedures set forth in the Bylaws and summarized above.
Communications With The Board of Trustees. Shareholders may communicate
with our Board of Trustees by writing to: Chairman of the Audit Committee,
Hersha Hospitality Trust, 148 Sheraton Drive, New Cumberland, Pennsylvania
17070. Our Corporate Secretary will review each piece of correspondence to the
Board and will forward all appropriate communications to the Audit Committee
Chairman for review.
Trustee Attendance At Annual Meeting. Our policy is that all Trustees
should attend the annual meeting of the shareholders. All of our Trustees
attended the 2003 annual meeting of shareholders.
CODE OF ETHICS
Our Board of Trustees has adopted a Code of Ethics that applies to our
chief executive officer, chief financial officer, chief accounting officer,
controller and other executive officers. The Code of Ethics will be posted on
our Internet website, www.hersha.com, no later than the date on which the proxy
for the 2004 annual meeting is mailed to shareholders. We intend to satisfy the
disclosure requirement under Item 10 of Form 8-K relating to amendments to or
waivers from any provision of the Code of Ethics applicable to the our chief
executive officer, chief financial officer, chief accounting officer or
controller by posting such information on our Internet website.
COMPENSATION OF TRUSTEES
In 2003, each independent and non-affiliated trustee was paid $10,000 per
year and each affiliated trustee was paid $7,500 per year, payable in quarterly
installments. In addition, we reimbursed all trustees for reasonable
out-of-pocket expenses incurred in connection with their services on the Board
of Trustees.
In addition, we have adopted the Hersha Hospitality Trust Non-Employee
Trustees' Option Plan (the "Trustees' Plan") to provide incentives to attract
and retain independent trustees. The Trustees' Plan authorizes the issuance of
up to 200,000 common chares. Options issued under the Trustees' Plan are
exercisable for five years from the date of grant. The Trustees' Plan provides
that in the event the common shares are converted or exchanged into or for any
other securities, share grants and options will be granted in such other
security. No options under the Trustees' Plan are outstanding as of March 18,
2004.
EXECUTIVE COMPENSATION
Ashish R. Parikh, our Chief Financial Officer, was paid a salary of $90,000
by HHMLP. We have entered into an Administrative Services Agreement with HHMLP
to provide accounting and securities reporting services. The terms of the
agreement provide for a fee of $10,000 per property per year (prorated from the
time of acquisition) for each hotel in our portfolio. A portion of these fees,
charged by HHMLP, are allocated to the services of Mr. Parikh.
No other officers have received any cash compensation from us for 2003,
other than the Trustee's fees for those officers who are trustees.
Since our inception, we have not paid compensation to our executive
officers or other employees. However, beginning with the 2004 fiscal year, we
have implemented a plan to compensate certain of our executive officers, and the
9
Compensation Committee will attempt to establish compensation that is customary
in our industry. The following table summarizes the compensation paid or
accrued for each of the years ended December 31, 2003, 2002 and 2001.
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Restricted Underlying All Other
Principal Position Year Salary Bonus Share Award Options/SAR Compensation
- --------------------------- ---- ------- ----- ----------- ----------- ------------
Hasu P. Shah 2003
Chairman and Chief 2002
Executive Officer 2001
Jay H. Shah 2003
President and 2002
Chief Operating Officer 2001
Ashish R. Parikh (1) 2003 $80,000
Chief Financial Officer 2002 80,000
2001 55,000
Kiran P. Patel 2003
Secretary 2002
2001
David L. Desfor 2003
Treasurer 2002
2001
Neil H. Shah 2003
Director of Acquisitions 2002
2001
<FN>
- -----------
(1) Of Mr. Parikh's $90,000 salary that is paid by the Lessee, $80,000 has been
designated as related to the services provided per the terms of the
Administrative Services Agreement between us and HHMLP. The terms of the
agreement provide for a fee of $10,000 per property per year (prorated from
the time of acquisition) for each hotel in our portfolio.
10
OPTION GRANTS
There were no option grants to any executive officers or employees during
2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options In-The Money Options at
Shares at Fiscal Year-End (1) Fiscal Year-End (2)
Acquired by Value ---------------------------- ------------------------------
NAME exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ----------- --------- ----------- -------------- ------------- ---------------
21,850 -
Hasu P. Shah - $ - - - $ 89,585 $ -
Jay H. Shah - $ - - - $ - $ -
Ashish R. Parikh - $ - 20,864 - $ - $ -
Kiran P. Patel - $ - - - $ 85,542 $ -
David L. Desfor - $ - - - $ - $ -
Neil H. Shah - $ - $ - $ -
<FN>
- ---------------
(1) Represents the number of shares subject to outstanding options.
(2) Based on a price of $10.10 per share, the closing price of our common shares on December 31,
2003.
COMMON SHARES ISSUABLE PURSUANT TO OPTIONS
The following table summarizes information with respect to equity compensation
as of December 31, 2003:
NUMBER OF SECURITIES
TO BE ISSUED WEIGHTED AVERAGE
UPON EXERCISE OF EXERCISE PRICE OF NUMBER OF SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REMAINING AVAILABLE
WARRANTS AND RIGHTS WARRANTS AND RIGHTS FOR FUTURE ISSUANCE
-------------------- --------------------- --------------------
Equity compensation plans
approved by security holders 75,714 $ 6.00 166,000
Equity compensation plans
not approved by security - - -
holders
-------------------- --------------------- --------------------
Total 75,714 $ 6.00 166,000
==================== ===================== ====================
After December 31, 2004, all outstanding options either expired unexercised or
were exercised. As of January 26, 2004, no options or warrants to acquire our
securities were outstanding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In developing our portfolio since our initial public offering in 1999, we
have entered into various transactions with our trustees, officers and entities
controlled by them, including transactions relating to the leasing and managing
of our hotels, acquisitions and dispositions of hotels, loans made by or for the
benefit of us, and the purchase of goods and services. Certain of these
transactions have been instrumental in the implementation of our business
strategy and the growth of our portfolio. Although we have made certain
efforts, described below, to ensure that these transactions were negotiated on
an arms-length basis, we cannot assure you of this fact or that the terms of
these transactions are as favorable to us as those we may have received from
unaffiliated third parties. As a result of the growth in our portfolio, our
current growth strategy and modifications to the REIT qualification rules, we
have adopted certain policies with respect to transactions with our trustees,
officers and entities controlled by them. The following is a summary of certain
11
of these transactions, including a description of the transaction, the business
purpose for the transaction and our current policy with respect to such a
transaction.
PORTFOLIO FORMATION TRANSACTIONS WITH TRUSTEES AND OFFICERS
In connection with our initial public offering in 1999, entities controlled
by our officers and trustees contributed ten hotels to us in exchange for
limited partnership units in our operating partnership. Since that time, we
have continued to buy hotels from, and sell hotels to, entities controlled by
our officers and trustees when a majority of our independent trustees has
determined it was in our best interest to do so.
HOTEL ACQUISITIONS
We have not, and do not in the future intend to, undertake the risks of
developing new hotels. However, since our initial public offering in 1999, we
have been able to acquire newly-constructed or newly-renovated hotels from
entities controlled by our officers or trustees. Of the 22 hotel properties
purchased by us since our initial public offering, 13 were acquired from
affiliates, 12 of which were newly-constructed or substantially renovated. In
connection with our initial public offering, we entered into an Option Agreement
with Hasu Shah, Jay Shah, Neil Shah, K.D. Patel, David Desfor, and Kiran Patel.
Pursuant to this agreement, we had the option to purchase any hotels owned or
developed by these individuals that was within fifteen miles of any of our
hotels or any hotel subsequently acquired by us for two years after such
acquisition or development. In September 2003, the parties to this agreement
amended the Option Agreement so that (a) the right of first refusal now applies
to all hotels owned or developed by the parties, regardless of proximity to our
hotels, and (b) the right of first refusal applies to each party until one year
after such party ceases to be an officer or trustee. This arrangement gives us
access to a pipeline of newly-constructed and newly-renovated hotels, without
bearing all the risks associated with development and renovation.
As of September 2001, the Board of Trustees has elected to hire an
independent accounting firm to review in advance all asset purchases and asset
sales between us and related parties. The Board of Trustees will determine the
scope of each review on a case-by-case basis. The independent third party
accounting firm will review each acquisition or sale to determine if the terms
of the transaction are in line with then-current market conditions as well as
how the transaction impacts us. The accounting firm then will present its
findings to the Board of Trustees to aid it in its evaluation of the terms of
the transaction.
The following table sets forth certain information with respect to all of
the acquisitions from entities controlled by our officers or trustees since
January 1, 2001.
HOTEL ACQUISITION DATE AFFILIATED SELLERS PURCHASE PRICE
- --------------------- --------------------- --------------------------------- ---------------------------------------
Hampton Inn, New Acquired by our joint Chelsea Grand East, LLC, in 28 million paid by a joint venture in
York, venture with CNL on which Hasu Shah owns a 100% which we own a one-third interest,
New York August 29, 2003 interest. including $16.4 million in assumed
debt and $11.6 in cash.
Doubletree, October 1, 2002 5544 JFK Associates, in which 11.5 million, including the assumption
Jamaica, New York Hasu Shah, Jay Shah, Neil Shah, of $8.7 million of mortgage debt, the
(JFK Airport) Kiran Patel, David Desfor, K.D assumption of $1 million of related
Patel and their immediate party debt and $1.8 million of cash
families collectively owned a
86% interest
Mainstay Suites, January 1, 2002 3044 Associates, in which Hasu 5.5 million, including the assumption
Frederick, Maryland Shah, Jay Shah, Neil Shah, Kiran of $3.3 million of debt, the assumption
Patel, David Desfor, K.D. Patel of $0.8 million of related party debt and
and their immediate families $1.6 million of cash
collectively owned a
82% interest
12
HOTEL ACQUISITION DATE AFFILIATED SELLERS PURCHASE PRICE
- --------------------- --------------------- --------------------------------- ---------------------------------------
Holiday Inn Express, November 1, 2001 Metro Two Hotel, LLC, in which 8.5 million, including the assumption
Long Island City, Hasu Shah, Jay Shah, Kiran Patel of $6.5 million of mortgage debt, $1.5
New York and K.D. Patel and their million of cash, and $0.5 million of
immediate families collectively common limited partnership units in
owned a 88% interest our operating partnership
Mainstay Suites and August 1, 2001 3244 Associates, in which Hasu 9.4 million, including the assumption
Sleep Inn Hotel, Shah, Jay Shah, Kiran Patel and of $6.8 million of mortgage debt, the
King of Prussia, K.D. Patel and their immediate assumption of $1 million of related
Pennsylvania families collectively owned a party debt and $1.6 million of cash
82% interest
HOTEL ACQUISITION REPRICING
Each of these hotels was newly-developed or newly-renovated hotels that did
not have an operating history on which we could base purchase price decisions.
In buying these hotels we have utilized, a "re-pricing" methodology that, in
effect, adjusts the initial purchase price for the hotel, one or two years after
we initially purchase the hotel, based on the actual operating performance of
the hotel during the previous twelve months.
The initial purchase price for each of these hotels was based upon
management's projections of the hotel's performance for one or two years
following our purchase. The leases for these hotels provide for fixed initial
rent for the one- or two-year adjustment period that provides us with a 12%
annual yield on the initial purchase price, net of certain expenses. At the end
of the one- or two-year period, we calculate an initial value for the hotel,
based on the actual net income during the previous twelve months, net of certain
expenses, such that it would have yielded a 12% return. We then apply the
percentage rent formula to the hotel's historical revenues for the previous
twelve months on a pro forma basis. If the pro forma percentage rent formula
would not have yielded a pro forma annual return to us of 11.5% to 12.5% based
on this calculated value, this value is adjusted either upward or downward to
produce a pro forma return of either 11.5% or 12.5%, as applicable. If this
final purchase price is higher than the initial purchase price, then the seller
of the hotel will receive consideration in an amount equal to the increase in
price. If the final purchase price is lower than the initial purchase price,
then the sellers of the hotel will return to us consideration in an amount equal
to the difference. Any purchase price adjustment will be made either in common
limited partnership units in our operating partnership or cash as determined by
our Board of Trustees. Any common limited partnership units issued by us or
returned to us as a result of the purchase price adjustment will be based upon a
value per unit approved by our Board of Trustees, including our independent
trustees. The sellers are entitled to receive quarterly distributions on the
common limited partnership units prior to the units being returned to us in
connection with a downward purchase price adjustment. In addition, the sellers
are not entitled to receive any retroactive distributions in connection with any
upward purchase price adjustment.
The five hotel purchases described in the table above are subject to future
re-pricing. We originally purchased these hotels with anticipated repricing
dates from December 31, 2002 to December 31, 2004. Due to the then-current
operating environment, the ramp up and stabilization for these newly-built
properties is expected to take longer than initially projected. As a result,
effective January 1, 2003, we entered into an agreement with the sellers of
these five hotels to extend the repricing periods for these hotels. At the same
time, we amended the percentage leases with HHMLP for these hotels to extend the
initial fixed rent period to coincide with the extension period of the repricing
and to delay the transition to percentage rent. In addition, we have the right
to sell each of these properties back to the entities that initially sold the
hotels to us at the end of the applicable repricing period if adequate
stabilization has not occurred during the repricing period for a price not less
than the purchase price of the asset.
We have also acquired hotels in the past where the purchase prices were
subject to adjustment in a similar manner. On January 1, 2002, we issued an
aggregate of 333,541 additional common limited partnership units to the sellers
of the Holiday Inn Express & Suites, Harrisburg, the Hampton Inn, Danville and
the Hampton Inn & Suites, Hershey, Pennsylvania in connection with the
re-pricing of those hotels.
13
In the future, we do not intend to use any re-pricing methodology in
acquisitions from entities controlled by our officers and trustees.
DISPOSITIONS
Since our initial public offering in 1999, we have sold a total of eight
hotels, including four hotels sold back to entities controlled by our officers
or trustees at the same price at which we acquired the hotels from those
entities. All sales to these entities were in situations were we believed an
independent buyer would demand seller financing, which we were not willing to
provide. We do not intend to sell hotels to such entities in the future.
Effective as of January 1, 2002, we sold the Sleep Inn, Coraopolis,
Pennsylvania to 1944 Associates, an entity in which Hasu Shah, Jay Shah, Neil
Shah, Kiran Patel, K.D. Patel and David Desfor have a 74% interest, for
approximately $5.5 million, including the assumption of approximately $3.5
million in indebtedness, and redemption of 327,038 common limited partnership
units valued at approximately $2.0 million. We initially purchased this
property from this same entity as of October 1, 2000 for $5.5 million. The
buyer is currently looking for a third party buyer. This sale was supported by
an analysis of the property by an independent accounting firm and was approved
by our independent trustees. We do not intend to sell hotels to our affiliates
in the foreseeable future.
On April 1, 2001, we sold the Best Western in Indiana, Pennsylvania back to
the entity that sold us that property for $2.2 million (the same price at which
we acquired that hotel), including the assumption of approximately $1.4 million
in indebtedness. The acquiring entity was controlled by Hasu P. Shah, Jay H.
Shah, Kiran P. Patel and K.D. Patel. This entity then sold the hotel on May 1,
2001 for approximately $2.2 million, including the assumption of approximately
$1.4 million in indebtedness, $400,000 of cash, and seller financing in the
amount of approximately $400,000. We did not sell this hotel directly to the
independent buyer because we did not want to expose ourselves to the risks
associated with carrying an unsecured or secondary mortgage.
On November 1, 2001, we sold the Comfort Inn in McHenry, Maryland to the
entity that sold the hotel to us for approximately $1.8 million (the same price
at which we acquired that hotel), including the assumption of approximately $1.2
million in indebtedness. The acquiring entity was controlled by Hasu P. Shah,
Jay H. Shah, Kiran P. Patel and K.D. Patel. This entity then sold the hotel on
November 10, 2001 for approximately $2.0 million, including the assumption of
approximately $1.2 million in indebtedness, $300,000 in cash and seller
financing in the amount of approximately $500,000. We did not sell this hotel
directly to the independent buyer because we did not want to expose ourselves to
the risks associated with carrying an unsecured or secondary mortgage.
On November 1, 2001, we sold the Comfort Inn Riverfront in Harrisburg,
Pennsylvania back to the entity that sold the hotel to us for approximately $3.5
million (the same price at which we acquired that hotel), including the
assumption of approximately $2.5 million in indebtedness. This entity was
controlled by Hasu P. Shah, Jay H. Shah and Neil H. Shah, and then sold the
hotel in April 2002 for approximately $3.6 million, including the assumption of
approximately $2.8 million in indebtedness, $300,000 in cash and seller
financing in the amount of approximately $500,000. We did not sell this hotel
directly to the independent buyer because we did not want to expose ourselves to
the risks associated with carrying an unsecured or secondary mortgage.
HOTEL DEVELOPMENT LOANS
We have approved the lending of up to $10.0 million to entities owned in
part by Hasu P. Shah, Jay H. Shah Kiran P. Patel, Neil H. Shah, David L. Desfor
and K.D. Patel to construct hotels and related improvements on specific hotel
projects. These loans are secured by unrecorded liens on the development
projects and pledges of any limited partnership units in our operating
partnership owned by persons or entities borrowing the funds. In addition to
the option described above, we maintain the first right of refusal to purchase
the hotel assets collateralized by these development loans. We have previously
purchased three hotels that were developed using these funds. As of December
31, 2003, these affiliates owed us $5.8 million related to this borrowing.
These affiliates have borrowed this money from us at interest rates ranging from
10% to 12% per annum. Interest income from these advances was $207,000 for the
year ended December 31, 2002 and $636,000 for the year ended December 31, 2003.
These loans were approved by our independent trustees. We intend to continue to
use these loans to facilitate our acquisitions of newly-constructed hotels,
consistent with our strategy of avoiding the risks associated with developing
hotels directly but still maintaining an acquisition pipeline of
newly-constructed and newly-renovated projects.
14
GUARANTEES
As required due to the size of our company at the time of the loans,
lenders required that Mr. Hasu P. Shah guarantee the indebtedness related to
four of the hotels, and the bankruptcy of Mr. Shah would constitute a default
under the related loan documents. Three of these four loans were paid in full
with the proceeds of our equity offering in October 2003. We do not intend to
allow officers or trustees to guarantee our loans in the future.
LOANS FROM SHREENATHJI ENTERPRISES, LTD.
We borrowed funds from Shreenathji Enterprises, Ltd., a company owned by
Hasu P. Shah (12%), Kiran P. Patel (13%), Bharat C. Mehta (15%), Nayana Ghandi
(15%), Kanti D. Patel (15%), Jay H. Shah (15%) and Neil H. Shah (15%). No
borrowings were outstanding from Shreenathji Enterprises, Ltd. as of December
31, 2003. The highest outstanding amount of borrowings from Shreenathji
Enterprises since January 1, 2002 was approximately $1.0 million. Shreenathji
Enterprises, Ltd. funded our loan with the proceeds from a loan it received from
a third party financial institution which was secured by one of our properties.
The third party financial institution required the loan to be made through
Shreenathji Enterprises, Ltd. instead of us because it had a prior relationship
with Shreenathji Enterprises, Ltd. We do not intend to borrow funds from
related parties in the future.
LEASES AND MANAGEMENT AGREEMENTS WITH HHMLP
As of March 31, 2003, eight of our hotels are leased to HHMLP. Each
percentage lease with HHMLP has an initial non-cancelable term of five years.
All, but not less than all, of the percentage leases for these hotels may be
extended for an additional five-year term at HHMLP's option. At the end of the
first extended term, HHMLP, at its option, may extend some or all of the
percentage leases for these hotels for an additional five-year term. Pursuant
to the terms of the percentage leases, HHMLP is required to pay initial fixed
rent, base rent or percentage rent and certain other additional charges and is
entitled to all profits from the operations of the hotel after the payment of
certain operating expenses. Total rent payments to us from HHMLP for 2003 and
2002 were $12.9 million and $11.4 million, respectively. For 2003 and 2002,
HHMLP had net loss of $1.28 million and $0.67 million, respectively.
As of March 31, 2003, fourteen of our hotels, each of which is leased to
our wholly-owned TRS, are managed by HHMLP pursuant to management agreements.
In addition, the hotel owned by our joint venture with CNL is managed by HHMLP
pursuant to a management agreement. Total payments to HHMLP pursuant to these
management agreements for 2003 were $142,000.
The reason we do not operate our own hotels is that we are not permitted to
do so by the REIT qualification rules. Furthermore, under the REIT
qualification rules in effect prior to 2001, we were generally required to lease
our hotels to a third party and as a result, we lease eight of our hotels to
HHMLP. However, the REIT rules that prompted this structure were recently
modified and the new rules permit a REIT to lease its hotels to a taxable REIT
subsidiary, or TRS, provided that the TRS engages an eligible independent
contractor to manage the hotels. Accordingly, since the time of the rule
modification we have leased fourteen hotels to a wholly-owned TRS which pays us
qualifying rents. We intend to eventually lease all our hotels to a TRS. As
their leases expire, we will re-lease to our wholly-owned TRS the eight hotels
currently leased to HHMLP. As of October 2003, HHMLP agreed to waive its rights
to extend the lease terms of these eight hotels.
The following table shows the expiration date of the leases for our eight
hotels leased to HHMLP:
Hampton Inn, Danville, PA September 1, 2004
Holiday Inn Express and Suites, Harrisburg, PA September 1, 2004
Hampton Inn, Hershey, PA December 31, 2004
Mainstay Suites, King of Prussia, PA June 1, 2006
Sleep Inn, King of Prussia, PA June 1, 2006
Holiday Inn Express, Long Island City, NY November 1, 2006
Mainstay Suites, Frederick, MD December 31, 2006
Doubletree, Jamaica, NY October 1, 2007
15
UNIT REDEMPTION
On October 22, 2003, K.D. Patel, a Trustee, redeemed 362,197 units of
limited partnership interest in our operating partnership for $8.00 per unit in
cash. After that redemption, Mr. K.D. Patel continued to own 282,393 units.
MISCELLANEOUS SERVICES PROVIDED BY AFFILIATED ENTITIES
ADMINISTRATIVE SERVICES AGREEMENT WITH HHMLP
We have entered into an Administrative Services Agreement with HHMLP for
HHMLP to provide accounting and securities reporting services to us. The terms
of the agreement provide for a fixed annual fee of $75,000 with an additional
fee of $10,000 per property per year (pro-rated from the time of acquisition)
for each hotel added to our portfolio. A portion of these fees, charged by
HHMLP, are allocated to the services of Ashish Parikh, our CFO. For 2003 and
2002, we incurred administrative service fee expenses of $178,000 and $175,000,
respectively. As of December 31, 2003 and December 31, 2002, we owed HHMLP
$313,000 and $303,000, respectively for replacement FF&E reserve reimbursements.
We believe that because of our current size it is more cost effective to
outsource these services. We will reevaluate this policy as we continue to
grow.
PAYMENTS TO SHAH & BYLER LAW FIRM
We have paid to the law firm of Shah & Byler and its predecessor, Shah Ray
& Byler, LLP, whose former senior partner, Jay H. Shah is now our President and
Chief Operating Officer and is the son of Hasu P. Shah, legal fees aggregating
$211,568 and $60,000 during 2003 and 2002, respectively. Mr. Shah has resigned
from the law firm and relinquished all ownership and control of the firm. Mr.
Shah will continue as counsel to the law firm and may receive compensation from
the firm for prior client origination. We intend to continue to use the
services of Shah & Byler.
PAYMENTS TO HERSHA CONSTRUCTION COMPANY
HHMLP has engaged Hersha Construction Company, currently owned by Hasu P.
Shah, Jay H. Shah, Neil Shah, Kiran P. Patel, K.D. Patel, David Desfor and other
investors, from time to time to perform construction work related to the
renovation of our hotel properties. For 2003 and 2002, HHMLP paid Hersha
Construction Company $0, and $4,000, respectively. Hersha Construction Company
is not HHMLP's only provider of these services and must bid with a number of
unaffiliated providers for our business.
PAYMENTS TO HERSHA HOTEL SUPPLY COMPANY
HHMLP has purchased hotel supplies for our hotel properties from time to
time from Hersha Hotel Supply Company, currently owned by Hasu P. Shah, Jay H.
Shah, Neil Shah, Kiran P. Patel, K.D. Patel and other investors. For 2003 and
2002, HHMLP paid Hersha Hotel Supply Company $468,000 and $925,000,
respectively. Hersha Hotel Supply Company is not HHMLP's only provider of hotel
supplies and must bid with a number of unaffiliated suppliers for our business.
THE AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Trustees (the "Audit Committee") is
composed of four independent trustees and operates under a written charter
adopted by the Board of Trustees. The Audit Committee reviews audit fees and
recommends to the Board of Trustees the selection of the Company's independent
accountants. Management is responsible for the Company's internal controls and
the financial reporting process. The independent accountants are responsible
for performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and for
issuing a report thereon. The Audit Committee's responsibility is to monitor
and oversee these processes and to report thereon to the Board of Trustees. In
this context, the Audit Committee has met and held discussions with management
and Reznick Fedder & Silverman, the Company's independent accountants for the
2003 fiscal year.
16
Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and Reznick
Fedder & Silverman.
The Audit Committee has discussed with Reznick Fedder & Silverman the
matters required to be discussed by Statement on Auditing Standards No. 61
(Codification of Statements on Accounting Standards), including the scope of the
auditor's responsibilities, significant accounting adjustments and any
disagreements with management.
The Audit Committee also has received the written disclosures and the
letter from Reznick Fedder & Silverman relating to the independence of that firm
as required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and has discussed with Reznick Fedder &
Silverman that firm's independence from the Company.
Based upon the Audit Committee's discussions with management and Reznick
Fedder & Silverman and the Audit Committee's review of the representation of
management and the report of Reznick Fedder & Silverman to the Audit Committee,
the Audit Committee recommended that the Board of Trustees include the audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 2003 filed with the Securities and Exchange
Commission.
On April 20, 2004, the Board of Trustees, upon recommendation of the Audit
Committee, engaged KPMG LLP to serve as the Company's independent accountants
for the 2004 fiscal year. No person from Reznick Fedder & Silverman or KPMG
will attend our annual meeting.
Either the Audit Committee or its Chairman reviews with management and the
independent accountants the results of the independent accountants' review of
the unaudited financial statements that are included in the Company's quarterly
reports on Form 10-Q. The Audit Committee also reviews the fees charged by the
Company's independent accountants. During the fiscal year ended December 31,
2003, Reznick Fedder & Silverman billed the Company the fees set forth below in
connection with services rendered by that firm to the Company.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Hersha's principal independent accountant for fiscal years 1999 through
2002 was Moore Stephens, P.C. Hersha's principal independent accountant for the
2003 fiscal year was Reznick, Fedder & Silverman, P.C. KPMG LLP has been
selected as Hersha's principal independent accountant for the 2004 fiscal year.
We have provided below certain information with respect to each of Moore
Stephens and Reznick Fedder & Silverman.
MOORE STEPHENS
During the fiscal years ended December 31, 2002 and December 31, 2003,
Moore Stephens billed us the fees set forth below in connection with services
rendered by that firm.
AUDIT FEES
For professional services rendered by Moore Stephens for the audit of our
annual financial statements, reviews of the financial statements included in our
Quarterly Reports on Form 10-Q, and other services provided in connection with
statutory and regulatory filings, Moore Stephens billed us fees in the aggregate
amount of $78,500 during the 2002 fiscal year and $64,547 during the 2003 fiscal
year.
AUDIT RELATED FEES
Moore Stephens did not render or charge us for any services related to the
performance of the audit or review of the registrants financial statements and
not reported under "Audit Fees" above during 2002 or 2003.
17
TAX FEES
Moore Stephens did not render or charge us for any services related to tax
compliance, tax advice and tax planning matters during 2002 or 2003.
ALL OTHER FEES
For professional services other than those described above, Moore Stephens
billed us fees in the aggregate amount of $12,200 during 2002 and $4,062 during
2003. There were no fees charged for services rendered in connection with the
performance of internal audit procedures.
REZNICK FEDDER & SILVERMAN
During the fiscal years ended December 31, 2002 and December 31, 2003,
Reznick Fedder & Silverman billed us the fees set forth below in connection with
services rendered by that firm.
AUDIT FEES
For professional services rendered by Reznick Fedder & Silverman for the
audit of our annual financial statements, reviews of the financial statements
included in the our Quarterly Reports on Form 10-Q, and other services provided
in connection with statutory and regulatory filings, Reznick Fedder & Silverman
billed us no fees during the 2002 fiscal year and $40,000 during the 2003 fiscal
year.
AUDIT RELATED FEES
Reznick Fedder & Silverman did not render or charge us for any services
related to the performance of the audit or review of our financial statements
and not reported under "Audit Fees" above during 2002 or 2003.
TAX FEES
For professional services rendered by Reznick Fedder & Silverman for tax
compliance, tax advice and tax planning matters, Reznick Fedder & Silverman
billed us fees in the aggregate amount of $26,506 during the 2002 fiscal year
and $41,141 during the 2003 fiscal year. These tax services related to the
preparation of our state and federal tax returns, Schedule 704C depreciation and
allocation calculations and Section 1031 like kind exchange tax planning.
ALL OTHER FEES
For professional services other than those described above, Reznick Fedder
& Silverman billed us fees in the aggregate amount of $8,000 during 2002 and
$51,500 during 2003. These fees related to the performance of certain agreed
upon procedures with respect to hotel properties we considered acquiring during
the respective years and, in 2003, services related to our public equity
offering. There were no fees charged for services rendered in connection with
the performance of internal audit procedures.
18
PRE-APPROVAL POLICIES FOR PERMISSIBLE NON-AUDIT SERVICES
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee has established a policy to pre-approve all audit and
permissible non-audit services provided by the independent auditor prior to
engagement of the auditor for each such service. All of the non-audit services
described above were approved by the audit committee in advance of the services
being provided.
THE AUDIT COMMITTEE
Thomas S. Capello, Chairperson
Donald J. Landry
William Lehr, Jr.
John M. Sabin
April 20, 2004
19
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common Shares for the period from January 26, 1999 (commencement of operations)
through December 31, 2003, with the cumulative total shareholder return for the
Standard and Poor's 500 Stock Index and the NAREIT Composite Index for the same
period, assuming $100 is invested in the Priority Common Shares and each index
and dividends are reinvested quarterly. The performance graph is not
necessarily indicative of future investment performance.
[GRAPHIC OMITED]
1/26/99 (1) 1999 2000 2001 2002 2003
----------- ----- ----- ----- ----- -----
HERSHA 100 94.5 115.8 130.2 153.2 227.5
S&P 500 100 119.9 106.9 96.2 74.9 96.4
NAREIT COMPOSITE INDEX 100 93.5 117.7 136.0 143.1 198.1
<FN>
(1) The Company commenced operations on January 26, 1999.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
2003 DISMISSAL OF MOORE STEPHENS AND ENGAGEMENT OF REZNICK FEDDER & SILVERMAN
Moore Stephens, P.C. has served as our auditors from our initial public
offering through April 5, 2003. On that date, following the recommendation of
the Audit Committee, the Board of Trustees dismissed Moore Stephens, P.C. as our
independent auditors for the 2003 fiscal year and engaged Reznick Fedder &
Silverman, CPAs, PC as independent auditors for the 2003 fiscal year.
Moore Stephens' reports on the consolidated financial statements for each
of the years ended December 31, 2002 and 2001, did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
certainty, audit scope or accounting principles.
During the years ended December 31, 2002 and 2001 and through the date of
dismissal, there were no disagreements with Moore Stephens on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure which, if not resolved to Moore Stephens' satisfaction, would
have caused them to make reference to the subject matter in connection with
20
their report on our consolidated financial statements for such years, and there
were no reportable events as defined in Item 304(a)(1)(v) of SEC Regulation S-K.
During the years ended December 31, 2002 and 2001 and through the date of
dismissal of Moore Stephens, we did not consult Reznick Fedder & Silverman with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of SEC Regulation
S-K.
The dismissal of Moore Stephens, P.C. and the engagement of Reznick Fedder
& Silverman, CPAs were first disclosed in a Periodic Report on Form 8-K filed on
April 9, 2003, and the letter of Moore Stephens required by Item 304(a)(3) of
Regulation S-K is attached as an exhibit thereto.
2004 DISMISSAL OF REZNICK FEDDER & SILVERMAN AND ENGAGEMENT OF KPMG
On April 20, 2004, we dismissed our independent accountants for the 2003
fiscal year, Reznick Fedder & Silverman, CPAs, PC, and engaged as new
independent accountants for the 2004 fiscal year, KPMG LLP, effective
immediately. The determination to dismiss Reznick Fedder & Silverman and engage
KPMG was approved by our Board of Trustees upon the recommendation of our Audit
Committee. We engaged Reznick Fedder & Silverman on April 5, 2003, and they
served as our accountants for one fiscal year.
During our most recent fiscal year ended December 31, 2003, and the
subsequent interim period through April 20, 2004, there were no disagreements
between us and Reznick Fedder & Silverman on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to Reznick Fedder & Silverman's
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their report.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within our two most recent fiscal years and the
subsequent interim period through April 20, 2004.
The audit report of Reznick Fedder & Silverman on the consolidated
financial statements of Hersha and its subsidiaries as of and for the fiscal
year ended December 31, 2003 did not contain any adverse opinion or disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
During our two most recent fiscal years ended December 31, 2003 and 2002,
and the subsequent interim period through April 20, 2004, we did not consult
with KPMG regarding any of the matters or events set forth in Item 304(a)(2)(i)
and (ii) of Regulation S-K.
The dismissal of Reznick Fedder & Silverman and engagement of KPMG were
first disclosed in a Periodic Report on Form 8-K filed on or about April 21,
2004, and the letter of Reznick Fedder & Silverman required by Item 304(a)(3) of
Regulation S-K is attached as an exhibit thereto.
PROPOSAL TWO -- APPROVAL OF THE 2004 EQUITY INCENTIVE PLAN
THE 2004 INCENTIVE PLAN
We have established an incentive plan for the purpose of attracting and
retaining our executive officers, employees, trustees and other persons and
entities that provide services to us. The incentive plan authorizes the
issuance of options to purchase common share and the grant of share awards,
performance shares, share appreciation rights and incentive awards. The
following summarizes the incentive plan. A complete copy of the incentive plan
is attached hereto as Appendix A.
ADMINISTRATION
21
Administration of the incentive plan is carried out by the Compensation
Committee of the Board of Trustees. The Compensation Committee may delegate its
authority under the incentive plan to one or more officers but it may not
delegate its authority with respect to awards to individuals subject to Section
16 of the Exchange Act. As used in this summary, the term "administrator" means
the Compensation Committee or its delegate.
ELIGIBILITY
Our officers and employees and those of our operating partnership and other
subsidiaries are eligible to participate in the incentive plan. Our trustees
and other persons and entities that provide services to us are also eligible to
participate in the incentive plan.
SHARE AUTHORIZATION
Up to 1,500,000 shares of common shares are available for issuance under
the incentive plan. No more than 500,000 shares may be issued as share awards
or in settlement of performance share grants. These limitations, and the terms
of outstanding awards, will be adjusted as the Board of Trustees determines is
appropriate in the event of a stock dividend, stock split, reclassification of
shares or similar events.
AWARDS
Options. The administrator will select the participants who are granted
options and, consistent with the terms of the incentive plan, will prescribe the
terms of each option. The option price cannot be less than the shares' fair
market value on the date the option is granted. The option price may be paid in
cash or, with the administrator's consent, by surrendering common shares, or by
a combination of cash and common shares. Options may be exercised in accordance
with requirements set by the administrator. The maximum period in which an
option may be exercised will be fixed by the administrator but cannot exceed ten
years. Options generally will be nontransferable except in the event of the
participant's death but the administrator may allow the transfer of options to
members of the participant's immediate family, a family trust or a family
partnership.
No participant may be granted incentive stock options that are first
exercisable in a calendar year for common shares having a total fair market
value (determined as of the option grant), exceeding $100,000. In addition, no
participant may be granted options in any calendar year for more than 75,000
shares.
Stock Awards. The administrator also will select the participants who are
granted stock awards and, consistent with the terms of the incentive plan, will
establish the terms of each stock award. A stock award may be subject to
vesting requirements or transfer restrictions or both as determined by the
administrator. Those conditions may include, for example, a requirement that
the participant complete a specified period of service or that certain
objectives be achieved. The objectives may also be based on performance goals
that are stated with reference to funds from operations, adjusted funds from
operations, return on equity, total earnings, earnings per share, earnings
growth, return on capital, fair market value of the common shares, appreciation
in value of the common shares, revenue per available room, peer shareholder
returns or other financial measures that the administrator may designate. No
participant may be granted stock awards in any calendar year for more than
25,000 shares.
Performance Shares. The incentive plan also authorizes the grant of
performance shares, i.e., the right to receive a future payment, based on the
value of the common shares, if certain conditions are met. The administrator
will select the participants who are granted performance share awards and will
establish the terms of each award. The conditions established for earning a
performance share award may include, for example, a requirement that the
participant complete a specified period of service or that certain objectives be
achieved. The objectives may be based on performance goals that are stated with
reference to funds from operations, return on equity, total earnings, earnings
per share, earnings growth, return on capital, fair market value of the common
shares, appreciation in value of the common shares, peer shareholder returns,
increases in revenue per available room, or other financial measures that the
administrator may designate. The period in which a performance share award may
be earned will be at least three years except that the period will be at least
one year in the case of an award that is subject to requirements based on one or
more of the foregoing performance criteria. To the extent that a performance
22
award is earned, it may be settled in cash, by the issuance of common stock or a
combination of cash and common shares. No participant may be granted more than
25,000 performance shares in any calendar year.
Stock Appreciation Rights. The administrator also will select the
participants who receive stock appreciation rights under the incentive plan. A
stock appreciation right entitles the participant to receive a payment of up to
the amount by which the fair market value of a common share on the date of
exercise exceeds the fair market value of a common share on the date the stock
appreciation right was granted. A stock appreciation right will be exercisable
at such times and subject to such conditions as may be established by the
administrator. The amount payable upon the exercise of a stock appreciation
right may be settled in cash, by the issuance of common shares or a combination
of cash and common shares. No participant may be granted more than 75,000 stock
appreciation rights in any calendar year.
Incentive Awards. The incentive plan also permits the grant of incentive
awards to participants selected by the administrator. An incentive award is a
cash bonus that is payable if certain objectives are achieved. The objectives
will be prescribed by the administrator and will be stated with reference to
performance criteria described above. The period in which performance is
measured will be at least one year. No participant may be granted incentive
awards in any calendar year that exceed the lesser of (i) 50% of the
participant's base salary (prior to any salary reduction or deferral election)
as of the date of grant or (ii) $100,000.
FEDERAL TAX CONSEQUENCES
Counsel has advised us regarding the federal income tax consequences of the
incentive plan. No income is recognized by a participant at the time an option
or SAR is granted. If the option is an ISO, no income will be recognized upon
the participant's exercise of the option. Income is recognized by a participant
when he disposes of shares acquired under an ISO. The exercise of a
nonqualified stock option or SAR generally is a taxable event that requires the
participant to recognize, as ordinary income, the difference between the shares'
fair market value and the option price or the amount paid in settlement of the
SAR.
Income is recognized on account of the grant of a stock award when the
shares first become transferable or are no longer subject to a substantial risk
of forfeiture. At that time the participant recognizes income equal to the fair
market value of the common stock.
No income is recognized upon the grant of a performance share award or an
incentive award. Income will be recognized on the date that payment is made
under the performance share award or incentive award.
The employer (either the Company or a subsidiary) will be entitled to claim
a federal income tax deduction on account of the exercise of a nonqualified
stock option or SAR or the vesting of a stock award or the settlement of a
performance share award or an incentive award. The amount of the deduction is
equal to the ordinary income recognized by the participant. The employer will
not be entitled to a federal income tax deduction on account of the grant or the
exercise of an ISO. The employer may claim a federal income tax deduction on
account of certain dispositions of ISO stock.
AMENDMENT AND TERMINATION
No awards may be granted under the incentive plan after December 31, 2013.
The Board of Trustees may amend or terminate the incentive plan at any time, but
an amendment will not become effective without the approval of our shareholders
if it increases the number of common shares that may be issued under the
incentive plan (other than changes to reflect certain corporate transactions and
changes in capitalization), materially modifies the requirements for eligibility
to participate in the incentive plan or provides for option repricing. No
amendment or termination of the incentive plan will affect a participant's
rights under outstanding awards without the participant's consent.
CHANGE IN CONTROL
23
The incentive plan provides that each outstanding option and stock
appreciation right will become fully exercisable, each outstanding stock award
will become vested and transferable and outstanding performance shares and
incentive awards will be earned if there is a Change in Control. Under the
incentive plan, the term "change in control" is generally defined to include (1)
the acquisition of at least 40% of our voting securities by any person; (2) the
transfer of at least 50% of the company's total assets; (3) a merger,
consolidation or statutory share exchange regardless of whether the company is
intended to be the surviving or resulting entity; (4) the Continuing Trustees
cease to constitute a majority of the Board; (5) stockholder approval of a
liquidation or dissolution of our company or (6) the Board adopts a resolution
to the effect that, in its judgment, as a consequence of any transaction or
event, a change in control has effectively occurred.
VOTE REQUIRED
The incentive plan must be approved by the holders of a majority of the
total votes cast on the incentive plan at the annual meeting, provided that a
quorum is present at such meeting, in person or by proxy. An abstention from
voting has the same legal effect as a vote "against" the proposal. If a
shareholder holds shares in a broker's account and has given specific voting
instructions, the shares will be voted in accordance with those instructions.
If no voting instructions are given, the shareholder's shares will not be voted
with respect to the proposal and will not be counted in determining the number
of shares entitled to vote on the incentive plan.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE 2004
EQUITY INCENTIVE PLAN.
PROPOSALS FOR 2005 ANNUAL MEETING
Under the regulations of the SEC, any shareholder desiring to make a
proposal to be acted upon at the 2005 annual meeting of shareholders must
present such proposal to the Company at its principal office in New Cumberland,
Pennsylvania not later than December 10, 2004, in order for the proposal to be
considered for inclusion in the Company's proxy statement. The Company
anticipates holding the 2005 annual meeting on May 26, 2005. We will not
consider proposals received after December 10, 2004 for inclusion in our proxy
materials for our 2005 Annual Meeting of Shareholders.
The Company's bylaws provide that, in addition to any other applicable
requirements, for business to be properly brought before the annual meeting by a
shareholder, the shareholder must give timely notice in writing not later than
120 days prior to the first anniversary of the preceding year's annual meeting.
As to each matter, the notice shall contain (i) a brief description of the
business desired to be brought before the meeting and the reasons for addressing
it at the annual meeting; (ii) any material interest of the shareholder in such
business; (iii) the name and address of the shareholder; and (iv) the number of
each class of securities that are owned beneficially and of record by the
shareholder.
24
OTHER MATTERS
The Board of Trustees knows of no other business to be brought before the
Annual Meeting. If any other matters properly come before the Annual Meeting,
the proxies will be voted on such matters in accordance with the judgment of the
persons named as proxies therein, or their substitutes, present and acting at
the meeting.
The Company will furnish to each beneficial owner of Common Shares entitled
to vote at the Annual Meeting, upon written request to Ashish Parikh, the
Company's Chief Financial Officer, at 148 Sheraton Drive, Box A, New Cumberland,
Pennsylvania 17070, Telephone (717) 770-2405, a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2003, including the
financial statements and financial statement schedules filed by the Company with
the SEC.
BY ORDER OF THE BOARD OF TRUSTEES
KIRAN P. PATEL
Secretary
April 20, 2004
25
APPENDIX A
HERSHA HOSPITALITY TRUST
2004 EQUITY INCENTIVE PLAN
HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
TABLE OF CONTENTS
-------------------
Section Page
- ------- ----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Acquiring Person . . . . . . . . . . . . . . . . . . . 1
1.02. Administrator . . . . . . . . . . . . . . . . . . . . . 1
1.03. Affiliate . . . . . . . . . . . . . . . . . . . . . . . 1
1.04. Agreement . . . . . . . . . . . . . . . . . . . . . . . 1
1.05. Associate . . . . . . . . . . . . . . . . . . . . . . . 1
1.06. Board . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.07. Change in Control . . . . . . . . . . . . . . . . . . . 1
1.08. Code . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.09. Committee . . . . . . . . . . . . . . . . . . . . . . . 2
1.10. Common Stock . . . . . . . . . . . . . . . . . . . . . 2
1.11. Company . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12. Continuing Trustee . . . . . . . . . . . . . . . . . . 2
1.13. Control Affiliate . . . . . . . . . . . . . . . . . . . 2
1.14. Control Change Date . . . . . . . . . . . . . . . . . . 2
1.15. Corresponding SAR . . . . . . . . . . . . . . . . . . . 2
1.16. Exchange Act. . . . . . . . . . . . . . . . . . . . . . 2
1.17. Fair Market Value . . . . . . . . . . . . . . . . . . . 2
1.18. Incentive Award . . . . . . . . . . . . . . . . . . . . 3
1.19. Initial Value . . . . . . . . . . . . . . . . . . . . . 3
1.20. Option . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21. Participant . . . . . . . . . . . . . . . . . . . . . . 3
1.22. Performance Shares. . . . . . . . . . . . . . . . . . . 3
1.23. Person . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24. Plan . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25. Related Entity . . . . . . . . . . . . . . . . . . . . 3
1.26. SAR . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.27. Stock Award . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II PURPOSES. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE IV ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE V COMMON STOCK SUBJECT TO PLAN . . . . . . . . . . . . . 1
5.01. Common Stock Issued . . . . . . . . . . . . . . . . . . 1
5.02. Aggregate Limit . . . . . . . . . . . . . . . . . . . . 2
5.03. Reallocation of Shares . . . . . . . . . . . . . . . . 2
ARTICLE VI OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
6.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . 2
6.02. Option Price . . . . . . . . . . . . . . . . . . . . . 2
6.03. Maximum Option Period . . . . . . . . . . . . . . . . . 3
6.04. Nontransferability. . . . . . . . . . . . . . . . . . . 3
6.05. Transferable Options . . . . . . . . . . . . . . . . . 3
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
6.06. Employment or Service . . . . . . . . . . . . . . . . . 3
6.07. Exercise. . . . . . . . . . . . . . . . . . . . . . . . 3
6.08. Payment . . . . . . . . . . . . . . . . . . . . . . . . 3
6.09. Change in Control . . . . . . . . . . . . . . . . . . . 4
6.10. Shareholder Rights . . . . . . . . . . . . . . . . . . 4
6.11. Disposition of Shares . . . . . . . . . . . . . . . . . 4
ARTICLE VII SARS . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . 4
7.02. Maximum SAR Period . . . . . . . . . . . . . . . . . . 4
7.03. Nontransferability . . . . . . . . . . . . . . . . . . 4
7.04. Transferable SARs . . . . . . . . . . . . . . . . . . . 5
7.05. Exercise . . . . . . . . . . . . . . . . . . . . . . . 5
7.06. Change in Control . . . . . . . . . . . . . . . . . . . 5
7.07. Employment or Service . . . . . . . . . . . . . . . . . 5
7.08. Settlement . . . . . . . . . . . . . . . . . . . . . . 5
7.09. Shareholder Rights . . . . . . . . . . . . . . . . . . 5
ARTICLE VIII STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . 6
8.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . 6
8.02. Vesting . . . . . . . . . . . . . . . . . . . . . . . . 6
8.03. Performance Objectives . . . . . . . . . . . . . . . . 6
8.04. Employment or Service . . . . . . . . . . . . . . . . . 6
8.05. Change in Control . . . . . . . . . . . . . . . . . . . 6
8.06. Shareholder Rights . . . . . . . . . . . . . . . . . . 6
ARTICLE IX PERFORMANCE SHARE AWARDS . . . . . . . . . . . . . . . 7
9.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.02. Earning the Award . . . . . . . . . . . . . . . . . . . 7
9.03. Payment . . . . . . . . . . . . . . . . . . . . . . . . 7
9.04. Shareholder Rights . . . . . . . . . . . . . . . . . . 7
9.05. Nontransferability . . . . . . . . . . . . . . . . . . 7
9.06. Transferable Performance Shares . . . . . . . . . . . . 7
9.07. Employment or Service . . . . . . . . . . . . . . . . . 8
9.08. Change in Control . . . . . . . . . . . . . . . . . . . 8
ARTICLE X INCENTIVE AWARDS . . . . . . . . . . . . . . . . . . . 8
10.01. Award . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.02. Terms and Conditions . . . . . . . . . . . . . . . . . 8
10.03. Nontransferability . . . . . . . . . . . . . . . . . . 8
10.04. Transferable Incentive Awards . . . . . . . . . . . . . 8
10.05. Employment or Service . . . . . . . . . . . . . . . . . 9
10.06. Change in Control . . . . . . . . . . . . . . . . . . . 9
10.07. Shareholder Rights . . . . . . . . . . . . . . . . . . 9
ARTICLE XI LIMITATION ON BENEFITS . . . . . . . . . . . . . . . . 9
ARTICLE XII ADJUSTMENT UPON CHANGE IN COMMON STOCK . . . . . . . . 10
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
ARTICLE XIII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES. 11
ARTICLE XIV GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 11
14.01. Effect on Employment and Service . . . . . . . . . . . 11
14.02. Unfunded Plan . . . . . . . . . . . . . . . . . . . . 11
14.03. Rules of Construction . . . . . . . . . . . . . . . . 11
ARTICLE XV AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XVI DURATION OF PLAN . . . . . . . . . . . . . . . . . . . 12
ARTICLE XVII EFFECTIVE DATE OF PLAN . . . . . . . . . . . . . . . . 12
-iii-
ARTICLE I
DEFINITIONS
-----------
1.01. ACQUIRING PERSON
-----------------
Acquiring Person means that a Person, considered alone or together
with all Control Affiliates and Associates of that Person, is or becomes
directly or indirectly the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of securities representing at least forty percent (40%) of the
Company's then outstanding securities entitled to vote generally in the election
of the Board.
1.02. ADMINISTRATOR
-------------
Administrator means the Committee and any delegate of the Committee
that is appointed in accordance with Article III.
1.03. AFFILIATE
---------
Affiliate means any "subsidiary" or "parent" corporation (as such
terms are defined in Section 424 of the Code) of the Company.
1.04. AGREEMENT
---------
Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an award of Performance Shares, an Incentive
Award or an Option or SAR granted to such Participant.
1.05. ASSOCIATE
---------
Associate, with respect to any Person, is defined in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act. An Associate does not
include the Company or a majority-owned subsidiary of the Company.
1.06. BOARD
-----
Board means the Board of Trustees of the Company.
1.07. CHANGE IN CONTROL
-------------------
Change in Control means (i) a Person is or becomes an Acquiring
Person; (ii) holders of the securities of the Company entitled to vote thereon
approve any agreement with a Person (or, if such approval is not required by
applicable law and is not solicited by the Company, the closing of such an
agreement) that involves the transfer of at least fifty percent (50%) of the
Company's total assets on a consolidated basis, as reported in the Company's
consolidated financial statements filed with the Securities and Exchange
Commission; (iii) holders of the securities of the Company entitled to vote
thereon approve a transaction (or, if such approval is not required by
applicable law and is not solicited by the Company, the closing of such a
transaction) pursuant to which the Company will undergo a merger, consolidation,
or statutory share exchange with a Person, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger,
consolidation, or statutory share exchange, other than a transaction that
results in the voting securities of the Company carrying the right to vote in
elections of persons to the Board outstanding immediately prior to the closing
of the transaction continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least 50%
(fifty percent) of the Company's voting securities carrying the right to vote in
elections of persons to the Company's Board, or such securities of such
surviving entity, outstanding immediately after the closing of such transaction;
(iv) the Continuing Trustees cease for any reason to constitute a majority of
the Board; (v) holders of the securities of the Company entitled to vote thereon
approve a plan of complete liquidation of the Company or an agreement for the
sale or liquidation by the Company of substantially all of the Company's assets
(or, if such approval is not required by applicable law and is not solicited by
the Company, the commencement of actions constituting such a plan or the closing
of such an agreement); or (vi) the Board adopts a resolution to the effect that,
in its judgment, as a consequence of any one or more transactions or events or
series of transactions or events, a Change in Control of the Company has
effectively
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
occurred. The Board shall be entitled to exercise its sole and absolute
discretion in exercising its judgment and in the adoption of such resolution,
whether or not any such transaction(s) or event(s) might be deemed, individually
or collectively, to satisfy any of the criteria set forth in subparagraphs (i)
through (v) above.
1.08. CODE
----
Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.09. COMMITTEE
---------
Committee means the Compensation Committee of the Board.
1.10. COMMON STOCK
-------------
Common Stock means the Priority Class A common shares of beneficial
interest of the Company, par value $0.01 per share.
1.11. COMPANY
-------
Company means Hersha Hospitality Trust, a Maryland real estate
investment trust.
1.12. CONTINUING TRUSTEE
-------------------
Continuing Trustee means any member of the Board, while a member of
the Board and (i) who was a member of the Board on the effective date of the
Plan or (ii) whose nomination for or election to the Board was recommended or
approved by a majority of the Continuing Trustees.
1.13. CONTROL AFFILIATE
------------------
Control Affiliate with respect to any Person, means an affiliate as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
1.14. CONTROL CHANGE DATE
---------------------
Control Change Date means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the "Control Change Date" is the date of the last of such transactions.
1.15. CORRESPONDING SAR
------------------
Corresponding SAR means an SAR that is granted in relation to a
particular Option and that can be exercised only upon the surrender to the
Company, unexercised, of that portion of the Option to which the SAR relates.
1.16. EXCHANGE ACT
-------------
Exchange Act means the Securities Exchange Act of 1934, as amended.
1.17. FAIR MARKET VALUE
-------------------
Fair Market Value means, on any given date, the reported "closing"
price of a share of Common Stock on the American Stock Exchange. If, on any
given date, no share of Common Stock is traded on the American Stock Exchange,
-2-
then Fair Market Value shall be determined with reference to the next preceding
day that the Common Stock was so traded.
1.18. INCENTIVE AWARD
----------------
Incentive Award means an award which, subject to such terms and
conditions as may be prescribed by the Administrator, entitles the Participant
to receive a cash payment from the Company or an Affiliate.
1.19. INITIAL VALUE
--------------
Initial Value means, with respect to a Corresponding SAR, the option
price per share of the related Option and, with respect to a SAR granted
independently of an Option, the Fair Market Value of one share of Common stock
on the date of grant.
1.20. OPTION
------
Option means a stock option that entitles the holder to purchase from
the Company a stated number of shares of Common Stock at the price set forth in
an Agreement.
1.21. PARTICIPANT
-----------
Participant means an employee of the Company or an Affiliate, a member
of the Board, or a person or entity that provides services to the Company or an
Affiliate and who satisfies the requirements of Article IV and is selected by
the Administrator to receive an award of Performance Shares, a Stock Award, an
Option, an SAR, an Incentive Award or a combination thereof.
1.22. PERFORMANCE SHARES
-------------------
Performance Shares means an award, in the amount determined by the
Administrator, stated with reference to a specified number of shares of Common
Stock, that in accordance with the terms of an Agreement entitles the holder to
receive a cash payment or shares of Common Stock or a combination thereof.
1.23. PERSON
------
Person means any human being, firm, corporation, partnership, or other
entity. "Person" also includes any human being, firm, corporation, partnership,
or other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange
Act. The term "Person" does not include the Company or any Related Entity, and
the term Person does not include any employee-benefit plan maintained by the
Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of
any such employee-benefit plan, unless the Board determines that such an
employee-benefit plan or such person or entity is a "Person".
1.24. PLAN
----
Plan means the Hersha Hospitality Trust 2004 Equity Incentive Plan.
1.25. RELATED ENTITY
---------------
Related Entity means any entity that is part of a controlled group of
corporations or is under common control with the Company within the meaning of
Sections 1563(a), 414(b) or 414(c) of the Code.
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
1.26. SAR
---
SAR means a stock appreciation right that in accordance with the terms
of an Agreement entitles the holder to receive, with respect to each share of
Common Stock encompassed by the exercise of such SAR, the amount determined by
the Administrator and specified in an Agreement. In the absence of such a
determination, the holder shall be entitled to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.27. STOCK AWARD
------------
Stock Award means shares of Common Stock awarded to a Participant
under Article VIII.
-4-
ARTICLE II
PURPOSES
--------
The Plan is intended to assist the Company and its Affiliates in recruiting
and retaining individuals and other service providers with ability and
initiative by enabling such persons or entities to participate in the future
success of the Company and its Affiliates and to associate their interests with
those of the Company and its shareholders. The Plan is intended to permit the
grant of both Options qualifying under Section 422 of the Code ("incentive stock
options") and Options not so qualifying, and the grant of SARs, Stock Awards,
Performance Shares and Incentive Awards in accordance with the Plan and
procedures that may be established by the Administrator. No Option that is
intended to be an incentive stock option shall be invalid for failure to qualify
as an incentive stock option. The proceeds received by the Company from the
sale of shares of Common Stock pursuant to this Plan shall be used for general
corporate purposes.
ARTICLE III
ADMINISTRATION
--------------
The Plan shall be administered by the Administrator. The Administrator
shall have authority to grant Stock Awards, Performance Shares, Incentive
Awards, Options and SARs upon such terms (not inconsistent with the provisions
of this Plan), as the Administrator may consider appropriate. Such terms may
include conditions (in addition to those contained in this Plan), on the
exercisability of all or any part of an Option or SAR or on the transferability
or forfeitability of a Stock Award, an award of Performance Shares or an
Incentive Award. Notwithstanding any such conditions, the Administrator may, in
its discretion accelerate the time at which any Option or SAR may be exercised,
or the time at which a Stock Award may become transferable or nonforfeitable or
the time at which an Incentive Award or award of Performance Shares may be
settled. In addition, the Administrator shall have complete authority to
interpret all provisions of this Plan; to prescribe the form of Agreements; to
adopt, amend, and rescind rules and regulations pertaining to the administration
of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of any specific
power to the Administrator shall not be construed as limiting any power or
authority of the Administrator. Any decision made, or action taken, by the
Administrator in connection with the administration of this Plan shall be final
and conclusive. Neither the Administrator nor any member of the Committee shall
be liable for any act done in good faith with respect to this Plan or any
Agreement, Option, SAR, Stock Award, Incentive Award or award of Performance
Shares. All expenses of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
grants and awards to individuals who are not subject to the reporting and other
provisions of Section 16 of the Exchange Act. The Committee may revoke or amend
the terms of a delegation at any time but such action shall not invalidate any
prior actions of the Committee's delegate or delegates that were consistent with
the terms of the Plan and the Committee's prior delegation.
ARTICLE IV
ELIGIBILITY
-----------
Any employee of the Company or an Affiliate (including a corporation that
becomes an Affiliate after the adoption of this Plan), any member of the Board
and any person or entity that provides services to the Company or an Affiliate
(including a corporation that becomes an Affiliate after the adoption of this
Plan) is eligible to participate in this Plan if the Committee, in its sole
discretion, determines that such person or entity has contributed significantly
or can be expected to contribute significantly to the profits or growth of the
Company or an Affiliate.
ARTICLE V
COMMON STOCK SUBJECT TO PLAN
-----------------------------
5.01. COMMON STOCK ISSUED
---------------------
Upon the award of Common Stock pursuant to a Stock Award or in
settlement of an award of Performance Shares, the Company may issue Common Stock
from its authorized but unissued Common Stock. Upon the exercise of any Option
1
HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
or SAR, the Company may deliver to the Participant (or the Participant's broker
if the Participant so directs), shares of Common Stock from its authorized but
unissued Common Stock.
5.02. AGGREGATE LIMIT
----------------
The maximum aggregate number of shares of Common Stock that may be
issued under this Plan pursuant to the exercise of SARs and Options and the
grant of Stock Awards and the settlement of Performance Shares is 1,500,000
shares. The maximum aggregate number of shares of Common Stock that may be
issued under this Plan as Stock Awards and in settlement of Performance Shares
is 500,000 shares. The maximum aggregate number of shares of Common Stock that
may be issued under this Plan and the maximum number of shares of Common Stock
that may be issued as Stock Awards and in settlement of Performance Shares shall
be subject to adjustment as provided in Article XII.
5.03. REALLOCATION OF SHARES
------------------------
If an Option is terminated, in whole or in part, for any reason other
than its exercise or the exercise of a Corresponding SAR that is settled with
shares of Common Stock, the number of shares allocated to the Option or portion
thereof may be reallocated to other Options, SARs, Performance Shares, and Stock
Awards to be granted under this Plan. If an SAR is terminated, in whole or in
part, for any reason other than its exercise that is settled with shares of
Common Stock or the exercise of a related Option, the number of shares of Common
Stock allocated to the SAR or portion thereof may be reallocated to other
Options, SARs, Performance Shares, and Stock Awards to be granted under this
Plan. If an award of Performance Shares is terminated, in whole or in part, for
any reason other than its settlement with shares of Common Stock, the number of
shares allocated to the Performance Share award or portion thereof may be
reallocated to other Options, SARs, Performance Shares and Stock Awards to be
granted under this Plan. If a Stock Award is forfeited, in whole or in part, for
any reason, the number of shares of Common Stock allocated to the Stock Award or
portion thereof may be reallocated to other Options, SARs, Performance Shares
and Stock Awards to be granted under this Plan.
ARTICLE VI
OPTIONS
-------
6.01. AWARD
-----
In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an Option is to be granted and will
specify the number of shares of Common Stock covered by such awards; provided,
however, that no Participant may be granted Options in any calendar year
covering more than 75,000 shares.
6.02. OPTION PRICE
-------------
The price per share for shares of Common Stock purchased on the
exercise of an Option shall be determined by the Administrator on the date of
grant, but shall not be less than the Fair Market Value on the date the Option
is granted.
-2-
HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
6.03. MAXIMUM OPTION PERIOD
-----------------------
The maximum period in which an Option may be exercised shall be
determined by the Administrator on the date of grant, except that no Option that
is an incentive stock option shall be exercisable after the expiration of ten
years from the date such Option was granted. The terms of any Option that is an
incentive stock option may provide that it is exercisable for a period less than
such maximum period.
6.04. NONTRANSFERABILITY
------------------
Except as provided in Section 6.05, each Option granted under this
Plan shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any transfer of an Option, the Option and any
Corresponding SAR that relates to such Option must be transferred to the same
person or persons or entity or entities. Except as provided in Section 6.05,
during the lifetime of the Participant to whom the Option is granted, the Option
may be exercised only by the Participant. No right or interest of a Participant
in any Option shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
6.05. TRANSFERABLE OPTIONS
---------------------
Section 6.04 to the contrary notwithstanding, if the Agreement
provides, an Option that is not an incentive stock option may be transferred by
a Participant to the Participant's children, grandchildren, spouse, one or more
trusts for the benefit of such family members or a partnership in which such
family members are the only partners, on such terms and conditions as may be
permitted under Rule 16b-3 under the Exchange Act as in effect from time to
time. The holder of an Option transferred pursuant to this Section shall be
bound by the same terms and conditions that governed the Option during the
period that it was held by the Participant; provided, however, that such
transferee may not transfer the Option except by will or the laws of descent and
distribution. In the event of any transfer of an Option (by the Participant or
his transferee), the Option and any Corresponding SAR that relates to such
Option must be transferred to the same person or persons or entity or entities.
6.06. EMPLOYMENT OR SERVICE
-----------------------
For purposes of determining the applicability of Section 422 of the
Code (relating to incentive stock options), or in the event that the terms of
any Option provide that it may be exercised only during employment or continued
service or within a specified period of time after termination of employment or
continued service, the Administrator may decide to what extent leaves of absence
for governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment or service.
6.07. EXERCISE
--------
Subject to the provisions of this Plan and the applicable Agreement,
an Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Administrator shall
determine; provided, however, that incentive stock options (granted under the
Plan and all plans of the Company and its Affiliates) may not be first
exercisable in a calendar year for shares of Common Stock having a Fair Market
Value (determined as of the date an Option is granted) exceeding $100,000. An
Option granted under this Plan may be exercised with respect to any number of
whole shares less than the full number for which the Option could be exercised.
A partial exercise of an Option shall not affect the right to exercise the
Option from time to time in accordance with this Plan and the applicable
Agreement with respect to the remaining shares subject to the Option. The
exercise of an Option shall result in the termination of any Corresponding SAR
to the extent of the number of shares with respect to which the Option is
exercised.
6.08. PAYMENT
-------
Subject to rules established by the Administrator and unless otherwise
provided in an Agreement, payment of all or part of the Option price may be made
in cash, a cash equivalent acceptable to the Administrator, or with shares of
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
Common Stock. If shares of Common Stock are used to pay all or part of the
Option price, the sum of the cash and cash equivalent and the Fair Market Value
(determined as of the day preceding the date of exercise) of the shares
surrendered must not be less than the Option price of the shares for which the
Option is being exercised.
6.09. CHANGE IN CONTROL
-------------------
Section 6.07 to the contrary notwithstanding, each outstanding Option
shall be fully exercisable (in whole or in part at the discretion of the holder)
on and after a Control Change Date.
6.10. SHAREHOLDER RIGHTS
-------------------
No Participant shall have any rights as a shareholder with respect to
shares subject to his Option until the date of exercise of such Option.
6.11. DISPOSITION OF SHARES
-----------------------
A Participant shall notify the Company of any sale or other
disposition of shares acquired pursuant to an Option that was an incentive stock
option if such sale or disposition occurs (i) within two years of the grant of
an Option or (ii) within one year of the issuance of shares to the Participant.
Such notice shall be in writing and directed to the Secretary of the Company.
ARTICLE VII
SARS
----
7.01. AWARD
-----
In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom SARs are to be granted and will specify
the number of shares of Common Stock covered by such awards; provided, however,
that no Participant may be granted SARs in any calendar year covering more than
75,000 shares of Common Stock. For purposes of Section 6.01 and the foregoing
limit, an Option and Corresponding SAR shall be treated as a single award. In
addition no Participant may be granted Corresponding SARs (under all incentive
stock option plans of the Company and its Affiliates) that are related to
incentive stock options which are first exercisable in any calendar year for
shares of Common Stock having an aggregate Fair Market Value (determined as of
the date the related Option is granted) that exceeds $100,000.
7.02. MAXIMUM SAR PERIOD
--------------------
The term of each SAR shall be determined by the Administrator on the
date of grant, except that no Corresponding SAR that is related to an incentive
stock option shall have a term of more than ten years from the date such related
Option was granted. The terms of any Corresponding SAR that is related to an
incentive stock option may provide that it has a term that is less than such
maximum period.
7.03. NONTRANSFERABILITY
------------------
Except as provided in Section 7.04, each SAR granted under this Plan
shall be nontransferable except by will or by the laws of descent and
distribution. In the event of any such transfer, a Corresponding SAR and the
related Option must be transferred to the same person or persons or entity or
entities. Except as provided in Section 7.04, during the lifetime of the
Participant to whom the SAR is granted, the SAR may be exercised only by the
Participant. No right or interest of a Participant in any SAR shall be liable
for, or subject to, any lien, obligation, or liability of such Participant.
-4-
HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
7.04. TRANSFERABLE SARS
------------------
Section 7.03 to the contrary notwithstanding, if the Agreement
provides, an SAR, other than a Corresponding SAR that is related to an incentive
stock option, may be transferred by a Participant to the Participant's children,
grandchildren, spouse, one or more trusts for the benefit of such family members
or a partnership in which such family members are the only partners, on such
terms and conditions as may be permitted under Rule 16b-3 under the Exchange Act
as in effect from time to time. The holder of an SAR transferred pursuant to
this Section shall be bound by the same terms and conditions that governed the
SAR during the period that it was held by the Participant; provided, however,
that such transferee may not transfer the SAR except by will or the laws of
descent and distribution. In the event of any transfer of a Corresponding SAR
(by the Participant or his transferee), the Corresponding SAR and the related
Option must be transferred to the same person or person or entity or entities.
7.05. EXERCISE
--------
Subject to the provisions of this Plan and the applicable Agreement,
an SAR may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Administrator shall
determine; provided, however, that a Corresponding SAR that is related to an
incentive stock option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of a Corresponding SAR shall result in the termination of the
related Option to the extent of the number of shares with respect to which the
SAR is exercised.
7.06. CHANGE IN CONTROL
-------------------
Section 7.05 to the contrary notwithstanding, each outstanding SAR
shall be fully exercisable (in whole or in part at the discretion of the holder)
on and after a Control Change Date.
7.07. EMPLOYMENT OR SERVICE
-----------------------
If the terms of any SAR provide that it may be exercised only during
employment or continued service within a specified period of time after
termination of employment or continued service, the Administrator may decide to
what extent leaves of absence for governmental or military service, illness,
temporary disability or other reasons shall not be deemed interruptions of
continuous employment.
7.08. SETTLEMENT
----------
At the Administrator's discretion, the amount payable as a result of
the exercise of an SAR may be settled in cash, shares of Common Stock, or a
combination of cash and Common Stock. No fractional share will be deliverable
upon the exercise of an SAR but a cash payment will be made in lieu thereof.
7.09. SHAREHOLDER RIGHTS
-------------------
No Participant shall, as a result of receiving an SAR, have any rights
as a shareholder of the Company or any Affiliate until the date that the SAR is
exercised and then only to the extent that the SAR is settled by the issuance of
Common Stock.
-5-
HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
ARTICLE VIII
STOCK AWARDS
------------
8.01. AWARD
-----
In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom a Stock Award is to be made and will
specify the number of shares covered by such awards; provided, however, that no
Participant may receive Stock Awards in any calendar year for more than 25,000
shares.
8.02. VESTING
-------
The Administrator, on the date of the award, may prescribe that a
Participant's rights in a Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. By way of example and not of limitation, the Committee
may prescribe that Participant's rights in a Stock Award shall be forfeitable or
otherwise restricted subject to the attainment of objectives stated with
reference to the performance criteria listed in Section 8.03. If the Committee
prescribes that a Stock Award shall become nonforfeitable and transferable only
upon the attainment of performance objectives stated with respect to one of more
of the following criteria, the shares subject to the Stock Award shall become
nonforfeitable and transferable only to the extent that the Committee certifies
that such objective have been achieved.
8.03. PERFORMANCE OBJECTIVES
-----------------------
In accordance with Section 8.02, the Administrator may prescribe that
Stock Awards will become vested or transferable or both based on objectives
stated with respect to the Company's, an Affiliate's or a business unit's funds
from operations, adjusted funds from operations, return on equity, total
earnings, earnings per share, earnings growth, return on capital, Fair Market
Value, Common Stock price appreciation, peer shareholder returns, revenue per
available room, or such other measures as may be selected by the Administrator.
8.04. EMPLOYMENT OR SERVICE
-----------------------
In the event that the terms of any Stock Award provide that shares may
become transferable and nonforfeitable thereunder only after completion of a
specified period of employment or service, the Administrator may decide in each
case to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment or service.
8.05. CHANGE IN CONTROL
-------------------
Sections 8.02, 8.03 and 8.04 to the contrary notwithstanding, each
outstanding Stock Award shall be transferable and nonforfeitable on and after a
Control Change Date.
8.06. SHAREHOLDER RIGHTS
-------------------
Prior to their forfeiture (in accordance with the applicable Agreement
and while the shares of Common Stock granted pursuant to the Stock Award may be
forfeited or are nontransferable), a Participant will have all rights of a
shareholder with respect to a Stock Award, including the right to receive
dividends and vote the shares; provided, however, that during such period (i) a
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of shares granted pursuant to a Stock Award, (ii) the Company shall
retain custody of the certificates evidencing shares granted pursuant to a Stock
Award, and (iii) the Participant will deliver to the Company a stock power,
endorsed in blank, with respect to each Stock Award. The limitations set forth
in the preceding sentence shall not apply after the shares granted under the
Stock Award are transferable and are no longer forfeitable.
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
ARTICLE IX
PERFORMANCE SHARE AWARDS
------------------------
9.01. AWARD
-----
In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an award of Performance Shares is to be
made and will specify the number of shares covered by such awards; provided,
however, that no Participant may receive an award of Performance Shares in any
calendar year for more than 25,000 shares of Common Stock.
9.02. EARNING THE AWARD
-------------------
The Administrator, on the date of the grant of an award, shall
prescribe that the Performance Shares, or portion thereof, will be earned, and
the Participant will be entitled to receive payment pursuant to the award of
Performance Shares, only upon the satisfaction of performance objectives and
such other criteria as may be prescribed by the Administrator during a
performance measurement period of at least three years from the date of the
award; provided, however, that the performance measurement period shall be at
least one year from the date of the award if the payment pursuant to the
Performance Share award is contingent upon the attainment of objectives stated
with respect to performance criteria listed in the following sentence. The
performance objectives may be stated with respect to the Company's, an
Affiliate's or a business unit's return on equity, total earnings, earnings
growth, return on capital, Fair Market Value, Common Stock price appreciation,
funds from operations, adjusted funds from operations, peer shareholder returns,
revenue per available room, or such other measures as may be selected by the
Administrator. No payments will be made with respect to Performance Shares
unless, and then only to the extent that, the Administrator certifies that such
objectives have been achieved.
9.03. PAYMENT
-------
In the discretion of the Administrator, the amount payable when an
award of Performance Shares is earned may be settled in cash, by the issuance of
shares of Common Stock, or a combination thereof. A fractional share of Common
Stock shall not be deliverable when an award of Performance Shares is earned,
but a cash payment will be made in lieu thereof.
9.04. SHAREHOLDER RIGHTS
-------------------
No Participant shall, as a result of receiving an award of Performance
Shares, have any rights as a shareholder until and to the extent that the award
of Performance Shares is earned and settled in shares of Common Stock. After an
award of Performance Shares is earned and settled in shares, a Participant will
have all the rights of a shareholder as described in Section 8.06.
9.05. NONTRANSFERABILITY
------------------
Except as provided in Section 9.06, Performance Shares granted under
this Plan shall be nontransferable except by will or by the laws of descent and
distribution. No right or interest of a Participant in any Performance Shares
shall be liable for, or subject to, any lien, obligation, or liability of such
Participant.
9.06. TRANSFERABLE PERFORMANCE SHARES
---------------------------------
Section 9.05 to the contrary notwithstanding, if the Agreement
provides, an award of Performance Shares may be transferred by a Participant to
the Participant's children, grandchildren, spouse, one or more trusts for the
benefit of such family members or a partnership in which such family members are
the only partners, on such terms and conditions as may be permitted under Rule
16b-3 under the Exchange Act as in effect from time to time. The holder of
Performance Shares transferred pursuant to this Section shall be bound by the
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
same terms and conditions that governed the Performance Shares during the period
that they were held by the Participant; provided, however that such transferee
may not transfer Performance Shares except by will or the laws of descent and
distribution.
9.07. EMPLOYMENT OR SERVICE
-----------------------
In the event that the terms of any Performance Share award provide
that no payment will be made unless the Participant completes a stated period of
employment or service, the Administrator may decide to what extent leaves of
absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment or
service.
9.08. CHANGE IN CONTROL
-------------------
Sections 9.02 to the contrary notwithstanding, on and after a Control
Change Date, each outstanding Performance Share award shall be earned as of a
Control Change Date. To the extent the Agreement provides that the Performance
Share award will be settled with shares of Common Stock, such shares shall be
nonforfeitable and transferable as of the Control Change Date.
ARTICLE X
INCENTIVE AWARDS
----------------
10.01. AWARD
-----
The Administrator shall designate Participants to whom Incentive
Awards are made. All Incentive Awards shall be finally determined exclusively by
the Administrator under the procedures established by the Administrator;
provided, however, that no Participant may receive an Incentive Award payment in
any calendar year that exceeds the lesser of (i) fifty percent (50%) of the
Participant's base salary (prior to any salary reduction or deferral election)
as of the date the Incentive Award was granted or (ii) $100,000.
10.02. TERMS AND CONDITIONS
----------------------
The Administrator, at the time an Incentive Award is made, shall
specify the terms and conditions which govern the award. Such terms and
conditions shall prescribe that the Incentive Award shall be earned only upon,
and to the extent that, performance objectives are satisfied during a
performance period of at least one year after the grant of the Incentive Award.
The performance objectives may be stated with respect to the Company's, an
Affiliate's or a business unit's return on equity, total earnings, earnings
growth, return on capital, Fair Market Value, Common Stock price appreciation,
funds from operations, adjusted funds from operations, peer shareholder returns,
revenue per available room, or such other measures as may be selected by the
Administrator. Such terms and conditions also may include other limitations on
the payment of Incentive Awards including, by way of example and not of
limitation, requirements that the Participant complete a specified period of
employment or service with the Company or an Affiliate. The Administrator, at
the time an Incentive Award is made, shall also specify when amounts shall be
payable under the Incentive Award and whether amounts shall be payable in the
event of the Participant's death, disability, or retirement.
10.03. NONTRANSFERABILITY
------------------
Except as provided in Section 10.04, Incentive Awards granted under
this Plan shall be nontransferable except by will or by the laws of descent and
distribution. No right or interest of a Participant in an Incentive Award shall
be liable for, or subject to, any lien, obligation, or liability of such
Participant.
10.04. TRANSFERABLE INCENTIVE AWARDS
-------------------------------
Section 10.03 to the contrary notwithstanding, if provided in an
Agreement, an Incentive Award may be transferred by a Participant to the
Participant's children, grandchildren, spouse, one or more trusts for the
benefit of such family members or to a partnership in which such family members
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
are the only partners, on such terms and conditions as may be permitted by Rule
16b-3 under the Exchange Act as in effect from time to time. The holder of an
Incentive Award transferred pursuant to this Section shall be bound by the same
terms and conditions that governed the Incentive Award during the period that it
was held by the Participant; provided, however, that such transferee may not
transfer the Incentive Award except by will or the laws of descent and
distribution.
10.05. EMPLOYMENT OR SERVICE
-----------------------
If the terms of an Incentive Award provide that a payment will be made
thereunder only if the Participant completes a stated period of employment or
service, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment or service.
10.06. CHANGE IN CONTROL
-------------------
Section 10.02 to the contrary notwithstanding, any Incentive Award
shall be earned in its entirety as of a Control Change Date.
10.07. SHAREHOLDER RIGHTS
-------------------
No Participant shall, as a result of receiving an Incentive Award,
have any rights as a shareholder of the Company or any Affiliate on account of
such award.
ARTICLE XI
LIMITATION ON BENEFITS
----------------------
The benefits that a Participant may be entitled to receive under this Plan
and other benefits that a Participant is entitled to receive under other plans,
agreements and arrangements (which, together with the benefits provided under
this Plan, are referred to as "Payments"), may constitute Parachute Payments
that are subject to Code Sections 280G and 4999. As provided in this Article
XI, the Parachute Payments will be reduced if, and only to the extent that, a
reduction will allow a Participant to receive a greater Net After Tax Amount
than a Participant would receive absent a reduction.
The Accounting Firm will first determine the amount of any Parachute
Payments that are payable to a Participant. The Accounting Firm also will
determine the Net After Tax Amount attributable to the Participant's total
Parachute Payments.
The Accounting Firm will next determine the largest amount of Payments that
may be made to the Participant without subjecting the Participant to tax under
Code Section 4999 (the "Capped Payments"). Thereafter, the Accounting Firm will
determine the Net After Tax Amount attributable to the Capped Payments.
The Participant will receive the total Parachute Payments or the Capped
Payments, whichever provides the Participant with the higher Net After Tax
Amount. If the Participant will receive the Capped Payments, the total
Parachute Payments will be adjusted by first reducing the amount of any noncash
benefits under this Plan or any other plan, agreement or arrangement (with the
source of the reduction to be directed by the Participant) and then by reducing
the amount of any cash benefits under this Plan or any other plan, agreement or
arrangement (with the source of the reduction to be directed by the
Participant). The Accounting Firm will notify the Participant and the Company
if it determines that the Parachute Payments must be reduced to the Capped
Payments and will send the Participant and the Company a copy of its detailed
calculations supporting that determination.
As a result of the uncertainty in the application of Code Sections 280G and
4999 at the time that the Accounting Firm makes its determinations under this
Article XI, it is possible that amounts will have been paid or distributed to
the Participant that should not have been paid or distributed under this Article
XI ("Overpayments"), or that additional amounts should be paid or distributed to
the Participant under this Article XI ("Underpayments"). If the Accounting Firm
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
determines, based on either the assertion of a deficiency by the Internal
Revenue Service against the Company or the Participant, which assertion the
Accounting Firm believes has a high probability of success or controlling
precedent or substantial authority, that an Overpayment has been made, that
Overpayment will be treated for all purposes as a loan ab initio that the
Participant must repay to the Company together with interest at the applicable
Federal rate under Code Section 7872; provided, however, that no loan will be
deemed to have been made and no amount will be payable by the Participant to the
Company unless, and then only to the extent that, the deemed loan and payment
would either reduce the amount on which the Participant is subject to tax under
Code Section 4999 or generate a refund of tax imposed under Code Section 4999.
If the Accounting Firm determines, based upon controlling precedent or
substantial authority, that an Underpayment has occurred, the Accounting Firm
will notify the Participant and the Company of that determination and the amount
of that Underpayment will be paid to the Participant promptly by the Company.
For purposes of this Article XI, the term "Accounting Firm" means the
independent accounting firm engaged by the Company immediately before the
Control Change Date. For purposes of this Article XI, the term "Net After Tax
Amount" means the amount of any Parachute Payments or Capped Payments, as
applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any
State or local income taxes applicable to the Participant on the date of
payment. The determination of the Net After Tax Amount shall be made using the
highest combined effective rate imposed by the foregoing taxes on income of the
same character as the Parachute Payments or Capped Payments, as applicable, in
effect on the date of payment. For purposes of this Article XI, the term
"Parachute Payment" means a payment that is described in Code Section
280G(b)(2), determined in accordance with Code Section 280G and the regulations
promulgated or proposed thereunder.
Notwithstanding any other provision of this Article XI, the limitations and
provisions of this Article XI shall not apply to any Participant who, pursuant
to an agreement with the Company or the terms of another plan maintained by the
Company, is entitled to indemnification for any liability that the Participant
may incur under Code Section 4999.
ARTICLE XII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
--------------------------------------
The maximum number of shares as to which Options, SARs, Performance Shares
and Stock Awards may be granted; the terms of outstanding Stock Awards, Options,
Performance Shares, Incentive Awards, and SARs; and the per individual
limitations on the number of shares of Common Stock for which Options, SARs,
Performance Shares, and Stock Awards may be granted shall be adjusted as the
Board shall determine to be equitably required in the event that (i) the Company
(a) effects one or more stock dividends, stock split-ups, subdivisions or
consolidations of shares or (b) engages in a transaction to which Section 424 of
the Code applies or (ii) there occurs any other event which, in the judgment of
the Board necessitates such action. Any determination made under this Article
XII by the Board shall be final and conclusive.
The issuance by the Company of stock of any class, or securities
convertible into stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of stock or obligations of the Company
convertible into such stock or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the maximum number
of shares as to which Options, SARs, Performance Shares and Stock Awards may be
granted; the per individual limitations on the number of shares for which
Options, SARs, Performance Shares and Stock Awards may be granted; or the terms
of outstanding Stock Awards, Options, Performance Shares, Incentive Awards or
SARs.
The Committee may make Stock Awards and may grant Options, SARs,
Performance Shares, and Incentive Awards in substitution for performance shares,
phantom shares, stock awards, stock options, stock appreciation rights, or
similar awards held by an individual who becomes an employee of the Company or
an Affiliate in connection with a transaction described in the first paragraph
of this Article XII. Notwithstanding any provision of the Plan (other than the
limitation of Section 5.02), the terms of such substituted Stock Awards or
Option, SAR, Performance Shares or Incentive Award grants shall be as the
Committee, in its discretion, determines is appropriate.
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
ARTICLE XIII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
-----------------------------------------------------
No Option or SAR shall be exercisable, no shares of Common Stock shall be
issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all applicable
federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. Any stock certificate issued to evidence
shares of Common Stock when a Stock Award is granted, a Performance Share is
settled or for which an Option or SAR is exercised may bear such legends and
statements as the Administrator may deem advisable to assure compliance with
federal and state laws and regulations. No Option or SAR shall be exercisable,
no Stock Award or Performance Share shall be granted, no shares of Common Stock
shall be issued, no certificate for shares of Common Stock shall be delivered,
and no payment shall be made under this Plan until the Company has obtained such
consent or approval as the Administrator may deem advisable from regulatory
bodies having jurisdiction over such matters.
ARTICLE XIV
GENERAL PROVISIONS
14.01. EFFECT ON EMPLOYMENT AND SERVICE
------------------------------------
Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof), shall confer upon
any individual or entity any right to continue in the employ or service of the
Company or an Affiliate or in any way affect any right and power of the Company
or an Affiliate to terminate the employment or service of any individual or
entity at any time with or without assigning a reason therefor.
14.02. UNFUNDED PLAN
--------------
This Plan, insofar as it provides for grants, shall be unfunded, and
the Company shall not be required to segregate any assets that may at any time
be represented by grants under this Plan. Any liability of the Company to any
person with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
14.03. RULES OF CONSTRUCTION
-----------------------
Headings are given to the articles and sections of this Plan solely as
a convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.
ARTICLE XV
AMENDMENT
---------
The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan (other than an adjustment pursuant to
Article XII), materially modifies the requirements as to eligibility for
participation in the Plan or provides for the repricing of Options. No
amendment shall, without a Participant's consent, adversely affect any rights of
such Participant under any Stock Award, Performance Share Award, Option, SAR, or
Incentive Award outstanding at the time such amendment is made.
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HERSHA HOSPITALITY TRUST
2004 INCENTIVE PLAN
ARTICLE XVI
DURATION OF PLAN
----------------
No Stock Award, Performance Share Award, Option, SAR, or Incentive Award
may be granted under this Plan after December 31, 2013. Stock Awards,
Performance Share awards, Options, SARs, and Incentive Awards granted before
that date shall remain valid in accordance with their terms.
ARTICLE XVII
EFFECTIVE DATE OF PLAN
----------------------
Options, SARs, Stock Awards, Performance Shares and Incentive Awards may be
granted under this Plan upon its adoption by the Board; provided that, this Plan
shall not be effective unless this Plan is approved by the unanimous consent of
the Company's shareholders or by a majority of the votes cast by the Company's
shareholders, voting either in person or by proxy, at a duly held shareholders'
meeting at which a quorum is present, before June 30, 2004.
-12-
PROXY PROXY
HERSHA HOSPITALITY TRUST
NEW CUMBERLAND, PENNSYLVANIA
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 2004
The undersigned hereby appoints Hasu P. Shah and Ashish R. Parikh, or
either of them, with full power of substitution in each, to vote all shares of
the undersigned in Hersha Hospitality Trust, at the annual meeting of
shareholders to be held on Thursday, May 27, 2004, at the Hampton Inn Hotel at
501 West Edgar Road, Linden, New Jersey at 10:00 a.m., Eastern Standard Time,
and at any and all adjournments thereof.
1. ELECTION OF TRUSTEES
[ ] FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL EXCEPT
Nominees: Thomas S. Capello, Donald J. Landry, William Lehr, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY SUCH NOMINEE(S), WRITE
THE NAME(S) OF THE NOMINEE(S) IN THE SPACE PROVIDED BELOW.
---------------------------------------------------------------------------
2. APPROVAL OF 2004 EQUITY INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business and matters incident to the conduct of the meeting as may properly
come before the meeting.
This Proxy is solicited on behalf of the Board of Trustees. This Proxy
when properly executed will be voted in the manner directed herein by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES, FOR THE 2004 EQUITY INCENTIVE PLAN AND ACCORDING TO THE DISCRETION
OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
Dated , 2004
-----------------------
--------------------------------------
Signature
PLEASE SIGN NAME EXACTLY AS IT APPEARS ON
THE SHARE CERTIFICATE. ONLY ONE OF SEVERAL
JOINT OWNERS OR CO-OWNERS NEED SIGN.
FIDUCIARIES SHOULD GIVE FULL TITLE.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.