EXHIBIT 10.3
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LHO MISSION BAY HOTEL, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership is entered into as of the 1st
day of June, 1998, by and between LASALLE HOTEL OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership, as the General Partner (the "General
Partner"), and WESTGROUP SAN DIEGO ASSOCIATES, LTD, a California limited
partnership, as the Limited Partner (the "Limited Partner"); (the General
Partner and Limited Partner are sometimes herein collectively referred to
as the "Partners").
WHEREAS, the Limited Partner has agreed to provide its expertise and
advice with respect to the San Diego Paradise Point Resort (f/k/a the San
Diego Princess Resort) in San Diego, California (the "Hotel"), including,
without limitation, with respect to strategic planning, renovation and
repositioning of the Hotel; and
WHEREAS, in consideration thereof, the Partners desire to form a
limited partnership pursuant to the terms hereof for the purpose of owning
the Hotel;
NOW, THEREFORE, the Partners hereby agree as follows:
ARTICLE I
FORMATION OF LIMITED PARTNERSHIP
SECTION 1.1 FORMATION OF PARTNERSHIP AND BUSINESS PURPOSES. The
General Partner and the Limited Partner hereby form the Partnership
pursuant to the California Revised Uniform Limited Partnership Act for the
sole purpose of owning and operating the Hotel, and to do all things
incident thereto.
SECTION 1.2 NAME AND LOCATION. The name of the Partnership is LHO
MISSION BAY HOTEL, L.P. The registered office for service of process in the
State of California and the principal office of the Partnership shall be at
the Hotel. The Partnership may also maintain an office at such other places
as the General Partner may determine.
SECTION 1.3 AGENT FOR SERVICE OF PROCESS. Process may be served upon
the General Partner at the Partnership's principal office.
SECTION 1.4 TERM OF THE PARTNERSHIP. The Partnership shall continue
in existence until December 31, 2096, unless sooner terminated as
hereinafter set forth in Article IX.
SECTION 1.5 NAME AND ADDRESS OF PARTNER; PERCENTAGE INTERESTS. The
names and addresses of the Partners and their respective Percentage
Interests are specified in Exhibit A, attached hereto.
ARTICLE II
DEFINITIONS
As used herein, the following definitions have the meanings ascribed:
SECTION 2.1 "AFFILIATE". "Affiliate" of a Partner shall mean (i) any
corporation, partnership, trust or other entity controlling, controlled by
or under common control with a Partner; and (ii) any officer, director,
trustee or holder of 10% or more of the outstanding voting securities of a
Partner or of any corporation, partnership, trust or other entity
controlling, controlled by or under common control with a Partner.
SECTION 2.2 "BANKRUPTCY OR INSOLVENCY". "Bankruptcy or Insolvency"
shall be deemed to have occurred with respect to any Partner if such
Partner shall file in any court pursuant to any statute of the United
States or of any state a petition in bankruptcy or insolvency, or shall
file for reorganization or for the appointment of a receiver or a trustee
of all or a material portion of such Partner's property, or if any such
Partner shall make an assignment for the benefit of creditors, admit in
writing its inability to pay its debts as they fall due or seek, consent to
or acquiesce in the appointment of a trustee, receiver or liquidator of any
material portion of its property. If there shall be filed against any
Partner in any court pursuant to any statute of the United States or of any
state, a petition in bankruptcy or insolvency, or for reorganization, or
for the appointment of a receiver or trustee of all or a substantial
portion of such Partner's property, and within sixty days after the
commencement of any such proceeding, such petition shall not have been
dismissed, then such Partner against whom such petition has been filed
shall be bankrupt or insolvent for purposes of this Agreement. In addition,
if the whole or any portion of the interest of any Partner in the
Partnership is subject to levy or attachment, and such levy or attachment
is not released or discharged within sixty days, such Partner shall be
deemed bankrupt or insolvent for purposes of this Agreement.
SECTION 2.3 "CAPITAL ACCOUNT". "Capital Account" shall mean the
account maintained for each Partner in accordance with tax accounting
principles, which account (i) is increased by the amount of cash and the
fair market value of property contributed to the Partnership as shown on
the books of the Partnership upon such contribution (net of liabilities
assumed by the Partnership and liabilities to which such contributed
property is subject) by such Partner and such Partner's share of
Partnership Profits (including income exempt from tax), and (ii) is
decreased by the amount of cash and the fair market value of property
distributed to such Partner as shown on the books of the Partnership (net
of liabilities assumed by such Partner and liabilities to which such
distributed property is subject) and such Partner's share of Partnership
Losses.
SECTION 2.4 "CAPITAL CONTRIBUTIONS". "Capital Contributions" shall
mean in the case of each Partner, any cash contributed to the capital of
the Partnership by such Partner, including any Initial Capital
Contributions and any Additional Contributions.
SECTION 2.5 "CAPITAL CONTRIBUTION ACCOUNT". "Capital Contribution
Account" shall mean each Partner's total Capital Contributions, as adjusted
by Section 3.2.
SECTION 2.6 "DISSOLUTION OR TERMINATION". "Dissolution or
Termination" shall be deemed to have occurred (i) in the case of a
corporate Partner upon the earlier of the adoption of a plan of liquidation
by such Partner or the effective date of dissolution in accordance with
applicable statutory law and (ii) in the case of a partnership Partner,
upon the date of dissolution or termination of such partnership in
accordance with the provisions of the governing partnership agreement or
applicable statutory law.
SECTION 2.7 "INTEREST". "Interest" shall mean the entire ownership
interest of a Partner in the Partnership at any particular time, including
the right of such Partner to any and all benefits to which such Partner may
be entitled as provided in this Agreement, together with the obligations of
such Partner to comply with all terms and provisions of this Agreement.
SECTION 2.8 "NET CASH FLOW". "Net Cash Flow" shall mean, with respect
to any fiscal period, all cash revenue and funds received by the
Partnership from operations or rent loss insurance (excluding funds
received as capital contributions and funds received from the sale or
refinancing of the Hotel) in such period, less the sum of the following (to
the extent not made from funds received as capital contributions): (i) all
interest and principal amortization paid to lenders in such period, (ii)
all cash expenditures (including capital expenditures) made by or on behalf
of the Partnership in such period, and (iii) cash reserves deemed
appropriate by the General Partner.
SECTION 2.9 "NET OPERATING INCOME". "Net Operating Income" shall
mean the Rent (as defined in the lease agreement between the Partnership
and the Limited Partner for the Hotel) less all expenses for which the
Partnership is responsible pursuant to the terms of such lease agreement
which are directly attributable to the operation, repair and/or maintenance
of the Hotel, including, without limitation, real estate taxes, ground
lease payments, insurance premiums, capital leases and capital repairs.
SECTION 2.10 "NET SALE AND REFINANCING PROCEEDS". "Net Sale and
Refinancing Proceeds" shall mean all cash proceeds received by the
Partnership from the sale or refinancing of the Hotel and all insurance and
condemnation proceeds (excluding rent loss insurance), less the sum of the
following: (i) the principal amount of any loans repaid in connection with
such sale or refinancing, (ii) all costs incurred in the sale or
refinancing of the Hotel, including the transfer fee payable to the City of
San Diego, financing fees, mortgage taxes, transfer taxes, title insurance
premiums, attorneys' fees and other costs typically paid by borrowers or
sellers of similar properties in the San Diego xxxxxxxxxxxx xxxxxx, (xxx)
any fee paid to terminate any lease of the Hotel, (iv) a market brokerage
fee for the sale of the Hotel, regardless of whether a fee is actually
paid, and (v) cash reserves deemed appropriate by the General Partner.
SECTION 2.11 "PARTNERSHIP". "Partnership" means the limited
partnership formed hereunder pursuant to the Revised Uniform Limited
Partnership Act of the State of California.
SECTION 2.12 "PARTNERSHIP PROPERTY". "Partnership Property" shall
mean all the property, real and personal, at any time owned by the
Partnership.
SECTION 2.13 "PERCENTAGE INTERESTS". "Percentage Interests" shall
mean the interest of a Partner as set forth in Exhibit A, as such
percentage interest may be adjusted pursuant to Section 3.2 below.
SECTION 2.14 "PROFITS" OR "LOSSES". "Profits" or "Losses" shall mean
the profits or losses of the Partnership for Federal income tax purposes
including, without limitation, each item of Partnership income, gain, loss
or deduction.
ARTICLE III
CAPITAL
SECTION 3.1 CONTRIBUTIONS OF GENERAL PARTNER AND LIMITED PARTNER. The
General Partner and Limited Partner have contributed to the capital of the
Partnership the amounts set forth in Exhibit A (the "Initial Capital
Contributions").
SECTION 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS. No Partner shall be
obligated to make any additional capital contribution ("Additional Capital
Contributions") to the Partnership. If a Partner (the "Non Contributing
Partner") fails to make the full amount of its pro rata share of any
Additional Capital Contributions, however, the Partners (each, a
"Contributing Partner") who have made all of their prorata share of any
Additional Capital Contributions in connection with the outstanding call
may, but shall not be required to:
(i) make all or part of the Additional Capital Contribution
(for its own Capital Account and Capital Contribution Account) which the
Non-Contributing Partner has elected not to make and cause the Capital
Account and Capital Contribution Account of the Non-Contributing Partner to
be reduced (in addition to the adjustments that shall automatically occur
by virtue of such Contributions) by twenty-five percent (25%) of the
Additional Capital Contributions funded by such Contributing Partner on
behalf of such Non-Contributing Partner. The corresponding Capital Account
and Capital Contribution Account of each Contributing Partner shall be
increased (in addition to the adjustments that shall automatically occur by
virtue of such Contributions) in the amount that the corresponding Capital
Account and Capital Contribution Account of the Non-Contributing Partner is
so reduced or a prorata share of such amount if there is more than one
Contributing Partner. There shall be corresponding adjustments in the
Percentage Contribution Accounts;
or
(ii) make a loan to the Non-Contributing Partner (the proceeds
of which shall be paid to the Partnership as a contribution by the
Non-Contributing Partner) for all or part of the amount of the Additional
Capital Contribution the Non-Contributing Partner elected not to make and
have such loan secured by the security interest in the Non-Contributing
Partner's Partnership interest granted pursuant to this Agreement (or
pro-rata portion thereof in the event there is more than one Contributing
Partner). The Partnership, in such circumstances, shall use the first
distributions otherwise payable or distributable to such Non-Contributing
Partner hereunder to repay any such borrowings. Such loan shall be
non-recourse and shall have an interest rate equal to two percent (2%) over
the corporate base rate of Citibank, N.A. in effect from time to time.
To the extent more than one Partner wishes either to contribute or to
loan funds in the amount not contributed by a Non-Contributing Partner in
accordance with this Section, each Partner may lend or contribute funds pro
rata in proportion to its Percentage Interest; provided however, no such
Partner will be permitted to contribute capital or make a loan pursuant to
this Section hereof unless it has already contributed the full amount of
its Additional Capital Contribution called for at such time. In the event
the Partners are unwilling to contribute or lend funds to the Partnership
in the total amount not so contributed by the Non-Contributing Partner, the
General Partner may obtain capital contributions from non-partners (in
which case such persons shall become limited partners in the Partnership)
or obtain loans from non-partners, in either case on the same basis as the
Partners may make contributions or loans as provided
above.
ARTICLE IV
DISTRIBUTIONS
SECTION 4.1 DISTRIBUTIONS OF NET CASH FLOW. The Net Cash Flow of the
Partnership for each calendar year shall be distributed at such times and
in such amounts as determined by the General Partner in its sole discretion
in the following order and priority:
(a) First, to the General Partner until the General Partner
has received a cumulative return equal to fifteen percent (15%) per annum
on the total capital contributions which have been made by the General
Partner and which would have been made by the General Partner to the
Partnership assuming the Partnership had no debt; and
(b) Second, 95.1% to the General Partner and 4.9% to the
Limited Partner.
SECTION 4.2 DISTRIBUTIONS OF NET SALE AND REFINANCING PROCEEDS. Any
Net Sale and Refinancing Proceeds of the Partnership shall be distributed
at such times and in such amounts as determined by the General Partner in
its sole discretion in the following order and priority:
(a) First, to the Limited Partner until the Limited Partner
has received a return of its Initial Capital Contribution;
(b) Second, to the General Partner until the General Partner
has received a fifteen percent (15%) internal rate of return on the total
capital contributions which have been made by the General Partner and which
would have been made by the General Partner to the Partnership assuming the
Partnership had no debt; and
(c) Third, eighty-five percent (85%) to the General Partner
and fifteen percent (15%) to the Limited Partner.
ARTICLE V
ALLOCATION OF PROFITS OR LOSSES AND CREDITS
SECTION 5.1 PROFITS OR LOSSES OR CREDITS FROM OPERATIONS. The
Profits and Losses and tax credits of the Partnership shall be allocated to
the Partners in the same proportion as Net Cash Flow and Net Sale and
Refinancing Proceeds are distributed for the year in question; provided
that if there are no distributions of Net Cash Flow or Net Sale and
Refinancing Proceeds, all Profits and Losses and tax credits shall be
allocated solely to the General Partner. All Profits or Losses and tax
credits from the Partnership for a fiscal year allocable with respect to
any Interests which may have been assigned during such fiscal year shall be
allocated between the assignor and assignee based upon the number of days
in the year that each was recognized (pursuant to Section 8.2) as the owner
of the Interest, without regard to results of the operations of the
Partnership during such fiscal year and without regard to whether cash
distributions were made to the assignor or assignee.
ARTICLE VI
CONDUCT OF OPERATIONS
SECTION 6.1 MANAGEMENT. The General Partner shall have full and
exclusive management and control of the business of the Partnership. The
General Partner shall devote such time to the business of the Partnership
as it deems necessary. In addition to other rights and powers, the General
Partner is expressly authorized to (a) employ, engage or contract with
entities, including its Affiliates, in the operation and management of the
Partnership; (b) borrow money for Partnership purposes; (c) purchase, sell,
pledge, hypothecate and mortgage Partnership property; (d) cause the
Partnership to take any actions which the General Partner deems appropriate
as the owner of the Hotel; and (e) make calls to the Partners for
Additional Capital Contributions.
SECTION 6.2 ACCOUNTING AND TAX MATTERS. The General Partner shall
keep proper and usual books and records pertaining to the Partnership's
business in accordance with generally accepted accounting principles. The
books and records and all files of the Partnership shall be kept at its
principal office. The General Partner shall prepare and furnish to the
Limited Partner promptly after the close of each fiscal year an unaudited
statement, certified by the General Partner, showing the operations of the
Partnership for such fiscal year, including a balance sheet and statement
of income or loss and changes in financial position for such fiscal year,
the balance of the Limited Partner's capital account, the unpaid balance
due under all obligations of the Partnership and all other information
reasonably requested by any partner. The Limited Partner, and the
authorized agents thereof, shall have the right at all reasonable times to
audit, examine and make copies or extracts from the Partnership books of
account. Federal, state and local income tax returns of the Partnership
shall be prepared and timely filed by the General Partner. Copies of the
tax returns shall be furnished to the Limited Partner prior to filing
thereof. The General Partner is hereby designated the tax matters partner
of the Partnership.
SECTION 6.3 OTHER PERMISSIBLE ACTIVITIES. Neither the General Partner
nor the Limited Partner are prevented hereby from engaging in other
activities for profit whether similar to the purpose of the Partnership or
otherwise and whether or not competitive with the business of the
Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER
SECTION 7.1 LIMITED LIABILITY. The Limited Partner shall not be
personally liable for any of the debts of the Partnership or any of the
losses thereof beyond the amount contributed or contracted to be
contributed by the Limited Partner to the capital of the Partnership.
SECTION 7.2 MANAGEMENT RESPONSIBILITY. The Limited Partner, as such,
shall not take part in the management of the business or transact any
business for the Partnership, nor shall the Limited Partner have the right
to approve or disapprove any actions taken by the Partnership.
SECTION 7.3 NO AUTHORITY TO ACT. The Limited Partner shall not have
the power to act on behalf of or bind the Partnership.
SECTION 7.4 SINGLE-PURPOSE ENTITY. The Limited Partner shall at all
times remain a single-purpose entity whose sole asset shall be its interest
in the Partnership. In no event shall the Limited Partner incur any
liabilities or debts without the prior written consent of the General
Partner.
SECTION 7.5 AMENDMENTS TO PARTNERSHIP AGREEMENT. Amendments to the
Partnership Agreement, including the admission of new partners to the
Partnership, shall be approved solely by the General Partner, provided that
no amendment which materially adversely affects the Limited Partner shall
be adopted without the written approval of the Limited Partner.
ARTICLE VIII
TRANSFERABILITY OF PARTNERS' INTERESTS
SECTION 8.1 TRANSFERABILITY OF GENERAL PARTNER'S INTEREST. The
General Partner may sell, transfer, assign, pledge or otherwise alienate
its Interest in the Partnership without the prior written consent of the
Limited Partner.
SECTION 8.2 TRANSFERABILITY OF LIMITED PARTNER'S INTEREST. The
Limited Partner may not sell, transfer, assign, pledge or otherwise
alienate the whole or any portion of its Interest in the Partnership
without the prior written consent of the General Partner; provided,
however, the General Partner shall not unreasonably withhold its consent to
any assignment or transfer of the Limited Partner's interest in the
Partnership to an Affiliate of the Limited Partner. No transferee of all or
any part of the Limited Partner's interest in the Partnership shall become
a substituted Limited Partner unless the transferee consents in writing, in
a form prepared by or reasonably satisfactory to the General Partner, to be
bound by the terms and conditions of this Agreement in the place and stead
of the transferor Limited Partner.
SECTION 8.3 OPTIONS TO PURCHASE AND SELL THE LIMITED PARTNERSHIP
INTEREST. At any time during the sixth (6th) year following the acquisition
of the Hotel by the Partnership, the Limited Partner can elect to put its
Interest in the Partnership to the General Partner provided the Limited
Partner gives the General Partner notice of such election (the "Put
Notice") at least thirty (30) days prior to the date on which it has
elected to put its interest. The price at which the Limited Partner puts
its Interest in the Partnership to the General Partner (the "Put Price")
will equal the amount the Limited Partner would have received if the Hotel
was sold and the proceeds distributed in accordance with the terms of this
Agreement, including Sections 2.9 and 4.2, calculated as if there was no
debt on the Project; and the Put Price shall be paid on the date the
Limited Partner puts its Interest to the General Partner. For purposes of
this Section, the Hotel shall be deemed to have been sold for a price equal
to ten (10) times the Net Operating Income from the Hotel for the twelve
(12) months immediately preceding the put. The Net Operating Income shall
be determined after adjustment for any operating and fixed costs for the
Hotel and after deduction of four percent (4%) of revenue for addition to
the FF&E reserve, whether or not any money is actually deposited into the
FF&E reserve; and the sales price shall be determined after deduction for
costs typically incurred in the sale of similar properties as set forth in
Section 2.9 above. In determining the Put Price, however, no credit shall
be given for any reserves being held by the Partnership, including any
capital expenditure reserves.
The General Partner shall have the right to acquire the Interest of
the Limited Partner in the Partnership either (a) within sixty (60) days
after the lease for the Hotel being entered into concurrently herewith
between the Partnership and the Limited Partner's Affiliate is terminated,
or (b) at any time during the period from six and one-half (6-1/2) years
following the purchase of the Hotel by the Partnership until the end of the
tenth (10th) year following the purchase of the Hotel by the Partnership if
the Limited Partner does not exercise the foregoing right to put its
Interest to the General Partner by the end of the sixth (6th) year set
forth above; provided, however, the General Partner shall give the Limited
Partner notice of such election (the "Call Notice") at least thirty (30)
days prior to the date on which it has elected to purchase such Interest.
The price for the purchase of the Limited Partner's Interest (the "Call
Price") shall be calculated using the same formula for calculating the Put
Price and shall be paid on the date the General Partner acquires the
Limited Partner's Interest.
The Put Price or the Call Price, as the case may be, shall, at the
General Partner's election, be made either in cash or in limited
partnership units in the General Partner ("OP Units"). If the General
Partner elects to make the payment in OP Units, the Limited Partner shall
receive the number of OP Units, rounded to the nearest whole, equal to the
Put Price or the Call Price, as the case may be, divided by the average
closing price for shares in LaSalle Hotel Properties on the New York Stock
Exchange on the first fifteen trading days of the thirty (30) day period
immediately preceding the payment. The Limited Partner shall have the right
to convert the OP Units into shares of LaSalle Hotel Properties (the "LHO
Shares") on the terms set forth in the General Partner's Partnership
Agreement. The Limited Partner shall also have the right to have the LHO
Shares registered on the terms set forth in the Registration Rights
Agreement attached hereto Exhibit A. Notwithstanding the foregoing, the
General Partner shall be required to pay the Put Price or the Call Price in
cash, and not in OP Units, if, at the time the Put Notice or Call Notice is
given, either (a) LHO Shares are not trading on the New York Stock
Exchange, (b) there are any restrictions (other than general securities
laws restrictions) on the trading of LHO Shares or (c) any bankruptcy,
insolvency or similar action has been filed by or against LaSalle Hotel
Properties and, in the case of any such action filed against LaSalle Hotel
Properties, such action is not dismissed within sixty (60) days of the
filing thereof.
ARTICLE IX
DISSOLUTION AND LIQUIDATION
SECTION 9.1 DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following events:
(a) The expiration of the term of the Partnership;
(b) The withdrawal, Bankruptcy or Insolvency, or Dissolution
or Termination, of the General Partner, if no substituted General Partner
is elected by the Limited Partner; or
(c) The sale of the Hotel by the Partnership.
SECTION 9.2 WINDING UP AND LIQUIDATION OF THE PARTNERSHIP. Upon the
dissolution of the Partnership, the General Partner, or if it is not
available, a liquidator selected by the Limited Partner, shall proceed to
wind up the Partnership business. The General Partner or such liquidator,
as the case may be, shall apply the Partnership assets, after payment of
Partnership debts and liabilities, and the creation of such reserves as the
liquidator deems appropriate, to the Partners in accordance with Article
IV.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 NOTICES. Any notices or communications hereunder shall
be sent by mail to the Partners at their addresses set forth in Exhibit A,
as amended from time to time. Notices shall be considered given, and any
applicable time shall run, from the date such notice is mailed.
SECTION 10.2 APPLICABLE LAW. Notwithstanding the place where this
Agreement may be executed by any party, all the terms and provisions of
this Agreement and the validity hereof shall be interpreted under the laws
of the State of California.
SECTION 10.3 COUNTERPARTS. This Agreement may be executed in any
number of counterparts with the same effect as if all the Partners had
signed the same document. All counterparts shall be construed together and
shall constitute one instrument.
SECTION 10.4 EFFECT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of each of the parties, their heirs,
devisees, personal representatives, successors and assigns.
IN WITNESS WHEREOF, this Agreement is executed and sworn to by the
parties whose signatures appear below.
GENERAL PARTNER:
LASALLE HOTEL OPERATING
PARTNERSHIP, L.P., a Delaware
limited partnership
By: LaSalle Hotel Properties, its
general partner
By /s/ Xxxxxxx X. Xxxxxxxx
Its Chief Operating Officer
LIMITED PARTNER:
WESTGROUP SAN DIEGO ASSOCIATES,
LTD.,a California limited
partnership
By: Westgroup Partners, Inc., its
general partner
By /s/ XXXXXX XXXXX
Its Vice President
EXHIBIT A
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Capital Percentage
Name and Address Contribution Interest
---------------- ------------ ----------
General Partner:
LASALLE HOTEL OPERATING $73,000,000 95.1%
PARTNERSHIP, L.P.
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Limited Partner:
WESTGROUP SAN DIEGO ASSOCIATES, $10,000 4.9%
LTD.
000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
