Comfort Inn 2014 Annual Report Download - page 122

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Table of Contents
remain in effect until the maximum amount guaranteed by the Company is paid in full. In addition to the limited guaranty, the Company entered into an
agreement in which the Company guarantees the completion of the construction of the hotel and an environmental indemnity agreement which indemnifies
the lending institution from and against any damages relating to or arising out of possible environmental contamination issues with regards to the property.
On November 15, 2013, the Company entered into a limited payment guaranty with regards to a VIE's $46.2 million bank loan for the construction of a
hotel franchised under one of the Company's brands in the United States. Under the terms of the limited guaranty, the Company has agreed to
unconditionally guarantee and become surety for the full and timely payment of the guaranteed outstanding principal balance, as well as any unpaid
expenses incurred by the lender. The guarantee is limited to 25.0% of the outstanding principal balance of the $46.2 million loan due at any time for a
maximum exposure of $11.6 million. The limited guaranty shall remain in effect until the maximum amount guaranteed by the Company is repaid in full.
The maturity date of the VIE's loan is May 2017. In conjunction with this guaranty, the Company has entered into a reimbursement and guaranty agreement
with certain individuals that requires them to reimburse the Company in an amount equal to 75.0% of any payments made by the Company under this limited
payment guaranty.
The Company believes the likelihood of having to perform under the aforementioned limited payment guarantees is remote at December 31, 2014 and
December 31, 2013.
Commitments
The Company has the following commitments outstanding:
• The Company occasionally provides financing in the form of forgivable promissory notes or cash incentives to franchisees for property
improvements, hotel development efforts and other purposes. At December 31, 2014, the Company had commitments to extend an additional $42.5
million for these purposes provided certain conditions are met by its franchisees, of which $22.5 million is expected to be advanced in the next
twelve months.
• The Company has committed to make additional capital contributions totaling $2.1 million to existing joint ventures, related to the
construction of various hotels to be operated under the Company's Cambria Suites brand. These commitments are expected to be funded in the next
twelve months.
In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies
another party for breaches of representations and warranties. Such indemnifications are granted under various agreements, including those governing
(i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity
securities, and (vi) certain operating agreements. The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase
agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters
in debt or equity security issuances and (vi) parties under certain operating agreements. In addition, these parties are also generally indemnified against any
third party claim resulting from the transaction that is contemplated in the underlying agreement. While some of these indemnities extend only for the
duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of
limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these
indemnities, nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these indemnifications
as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as indemnifications of landlords
against third party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates potential
liability.
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