Ashford Hospitality Trust (AHT)

substantial termination fee. Remington Lodging may agree to waive the termination fee if a replacement hotel is substituted but is under no contractual obligation to do so. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Messrs. Archie and Montgomery Bennett may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

 

In addition, Ashford Financial Corporation, an affiliate, contributed certain asset management and consulting agreements to us in connection with our initial public offering relating to management and consulting services that Ashford Financial Corporation agreed to perform for hotel property managers with respect to 27 identified hotel properties in which Messrs. Archie and Montgomery Bennett held a minority interest. Ashford Financial Corporation is 100% owned by Messrs. Archie and Montgomery Bennett. The agreements provided for annual payments to us, as the assignee of Ashford Financial Corporation, in consideration for our performance of certain asset management and consulting services. The exact amount of the consideration due to us under the remaining asset management and consulting agreements was initially contingent upon the revenue generated by the hotels underlying the asset management and consulting agreements. Ashford Financial Corporation guaranteed a minimum payment to us of $1.2 million per year, subject to adjustments based on the consumer price index, through December 31, 2008. All of the 27 hotel properties for which we previously provided the asset management and consulting services have been sold, including our acquisition of 21 of the hotel properties in March 2005. Accordingly, we anticipate collecting the balance of the guaranteed minimum payment of $1.2 million per year from Ashford Financial Corporation under its guarantee.

 

 

Conflicts of interest relating to Remington Lodging may lead to
management decisions that are not in the stockholders’ best
interest. The Chairman of our Board of Directors,
Mr. Archie Bennett, Jr., serves as the Chairman of the
Board of Directors of Remington Lodging, and our Chief Executive
Officer and President, Mr. Montgomery Bennett, serves as
the Chief Executive Officer and President of Remington Lodging.
Messrs. Archie and Montgomery Bennett own 100% of Remington
Lodging, which, as of December 31, 2007, manages 43 of our
112 properties and provides related services, including property
management services and project management services.

 

Messrs. Archie and Montgomery Bennett’s ownership
interests in and management obligations to Remington Lodging
present them with conflicts of interest in making management
decisions related to the commercial arrangements between us and
Remington Lodging and will reduce the time and effort they each
spend managing us. Our Board of Directors has adopted a policy
that requires all approvals, actions or decisions to which the
Company has the right to make under the management agreements
with Remington Lodging be approved by a majority or, in certain
circumstances, all of our independent directors. However, given
the authority and/or operational latitude to Remington Lodging
under the management agreements to which the Company is a party,
Messrs. Archie Bennett and Montgomery Bennett, as officers of
Remington Lodging, could take actions or make decisions that are
not in the stockholders’ best interest or that are
otherwise consistent with their obligations under the management
agreements or the Company’s obligations under the
applicable franchise agreements.

 

Holders of units in our operating partnership, including members
of our management team, may suffer adverse tax consequences upon
our sale of certain properties. Therefore, holders of units,
either directly or indirectly, including Messrs. Archie and
Montgomery Bennett, Mr. David Brooks, our Chief Legal
Officer, Mr. David Kimichik, our Chief Financial
Officer, Mr. Mark Nunneley, our Chief Accounting Officer,
and Mr. Martin L. Edelman (or his family members), one of
our directors, may have different objectives regarding the
appropriate pricing and timing of a particular property’s
sale. These officers and directors of ours may influence us not
to sell or refinance certain properties, even if such sale or
refinancing might be financially advantageous to our
stockholders, or to enter into tax deferred exchanges with the
proceeds of such sales when such a reinvestment might not
otherwise be in our best interest. In addition, we have agreed
to indemnify contributors of properties contributed to us in
exchange for operating partnership units, including (indirectly)
Messrs. Archie and Montgomery Bennett, Brooks, Kimichik,
Nunneley, and Edelman (or his family members), against the
income tax they may incur if we dispose of the specified
contributed properties. Because of this indemnification, our
indemnified management team members may make decisions about
selling any of these properties that are not in our
stockholders’ best interest.

 

We are a party to a master hotel management agreement and an
exclusivity agreement with Remington Lodging, which describes
the terms of Remington Lodging’s management of our hotels,
as well as any future hotels we may acquire that will be managed
by Remington Lodging. If we terminate the management agreement
as to any of the remaining five hotels we acquired in connection
with our initial public offering, which are all subject to the
management agreement, because we elect to sell those hotels, we
will be required to pay Remington Lodging a

substantial termination fee. Remington Lodging may agree to
waive the termination fee if a replacement hotel is substituted
but is under no contractual obligation to do so. The exclusivity
agreement requires us to engage Remington Lodging, unless our
independent directors either (i) unanimously vote to hire a
different manager or developer, or (ii) by a majority vote,
elect not to engage Remington Lodging because they have
determined that special circumstances exist or that, based on
Remington Lodging’s prior performance, another manager or
developer could perform the duties materially better. As the
sole owners of Remington Lodging, which would receive any
development, management, and management termination fees payable
by us under the management agreement, Messrs. Archie and
Montgomery Bennett may influence our decisions to sell, acquire,
or develop hotels when it is not in the best interests of our
stockholders to do so.

 

In addition, Ashford Financial Corporation, an affiliate,
contributed certain asset management and consulting agreements
to us in connection with our initial public offering relating to
management and consulting services that Ashford Financial
Corporation agreed to perform for hotel property managers with
respect to 27 identified hotel properties in which
Messrs. Archie and Montgomery Bennett held a minority
interest. Ashford Financial Corporation is 100% owned by
Messrs. Archie and Montgomery Bennett. The agreements
provided for annual payments to us, as the assignee of Ashford
Financial Corporation, in consideration for our performance of
certain asset management and consulting services. The exact
amount of the consideration due to us under the remaining asset
management and consulting agreements was initially contingent
upon the revenue generated by the hotels underlying the asset
management and consulting agreements. Ashford Financial
Corporation guaranteed a minimum payment to us of
$1.2 million per year, subject to adjustments based on the
consumer price index, through December 31, 2008. All of the
27 hotel properties for which we previously provided the asset
management and consulting services have been sold, including our
acquisition of 21 of the hotel properties in March 2005.
Accordingly, we anticipate collecting the balance of the
guaranteed minimum payment of $1.2 million per year from
Ashford Financial Corporation under its guarantee.

 

Bennett, serves as the Chief Executive Officer and President of Remington Lodging. Messrs. Archie and Montgomery Bennett own 100% of Remington Lodging, which manages 37 of our 81 properties and provides related services, including property management services and project management services.

 

Messrs. Archie and Montgomery Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging and will reduce the time and effort they each spend managing us. Our Board of Directors has adopted a policy that requires all management decisions relating to the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, all of our independent directors.

 

Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Montgomery Bennett, Mr. David Brooks, our Chief Legal Officer, Mr. David Kimichik, our Chief Financial Officer, Mr. Mark Nunneley, our Chief Accounting Officer, and Mr. Martin L. Edelman (or his family members), one of our directors, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us not to sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest. In addition, we have agreed to indemnify contributors of properties contributed to us in exchange for operating partnership units, including (indirectly) Messrs. Archie and Montgomery Bennett, Brooks, Kimichik, Nunneley, and Edelman (or his family members), against the income tax they may incur if we dispose of the specified contributed properties. Because of this indemnification, our indemnified management team members may make decisions about selling any of these properties that are not in our stockholders’ best interest.

 

We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s management of our hotels, as well as any future hotels we may acquire that will be managed by Remington Lodging. If we terminate the management agreement as to any of the six hotels we acquired in connection with our initial public offering, which are all subject to the management agreement, because we elect to sell those hotels, we will be required to pay Remington Lodging a substantial termination fee. Remington Lodging may agree to waive the termination fee if a replacement hotel is substituted but is under no contractual obligation to do so. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Messrs. Archie and Montgomery Bennett may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

 

In addition, Ashford Financial Corporation, an affiliate, contributed certain asset management and consulting agreements to us in connection with our initial public offering relating to management and consulting services that Ashford Financial Corporation agreed to perform for hotel property managers with respect to 27 identified hotel properties in which Messrs. Archie and Montgomery Bennett held a minority interest. Ashford Financial Corporation is 100% owned by Messrs. Archie and Montgomery Bennett. The agreements provided for annual payments to us, as the assignee of Ashford Financial Corporation, in consideration for our performance of certain asset management and consulting services. The exact amount of the consideration due to us under the remaining asset management and consulting agreements was initially contingent upon the revenue generated by the hotels underlying the asset management and consulting agreements. Ashford Financial Corporation guaranteed a minimum payment to us of $1.2 million per year, subject to adjustments based on the consumer price index, through December 31, 2008. All of the 27 hotel properties for which we previously provided the asset management and consulting services have been sold, including our acquisition of 21 of the hotel properties in March 2005. Accordingly, we anticipate collecting the balance of the guaranteed minimum payment of $1.2 million per year from Ashford Financial Corporation under its guarantee.

 

December 31, 2005, Remington Lodging managed 30 of our 80 properties and provided related services, including property management services and project development services. Additionally, Messrs. Archie and Montgomery Bennett own minority interests in several lodging properties not transferred to our operating partnership in connection with our initial public offering or transferred to our operating partnership in connection with our acquisition of a 21-property hotel portfolio on March 16, 2005.

 

Messrs. Archie and Montgomery Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging and will reduce the time and effort each can spend managing us. Our Board of Directors has adopted a policy that requires all management decisions relating to the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, by all of our independent directors.

 

Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Montgomery Bennett, Mr. David Brooks, our Chief Legal Officer, Mr. David Kimichik, our Chief Financial Officer, Mr. Mark Nunneley, our Chief Accounting Officer, and Mr. Martin L. Edelman (or his family members), one of our Directors, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us not to sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.

 

In addition, we agreed to indemnify the contributors of the properties contributed to us in exchange for operating partnership units, including (indirectly) Messrs. Archie and Montgomery Bennett, Brooks, Kimichik, Nunneley, and Edelman (or his family members), against the income tax they may incur if we dispose of any of these properties. Because of this indemnification, our indemnified management team members may make decisions about selling any of these properties that are not in our stockholders’ best interest.

 

We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s management of our hotels, as well as any future hotels we may acquire that will be managed by Remington Lodging. If we terminate the management agreement related to any of our hotels initially acquired in our IPO, we will be required to pay Remington Lodging a substantial termination fee. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to employ a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because special circumstances exist, or based on Remington Lodging’s prior performance, it is believed that another manager or developer could materially improve the performance of the duties. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Messrs. Archie and Montgomery Bennett may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

 

In addition, Ashford Financial Corporation, an affiliate, contributed certain asset management and consulting agreements to us upon completion of our initial public offering relating to services that Ashford Financial Corporation agreed to perform for hotel property managers of 27 identified hotel properties. Ashford Financial Corporation is 100% owned by Messrs. Archie and Montgomery Bennett. Messrs. Archie and Montgomery Bennett also have or had a minority interest in the 27 hotels for which the asset management and consulting services agreements relate. The agreements provide for annual payments to us, as the assignee of Ashford Financial Corporation, in consideration for our performance of certain asset management and consulting services. The exact amount of the consideration due to us is contingent upon the revenue generated by the hotels underlying the asset management and consulting agreements. Ashford Financial Corporation has guaranteed a minimum payment to us of $1.2 million per year, subject to adjustments based on the consumer price index, through December 31, 2008. If any property underlying any asset management and consulting agreement is sold at any time, we will no longer derive any income from such property, and the amount of income we receive under applicable asset management and consulting agreements will decrease.

On March 16, 2005, we completed the acquisition of 21 of the 27 hotel properties for which we previously provided the asset management and consulting services, and the remaining six hotels for which we provided such services have either been sold or are currently being marketed for sale. In connection with the acquisition of the 21 hotel properties and any subsequent sale of the remaining six properties, the asset management and consulting agreements for these properties have been or will be terminated, and we will no longer receive any fees under the terminated agreements. We do not expect the remaining unsold hotel properties for which we provide asset management and consulting services to generate sufficient revenue to result in annual fees of at least $1.2 million as guaranteed in the agreement. However, pursuant to a guarantee executed in connection with our IPO, Ashford Financial Corporation will continue to guarantee a minimum annual fee of approximately $1.2 million through December 31, 2008.