<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION NO. 333-03373
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EXTENDED STAY AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7011 36-3996573
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GEORGE D. JOHNSON, JR.
CHIEF EXECUTIVE OFFICER
EXTENDED STAY AMERICA, INC.
500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
JOHN T. MCCARTHY, ESQ. JOHN J. SABL, ESQ.
BELL, BOYD & LLOYD SIDLEY & AUSTIN
THREE FIRST NATIONAL PLAZA ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602 CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 372-1121 TELEPHONE: (312) 853-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8,050,000
Common Stock, par value $.01 per share.... shares $33.25 $267,662,500 $92,298
=======================================================================================================
</TABLE>
(1) Includes 1,050,000 shares of Common Stock which may be purchased pursuant
to an over-allotment option granted by the Company to the Underwriters.
(2) Calculated in accordance with Rule 457(c) and based upon the closing sale
price of Extended Stay America, Inc. common stock reported on the Nasdaq
National Market on May 23, 1996, as reported in The Wall Street Journal.
The registration fee has been increased to reflect the additional shares
to be registered, of which $52,544 was previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 28, 1996
PROSPECTUS
, 1996
7,000,000 SHARES
[LOGO OF EXTENDED STAYAMERICA APPEARS HERE]
COMMON STOCK
All of the 7,000,000 shares of Common Stock offered hereby are being issued
and sold by Extended Stay America, Inc. The Common Stock is traded on the
Nasdaq National Market under the symbol "STAY." On May 23, 1996, the closing
sale price of the Common Stock was $33 1/4 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............. $ $ $
Total(3).............. $ $ $
- ------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days hereof, to purchase up to an aggregate of 1,050,000 additional
shares of Common Stock at the price to the public less underwriting
discounts and commissions for the purpose of covering over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
the Public, Underwriting Discounts and Commissions, and Proceeds to the
Company will be $ , $ , and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as, and if accepted by them, subject
to certain prior conditions, including the right of the Underwriters to reject
orders in whole or in part. It is expected that delivery of such shares will be
made in New York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALLEN & COMPANY
INCORPORATED
CS FIRST BOSTON
SMITH BARNEY INC.
<PAGE>
EXTENDED STAYAMERICA EFFICIENCY STUDIOS
[PHOTO OF INTERIOR CORRIDOR PROPERTY] [PHOTO OF EXTERIOR CORRIDOR PROPERTY]
[PHOTO OF INTERIOR CORRIDOR ROOM] [PHOTO OF EXTERIOR CORRIDOR ROOM]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH CS FIRST BOSTON
CORPORATION (OTHER THAN CS FIRST BOSTON, INC. OR ANY OF ITS SUBSIDIARIES) OR
OTHER PERSONS ENGAGING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR
THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE
COMPANY PURSUANT TO EXEMPTIONS FROM RULES 10b-6, 10b-7 AND 10b-8 UNDER THE
SECURITIES EXCHANGE ACT OF 1934.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND CERTAIN SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context suggests otherwise, references in this
Prospectus to the "Company" mean Extended Stay America, Inc. and its
subsidiaries and references to the year ended December 31, 1995 mean the period
from January 9, 1995, the Company's date of inception, through December 31,
1995. Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." On May
9, 1996, the Board of Directors of the Company declared a dividend of one
additional share of Common Stock for each share issued as of the close of
business on July 5, 1996, to be distributed on July 19, 1996, thereby effecting
a 2-for-1 stock split (the "Stock Dividend"). Except as otherwise noted, none
of the information contained in this Prospectus reflects the Stock Dividend.
THE COMPANY
Extended Stay America, Inc. was organized in January 1995 to develop, own,
and manage extended stay lodging facilities which are designed to appeal to
value-conscious guests. The Company's facilities are designed to offer quality
accommodations for guests at substantially lower rates than most other extended
stay lodging providers and hotels in the economy segment of the traditional
lodging industry. They feature fully furnished rooms which are generally rented
on a weekly basis to guests such as business travelers (particularly those with
limited expense accounts), professionals on temporary work assignment, persons
between domestic situations, and persons relocating or purchasing a home, with
most guests staying for multiple weeks. The Company's facilities provide a
variety of features that are attractive to the extended stay guest such as a
fully-equipped kitchenette, weekly housekeeping with twice-weekly towel
service, color television with cable or satellite hook-up, coin laundromat, and
telephone service with voice mail messaging. To help maintain affordability of
room rates, labor intensive services such as daily cleaning, room service, and
restaurants are not provided.
The extended stay category is one of the most rapidly evolving sectors of the
U.S. lodging industry. From 1992 to 1995, the number of dedicated extended stay
rooms increased at a compounded annual growth rate of approximately 3.3%,
compared with compounded annual room growth of approximately 1.4% for the
overall lodging industry over the same period. However, the vast majority of
these rooms have been developed in the high-price end of the category. The
economy extended stay sector of the lodging industry appears to present a
number of attractive characteristics compared to traditional hotels, including
higher occupancy rates and operating margins. Based on published occupancy
rates for other participants in the extended stay market, the Company believes
that demand in the economy extended stay market is greater, relative to supply,
than in the lodging industry generally. The Company is not aware of any
operator who serves the economy extended stay market niche on a national level.
The Company's goal is to become a national provider of economy extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenues and reduce
operating costs, and increasing awareness of the economy extended stay concept.
Through May 13, 1996, the Company had developed and opened three facilities,
acquired five others, and had an agreement to acquire one additional facility.
As of such date, the Company had 20 facilities under construction,
substantially all of which the Company expects to have opened by the end of
1996. The Company plans to begin construction of approximately 45 additional
facilities during the remainder of 1996 and to continue an active development
program thereafter. The Company's plans call for the average facility to have
approximately 125 extended stay rooms and to take approximately 7-9 months to
construct.
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company,
3
<PAGE>
was formerly the President of the Consumer Products Division of Blockbuster
Entertainment Group, a division of Viacom, Inc. Mr. Huizenga, who is the
Chairman of the Board of Directors of the Company, is the Chairman and Chief
Executive Officer of Republic Industries, Inc. and was formerly Vice-Chairman
of Viacom, Inc. and Chairman and Chief Executive Officer of Blockbuster
Entertainment Corporation. The Company's management team has extensive
experience in the acquisition and development of real estate and the operation
of properties on a national scale.
The Company was initially capitalized with approximately $60 million in
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed an
initial public offering of 5,060,000 shares of Common Stock at a price of
$13.00 per share (the "IPO") and a concurrent offering to the Company's then
existing shareholders of 2,067,825 additional shares of Common Stock at a price
of $12.09 per share, being the initial public offering price per share less the
underwriting discounts and commissions (the "Concurrent Offering", and,
collectively with the IPO, the "Prior Offerings"). The net proceeds to the
Company from the Prior Offerings were approximately $85 million after deduction
of the underwriting discounts and commissions and other offering expenses. In
addition, pursuant to its mortgage facilities, the Company may be able to
borrow up to $400 million to finance its properties.
The Company was formed in 1995 as a Delaware corporation and its executive
offices are located at 500 E. Broward Boulevard, Ft. Lauderdale, Florida 33394
and its telephone number is (954) 713-1600.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered(1)............. 7,000,000 shares
Common Stock to be outstanding after 29,853,092 shares
this offering(2)...................
Use of proceeds..................... To finance the development of additional
extended stay lodging facilities and other
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol....... STAY
</TABLE>
- --------------------
(1) Assumes no exercise of the over-allotment option granted by the Company to
the Underwriters.
(2) Excludes 4,417,060 shares of Common Stock reserved for issuance under the
Option Plans (as defined below). As of March 31, 1996, options with respect
to 2,436,258 shares of Common Stock have been granted under the Option
Plans. Also excludes approximately 91,000 shares of Common Stock the
Company expects to issue in connection with a pending acquisition.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere in
this Prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the Company's limited operating history
and uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets; the ability to develop and
implement operational and financial systems to manage rapidly growing
operations; the uncertainty as to the consumer demand for economy extended stay
lodging; increasing competition in the extended stay lodging market; the
ability to integrate and successfully
4
<PAGE>
operate acquired properties and the risks associated with such properties; the
ability to obtain financing on acceptable terms to finance the Company's growth
strategy; and the ability of the Company to operate within the limitations
imposed by financing arrangements; and other factors referenced in this
Prospectus. See "Risk Factors."
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenue................ $ 877,885 $6,983,658 $ 1,170,829 $ 1,889,586
Operating expenses..... 2,887,091 6,782,841 2,846,928 3,212,945
Depreciation and
amortization.......... 146,726 1,041,514 203,343 298,780
Loss from operations... (2,155,932) (840,697) (1,879,442) (1,622,139)
Interest income........ 848,510 804,510 1,450,132 1,425,132
Income taxes........... 0 0 0 0
Net loss............... $(1,307,422) $ (36,187) $ (429,310) $ (197,007)
=========== ========== ============ ============
Net loss per share(3).... $ (0.10) $ (0.00) $ (0.02) $ (0.01)
Weighted average number
of shares of common
stock and equivalents
outstanding(3).......... 12,652,110 13,808,783 22,467,393 22,944,092
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $104,010,918 $324,369,043
Total assets.................................... 166,369,727 391,752,852
Long-term debt(5)............................... 0 0
Shareholders' equity............................ 164,533,055 389,916,180
</TABLE>
- --------------------
(1) Giving pro forma effect to the acquisition of the Norcross, Georgia lodging
facility in January 1996 and the Norcross, Georgia and Riverdale, Georgia
lodging facilities in February 1996 (collectively, the "Acquired
Facilities"), the acquisition of the Marietta, Georgia lodging facility in
August 1995 (the "Marietta Facility"), and the proposed acquisition of the
lodging facility in Lakewood, Colorado (the "KHEC Facility") from Kipling
Hospitality Enterprise Corporation ("KHEC") as if they all had occurred at
the beginning of the period and to the Company operating as a publicly held
entity as of such date. See the pro forma financial statements and notes
thereto and note 5 to the Company's consolidated financial statements, all
of which are contained elsewhere herein.
(2) Giving pro forma effect to the acquisition of the Acquired Facilities and
the proposed acquisition of the KHEC Facility as if they had occurred at
the beginning of the period. See the pro forma financial statements and
notes thereto and note 5 to the Company's consolidated financial
statements, all of which are contained elsewhere herein.
(3) See notes 2 and 5 to the Company's consolidated financial statements
contained elsewhere herein.
(4) Giving pro forma effect to the proposed acquisition of the KHEC Facility
and this offering as if they occurred on March 31, 1996. See the pro forma
financial statements and notes thereto contained elsewhere herein.
(5) Does not give effect to future borrowings.
5
<PAGE>
RISK FACTORS
Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.
LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION
The Company first began operating economy extended stay hotels in August
1995 and has a limited operating history upon which investors may evaluate the
Company's performance. The Company has incurred losses to date and there can
be no assurance that the Company will be profitable in the future. Given the
substantial development and financing expenses relating to the Company's
expansion, it expects to have net losses for the foreseeable future.
DEVELOPMENT RISKS
The Company intends to grow primarily by developing additional Company-owned
lodging facilities. Development involves substantial risks, including the risk
that development costs will exceed budgeted or contracted amounts, the risk of
delays in completion of construction, the risk of failing to obtain all
necessary zoning and construction permits, the risk that financing might not
be available on favorable terms, the risk that developed properties will not
achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors which have greater
financial resources than the Company, the risks of incurring substantial costs
in the event a development project must be abandoned prior to completion,
changes in governmental rules, regulations, and interpretations (including
interpretations of the requirements of the Americans with Disabilities Act),
and general economic and business conditions. Although the Company intends to
manage development to reduce such risks, there can be no assurance that
present or future developments will perform in accordance with the Company's
expectations. As of May 13, 1996, the Company operated eight facilities
(Spartanburg, South Carolina; Columbia, South Carolina; Marietta, Georgia;
Norcross, Georgia (2); Riverdale, Georgia; Downers Grove, Illinois; and
Lenexa, Kansas). As of such date, the Company had 20 facilities under
construction, substantially all of which the Company expects to have opened by
the end of 1996. The Company plans to begin construction of approximately 45
additional facilities during the remainder of 1996 and to continue an active
development program thereafter. There can be no assurance, however, that the
Company will complete the development and construction of the facilities or
will acquire each of the planned properties and complete development of a
Company-owned facility thereon, or that any such developments will be
completed in a timely manner or within budget.
RISKS ASSOCIATED WITH RAPID GROWTH
The Company's rapid development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operational, and financial resources. For example, the Company
will be required to recruit and train property managers and other personnel
for each new lodging facility as well as additional accounting personnel. In
addition, the Company needs to complete the development of a systemwide
integrated computer network. There can be no assurance that the Company will
be able to manage its expanding operations effectively. The failure to
implement such systems and add such resources on a cost-effective basis could
have a material adverse effect on the Company's results of operations and
financial condition.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The economy extended stay segment of the lodging industry, in which the
Company operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such as an oversupply
of hotel space or a reduction in demand for hotel space in a geographic area,
changes in travel patterns, extreme weather conditions, changes in
governmental regulations which influence or determine wages,
6
<PAGE>
prices, or construction costs, changes in interest rates, the availability of
financing for operating or capital needs, and changes in real estate tax rates
and other operating expenses. The Company's principal assets will consist of
real property, and real estate values are sensitive to changes in local market
and economic conditions and to fluctuations in the economy as a whole. In
addition, due in part to the strong correlation between the lodging industry's
performance and economic conditions, the lodging industry is subject to
cyclical changes in revenues and profits. These risks may be exacerbated by
the relatively illiquid nature of real estate holdings. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions will be limited. There can be no assurance that downturns or
prolonged adverse conditions in real estate or capital markets or in national
or local economies, and the inability of the Company to dispose of an
investment when it finds disposition to be advantageous or necessary, will not
have a material adverse impact on the Company.
COMPETITION IN THE LODGING INDUSTRY
There is no single competitor or small number of competitors of the Company
that is or are dominant in the economy extended stay market. However, some of
the Company's indirect competitors have substantially larger networks of
locations and greater financial resources than the Company. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Competition in the U.S. lodging industry is based generally on
convenience of location, price, range of services and guest amenities offered,
and quality of customer service. The Company considers the location of its
lodging facilities, the reasonableness of its room rates, and the services and
guest amenities provided by it to be among the most important factors in its
business. Demographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain lodging
facilities, which would adversely affect their operations. Further, there can
be no assurance that new or existing competitors will not significantly lower
rates or offer greater convenience, services, or amenities or significantly
expand or improve facilities in a market in which the Company's facilities
compete, thereby adversely affecting the Company's operations. See "Business--
Competition."
RISKS ASSOCIATED WITH ACQUISITIONS
Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay lodging facilities or other properties that are suitable for
conversion to the extended stay concept. There can be no assurance that the
Company will be able to acquire other extended stay lodging facilities on
terms favorable to the Company. When the Company does make such acquisitions,
it encounters various associated risks, including possible environmental and
other regulatory costs, goodwill amortization, diversion of management's
attention, and unanticipated problems or liabilities, some or all of which
could have a material adverse effect on the Company's operations and financial
performance.
RISKS OF BORROWING
The Company expects to incur substantial borrowings in connection with its
expansion. Pursuant to its mortgage facilities, the Company may be able to
borrow up to $400 million to finance its properties, depending on certain
conditions. This compares to total equity of $389.9 million as of March 31,
1996, including assumed net proceeds from this offering of approximately
$222.4 million and the issuance of shares of Common Stock in connection with
the proposed acquisition of the KHEC Facility. These borrowings will be
secured by mortgages on the Company's properties and various accounts and
other assets. The Company may incur additional debt from time to time. See "--
Need for Additional Capital." Leverage increases the risks to the Company of
any variations in its results, construction cost overruns, or any other
factors affecting its cash flow or liquidity. In addition, the Company's
interest costs could increase as the result of general increases in interest
rates because a portion of the Company's borrowings under these facilities
will bear interest at floating rates, the rates on individual term loans under
these facilities will depend on the level of prevailing yields on U.S.
Treasury securities at the times loans are made, and additional borrowings may
bear interest at floating rates. See "Financing."
7
<PAGE>
NEED FOR ADDITIONAL CAPITAL
The extent to which the Company will be able to borrow under its mortgage
facilities will be dependent on the Company meeting certain conditions and
maintaining certain reserves. In addition, these mortgage facilities may
restrict the ability of the Company to incur additional debt in the future.
Although the Company is unable to quantify its needs for additional financing,
the Company expects that it will need to procure additional financing over
time, the amount of which will depend on a number of factors including the
number of properties the Company constructs or acquires and the cash flow
generated by its properties. There can be no assurance regarding the
availability or terms of additional financing the Company may be able to
procure over time. Any future debt financings or issuances of preferred stock
by the Company will be senior to the rights of the holders of Common Stock,
and any future issuances of Common Stock will result in the dilution of the
then existing shareholders' proportionate equity interests in the Company.
RESTRICTIONS ON OPERATIONS IN MORTGAGE FACILITIES
The Company's financing arrangements contain a number of provisions that
impose restrictions on the Company which could, under certain circumstances,
limit the Company's operating and financial flexibility and adversely affect
its results of operations. These provisions include restrictions on the
ability of the Company to incur additional indebtedness, prepay indebtedness,
declare dividends, enter into certain financing arrangements, acquire or
dispose of certain assets, or make certain investments. In addition, the
Company's ability to utilize these mortgage facilities is subject to it
meeting certain conditions. See "Financing."
NEW MANAGEMENT
Since its formation in January 1995, the Company has recruited a management
team, most of whom have had no prior experience in the lodging industry. The
Company's success depends upon the ability of these individuals to develop
expertise in managing such business. See "Management--Directors and Officers."
IMPACT OF ENVIRONMENTAL REGULATIONS
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. The Company attempts
to minimize its exposure to potential environmental liability through its
site-selection procedures. The Company typically secures an option to purchase
land subject to certain contingencies. Prior to exercising such option and
purchasing the property, the Company conducts a Phase I environmental
assessment (which generally involves a physical inspection and database
search, but not soil or groundwater analyses). Under various federal, state,
and local environmental laws, ordinances, and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under, or in such
property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to properly remediate such contaminated
property, may adversely affect the owner's ability to borrow using such real
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances also may be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether
or not such facility is or ever was owned or operated by such person. Certain
environmental laws and common-law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws
also may impose restrictions on the manner in which property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership of its properties, the
Company may be potentially liable for any such costs. The
8
<PAGE>
cost of defending against claims of liability or remediating contaminated
property and the cost of complying with environmental laws could materially
adversely affect the Company's results of operations and financial condition.
LOSSES IN EXCESS OF INSURANCE COVERAGE
The Company intends to maintain comprehensive insurance on each of its
properties, including liability, fire, and extended coverage, in the types and
amounts customarily obtained by an owner and operator in the Company's
industry. Nevertheless, there are certain types of losses, generally of a
catastrophic nature, such as hurricanes, earthquakes, and floods, that may be
uninsurable or not economically insurable. The Company uses its discretion in
determining amounts, coverage limits, and deductibility provisions of
insurance, with a view to obtaining appropriate insurance on the Company's
properties at a reasonable cost and on suitable terms. This may result in
insurance coverage that in the event of a loss would not be sufficient to pay
the full current market value or current replacement value of the Company's
lost investment and the insurance proceeds received by the Company might not
be adequate to restore its economic position with respect to such property.
RELIANCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts and
abilities of its senior management and key employees, particularly Mr. George
D. Johnson, Jr., President and Chief Executive Officer, and Mr. Robert A.
Brannon, Senior Vice President and Chief Financial Officer. The loss of the
services of any of these individuals could have a material adverse effect upon
the Company. See "Management--Directors and Officers." The Company does not
have employment or consulting agreements with any of its officers other than
Mr. Harold E. Wright nor does it carry key man life insurance on any of its
officers.
CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of March 31, 1996, George D. Johnson, Jr., H. Wayne Huizenga, and Stewart
H. Johnson beneficially owned approximately 47.6% of the outstanding shares of
Common Stock of the Company and these individuals together with other
executive officers and directors of the Company as a group owned approximately
56.3% of the outstanding shares of Common Stock. By reason of such holdings,
such shareholders acting as a group will be able to effectively control the
affairs and policies of the Company and will be able to elect a sufficient
number of directors to control the Company's Board of Directors and to approve
or disapprove any matter submitted to a vote of the shareholders, including
certain fundamental corporate transactions (such as certain mergers and sales
of assets) requiring shareholder approval. See "Principal Shareholders." In
addition, the Company's debt agreements contain, and future financing
arrangements may contain, provisions regarding the composition of the
Company's Board of Directors. See "Financing."
ANTITAKEOVER EFFECT OF CHARTER, BYLAWS, STATUTORY PROVISIONS, AND FINANCING
ARRANGEMENTS
The ownership positions of Messrs. George D. Johnson, Jr., H. Wayne
Huizenga, and Stewart H. Johnson and the other executive officers and
directors of the Company as a group, together with the anti-takeover effects
of Section 203 of the Delaware General Corporation Law which, in general,
imposes restrictions upon acquirors of 15% or more of the Common Stock, and of
certain provisions in the Company's Certificate of Incorporation and Bylaws,
may have the effect of delaying, deferring, or preventing a change of control
of the Company, even if such event would be beneficial to shareholders. For
example, the Certificate of Incorporation requires that all shareholder action
must be effected at a duly-called annual or special meeting of shareholders,
and the Bylaws require that shareholders follow an advance notification
procedure for certain shareholder nominations of candidates for the Board of
Directors and for certain other business to be conducted at any meeting of
shareholders. In addition, the Company's Certificate of Incorporation
authorizes "blank check" preferred stock, so that the Company's Board of
Directors may, without shareholder approval, issue preferred shares through a
shareholders rights plan or otherwise which could inhibit a change of control.
In the event that the current
9
<PAGE>
members of the Company's Board of Directors cease to constitute a majority of
the Board or Mr. George D. Johnson, Jr. or Mr. Huizenga cease to be a member
of the Board, amounts outstanding under its financing arrangements would
become immediately due. See "Principal Shareholders," "Financing," and
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
At March 31, 1996, the Company had 22,853,092 shares of Common Stock
outstanding, 7,850,062 of which were freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act of
1933, as amended (the "Securities Act")) without restriction or registration
under the Securities Act. The remaining 15,003,030 shares of Common Stock will
become eligible for sale in the public market at various times, subject to
compliance with an exemption from the registration requirements of the
Securities Act, such as Rule 144 or Rule 144A, or registration under the
Securities Act. In connection with the IPO, the holders of these shares agreed
that they would not sell any shares of Common Stock held by them until June
11, 1996 without the consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), one of the representatives of the Underwriters, subject
to certain exceptions, including pursuant to a foreclosure by a lender on a
loan for which shares of Common Stock have been pledged as collateral. The
Company has registered under the Securities Act all of those 15,003,030 shares
of Common Stock so that such shareholders may make resales in the public
market of their Common Stock upon expiration of their lock-up agreements
described above. The holders of approximately 13.3 million shares of Common
Stock (including all shares beneficially owned by the Company's directors and
executive officers) have agreed that they will not sell any shares of Common
Stock for a period of 90 days from the date of this Prospectus without the
consent of DLJ, subject to exceptions similar to those contained in their
prior lock-up agreements. The Company also has registered under the Securities
Act 4,000,000 shares of Common Stock which may be issued from time to time in
connection with potential future acquisitions of various businesses and
resales of such shares by the recipients thereof, and the Company has issued
an aggregate of 722,237 of such shares of Common Stock and expects to issue
approximately 91,000 shares of Common Stock in connection with the proposed
acquisition of the KHEC Facility. See "Recent Developments." The Company also
intends to register under the Securities Act all shares reserved for issuance
under the 1995 Plan, the 1996 Plan, and the Directors' Plan (each as defined
below and collectively the "Option Plans"). Shares so registered could be sold
in the public market. No predictions can be made as to the effect, if any,
that market sales of such shares or the availability of such shares for sale
will have on the market price for shares of Common Stock prevailing from time
to time. Sales of substantial amounts of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
equity securities. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's debt
agreements contain, and future financing agreements may contain, limitations
on the payment of cash dividends or other distributions of assets. See
"Dividend Policy."
10
<PAGE>
RECENT DEVELOPMENTS
On January 26, 1996, the Company acquired substantially all of the assets of
Apartment/Inn, L.P., a Georgia limited partnership ("Apartment/Inn").
Apartment/Inn owned and operated a 196-room economy extended stay lodging
facility in Norcross, Georgia which is similar in concept to the Company's
lodging facilities. In consideration for such acquisition, the Company issued
an aggregate of 293,629 shares of Common Stock. The acquisition was accounted
for using the purchase method of accounting. For historical and pro forma
financial information concerning this acquisition, see "Index to Financial
Statements--Apartment/Inn, L.P." and "--Pro Forma Financial Statements of
Extended Stay America, Inc. and Subsidiaries."
On February 23, 1996, the Company acquired substantially all of the assets
of Hometown Inn I, LTD and Hometown Inn II, LTD (collectively "Hometown Inn").
Hometown Inn owned and operated a 130-room economy extended stay lodging
facility in Norcross, Georgia and a 144-room economy extended stay lodging
facility in Riverdale, Georgia, both of which are similar in concept to the
Company's lodging facilities. In consideration for such acquisition, the
Company issued 428,608 shares of Common Stock and paid an additional $75,000
in cash. The acquisition was accounted for using the purchase method of
accounting. For historical and pro forma financial information concerning this
acquisition, see "Index to Financial Statements--Hometown Inn I, LTD and
Hometown Inn II, LTD" and "--Pro Forma Financial Statements of Extended Stay
America, Inc. and Subsidiaries."
On May 10, 1996, the Company acquired substantially all of the assets of
American Apartmen-Tels Investors II, L.P. ("AATI"), which owned and operated a
59-room extended stay lodging facility in Lenexa, Kansas, for a purchase price
of approximately $3.3 million in cash. This purchase includes adjacent land on
which the Company intends to build a new 60-room economy extended stay lodging
facility.
On May 1, 1996, the Company entered into an agreement to acquire the KHEC
Facility, a 145-room traditional lodging facility located in Lakewood,
Colorado, which the Company intends to remodel and convert to the economy
extended stay format. The purchase price will be approximately $3.0 million,
which the Company expects to pay by delivering shares of Common Stock.
Consummation of the proposed acquisition of the KHEC Facility is subject to a
number of conditions. The Company expects to account for this acquisition
using the purchase method of accounting. For historical and pro forma
financial information concerning this proposed acquisition, see "Index to
Financial Statements--Kipling Hospitality Enterprise Corporation" and
"--Pro Forma Financial Statements of Extended Stay America, Inc. and
Subsidiaries."
On May 9, 1996, the Board of Directors of the Company declared the Stock
Dividend of one additional share of Common Stock for each share issued as of
the close of business on July 5, 1996. Except as otherwise noted, none of the
information contained in this Prospectus reflects the Stock Dividend.
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
approximately $222.4 million ($255.8 million if the Underwriters' over-
allotment option is exercised in full) assuming a public offering price of
$33.25 per share (the closing sale price of the Common Stock on May 23, 1996
on the Nasdaq National Market) and after deduction of the estimated
underwriting discounts and commissions and other offering expenses. The
Company intends to use substantially all of such net proceeds to expand its
business by developing additional economy extended stay lodging facilities and
for other general corporate purposes. Pending use of the proceeds as set forth
above, they will be invested in short-term interest bearing investments.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock began trading in the Nasdaq National Market on December 14,
1995. The following table sets forth, for the periods indicated, the high and
low sale prices of the Common Stock as quoted on the Nasdaq National Market.
On May 23, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $33.25 per share. At March 31, 1996, there were
approximately 150 record holders and approximately 3,500 beneficial holders of
Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
---------------
HIGH LOW
<S> <C> <C>
Year Ended December 31, 1995:
Fourth Quarter (from December 14, 1995)................. $28 $20 1/4
Year Ended December 31, 1996:
First Quarter........................................... 31 1/4 20
Second Quarter (through May 23, 1996)................... 34 22
</TABLE>
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock, and the Board of
Directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes and, therefore, does not anticipate
paying any such dividends in the foreseeable future. In addition, the
Company's debt agreements contain, and future financing agreements may
contain, a minimum net worth covenant and limitations on payment of any cash
dividends or other distributions of assets, which covenants, limitations, and
requirements could restrict the Company's ability to pay dividends. See
"Financing."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give pro forma effect to this offering (based upon
an assumed offering price of $33.25 per share) and the acquisition of the KHEC
Facility. This table should be read in conjunction with the selected financial
data, the historical and pro forma financial statements of the Company, and
the related notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL PRO FORMA
<S> <C> <C>
Long-term debt(1)............................ $ 0 $ 0
Shareholders' equity:
Preferred Stock, par value $.01 per share,
10,000,000 shares authorized; no shares
issued and outstanding.................... 0 0
Common Stock, par value $.01 per share,
200,000,000 shares authorized; 22,853,092
shares issued and outstanding; 29,944,092
shares issued and outstanding pro forma... 228,531 299,441
Additional paid-in capital................. 166,041,256 391,353,471
Accumulated deficit........................ (1,736,732) (1,736,732)
------------ ------------
Total shareholders' equity(2)............ 164,533,055 389,916,180
------------ ------------
Total capitalization..................... $164,533,055 $389,916,180
============ ============
</TABLE>
- ---------------------
(1) Does not give effect to future borrowings.
(2) Excludes 2,436,258 shares of Common Stock subject to issuance upon
exercise of outstanding stock options and 1,980,802 additional shares
reserved for issuance under the Option Plans at March 31, 1996.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
historical and pro forma financial statements of the Company and from the
historical financial statements of Welcome Inn America 89-1, L.P. ("Welcome").
The selected financial data for Welcome is included because Welcome may be
deemed to be a predecessor of the Company. The historical financial statements
of the Company for the year ended December 31, 1995 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report thereon
appears elsewhere herein. The historical financial statements of Welcome for
the years ended December 31, 1992, 1993, and 1994, and for the period from
January 1, 1995 through August 18, 1995, have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report for the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 through
August 18, 1995 thereon appears elsewhere herein. The selected financial data
set forth below for the year ended December 31, 1991 has been derived from
Welcome's unaudited internal financial statements and reflects all adjustments
which management considers necessary for a fair and consistent presentation of
the results of operations for that period. Operating statement data for the
three months ended March 31, 1995 and 1996 and balance sheet data as of March
31, 1996 are derived from unaudited financial statements of the Company
included herein. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for the fair presentation of its financial position and the results
of its operations for these periods. The pro forma data is unaudited but, in
the opinion of management, all necessary pro forma adjustments have been made.
The unaudited pro forma consolidated operating statement data is not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the pro forma transactions had been completed as of
the beginning of the period, nor does it purport to represent the results of
operations for any future periods. The unaudited pro forma consolidated
balance sheet data is not necessarily indicative of what the actual financial
position would have been assuming the pro forma transactions had been
completed as of March 31, 1996, nor does it purport to represent the future
financial position of the Company. These selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the historical and pro forma financial
statements and related notes thereto of the Company and the historical
financial statements and related notes thereto of Welcome, Apartment/Inn,
Hometown Inn, and KHEC contained elsewhere herein.
THE COMPANY
<TABLE>
<CAPTION>
FOR THE THREE
YEAR ENDED MONTHS ENDED FOR THE THREE MONTHS
DECEMBER 31, 1995 MARCH 31, 1995 ENDED MARCH 31, 1996
------------------------ -------------- --------------------------
PRO
ACTUAL FORMA(1) ACTUAL ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 877,885 $6,983,658 $ $ 1,170,829 $ 1,889,586
Operating expenses.... 2,887,091 6,782,841 248,601 2,846,928 3,212,945
Depreciation and
amortization......... 146,726 1,041,514 203,343 298,780
Loss from operations.. (2,155,932) (840,697) (248,601) (1,879,442) (1,622,139)
Interest income....... 848,510 804,510 1,450,132 1,425,132
Income taxes.......... 0 0 0 0
Net loss.............. $ (1,307,422) $ (36,187) $ (248,601) $ (429,310) $ (197,007)
============ ========== ========== ============ ============
Net loss per share(3). $ (0.10) $ (0.00) $ (0.02) $ (0.02) $ (0.01)
============ ========== ========== ============ ============
Weighted average
number of shares of
common stock and
equivalents
outstanding(3)....... 12,652,110 13,808,783 11,489,017 22,467,393 22,944,092
============ ========== ========== ============ ============
<CAPTION>
AS OF
DECEMBER 31,
1995 AS OF MARCH 31, 1996
------------ --------------------------
ACTUAL ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $123,357,510 $104,010,918 $324,369,043
Total assets.......... 149,618,649 166,369,727 391,752,852
Long-term debt(5)..... 0 0 0
Shareholders' equity.. 147,222,245 164,533,055 389,916,180
</TABLE>
13
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1995 THROUGH
------------------------------------------ AUGUST 18,
1991(6) 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 686,970 $ 866,314 $999,371 $1,079,287 $712,837
Operating expenses.... 503,508 502,611 557,002 561,746 367,217
Depreciation and
amortization......... 153,066 159,874 138,987 141,362 95,546
--------- --------- -------- ---------- --------
Income from
operations........... 30,396 203,829 303,382 376,179 250,074
Interest expense...... 470,698 398,650 382,306 360,639 272,152
--------- --------- -------- ---------- --------
Net income (loss)..... $(440,302) $(194,821) $(78,924) $ 15,540 $(22,078)
========= ========= ======== ========== ========
</TABLE>
- ---------------------
(1) Giving pro forma effect to the acquisition of the Acquired Facilities and
the Marietta Facility and the proposed acquisition of the KHEC Facility as
if they all had occurred at the beginning of the period and to the Company
operating as a publicly held entity as of such date. See the pro forma
financial statements and notes thereto and note 5 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.
(2) Giving pro forma effect to the acquisition of the Acquired Facilities and
the proposed acquisition of the KHEC Facility as if they had occurred at
the beginning of the period. See the pro forma financial statements and
notes thereto and note 5 to the Company's consolidated financial
statements, all of which are contained elsewhere herein.
(3) See notes 2 and 5 to the Company's consolidated financial statements
contained elsewhere herein.
(4) Giving pro forma effect to the proposed acquisition of the KHEC Facility
and this offering as if they occurred on March 31, 1996. See the pro forma
financial statements and notes thereto contained elsewhere herein.
(5) Does not give effect to future borrowings.
(6) The Marietta Facility commenced operations in February 1991.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was organized in January 1995 to develop, own, and manage
extended stay lodging facilities. The Company began construction of its first
lodging facility in Spartanburg, South Carolina on February 1, 1995. This
facility was completed and commenced operations in August 1995. The Company's
activities during the quarter ended March 31, 1995 consisted of corporate
organization, site selection, and site development. The Company did not have
operating facilities or other revenue sources during the quarter ended March
31, 1995. On May 1, 1995, the Company contracted to manage an extended stay
facility in Marietta, Georgia which was subsequently acquired by the Company
on August 18, 1995. On August 18, 1995 the Company also issued 11,718,000
shares (adjusted to reflect a 210-for-1 stock split in October 1995) of Common
Stock in exchange for net proceeds of approximately $55.8 million. In October
1995, the Company executed a mortgage facility providing for up to $200
million in mortgage loans, which may be used to finance on a long-term basis
newly constructed facilities. The Company completed the Prior Offerings in
December 1995 from which it received net proceeds of approximately $85
million.
As of March 31, 1996 the Company had 5 operating facilities, 17 facilities
under construction, and options to purchase 64 sites for development in 23
states. The Company expects to complete the construction of the facilities
currently under construction and to commence construction on the majority of
these sites under option during 1996. There can be no assurances, however,
that the Company will complete the acquisition of the sites under option or,
if acquired, commence construction during 1996 and the Company's ability to do
so may be materially impacted by various factors including zoning, permitting,
and environmental due diligence issues and weather-induced construction
delays.
Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay facilities or other properties that are suitable for conversion
to the extended stay concept. During the quarter ended March 31, 1996, the
Company acquired three operating facilities (two in Norcross, Georgia and one
in Riverdale, Georgia). On January 26, 1996, the Company acquired
substantially all of the assets of Apartment/Inn, which owned and operated a
196-room economy extended stay lodging facility in Norcross, Georgia. In
consideration for the acquisition, the Company issued an aggregate of 293,629
shares of Common Stock. On February 23, 1996, the Company acquired
substantially all of the assets of Hometown Inn which owned and operated a
130-room economy extended stay lodging facility in Norcross, Georgia and a
144-room economy extended stay lodging facility in Riverdale, Georgia. In
consideration for the acquisition, the Company issued an aggregate of 428,608
shares of Common Stock and paid an additional $75,000 in cash. These
acquisitions were accounted for using the purchase method of accounting.
On May 10, 1996, the Company acquired substantially all of the assets of
AATI, which owned and operated a 59-room extended stay lodging facility in
Lenexa, Kansas, for a purchase price of approximately $3.3 million in cash.
This purchase includes adjacent land on which the Company intends to build a
new 60-room economy extended stay lodging facility. On May 1, 1996, the
Company entered into an agreement to acquire from KHEC a 145-room traditional
lodging facility located in Lakewood, Colorado, which the Company intends to
remodel and convert to the economy extended stay format. The purchase price
will be approximately $3.0 million, which the Company expects to pay by
delivering shares of Common Stock. Consummation of the proposed acquisition of
the KHEC Facility is subject to a number of conditions. The Company will
account for this acquisition using the purchase method of accounting.
RESULTS OF OPERATIONS
PROPERTY OPERATIONS
Property operations for the year ended December 31, 1995 included the
Spartanburg, South Carolina property from the date of opening on August 1,
1995 and the Marietta, Georgia facility from the date of
15
<PAGE>
acquisition on August 18, 1995. These properties realized average occupancy of
83% and average weekly room rates of $198 for their periods of operation by
the Company during 1995. The Company did not have operating facilities during
the quarter ended March 31, 1995. The Company began the quarter ended March
31, 1996 with two operating facilities and acquired three additional operating
facilities during that quarter. During the period owned by the Company, these
properties realized average occupancy of 90% and average weekly room rates of
$198 during the quarter ended March 31, 1996. There can be no assurance that
the foregoing occupancy and room rates can be maintained or are representative
of rates to be expected for new facilities. Occupancy rates are determined by
dividing the guest rooms occupied on a daily basis by the total number of
guest rooms. Average weekly room rates are determined by dividing room revenue
by the number of rooms occupied on a daily basis for the applicable period and
multiplying by seven. The average weekly room rates vary from standard room
rates due primarily to (i) stays of less than one week, which are charged at a
higher nightly rate, (ii) higher weekly rates for a limited number of rooms
which are larger than the standard rooms, and (iii) additional charges for
more than one person per room.
The Company recognized total room revenues of $817,133, along with other
revenues, consisting of telephone and vending revenues which vary based on
occupancy, of $42,977 during 1995. Total room revenues for the quarter ended
March 31, 1996 were $1,137,841 and other revenues were $32,988. Property
operating expenses, consisting of all expenses directly allocable to the
operation of the properties but excluding any allocation of corporate
operating expenses and depreciation, were $332,523 or 37.9% of total revenues
for 1995 and $442,540 or 37.8% of total revenues for the quarter ended March
31, 1996.
Depreciation of the cost of the facilities was provided using the straight-
line method over the estimated useful lives of the properties. The provision
for the period ended December 31, 1995 was $126,772 and the provision for the
quarter ended March 31, 1996 was $193,113. These provisions reflect a pro-rata
allocation of the annual depreciation charge for the period for which the
properties were in operation.
CORPORATE OPERATIONS
The Company realized management fees of $17,775 in 1995 from its management
of the Marietta facility prior to its acquisition of that facility. The
Company has not managed properties for a fee since that property was acquired.
Corporate operating and property management expenses include all expenses
not directly related to the development or operation of facilities. Expenses
of $2,042,039 for the year ended December 31, 1995, $1,580,655 for the quarter
ended March 31, 1996, and $195,823 for the quarter ended March 31, 1995
consist primarily of personnel expenses, professional and consulting fees, and
related travel expenses. The increase in corporate operating and property
management expenses for the quarter ended March 31, 1996 as compared with the
quarter ended March 31, 1995 reflects an increase in personnel and related
expenses in connection with the Company's increased level of operating
properties and site development. The total amount of these expenses will
increase in the future with the development of additional facilities.
Site selection costs of $512,529 for the year ended December 31, 1995,
$823,733 for the quarter ended March 31, 1996 and $52,778 for the quarter
ended March 31, 1995 consist of real estate and construction personnel costs
which are not directly related to a site that will be developed by the
Company, along with expenditures made to third parties for services and costs
related to the investigation of such sites. The increase in these costs for
the quarter ended March 31, 1996 as compared with the quarter ended March 31,
1995 reflects the increased level of sites under development. These costs will
continue in the future and could increase depending on the rate of expansion
because the Company's development personnel must evaluate numerous potential
sites in an effort to identify sites meeting the Company's standards.
Depreciation and amortization in the amount of $19,954 for the year ended
December 31, 1995, and $10,230 for the quarter ended March 31, 1996 were
provided using the straight-line method over the estimated useful lives of the
assets for assets not directly related to the operation of the facilities,
including primarily organization
16
<PAGE>
costs and office furniture and equipment. These assets were acquired
subsequent to March 31, 1995 and therefore no provision for depreciation and
amortization was made for the quarter ended March 31, 1995.
The Company realized $848,510 of interest income during the year ended
December 31, 1995 and $1,450,132 during the quarter ended March 31, 1996 which
was primarily attributable to the short-term investment of funds received from
the initial capitalization of the Company in the third quarter of 1995 and the
consummation of the Prior Offerings on December 19, 1995. There were no funds
held for investment by the Company during the quarter ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
From the inception of the Company in January 1995 through August 18, 1995,
the Company's operations were financed primarily by loans from the Company's
two largest shareholders in an aggregate amount of approximately $6.1 million.
These loans accrued interest at an annual rate of 8.75% with such interest
being capitalized as a cost of development of the Spartanburg, South Carolina
facility. The loans were repaid in full in August 1995 from the proceeds of
$55.8 million received upon the issuance of 11,718,000 shares (adjusted to
reflect a 210-for-1 stock split in October 1995) of Common Stock. In December
1995, the Company completed the Prior Offerings from which the Company
received net proceeds of approximately $85 million upon the issuance of
7,127,825 shares of Common Stock.
The Company had cash balances of $123.4 million as of December 31, 1995 and
$104.0 million as of March 31, 1996. Substantially all of the cash balances as
of December 31, 1995 and March 31, 1996 were invested in an overnight sweep
account with a commercial bank which invests in short-term, interest bearing
reverse repurchase agreements for U.S. government securities. The market value
of the securities held pursuant to the agreements approximates the carrying
amount. In consideration for the three existing facilities acquired by the
Company in the quarter ended March 31, 1996, the Company issued Common Stock
valued at approximately $17.9 million and paid cash, including the payment of
related expenses, of approximately $356,000. In addition, approximately $15.4
million was used to acquire land and develop and furnish the 17 sites under
construction during the quarter. This compares to approximately $281,000 used
to develop one property during the first quarter of 1995. A total of
approximately $2.7 million, less refunds of site deposits of $240,000, was
used for site deposits and preacquisition costs in the three months ended
March 31, 1996, compared to approximately $120,000 used for such costs in the
comparable prior year period.
The Company expects to finance the construction and development of its
lodging facilities principally with its cash balances and with loans under
mortgage facilities. The Company has two mortgage facilities which provide for
up to a total of $400 million in loans, subject to certain conditions and
limitations, for facilities after completion of construction. See "Financing."
The Company in the future may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments. Any debt incurred or issued by the Company may be secured or
unsecured, with a fixed or variable interest rate, and may be subject to such
terms as the Board of Directors of the Company deems prudent. The Company
expects that it will need to procure additional financing over time, although
there can be no assurance that such financing will be available when needed.
SEASONALITY AND INFLATION
Based upon the operating history of the Company's facilities, management
believes that extended stay lodging facilities are not as seasonal in nature
as the overall lodging industry. Management does expect, however, that
occupancy and revenues may be lower than average during the months of December
and January due to the holiday season. Because many of the Company's expenses
do not fluctuate with occupancy, such declines in occupancy may cause
fluctuations or decreases in the Company's quarterly earnings.
17
<PAGE>
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue or operating results of the
Company from its inception on January 9, 1995. There can be no assurance,
however, that inflation will not affect future operating or construction
costs. See "Risk Factors--Development Risks."
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires the Company to
identify properties for which it has committed to an exit plan or which may be
otherwise impaired. The fixed assets for such properties must be written down
to fair market value. The Company anticipates that the adoption of SFAS 121,
required for fiscal years beginning after December 15, 1995, will not result
in a reduction of net fixed assets or an increase in expenses in the fiscal
year 1996 statement of operations.
The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules.
Companies that choose not to record compensation expense under the new rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company has not yet determined the financial statement
impact of SFAS 123 and has elected not to recognize the impact of this
pronouncement in its fiscal 1995 statement of operations, but will disclose as
required in the fiscal 1996 financial statements on a pro forma comparative
basis the effect of SFAS 123 on net income and earnings per share.
18
<PAGE>
BUSINESS
OVERVIEW
Extended Stay America, Inc. was organized in January 1995 to develop, own,
and manage extended stay lodging facilities which are designed to appeal to
value-conscious guests. The Company's facilities are designed to offer quality
accommodations for guests at substantially lower rates than most other
extended stay lodging providers and hotels in the economy segment of the
traditional lodging industry. They feature fully furnished rooms which are
generally rented on a weekly basis to guests such as business travelers
(particularly those with limited expense accounts), professionals on temporary
work assignment, persons between domestic situations, and persons relocating
or purchasing a home, with most guests staying for multiple weeks. The
Company's facilities provide a variety of features that are attractive to the
extended stay guest such as a fully-equipped kitchenette, weekly housekeeping
with twice-weekly towel service, color television with cable or satellite
hook-up, coin laundromat, and telephone service with voice mail messaging. To
help maintain affordability of room rates, labor intensive services such as
daily cleaning, room service, and restaurants are not provided.
The extended stay category is one of the most rapidly evolving sectors of
the U.S. lodging industry. From 1992 to 1995, the number of dedicated extended
stay rooms increased at a compounded annual growth rate of approximately 3.3%,
compared with compounded annual room growth of approximately 1.4% for the
overall lodging industry over the same period. However, the vast majority of
these rooms have been developed in the high-price end of the category. The
economy extended stay sector of the lodging industry appears to present a
number of attractive characteristics compared to traditional hotels, including
higher occupancy rates and operating margins. Based on published occupancy
rates for other participants in the extended stay market, the Company believes
that demand in the economy extended stay market is greater, relative to
supply, than in the lodging industry generally. The Company is not aware of
any operator who serves the economy extended stay market niche on a national
level.
The Company's goal is to become a national provider of economy extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenues and reduce
operating costs, and increasing awareness of the economy extended stay
concept. Through May 13, 1996, the Company had developed and opened three
facilities, acquired five others, and had an agreement to acquire one
additional facility. As of such date, the Company had 20 facilities under
construction, substantially all of which the Company expects to have opened by
the end of 1996. The Company plans to begin construction of approximately 45
additional facilities during the remainder of 1996 and to continue an active
development program thereafter. The Company's plans call for the average
facility to have approximately 125 extended stay rooms and to take
approximately 7-9 months to construct.
The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the
President of the Consumer Products Division of Blockbuster Entertainment
Group, a division of Viacom, Inc. Mr. Huizenga, who is the Chairman of the
Board of Directors of the Company, is the Chairman and Chief Executive Officer
of Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc.
and Chairman and Chief Executive Officer of Blockbuster Entertainment
Corporation ("Blockbuster"). The Company's management team has extensive
experience in the acquisition and development of real estate and the operation
of properties on a national scale.
GROWTH AND DEVELOPMENT STRATEGY
The Company's goal is to become a national provider of economy extended stay
facilities. The Company plans to rapidly develop new economy extended stay
lodging facilities. Although the Company expects that the construction and
development of new extended stay lodging facilities will be its primary means
of expansion, the Company has also made, and may continue making, acquisitions
of existing extended stay lodging facilities or other properties that are
suitable for conversion to the extended stay concept.
19
<PAGE>
Through May 13, 1996, the Company has developed and opened three economy
extended stay facilities and acquired five other facilities since the Company
began operations in 1995. As of such date, the Company had 20 facilities under
construction, substantially all of which the Company expects to have opened by
the end of 1996. The Company plans to begin construction of approximately 45
additional facilities during 1996 and to continue an active development
program thereafter. The Company's strategy is to identify regions of the
country that contain the demographic factors necessary to support one or more
economy extended stay lodging facilities and to focus its development in those
regions in order to obtain the maximum benefit from operational efficiencies.
The Company expects target sites will generally have a large and/or growing
population in the surrounding area with a large employment base. Such sites
also are generally expected to have good visibility from a major traffic
artery and be in close proximity to convenience stores, restaurants, and
shopping centers.
For the economy extended stay facilities developed and opened by the Company
in Spartanburg, South Carolina, Columbia, South Carolina, and Downers Grove,
Illinois, the average development cost was approximately $5.1 million with an
average of 133 rooms. The cost to develop a facility varies significantly by
geographic location. For the 20 facilities that were under construction as of
May 13, 1996, the estimated average cost is approximately $4.6 million with an
average of approximately 125 rooms. The cost of these facilities is expected
to vary from a low of approximately $3.7 million to a high of $5.9 million
with the number of rooms ranging from a low of 111 to a high of 150.
Sites for development are selected by the Company's real estate
professionals, subject to review and approval by senior management. The
Company currently maintains offices in Spartanburg, South Carolina; Park
Ridge, Illinois; Bellevue, Washington; Morristown, New Jersey; El Segundo,
California; San Rafael, California; and Phoenix, Arizona for these real estate
professionals and the construction supervisors for the region. The Company
expects to open regional offices in other geographic areas in the future as
the Company increases the number of regions in which it is focusing its
development. The Company utilizes independent general contractors for the
construction of its lodging facilities and is using a number of such
contractors depending upon geographic area, costs of construction, and
financial and physical capacities of the contractors. The Company's
construction personnel will oversee the progress of construction on a regular
basis during the development cycle.
Certain members of the Company's management team have extensive experience
in the rapid development of standardized commercial properties nationwide. In
connection with past development activities, in particular the nationwide
roll-out of Blockbuster video stores, these individuals were responsible for
site selection, construction management, and subsequent operation of hundreds
of locations.
OPERATING STRATEGY
The Company's business strategy is to develop the economy extended stay
concept by providing an affordable and attractive lodging alternative for
value-conscious travelers looking for extended stay accommodations. The
Company's goal is to provide its guests with the level of amenities needed to
optimize room and occupancy rates while maintaining high operating margins at
its facilities. The Company attempts to achieve this goal through the
following:
Appeal to Value Conscious Guests. The Company's facilities are designed
to offer quality accommodations for guests at substantially lower rates
than most other extended stay lodging providers and hotels in the economy
segment of the traditional lodging industry. As of May 13, 1996, the
Company's facilities offered extended stay accommodations for $169 to $269
per week. Room rates at the Company's facilities may vary significantly
depending upon market factors affecting such locations. These rates
contrast with average weekly rates of approximately $545 for traditional
extended stay hotels and approximately $330 for hotels in the economy
segment of the lodging industry.
Lodging Facility Features. The Company's facilities contain a variety of
non-labor intensive features that are attractive to the extended stay guest
such as a fully-equipped kitchenette, weekly housekeeping with twice-weekly
towel service, color television with cable or satellite hook-up, coin
laundromat, and telephone service with voice mail messaging.
20
<PAGE>
Standardized Concept. The Company has developed standardized plans and
specifications for its facilities which should lower construction and
purchasing costs and establish uniform quality and operational standards.
The Company also expects to benefit from the experience of various members
of the Company's management team in developing numerous commercial
properties to a uniform set of design standards and in operating systems on
a cost-effective basis.
Operating Efficiencies. The Company believes that the design and price
level of its facilities attract guest stays of several weeks, which should
result in a more stable revenue stream and which, coupled with low-labor
amenities, could in turn lead to reduced administrative and operational
costs and higher operating margins. In addition, members of the Company's
management team have extensive experience in the utilization of
sophisticated control and information systems which should enable the
Company to manage, on a Company-wide basis, individual facility specific
factors such as pricing, payroll, and occupancy levels.
Each Company facility employs a property manager who is responsible for the
operations of the particular property. The property manager shares duties with
and oversees a staff typically consisting of an assistant manager, a desk
clerk, a maintenance person, and a housekeeping/laundry staff of approximately
8-10 persons (most of whom are part-time employees). The office at each
facility is generally open daily from 7:00 a.m. to 11:00 p.m., although an
employee normally is on duty twenty-four hours a day to respond to guests'
needs.
The majority of daily operational decisions are made by the property
manager. Each property manager is under the supervision of a regional manager
who will be responsible for five to ten facilities, depending on geographic
location. The regional manager oversees the performance of the property
managers in such areas as guest service, property maintenance, and payroll and
cost control. The corporate office utilizes state-of-the-art information
systems to support its regional managers. Each facility is measured against a
detailed revenue and expense budget, as well as against the performance of the
Company's other facilities. The Company is developing centralized pricing,
purchasing, marketing, and operational procedures in order to achieve
operating efficiencies.
The Company's current operating subsidiaries are ESA Development, Inc. ("ESA
Development") and ESA Properties, Inc. ("ESA Properties"), which acquire and
develop properties, and ESA Management, Inc. ("ESA Management"), which
provides construction and management services for all of the lodging
facilities owned by the Company and its subsidiaries. The Company expects that
each lodging facility will be owned by a separate single-purpose subsidiary
formed for such purpose. See "Financing."
LODGING FACILITIES
As of May 13, 1996, the Company had eight economy extended stay lodging
facilities in operation and 20 facilities under construction in a total of
eleven states. The following table sets forth certain information regarding
the Company's lodging facilities that are in operation.
<TABLE>
<CAPTION>
DATE OPENED NUMBER
LOCATION OR ACQUIRED OF ROOMS
<S> <C> <C>
Spartanburg, South Carolina........................ August 1995 123
Marietta, Georgia.................................. August 1995 119
Norcross, Georgia.................................. January 1996 196
Norcross, Georgia.................................. February 1996 130
Riverdale, Georgia................................. February 1996 144
Columbia, South Carolina........................... April 1996 120
Downers Grove, Illinois............................ May 1996 154
Lenexa, Kansas..................................... May 1996 59
</TABLE>
21
<PAGE>
The following table sets forth certain information regarding the Company's
lodging facilities that are under construction.
<TABLE>
<CAPTION>
PLANNED
ESTIMATED NUMBER
LOCATION OPENING DATE OF ROOMS
<S> <C> <C>
Greensboro, North Carolina................... Second Quarter 1996 129
Chesapeake, Virginia......................... Second Quarter 1996 132
Chattanooga, Tennessee....................... Second Quarter 1996 120
Sharonville, Ohio............................ Third Quarter 1996 130
Winston-Salem, North Carolina................ Third Quarter 1996 111
Charleston, South Carolina................... Third Quarter 1996 126
Virginia Beach, Virginia..................... Third Quarter 1996 120
Maryland Heights, Missouri................... Third Quarter 1996 150
Lexington, Kentucky.......................... Third Quarter 1996 126
Brentwood, Tennessee......................... Fourth Quarter 1996 120
Springdale, Ohio............................. Fourth Quarter 1996 126
Little Rock, Arkansas........................ Fourth Quarter 1996 120
Rolling Meadows, Illinois.................... Fourth Quarter 1996 125
Novi, Michigan............................... Fourth Quarter 1996 124
Louisville, Kentucky......................... Fourth Quarter 1996 120
Itasca, Illinois............................. Fourth Quarter 1996 125
Memphis, Tennessee........................... Fourth Quarter 1996 126
Greece, New York............................. Fourth Quarter 1996 125
Burr Ridge, Illinois......................... Fourth Quarter 1996 119
Newport News, Virginia....................... Fourth Quarter 1996 120
</TABLE>
The design plans for the Company's economy extended stay lodging facilities
call for a newly-constructed apartment style complex with two to three story
buildings containing an average of approximately 125 guest rooms with
laundromat and office areas. The Company utilizes both interior and exterior
corridor building designs, depending primarily on local zoning and weather
factors. Rooms generally offer approximately 250 to 300 square feet of fully
furnished living space, including a kitchenette and a dining/working area. The
kitchenette is fully-equipped with a refrigerator, stovetop, microwave, and
sink.
INDUSTRY OVERVIEW
TRADITIONAL LODGING INDUSTRY
The U.S. lodging industry is estimated to have generated approximately $51
billion in annual room revenues in 1995 and had approximately 3.3 million
rooms at the end of 1995. Over 60% of the industry's rooms are owned, managed,
or franchised by the 10 largest lodging chains.
Industry statistics, which the Company believes to be reliable, indicate
that the U.S. lodging industry's performance is strongly correlated to
economic activity. Room supply and demand historically have been sensitive to
shifts in economic growth, which has resulted in cyclical changes in average
daily room and occupancy rates. Overbuilding in the lodging industry in the
mid and late 1980s, when approximately 500,000 rooms were added, resulted in
an oversupply of rooms. The Company believes this oversupply and the general
downturn in the economy led to depressed industry performance and a lack of
capital available to the industry in the late 1980s and early 1990s.
The Company believes that the lodging industry has benefited from a
gradually improving supply and demand balance, evidenced by increased average
daily room and occupancy rates. Room supply growth in the lodging industry has
slowed in recent years as the industry absorbs the oversupply of rooms that
resulted from an average annual room supply growth of approximately 3.5% for
1988 through 1991. According to industry reports, which the Company believes
are reliable, this growth slowed to an average of 1.4% for 1992 through 1995.
The 3.1% average annual increase in demand (measured by occupied rooms) for
1992 through 1995 as
22
<PAGE>
compared to increases in supply during the same period reflects an improved
supply and demand balance in the industry. The Company believes these factors
were primarily responsible for the increase in industry occupancy rates from
61.7% for 1991 to 66.1% for 1995 and the increase in average daily room rates
from $58.11 for 1991 to $65.62 for 1995.
The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories: full service hotels, which offer food
and beverage services, meeting rooms, room service, and similar guest
services; limited service hotels, which generally offer only rooms with
amenities such as swimming pools, continental breakfast, or similar limited
services; and all-suites, which generally have limited public spaces but
provide guests with two rooms or distinct partitioned areas and which may or
may not offer food and beverage service to guests. Segmentation by price level
may generally be divided into the following categories with the respective
average daily room rates for 1995: budget ($36), economy ($47), mid-price
($61), upscale ($80), and luxury ($118).
The all-suites segment of the lodging industry is a relatively new segment,
having developed largely over the past 10 years, and is principally oriented
toward business travelers in the mid-price to upscale price levels. All-suite
hotels were developed partially in response to the increasing number of
corporate relocations, transfers, and temporary assignments and the need of
business travelers for more than just a room. To address those needs, all-
suite hotels began to offer suites with additional space and, in some cases,
an efficiency kitchen, and guests staying for extended periods of time were
offered discounts to daily rates when they paid on a weekly or monthly basis.
Because of the perceived positive price/value relationship, all-suite hotels
have generally outperformed the lodging industry as a whole over the last five
years.
EXTENDED STAY MARKET
The Company believes that the extended stay market, in which the Company
participates, is a continuation of the all-suites phenomenon, and that the
same price/value relationship which has enabled the all-suites segment to
achieve higher than industry average occupancy rates and operating margins
will also carry through to the extended stay market. Demand for extended stay
lodging has been stimulated by the economic and social changes resulting from
the increased volume of corporate reorganizations and trends toward down-
sizing and out-sourcing of various functions, the break-up and geographic
dispersion of the traditional family, and technological improvements which
have allowed businesses to relocate outside of large metropolitan areas. These
changes have created new accommodation needs for, among others, corporate
executives and trainees, consultants, sales representatives, construction
workers, and people in between jobs or houses. The extended stay category is
one of the most rapidly evolving sectors of the U.S. lodging industry. From
1992 to 1995, the number of dedicated extended stay rooms has increased at a
compounded annual growth rate of approximately 3.3%, compared with compounded
annual room growth of approximately 1.4% for the overall lodging industry over
the same period. However, the vast majority of these rooms have been developed
in the high-price end of the category.
ECONOMY EXTENDED STAY CONCEPT
Economy extended stay lodging competes on the basis of price compared to the
extended stay market generally, thereby providing an economic inducement to
guests who are already attracted to the extended stay concept. In addition,
economy extended stay lodging provides a new and affordable lodging
alternative for guests who are value conscious, have lower incomes, or are on
limited expense accounts. Based on published occupancy rates for other
participants in the extended stay market, the Company believes that there is a
strong demand for economy extended stay accommodations and that there is
little organized competition for that business on a national or regional
basis. Of the approximately 3.3 million total available rooms in the U.S.
lodging industry at the end of 1995, there were approximately 38,000, or 1.2%,
dedicated extended stay rooms at approximately 325 separate properties. More
than two-thirds of these extended stay properties were controlled by only two
other competitors, both of which are priced toward the upscale segment of the
extended stay market.
23
<PAGE>
COMPETITION
The lodging industry is highly competitive. Competitive factors within the
lodging industry include room rates, quality of accommodations, service
levels, convenience of location, reputation, reservation systems, name
recognition, and supply and availability of alternative lodging in local
markets, including short-term lease apartments. The Company's facilities
compete with a number of competitors, including budget and economy segment
hotels and other companies focusing on the extended stay market. All of the
Company's existing facilities are located in developed areas that include
competing lodging facilities. In addition, each of the Company's proposed
facilities is likely to be located in an area that includes competing
facilities. The number of competitive lodging facilities in a particular area
could have a material adverse effect on the levels of occupancy and average
weekly room rates of the Company's existing and future facilities.
The Company anticipates that competition within the economy extended stay
lodging market will increase as participants in other segments of the lodging
industry and others focus on this relatively new market. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Numerous other extended stay lodging facilities exist, most of
which are oriented toward the upscale segment. The Company may compete for
development sites with established entities which have greater financial
resources than the Company and better relationships with lenders and sellers.
These entities may generally be able to accept more risk than the Company can
prudently manage. Further, there can be no assurance that new or existing
competitors will not significantly reduce their rates or offer greater
convenience, services, or amenities or significantly expand, improve, or
develop facilities in a market in which the Company competes, thereby
adversely affecting the Company's operations.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment
a hazardous substance at a property owned by another may be liable for the
costs of removal or remediation of hazardous substances released into the
environment at that property. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the
owner's ability to sell such real estate or to borrow using such real estate
as collateral. In connection with the ownership and operation of its
properties, the Company may be potentially liable for any such costs.
The Company has obtained recent Phase I environmental site assessments
("Phase I Surveys") on its existing properties and intends to obtain Phase I
Surveys prior to the purchase of any future properties. The Phase I Surveys
are intended to identify potential environmental contamination and regulatory
compliance concerns. Phase I Surveys generally include historical reviews of
the properties, reviews of certain public records, preliminary investigations
of the sites and surrounding properties and the preparation and issuance of
written reports. Phase I Surveys generally do not include invasive procedures,
such as soil sampling or ground water analysis.
The Phase I Surveys have not revealed any environmental liability or
compliance concern that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations, or liquidity,
nor is the Company aware of any such liability or concern. Nevertheless, it is
possible that Phase I Surveys will not reveal all environmental liabilities or
compliance concerns or that there will be material environmental liabilities
or compliance concerns of which the Company will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances, or regulations will
not impose any material environmental liability, or (ii) the current
environmental condition of the Company's existing and future properties will
not be affected by the condition of the neighboring properties (such as the
presence of leaking underground storage tanks) or by third parties unrelated
to the Company.
24
<PAGE>
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. The Company believes that each of its facilities has the necessary
permits and approvals to operate its respective business and the Company
intends to continue to obtain such permits and approvals for its new
facilities. In addition, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions, and work permit requirements. An increase in the minimum
wage rate, employee benefit costs, or other costs associated with employees
could adversely affect the Company. Both at the federal and state level from
time to time, there are proposals under consideration to increase the minimum
wage.
Under the Americans With Disabilities Act ("ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Although the Company has attempted to satisfy ADA
requirements in the designs for its facilities, no assurance can be given that
a material ADA claim will not be asserted against the Company, which could
result in a judicial order requiring compliance, and the expenditure of
substantial sums to achieve compliance, an imposition of fines, or an award of
damages to private litigants. These and other initiatives could adversely
affect the Company as well as the lodging industry in general.
INSURANCE
The Company currently has the types and amounts of insurance coverage that
it considers appropriate for a company in its business. While management
believes that its insurance coverage is adequate, if the Company were held
liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, the Company's business,
results of operations, and financial condition could be materially and
adversely affected.
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed
approximately 180 persons. The Company expects that it will significantly
increase the number of its employees as it expands its business. The Company's
employees are not subject to any collective bargaining agreements and
management believes that its relationship with its employees is good.
PROPERTIES
In addition to its lodging facilities described above (see "--Lodging
Facilities"), the Company also maintains a corporate headquarters and seven
regional offices. The Company's principal executive offices are located in Ft.
Lauderdale, Florida and the Company's regional offices are located in
Spartanburg, South Carolina; Park Ridge, Illinois; Bellevue, Washington;
Morristown, New Jersey; El Segundo, California; San Rafael, California; and
Phoenix, Arizona. The Company generally rents its office space on a short-term
basis, although it has recently entered into a new five-year lease for its
corporate headquarters in Ft. Lauderdale, Florida. These offices are
sufficient to meet the Company's present needs and it does not anticipate any
difficulty in securing additional office space, as needed, on terms acceptable
to the Company.
LEGAL PROCEEDINGS
The Company is not a party to any litigation or claims, other than routine
matters incidental to the operation of the business of the Company. To date,
no claims have had a material adverse effect on the Company nor does the
Company expect that the outcome of any pending claims will have such an
effect.
25
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and its subsidiaries,
their ages at March 31, 1996, and their positions with the Company or such
subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<C> <C> <S>
H. Wayne Huizenga(1)...... 58 Chairman of the Board of Directors
George D. Johnson, Jr.(1). 53 President, Chief Executive Officer, and
Director
Robert A. Brannon......... 45 Senior Vice President, Chief Financial
Officer,
Secretary, and Treasurer
Michael R. Beck........... 34 Vice President--Real Estate of ESA
Properties, Inc.
Corry W. Oakes............ 29 Vice President--Construction of ESA
Management, Inc.
Gregory R. Moxley......... 41 Vice President--Finance and Controller
Michael M. Wilson......... 56 Vice President--Marketing of ESA Management,
Inc.
James M. Harley........... 44 Vice President--Operations of ESA Management,
Inc.
Shawn R. Ruben............ 29 Vice President--Development of ESA
Management, Inc.
Robert W. Levis........... 32 Vice President--Corporate Development of ESA
Management, Inc.
Harold E. Wright.......... 53 President of ESA Development, Inc.
Donald F. Flynn(2)(3)..... 56 Director
Stewart H. Johnson(3)..... 52 Director
John J. Melk(2)........... 59 Director
Peer Pedersen(3).......... 71 Director
</TABLE>
- ---------------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Audit Committee of the Board of Directors
All directors are elected to serve until the next annual meeting of
shareholders and until their successors are elected and qualified. Officers
serve at the pleasure of the Board.
H. Wayne Huizenga became a director of the Company in August 1995 and serves
as Chairman of its Board of Directors. Mr. Huizenga also currently serves as
Chairman of the Board of Directors and Chief Executive Officer of Republic
Industries, Inc., ("Republic"), a diversified company with operations in solid
waste collection, disposal, and recycling, electronic security services, and
out-of-home advertising, and served until 1995 as Vice-Chairman of Viacom,
Inc. ("Viacom"), a diversified media and entertainment company, a position he
assumed upon its merger with Blockbuster in 1994. Mr. Huizenga became a
director of Blockbuster in February 1987 and was elected as Chairman of the
Board and Chief Executive Officer from April 1987 through September 1994. He
is a co-founder of Waste Management, Inc. (now WMX Technologies, Inc.
("WMX")), a waste disposal and collection company, where he served in various
capacities, including President, Chief Operating Officer, and director until
May 1984. From May 1984 to present, Mr. Huizenga has been an investor in
several businesses and is the sole shareholder and Chairman of the Board of
Huizenga Holdings, Inc., a holding and management company with various
business interests. In connection with these business interests, Mr. Huizenga
has been actively involved in strategic planning for, and executive management
of, these businesses. He also has a majority ownership interest in the Florida
Marlins, a Major League Baseball franchise, and owns the Florida Panthers, a
National Hockey League franchise, the Miami Dolphins, a National Football
League franchise, and Joe Robbie Stadium in South Florida.
26
<PAGE>
George D. Johnson, Jr. has been President, Chief Executive Officer, and a
director of the Company since January 1995. He is responsible for all aspects
of development, operation, marketing, and personnel of the Company. Mr.
Johnson is the former President of the Consumer Products Division of
Blockbuster Entertainment Group, a division of Viacom. In this position he was
responsible for all U. S. video and music stores. Mr. Johnson has over 30
years of experience developing and managing various businesses. He was
formerly the managing general partner of WJB Video, the largest Blockbuster
franchisee which developed over 200 video stores prior to a merger with
Blockbuster in 1993 and is the managing general partner of American Storage
Limited Partnership, a chain of 23 self-storage facilities located in the
Carolinas and Georgia. He currently serves on the board of directors of
Viacom, Republic, and Duke Power Company and has been the Chairman of the
Board of Directors of Johnson Development Associates, Inc. since its founding
in 1986. Johnson Development Associates, Inc. is a real estate management,
leasing, and development company controlling approximately two million square
feet of commercial, retail, and industrial property located in the Carolinas
and Georgia which are owned by various partnerships controlled by Mr. Johnson
and his brother, Stewart H. Johnson. Mr. Johnson practiced law in Spartanburg,
South Carolina from 1967 until 1986 and served three terms in the South
Carolina House of Representatives.
Robert A. Brannon has been Chief Financial Officer of the Company since
February 1995 and Senior Vice President, Secretary, and Treasurer since August
1995. He is responsible for overseeing accounting procedures and controls,
along with financial reporting and cash management. Prior thereto, he served
as Vice President--Finance for the Domestic Home Video division of the
Blockbuster Entertainment Group, where he was responsible for financial
management and control of over 2,000 video stores. Prior to joining
Blockbuster in 1993, Mr. Brannon was Chief Financial Officer for WJB Video and
for American Storage Limited Partnership. In those capacities, Mr. Brannon was
responsible for the financial aspects of the development of over 200 video
stores and 23 self-storage facilities. Prior to his participation in these
businesses, Mr. Brannon served as a Certified Public Accountant in various
management and staff positions with local and national accounting firms.
Michael R. Beck has been Vice President--Real Estate of the Company from
September 1995 to January 1996 and Vice President--Real Estate of ESA
Properties since January 1996. Mr. Beck is responsible for identifying and
negotiating the purchase of suitable locations for the Company's expansion.
Prior to joining the Company, Mr. Beck served in various capacities including
Vice President--Development at Blockbuster Entertainment Group from July 1993
to May 1995, where he was responsible for new store development including real
estate construction and distribution for Blockbuster Video and Blockbuster
Music. From May 1989 to July 1993, Mr. Beck served in various capacities at
WJB Video, including the position of Director of Strategic Planning where he
was responsible for real estate acquisition and construction, marketing, and
video tape purchasing.
Corry W. Oakes has been Vice President--Construction of the Company from
January 1995 to January 1996 and Vice President--Construction of ESA
Management since January 1996. Mr. Oakes is responsible for managing initial
construction of all properties as well as ongoing renovations and repairs.
Prior thereto, he served as a National Director of Construction for the
Blockbuster Entertainment Group. In that capacity, he was responsible for the
development of over 400 video and music stores during 1994 alone. Prior to
joining Blockbuster in 1993, Mr. Oakes served as Construction Manager for WJB
Video. Mr. Oakes also served as property manager with Westover Development
Company, a real estate development firm.
Gregory R. Moxley became Controller of the Company in October 1995 and Vice
President--Finance in January 1996, where he is responsible for the
accounting, budgeting, and financial reporting functions. From 1990 until
joining the Company, Mr. Moxley held various positions, including Director of
Financial Reporting and Assistant Treasurer, with One Price Clothing Stores,
Inc., a national chain of women's apparel stores. Prior to that, Mr. Moxley
served as a Certified Public Accountant in various management and staff
positions with Ernst & Young from 1978 to 1990.
Michael M. Wilson has been Vice President--Marketing of ESA Management since
February 1996. Mr. Wilson is responsible for developing and implementing
marketing strategy and public relations. From September
27
<PAGE>
1993 until he joined the Company, he served as Director of Marketing--Special
Projects for Blockbuster, where he was responsible for marketing and
developing proprietary technology. Before joining Blockbuster in 1993, Mr.
Wilson was Director of Marketing of WJB Video. Prior thereto, Mr. Wilson
founded and served as President of two private consumer products companies,
Lasso Closure Corp. and Torus Corporation, and served as Senior V.P. for
Henderson Advertising in Greenville, South Carolina.
James M. Harley has been Vice President--Operations of ESA Management since
September 1995. Mr. Harley is responsible for managing the operations of the
Company's extended stay facilities. From September 1993 until he joined the
Company, he served as Vice President--Asset Management for Homestead Village,
a division of Security Capital Pacific Trust ("Security Capital"). Before
joining Security Capital in 1993, Mr. Harley served as Vice President--
Development for Holiday Inn Worldwide.
Shawn R. Ruben has been Vice President--Development of ESA Management since
December 1995. Mr. Ruben is responsible for managing the due diligence process
on all of the Company's properties as well as land closings and loan
approvals. Prior thereto, he served as National Director of Real Estate for
the Blockbuster Entertainment Group, where he was responsible for new store
development, asset management, and all real estate legal matters. Before
joining Blockbuster in 1991, Mr. Ruben practiced law in Florida.
Robert W. Levis has been Vice President--Corporate Development of ESA
Management since April 1996. Mr. Levis is responsible for corporate strategy,
including acquisitions. From 1992 until he joined the Company, Mr. Levis was
Director, Corporate Development for Blockbuster where he was responsible for
corporate strategy for new lines of business, including mergers and
acquisitions. From 1995 until he joined the Company, Mr. Levis was also Vice
President, Corporate Development and Finance for Discovery Zone, Inc.
("Discovery Zone"), an owner and franchisor of family indoor entertainment and
fitness facilities, during the period it was managed by Blockbuster. On March
25, 1996, Discovery Zone announced that it had filed a voluntary petition
under Chapter 11 of the U.S. Bankruptcy Code. Prior thereto, Mr. Levis was a
Manager, Real Estate and Hospitality Consulting with KPMG Peat Marwick.
Harold E. Wright has been President of ESA Development, Inc., a wholly-owned
subsidiary of the Company, since June 1995. Mr. Wright is responsible for
selection and development of suitable locations in certain geographic areas.
See "--Management Compensation," and "--Employment and Stock Option
Agreements." Prior to joining ESA Development, Inc., Mr. Wright was President
of HVI, Inc., formerly Homestead Venture, Inc., a site selection and
development company of extended stay facilities in the Southwest. From 1989 to
1992, Mr. Wright was President of Homestead Properties, Inc., which developed
and operated three extended stay properties in North Carolina. Prior to that
time, Mr. Wright was involved in commercial and real estate development in
Georgia and Florida.
Donald F. Flynn became a director of the Company in August 1995. Mr. Flynn
is Chairman and Chief Executive Officer of Flynn Enterprises, Inc., a business
consulting and venture capital company, and from July 1992 until March 1996
was Chairman of Discovery Zone. From July 1992 until May 1995, Mr. Flynn also
served as Chief Executive Officer of Discovery Zone. Mr. Flynn also currently
serves as a director of WMX, Waste Management International plc, Wheelabrator
Technologies, Inc., and Psychemedics, Inc. ("Psychemedics"). Mr. Flynn is a
former director of Blockbuster. From 1972 to 1990, Mr. Flynn served in various
positions with WMX, including Senior Vice President and Chief Financial
Officer.
Stewart H. Johnson became a director of the Company in August 1995. Mr.
Johnson is currently the Chairman of the Board of Directors, Chief Executive
Officer, and President of Morgan Corporation, a construction company
specializing in grading, site preparation, and sewer and utility installation.
Mr. Johnson has been directing the operations of Morgan Corporation since
1971. Mr. Johnson also serves as Secretary for Johnson Development Associates,
Inc. Mr. Johnson is the brother of George D. Johnson, Jr.
28
<PAGE>
John J. Melk became a director of the Company in August 1995. He has been
Chairman and Chief Executive Officer of H/2/0 Plus, Inc. since 1988. H/2/0
Plus develops and manufactures health and beauty products and distributes them
through a national chain of company-owned retail stores as well as through
over 500 wholesale/department stores. Prior to 1984, Mr. Melk held various
positions with WMX and its subsidiaries, and served as President of Waste
Management International, Ltd. based in London, England. Mr. Melk currently
serves as a director of Psychemedics and Republic and is a former Vice-
Chairman and director of Blockbuster. Mr. Melk is also Chairman of M.W.
Partners, which is a major investor in residential and commercial real estate
development, resort hotels, marinas, and other private ventures.
Peer Pedersen became a director of the Company in August 1995. He is the
founder and has been Chairman of the law firm of Pedersen & Houpt, P.C., in
Chicago, Illinois for more than five years. He serves on the board of
directors of Aon Corporation, Boston Chicken, Inc., and WMX.
MANAGEMENT COMPENSATION
The Company was incorporated in January 1995 and did not conduct any
operations prior to that time. The Company's executive officers commenced
their service with the Company at various times during 1995 and none was
employed by the Company during all of 1995. Accordingly, the following table
sets forth, on an annualized basis with respect to the salary information, the
information regarding the compensation paid by the Company to its Chief
Executive Officer and each of the other four most highly compensated officers
of the Company (hereinafter, the "Named Executive Officers") for services
rendered in all capacities to the Company during 1995. The Company does not
have a restricted stock award program or a long-term incentive plan. Directors
of the Company are not paid any cash compensation for their services but are
reimbursed for their out-of-pocket expenses.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
George D. Johnson, Jr...... 200,000 -- -- 200,000 --
President and Chief
Executive Officer
Robert A. Brannon.......... 175,000 -- -- 301,875 --
Senior Vice President,
Chief Financial Officer,
Secretary, and Treasurer
Michael R. Beck............ 100,000 -- -- 21,000 --
Vice President--Real
Estate of ESA Properties,
Inc.
Corry W. Oakes............. 100,000 -- -- 21,000 22,837(1)
Vice President--
Construction of ESA
Management, Inc.
Harold E. Wright........... 175,000 -- -- -- 51,179(1)
President of ESA
Development, Inc.
</TABLE>
- ---------------------
(1) Represents the taxable portion of reimbursed relocation expenses.
29
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the Named Executive Officers during 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
DATE OF OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION ---------------------
NAME GRANT GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
George D. Johnson, Jr... 11/17/95 200,000 17.7% $13.00 11/17/05 $1,635,126 $4,143,730
Robert A. Brannon....... 8/18/95 301,875 26.7 4.76 8/18/05 903,675 2,290,087
Michael R. Beck......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Corry W. Oakes.......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Harold E. Wright........ -- -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Under the 1995 Plan, the exercise price must be the fair market value on
the date of grant. Except for specific situations, the options granted
become exercisable as to one-fourth of the grant on each of the first,
second, third, and fourth anniversary of the date of grant.
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future
performance of the Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
AGGREGATE 1995 OPTION/SAR VALUES
The following table provides certain information concerning the value of
unexercised options to purchase Common Stock at December 31, 1995 for the
Named Executive Officers. No options to purchase Common Stock were exercised
during 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT 12/31/95 AT 12/31/95(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
<S> <C> <C> <C> <C>
George D. Johnson, Jr....... -- 200,000 -- 2,900,000
Robert A. Brannon........... -- 301,875 -- 6,864,638
Michael R. Beck............. -- 21,000 -- 477,540
Corry W. Oakes.............. -- 21,000 -- 477,540
Harold E. Wright............ -- -- -- --
</TABLE>
- ---------------------
(1) This column indicates the aggregate amount, if any, by which the market
value of the Common Stock on December 31, 1995 exceeded the options'
exercise price based on the closing per share sale price of the Common
Stock on such date of $27.50 as quoted on the Nasdaq National Market as
reported by The Wall Street Journal.
EMPLOYMENT AND STOCK OPTION AGREEMENTS
In June 1995, Mr. Wright entered into an employment agreement, which was
terminated in March 1996, with ESA Development, a wholly-owned subsidiary of
the Company which was formed for the purpose of developing economy extended
stay facilities in the Midwest and certain other areas. In connection with the
termination of a business relationship before joining ESA Development, Mr.
Wright entered into a non-compete agreement that may restrict him from
performing certain functions for ESA Development in the states of Texas, New
Mexico, Colorado, Arizona, Nevada, Utah, California, Oklahoma, Louisiana,
Florida and the greater metropolitan areas of Las Vegas, Nevada; Portland,
Oregon; Atlanta, Georgia; Charlotte, North Carolina and
30
<PAGE>
Washington, D.C. until the end of 1996. As a result, neither Mr. Wright nor
ESA Development will operate in those areas and Mr. Wright will focus his time
and efforts locating and developing sites for ESA Development in regions not
restricted by his non-compete agreement.
Pursuant to his employment agreement, Mr. Wright was entitled to receive a
minimum annual base salary of $175,000. The agreement had an initial term of
two years and was to have been automatically renewed for one-year periods
thereafter unless notice of termination was given by either party. The
agreement provided that in the event Mr. Wright's employment with ESA
Development was terminated for any reason other than for cause, Mr. Wright was
entitled to receive an amount equal to his then base salary for the remainder
of the then current term. In addition, in the event ESA Development did not
grant to Mr. Wright, during each twelve month period from June 1 through May
31 of the term of the agreement, options to purchase shares of common stock of
ESA Development in an amount equal to 2 1/2 times his then base salary at the
fair market value per share on the date of grant, Mr. Wright could declare his
employment terminated other than for cause.
In June 1995, Mr. Wright also entered into a stock option agreement with ESA
Development which was also terminated in March 1996 and all options granted
thereunder terminated. Pursuant to the stock option agreement, ESA Development
granted to Mr. Wright non-qualified options to purchase a total of 1,437.5
shares of the common stock of ESA Development. The options were to vest
ratably on each of the next four anniversaries of the date of the option
grant. With respect to options underlying 437.5 shares, the exercise price per
share was $1,000 and the term of the options was ten years. With respect to
options underlying the remaining 1,000 shares, the exercise price per share
was $1,000 plus interest accrued at 10% per year, compounded annually, from
the date of the option grant through the date of exercise of the option, and
the term of the options was five years.
In March 1996, Mr. Wright and ESA Development entered into a new employment
agreement for the period commencing on March 18, 1996 and ending on June 30,
1999. Pursuant to this employment agreement, Mr. Wright is to act as the
President of ESA Development and is entitled to receive a minimum annual base
salary of $175,000. ESA Development also agreed to pay Mr. Wright additional
compensation equal to $15,000 for each site upon which ESA Development or its
subsidiaries has commenced construction of an extended stay lodging facility
during the term of the agreement. This additional compensation shall apply
only to the first 40 sites for 1996, 1997, and 1998 and the first 20 sites for
1999 and may be paid by delivering shares of the Company's Common Stock with a
fair market value equal to the amount due. In addition, pursuant to this
employment agreement, the Company granted to Mr. Wright, under the 1996 Plan,
ten-year options to purchase 600,000 shares of the Company's Common Stock at
an exercise price per share of $21.00 (the fair market value on the date of
grant), which options vest as to one-fourth of the grant on September 19, 1996
and June 1 of each of 1997, 1998, and 1999, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until August 1995, Mr. George D. Johnson, Jr., the Company's Chief Executive
Officer, approved the terms of the compensation of the Company's executive
officers. In August 1995, the Company's Board of Directors formed a
Compensation Committee, which is currently composed of Messrs. Flynn and Melk,
which determines the compensation of the Company's executive officers.
STOCK OPTION PLANS
1995 PLAN
The Board of Directors of the Company adopted in August 1995, and the
shareholders of the Company have approved, the Amended and Restated 1995
Employee Stock Option Plan (the "1995 Plan") which will be administered by the
Compensation Committee of the Board of Directors, which consists solely of
non-employee directors. The Compensation Committee has authority to determine
the persons to be granted options under the 1995 Plan, the number of shares
subject to each option, the time or times at which options will be granted,
the
31
<PAGE>
option price of the shares subject to each option (which price shall not be
less than the fair market value of the shares at the date of grant), and the
time or times when each option becomes exercisable and the duration of the
exercise period. Except for specific situations, such as a change in control
of the Company, options which have been granted become exercisable as to one-
fourth of the grant on each of the first, second, third, and fourth
anniversary of the date of grant.
Options may be granted under the 1995 Plan to key employees and consultants,
(other than members of the Compensation Committee) of the Company. Options may
be granted with respect to a total of not more than 1,677,060 shares of Common
Stock under the 1995 Plan, subject to antidilution and other adjustment
provisions. No options may be granted to a single optionee under the 1995 Plan
in excess of 50% of the total number of shares authorized for issuance under
the 1995 Plan. No options may be granted under the 1995 Plan after August 18,
2005. If an option expires or is terminated or canceled unexercised as to any
shares, such released shares may again be optioned (including a grant in
substitution for a canceled option). The Compensation Committee has granted,
under the 1995 Plan, ten-year options to purchase 150,000 shares and 200,000
shares of Common Stock to Messrs. Huizenga and George D. Johnson, Jr.,
respectively, at an exercise price per share equal to $13.00 and ten year
options to purchase Common Stock at an exercise price per share equal to $4.76
to the other Named Executive Officers, among others, for the following number
of shares: Mr. Brannon, 301,875; Mr. Beck, 21,000; and Mr. Oakes, 21,000. In
January 1996, the Compensation Committee granted additional ten-year options
to purchase 500,821 shares of Common Stock to employees at exercise prices per
share ranging from $26.75 to $29.625, including grants to Named Executive
Officers for the following number of shares: Mr. Brannon, 39,252; Mr. Beck,
28,037; Mr. Oakes, 28,037; and Mr. Wright, 39,252. As of March 31, 1996,
options to purchase an aggregate of 1,676,873 shares of Common Stock had been
granted under the 1995 Stock Option Plan.
1996 PLAN
The Board of Directors of the Company adopted in January 1996, and the
shareholders of the Company have approved, the Amended and Restated 1996
Employee Stock Option Plan (the "1996 Plan"). The 1996 Plan will be
administered by the Compensation Committee of the Board of Directors and the
terms of the 1996 Plan are substantially identical to those of the 1995 Plan.
Options may be granted with respect to a total of not more than 2,500,000
shares of Common Stock under the 1996 Plan, subject to antidilution and other
adjustment provisions. No options may be granted under the 1996 Plan after
January 24, 2006. As of March 31, 1996, options to purchase 679,385 shares of
Common Stock had been granted under the 1996 Plan, including ten-year options
to purchase 600,000 shares of Common Stock granted to Mr. Wright at an
exercise price per share equal to $21.00.
DIRECTORS' PLAN
The Board of Directors of the Company adopted in November 1995, and the
shareholders of the Company have approved, a 1995 Stock Option Plan for Non-
Employee Directors (the "Directors' Plan"). The Directors' Plan is
administered by the Board of Directors.
Options shall be granted under the Directors' Plan only to non-employee
directors of the Company. Options may be granted with respect to a total of
not more than 240,000 shares of Common Stock under the Directors' Plan,
subject to antidilution and other adjustment provisions. If an option expires
or is terminated or canceled unexercised as to any shares, such released
shares may again be optioned.
A one-time option covering 20,000 shares of Common Stock is automatically
granted to each non-employee director of the Company effective upon initial
election to the Board of Directors of the Company. During the four-year period
following the initial election of a non-employee director to the Board of
Directors, an additional option covering 5,000 shares of Common Stock shall be
granted to such non-employee director on each anniversary of the initial
grant; provided that such non-employee director remains a director and that
not more than four such additional options shall be granted to any one non-
employee director. The option price for all
32
<PAGE>
options granted under the Directors' Plan shall be the fair market value of a
share of Common Stock on the date of grant. Each option granted under the
Directors' Plan is for a term of ten years, subject to earlier termination if
the optionee's service as a director terminates. Each option granted under the
Directors' Plan becomes exercisable with respect to all of the shares subject
to the option six months after the date of its grant. Options to purchase
20,000 shares of Common Stock at an exercise price per share of $13.00 were
automatically granted under the Directors' Plan on the closing of the IPO on
December 19, 1995 to each of Messrs. Flynn, Stewart H. Johnson, Melk, and
Pedersen.
33
<PAGE>
CERTAIN TRANSACTIONS
In order to finance the construction of the Company's Spartanburg, South
Carolina facility and the Company's initial operations, George D. Johnson,
Jr., the Company's President and Chief Executive Officer, and H. Wayne
Huizenga, the Chairman of the Board of Directors of the Company, loaned an
aggregate of approximately $6.1 million at various times between February 1995
and July 1995. Those loans accrued interest at an annual rate of 8.75% and
were repaid in full in August 1995 with the proceeds from the subscriptions of
the Company's shareholders described below.
In connection with the formation of the Company in January 1995, Mr. George
D. Johnson, Jr. purchased 1,677,060 shares (adjusted to reflect a 210-for-1
stock split in October 1995) of Common Stock for an aggregate purchase price
of $2,000. In August 1995, the Company entered into Subscription Agreements
pursuant to which certain investors, including H. Wayne Huizenga, George D.
Johnson, Jr., Donald F. Flynn, Stewart H. Johnson, John J. Melk, Peer
Pedersen, and Robert A. Brannon, contributed $55.8 million to the capital of
the Company in exchange for 11,718,000 shares (adjusted to reflect a 210-for-1
stock split in October 1995) of Common Stock ($4.76 per share). Approximately
one-half of such amount was contributed in August 1995 and the balance in
October 1995.
As consideration for the commitment to provide a mortgage loan facility (the
"DLJ Mortgage Facility"), the Company issued 750,540 shares of Common Stock,
with a then estimated fair market value of approximately $3.6 million, to
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), one of the
Representatives of the Underwriters. In connection therewith, DLJ Capital
Corporation, an affiliate of DLJ, also purchased 500,430 shares of Common
Stock for a purchase price of $2.4 million. See "Financing."
In the Concurrent Offering, the Company sold to its then existing
shareholders (other than DLJ and its affiliates), on a pro-rata basis, for $25
million, 2,067,825 shares of Common Stock for $12.09 per share, such price
being the IPO price per share less underwriting discounts and commissions.
These shareholders included the Company's directors and certain of its
officers. The amounts paid by the Company's directors and certain of its
officers in the Concurrent Offering were as follows: Mr. H. Wayne Huizenga,
$7,253,456; Mr. George D. Johnson, Jr., $3,048,747; Mr. Stewart H. Johnson,
$954,396; Mr. Robert A. Brannon, $381,765; Mr. Donald F. Flynn, $381,765; Mr.
John J. Melk, $1,145,285; and Mr. Peer Pedersen, $1,145,285. In addition, the
amounts paid by trusts for the benefit of various members of the immediate
family of George D. Johnson, Jr. was an aggregate of $5,726,429 and the
amounts paid by trusts for the benefit of various members of the immediate
family of Stewart H. Johnson was an aggregate of $381,754.
The Company has airplane leasing arrangements with companies owned by George
D. Johnson, Jr., Stewart Johnson, and certain of their family members. In
connection therewith, the Company incurred aggregate charges of approximately
$412,000 during the year ended December 31, 1995. The Company believes that
the terms of its use of the planes are at least as favorable to the Company as
those it could have obtained from an unaffiliated party. In April 1995, the
Company acquired a parcel of real estate in Spartanburg, South Carolina for
approximately $562,000 from a limited partnership controlled by George D.
Johnson, Jr. and Stewart H. Johnson. The Company believes that the terms of
the acquisition were as favorable to it as it could have obtained from an
unaffiliated party.
In 1996 the Company entered into (i) a 10-year lease for a suite at Joe
Robbie Stadium for a base rental of $115,000 per year, subject to certain
additional charges and periodic escalation, and (ii) a 3-year lease for a
suite at Homestead Motor Sports Complex for a base rental of $53,250 per year,
subject to certain additional charges. Mr. Huizenga owns Joe Robbie Stadium
and has an approximately 50% ownership interest in Homestead Motor Sports
Complex. The Company believes that the terms of these leases are comparable to
those charged to other persons.
34
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1996, certain information
regarding the beneficial ownership of the Company's Common Stock by each
person known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock, by each of the Company's directors and Named
Executive Officers, and by all directors and executive officers of the Company
as a group. As of such date, there were approximately 150 record holders and
approximately 3,500 beneficial holders of Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
------------------
NAME(1) NUMBER PERCENT
<S> <C> <C>
George D. Johnson, Jr.(2).............................. 5,552,881 24.3%
H. Wayne Huizenga...................................... 4,589,955 20.1
Stewart H. Johnson(3).................................. 724,729 3.2
Donaldson, Lufkin & Jenrette
Securities Corporation(4)............................ 1,219,457 5.3
277 Park Avenue
New York, New York 10172
Robert A. Brannon...................................... 241,577 1.1
Michael R. Beck........................................ 18,000 *
Corry W. Oakes......................................... 16,425 *
Harold E. Wright....................................... 2,904 *
Donald F. Flynn(5)..................................... 241,577 1.1
John J. Melk(6)........................................ 744,730 3.3
Peer Pedersen.......................................... 724,730 3.2
All directors and executive officers as a group
(15 persons)(2)(3)(5)(6).............................. 12,868,008 56.3%
</TABLE>
- ---------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of such person is c/o Extended
Stay America, Inc., 500 E. Broward Boulevard, Ft. Lauderdale, Florida
33394.
(2) Includes 3,623,650 shares of Common Stock held in various trusts for the
benefit of members of Mr. Johnson's immediate family, of which Mr.
Johnson's brother, Stewart H. Johnson, is a trustee and does not include
120,788 shares held in various trusts for the benefit of members of
Stewart H. Johnson's immediate family and with respect to which Mr.
Johnson is trustee, all of which shares Mr. Johnson may be deemed to
beneficially own.
(3) Includes 120,788 shares Common Stock held in various trusts for the
benefit of members of Stewart H. Johnson's immediate family, of which
George D. Johnson, Jr. is trustee, but does not include 3,623,650 shares
of Common Stock held in various trusts for the benefit of members of
George D. Johnson, Jr.'s immediate family, of which Stewart H. Johnson is
a trustee, and 120,788 shares of Common Stock held in a trust of which
Stewart H. Johnson is a trustee, all of which shares Stewart H. Johnson
may be deemed to beneficially own.
(4) Includes 199,790 shares of Common Stock owned by DLJ Capital Corporation
and 269,127 shares of Common Stock owned by DLJ First ESC L.L.C., each of
which is an affiliate of DLJ.
(5) Represents 241,577 shares of Common Stock held in a trust, of which Mr.
Flynn is a trustee and beneficiary.
(6) Includes 724,730 shares of Common Stock beneficially owned by M Group
Investment IV, L.P., of which Mr. Melk is a general partner.
35
<PAGE>
FINANCING
EQUITY
The Company was initially capitalized with approximately $60 million of
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed the
Prior Offerings from which it received aggregate net proceeds of approximately
$85 million. The aggregate net proceeds of this offering are expected to be
approximately $222.4 million, based upon an assumed public offering price of
$33.25 per share, after deducting estimated underwriting discounts and
commissions and other offering expenses. See "Certain Transactions," "Shares
Eligible for Future Sale," and "Underwriting."
MORTGAGE FACILITIES
DLJ MORTGAGE FACILITY
The Company has a mortgage facility with DLJ Mortgage Capital, Inc., an
affiliate of DLJ, providing for up to $100 million in mortgage financing
(which was reduced by the Company from $200 million in connection with the
establishment of the CSFB Mortgage Facility described below), subject to
certain conditions (the "DLJ Mortgage Facility"). Under the DLJ Mortgage
Facility, each extended stay lodging facility financed thereby will, upon
obtaining a certificate of occupancy, receive funding of 60% of the lesser of
the total development cost or the approved budget thereof. In addition, the
funding for each facility may be increased to not more than 75% of the lesser
of its cost or its appraised value within the first 15 months of operation,
with the amount of such additional funding depending upon the lodging facility
meeting certain debt service coverage ratios. Interest on each loan will be
payable monthly at a fixed rate equal to the rate of 10-year U.S. Treasury
securities on the date of funding plus 4.0%. Principal amortization based on a
25-year term will begin not later than 15 months after the initial funding and
will continue through various maturity dates from December 31, 2006 through
December 31, 2008. Prepayments of loans may be made without penalty within
five years of their respective maturity dates. Amounts borrowed under the DLJ
Mortgage Facility will be secured by, among other things, a first mortgage
encumbering each lodging facility and assignment of the revenues and profits
from the respective facility. Funding under the DLJ Mortgage Facility is
subject to, among other things, the funding by the Company of certain escrow
accounts and prior approval by the lender of the construction and operating
budgets.
The DLJ Mortgage Facility requires the Company to maintain consolidated
tangible net worth (as defined therein) of at least $40 million. In addition,
the DLJ Mortgage Facility contains certain affirmative and negative covenants,
including without limitation, limitations on any sale, mortgaging, granting of
options or other transfer of any legal or beneficial interest in any property
financed; making of dividends, share repurchases, or other restricted payments
by the Company other than dividends by the Company not exceeding 50% of the
excess of its net income for any period over its cumulative losses not
previously applied in computing the limitation; financing new properties
without first submitting such property for approval by the lender for
financing under the DLJ Mortgage Facility; affiliated party transactions;
making certain investments; and engaging in businesses other than the
ownership, management, and operation of extended stay lodging facilities.
All or any portion of the amounts outstanding under the DLJ Mortgage
Facility may at any time become immediately due and payable, at the option of
the lender, if an event of default occurs, including, among other things, (i)
any payment of principal or interest or any payment of any fee or other amount
due under the DLJ Mortgage Facility is not paid when the same becomes due and
payable; (ii) the Company fails to perform any obligation or observe any
agreement or covenant under the DLJ Mortgage Facility or related loan,
collateral, or other documentation (collectively, the "Loan Documents") and
such failure remains unremedied past the applicable grace period, if any;
(iii) any material representation made or deemed to be made by the Company in
the Loan Documents shall prove to have been incorrect in any material respect
when made or deemed made; (iv) a default occurs and is continuing with respect
to any indebtedness of the Company and (in the case of a default other than a
payment default) such default permits the acceleration of indebtedness or any
such indebtedness is declared due and payable prior to its stated maturity;
(v) certain events of bankruptcy, insolvency or
36
<PAGE>
reorganization occur with respect to the Company or any of its subsidiaries;
(vi) any material provision of collateral documentation relating to a loan
ceases to be valid and binding on the Company or fails to create a valid
perfected and first priority lien on any of the collateral covered thereby;
(vii) a material adverse change, or an event which is reasonably likely to
have a material adverse change, occurs in the Company, in the ability of the
parties to the Loan Documents to perform their respective obligations, or the
legality, validity, or enforceability of the Loan Documents or the rights and
remedies of the lender thereunder; or (viii) the current members of the
Company's Board of Directors cease to constitute a majority of the Board.
CSFB MORTGAGE FACILITY
The Company also has a mortgage facility (the "CSFB Mortgage Facility") from
CS First Boston Mortgage Capital Corporation (an affiliate of CS First Boston
Corporation, one of the Representatives of the Underwriters) which provides up
to $300 million in mortgage financing, subject to certain conditions and
limitations, for completed facilities.
Under the CSFB Mortgage Facility, each extended stay lodging facility
financed thereby will, upon obtaining a certificate of occupancy, receive
funding of 65% of the lesser of the total development cost, the approved
budget, or the appraised value, subject to limitations based on projected debt
service coverage ratios. The Company may choose either a fixed rate loan or a
floating rate loan at the time the loan is to be funded, subject, however, to
a requirement that a minimum of $50 million of loans must be made under the
chosen rate program before the other rate program can be selected. Interest on
each loan will be payable monthly at either (i) a fixed rate equal to the rate
of 7-year U.S. Treasury securities on the date of funding plus from 3.55% to
3.85%, depending upon the aggregate amount of fixed rate loans, or (ii) a
floating rate equal to the 30-day LIBOR rate plus 3%. Principal amortization
will generally be based on a 15-year term for fixed rate loans and based on a
20-year term with an assumed 9.9% interest rate for floating rate loans. Fixed
rate loans will mature on the earlier of 7 years and 3 months from the date
that the first such loan is funded or May 2004. All floating rate loans will
mature three years from the execution of a credit facility agreement.
Prepayments of fixed rate loans may be made after five years, subject to
certain penalties. Prepayments of floating rate loans may be made after one
year without penalty. Amounts borrowed under the CSFB Mortgage Facility will
be secured by, among other things, a first mortgage encumbering each lodging
facility so financed and an assignment of the revenues and profits from such
facilities.
Funding under the CSFB Mortgage Facility is subject to, among other things,
the completion of an equity or quasi-equity offering of at least $100 million
(such as this offering), market capitalization of the Company of at least $300
million, maintenance of certain debt service coverage ratios, maintenance of
the ratio of debt to total book capitalization of not more than 70%,
maintenance of unrestricted and unpledged cash of not less than $20 million,
the funding by the Company of certain escrow accounts, and prior approval by
the lender of the construction and operating budgets. The CSFB Mortgage
Facility also contains certain affirmative and negative covenants similar to
those contained in the DLJ Mortgage Facility. The Company may, however,
finance new properties through other lenders without first submitting such
property for approval by the lender for financing under the CSFB Mortgage
Facility. However, in the event that the Company finances more than $175
million of secured facility debt (other than construction financing and
certain other financings) with another lender prior to May 1999, without
having financed at least $100 million of such debt under the CSFB Mortgage
Facility, the lender may terminate its obligation to fund additional
facilities under the CSFB Mortgage Facility.
All or any portion of the amounts outstanding under the CSFB Mortgage
Facility will become due and payable, at the option of the lender, if an event
of default occurs, including, among other things, (i) a declared default or
acceleration under other indebtedness of the Company; (ii) certain events of
bankruptcy with respect to the Company or any of its subsidiaries; (iii) the
Company's tangible net worth ceases to exceed $50 million; (iv) a dividend
payout by the Company in excess of 50% of the excess of its net income for any
period over its
37
<PAGE>
cumulative losses not previously applied in computing the limitation; (v) the
current members of the Company's Board of Directors cease to constitute a
majority of the Board; or (vi) Mr. Huizenga or Mr. George D. Johnson, Jr.
cease to be Board members to the extent that they are living and have not been
declared judicially incompetent.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200 million shares
of Common Stock, $.01 par value per share, and 10 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). As of March 31, 1996,
22,853,092 shares of Common Stock were issued and outstanding and none of the
Preferred Stock was outstanding. The following description is a summary and is
qualified in its entirety by reference to the provisions of the Company's
Restated Certificate of Incorporation, as amended (the "Certificate"), and its
Bylaws (the "Bylaws"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all
of the directors. Holders of Common Stock are not permitted to act by written
consent. Shareholders must follow an advance notification procedure for
certain shareholder nominations of candidates for the Board of Directors and
for certain other business to be conducted at any meeting of shareholders.
Subject to preferences that may be applicable to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding Preferred Stock.
Holders of Common Stock have no preemptive rights and have no right to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon consummation
of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to 10 million shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and
qualifications, limitations, and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, and the number of shares constituting any series. Because the
Board of Directors has the power to establish the preferences and rights of
the shares of any such series of Preferred Stock, it may afford holders of any
Preferred Stock preferences, powers, and rights (including voting rights),
senior to the rights of holders of Common Stock, which could adversely affect
the rights of holders of Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of the Company. The Company has
no present plan to issue any shares of Preferred Stock.
DELAWARE GENERAL CORPORATION LAW
The Company was incorporated in 1995 as a Delaware corporation and will be
subject to Section 203 of the Delaware General Corporation Law ("Section
203"). Pursuant to Section 203, with certain exceptions, a Delaware
corporation may not engage in any of a broad range of business combinations,
such as mergers, consolidations, and sales of assets, with an "interested
shareholder" for a period of three years from the date that such person became
an interested shareholder unless (i) the transaction that results in the
person's becoming an interested shareholder, or the business combination, is
approved by the board of directors of the corporation before the person
becomes an interested shareholder, (ii) upon consummation of the transaction
which results in the shareholder becoming an interested shareholder, the
interested shareholder owns 85% or more of the voting stock of the corporation
outstanding at the time the transaction commenced (other than certain excluded
shares), or (iii) on or after the date the person becomes an interested
shareholder, the business combination is approved by the corporation's board
of directors and by holders of at least two-thirds of the corporation's
outstanding voting stock, excluding shares owned by the interested
shareholder, at a meeting of shareholders. Under Section
39
<PAGE>
203, an "interested shareholder" is defined as any person, other than the
corporation and any direct or indirect majority-owned subsidiaries of the
corporation, that is (i) the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) an affiliate or associate of the corporation
and the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an
interested shareholder. The Company has approved Messrs. George D. Johnson,
Jr., Stewart H. Johnson, and H. Wayne Huizenga as "interested shareholders."
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested shareholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors because the
shareholder approval requirement would be avoided if a majority of the
Company's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested
shareholder. Such provisions also may have the effect of preventing changes in
management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions that shareholders may otherwise deem
to be in their best interests.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank (Chicago).
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1996, the Company had 22,853,092 shares of Common Stock
outstanding, 7,850,062 of which were freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. The remaining
15,003,030 outstanding shares of Common Stock originally subscribed for and
purchased by the initial shareholders of the Company (the "Initial
Shareholders") were issued and sold by the Company in private transactions
("Restricted Shares") and may not be sold unless registered under the
Securities Act (which registration is described below) or sold in accordance
with an exemption therefrom, such as Rule 144 or Rule 144A thereunder. In
connection with the IPO, the Initial Shareholders agreed that they would not
sell any shares of Common Stock prior to June 11, 1996, without the consent of
DLJ, subject to certain exceptions, including pursuant to a foreclosure by a
lender on a loan for which shares of Common Stock have been pledged as
collateral. In addition, the holders of approximately 13.3 million shares of
Common Stock (including all shares beneficially owned by the Company's
directors and executive officers) have agreed that they will not sell any
shares of Common Stock for a period of 90 days from the date of this
Prospectus without the consent of DLJ, subject to similar exceptions.
In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an affiliate of the Company within the previous two years would be entitled to
sell in the public market within any three-month period a number of shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of Common Stock or (ii) the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities
and Exchange Commission. The Initial Shareholders will be able to sell shares
of Common Stock acquired pursuant to the Subscription Agreements in accordance
with such provision on and after August 18, 1997. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice, and the availability of current public information about the Company.
A person who is deemed not to have been an affiliate of the Company at any
time during the three months immediately preceding a sale and who beneficially
owns shares that were not acquired from the Company or an affiliate of the
Company within the past three years is entitled to sell such shares under Rule
144(k) without regard to the foregoing limitations. Rule 144A under the
Securities Act permits the immediate sale by the holders of Restricted Shares
issued prior to completion of this offering of all or a portion of their
shares to certain "qualified institutional buyers" as defined in Rule 144A.
The Company has registered under the Securities Act all of the 15,003,030
shares of Common Stock owned by the Initial Shareholders so that such Initial
Shareholders may make resales in the public market of their Common Stock upon
expiration of their lock-up agreements described above. The Company also has
registered under the Securities Act 4,000,000 shares of Common Stock which may
be issued from time-to-time in connection with potential future acquisitions
of various businesses and resales of such shares by the recipients thereof,
and the Company has issued an aggregate of 722,237 of such shares of Common
Stock and expects to issue approximately 91,000 shares of Common Stock in
connection with the proposed acquisition of the KHEC Facility. See "Recent
Developments." The Company also intends to register under the Securities Act
all shares reserved for issuance under the 1995 Plan, the 1996 Plan, and the
Directors' Plan. All shares purchased in the future under such plans will be
available for resale in the public market without restriction, except that
affiliates must comply with the provisions of Rule 144 other than the holding
period requirement. Shares registered pursuant to any of these registration
statements could be sold in the public market.
41
<PAGE>
UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation, Allen & Company
Incorporated, CS First Boston Corporation, and Smith Barney Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase
from the Company an aggregate of 7,000,000 shares of Common Stock. The number
of shares of Common Stock that each Underwriter has agreed to purchase is set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
Allen & Company Incorporated.......................................
CS First Boston Corporation........................................
Smith Barney Inc...................................................
---------
Total.......................................................... 7,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered in this offering are subject to approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all the shares of Common Stock offered in this offering
(other than the shares of the Common Stock covered by the over-allotment
option described below) if any are taken.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain liabilities, including
liabilities under the Securities Act.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock in this offering to the public at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not to
exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
1,050,000 additional shares of Common Stock, at the offering price set forth
on the cover page of this Prospectus, less underwriting discounts and
commissions, solely to cover over-allotments. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number of shares set forth opposite such
Underwriter's name in the preceding table bears to the total number of shares
offered in this offering.
DLJ, one of the Representatives, and certain of its affiliates own 1,219,457
shares of Common Stock which represented 5.3% of the Company's Common Stock as
of March 31, 1996. For a description of the mortgage facility provided to the
Company by an affiliate of DLJ, see "Financing."
An affiliate of CS First Boston Corporation, one of the Representatives, has
agreed to provide to the Company a mortgage facility of up to $300 million,
subject to certain conditions. For a description of the CSFB Mortgage
Facility, see "Financing."
42
<PAGE>
Pursuant to regulations promulgated by the Securities and Exchange
Commission (the "Commission"), market makers in the Common Stock who are
Underwriters or prospective underwriters ("passive market makers") may,
subject to certain limitations, make bids for or purchases of shares of Common
Stock until the earlier of the time of commencement (the "Commencement Date")
of offers or sales of the Common Stock contemplated by this Prospectus or the
time at which a stabilizing bid for such shares is made. In general, on and
after the date two days prior to the Commencement Date (1) such market maker's
net daily purchases of the Common Stock may not exceed 30% of the average
daily trading volume in such stock for the two full consecutive calendar
months immediately preceding the filing date of the registration statement of
which this Prospectus forms a part, (2) such market maker may not effect
transactions in, or display bids for, the Common Stock at a price that exceeds
the highest bid for the Common Stock by persons who are not passive market
makers and (3) bids made by passive market makers must be identified as such.
Subject to certain exceptions, the Company and certain shareholders
(including all of its directors and executive officers) have agreed not to
offer, sell, contract to sell, or otherwise dispose of any shares of Common
Stock or any securities convertible or exchangeable into any shares of Common
Stock prior to the expiration of 90 days from the date of this Prospectus,
without the prior written consent of DLJ. See "Shares Eligible for Future
Sale."
At the request of the Company, up to 250,000 shares of Common Stock offered
in this offering have been reserved for sale to certain individuals, including
employees of the Company and other entities with whom directors of the Company
are affiliated, and members of their families. The price of such shares to
such persons will be the public offering price set forth on the cover of this
Prospectus. The number of shares available to the general public will be
reduced to the extent those persons purchase reserved shares. Any shares not
so purchased will be offered in this offering at the public offering price set
forth on the cover of this Prospectus.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company by Bell, Boyd
& Lloyd, Chicago, Illinois, and for the Underwriters by Sidley & Austin,
Chicago, Illinois.
EXPERTS
The consolidated balance sheet of Extended Stay America, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated statements
of operations, shareholders' equity and cash flows for the period from January
9, 1995 (inception) through December 31, 1995, the statements of operations,
partners' deficit, and cash flows of Welcome Inn America 89-1, L.P. for each
of the two years in the period ended December 31, 1994 and the period from
January 1, 1995 through August 18, 1995, the balance sheets of Apartment/Inn,
L.P. as of December 31, 1994 and 1995 and the related statements of operations
and partners' deficit and cash flows for each of the two years in the period
ended December 31, 1995, the combined balance sheets of Hometown Inn I, LTD
and Hometown Inn II, LTD as of December 31, 1994 and 1995 and the related
combined statements of operations and partners' capital and cash flows for
each of the three years in the period ended December 31, 1995, and the balance
sheet of Kipling Hospitality Enterprise Corporation as of December 31, 1995
and the related statements of operations and retained earnings and cash flows
for the year then ended, included in this Prospectus, have been included
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
43
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
registration statements, proxy statements, and other information filed by the
Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, New York, New York 10048. Copies of such materials
can be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the Common Stock offered hereby. As used herein, the term "Registration
Statement" means the initial Registration Statement and any and all amendments
thereto. This Prospectus omits certain information contained in said
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement, or otherwise, each
such statement being qualified by and subject to such reference in all
respects.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent public
accountants.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRO FORMA FINANCIAL STATEMENTS OF EXTENDED STAY AMERICA, INC. AND
SUBSIDIARIES
Pro Forma Consolidated Statement of Operations for the period from
January 9, 1995 (inception) through December 31, 1995 (unaudited) and
the three months ended March 31, 1996 (unaudited)....................... F-2
Pro Forma Consolidated Balance Sheet as of March 31, 1996 (unaudited).... F-4
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited)............................................................. F-6
Consolidated Statements of Operations for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited) ................................ F-7
Consolidated Statements of Shareholders' Equity for the period from
January 9, 1995 (inception) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited) ................................ F-8
Consolidated Statements of Cash Flows for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited)................................. F-9
Notes to Consolidated Financial Statements............................... F-10
WELCOME INN AMERICA 89-1, L.P.
Report of Independent Accountants........................................ F-18
Statements of Operations for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-19
Statements of Partners' Deficit for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 through August 18, 1995.... F-20
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-21
Notes to Financial Statements............................................ F-22
APARTMENT/INN, L.P.
Report of Independent Accountants........................................ F-23
Balance Sheets as of December 31, 1994 and 1995.......................... F-24
Statements of Operations and Partners' Deficit for the two years ended
December 31, 1994 and 1995.............................................. F-25
Statements of Cash Flows for the two years ended December 31, 1994 and
1995.................................................................... F-26
Notes to Financial Statements............................................ F-27
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
Report of Independent Accountants........................................ F-29
Combined Balance Sheets as of December 31, 1994 and 1995................. F-30
Combined Statement of Operations and Partners' Capital for the three
years ended December 31, 1993, 1994, and 1995........................... F-31
Combined Statement of Cash Flows for the three years ended December 31,
1993, 1994, and 1995.................................................... F-32
Notes to Combined Financial Statements................................... F-33
KIPLING HOSPITALITY ENTERPRISE CORPORATION
Report of Independent Accountants........................................ F-35
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).... F-36
Statements of Operations and Retained Earnings for the year ended
December 31, 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-37
Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited).................. F-38
Notes to Financial Statements............................................ F-39
</TABLE>
F-1
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
These unaudited pro forma consolidated statements of operations are
presented as if the acquisitions of the Acquired Facilities and the proposed
acquisition of the KHEC Facility and the related issuances of shares of common
stock had occurred at the beginning of the relevant period. For the year ended
December 31, 1995, the statement also reflects the acquisition of the Marietta
Facility and estimated incremental expenses to operate as a publicly held
company as if it were publicly held on the date of inception. Such pro forma
information is based in part upon the consolidated statements of operations of
Extended Stay America, Inc. and subsidiaries and the statements of operations
of Welcome, Apartment/Inn, Hometown Inn, and KHEC. They should be read in
conjunction with the financial statements listed in the index on page F-1 of
this Prospectus. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made. The acquisition of the
lodging facility from AATI has not been included in these unaudited statements
of operations because the purchase price and the unaudited results of
operations for the periods, when measured in relation to the Company, did not
meet certain materiality standards and can be excluded as permitted by the
rules and regulations of the Securities and Exchange Commission.
These unaudited pro forma consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming such transactions had been completed as of the
beginning of the period, nor do they purport to represent the results of
operations for any future periods. Results of operations and the related
earnings or loss per share for future periods will be affected by a number of
factors, including but not limited to, the number of facilities opened and the
operating results therefrom, interest costs incurred on indebtedness
(including the amortization of the fees paid in cash and common stock to DLJ),
corporate operating and property management expenses, site selection costs and
the number of future shares issued.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITION ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 817,133 $4,726,203 $ (108,616)(1) $5,434,720 $1,255,118 $(27,509)(1) $6,662,329
Management fees........ 17,775 (17,775)(2)
Other revenue.......... 42,977 215,409 (5,035)(1) 253,351 69,501 (1,523)(1) 321,329
----------- ---------- ---------- ---------- ---------- -------- ----------
Total revenue........ 877,885 4,941,612 (131,426) 5,688,071 1,324,619 (29,032) 6,983,658
----------- ---------- ---------- ---------- ---------- -------- ----------
Costs and expenses:
Property operating
expenses.............. 332,523 2,066,850 (49,037)(1) 2,332,561 757,768 (16,609)(1) 3,073,720
(17,775)(2)
Corporate operating
and property
management expenses... 2,042,039 302,452 800,000 (3) 3,144,491 111,362 (58,093)(2) 3,196,592
(1,168)(1)
Site selection costs... 512,529 512,529 512,529
Depreciation and
amortization.......... 146,726 514,085 220,703 (4) 881,514 89,018 70,982 (4) 1,041,514
----------- ---------- ---------- ---------- ---------- -------- ----------
Total costs and
expenses............ 3,033,817 2,883,387 953,891 6,871,095 958,148 (4,888) 7,824,355
----------- ---------- ---------- ---------- ---------- -------- ----------
Income (loss) from
operations.......... (2,155,932) 2,058,225 (1,085,317) (1,183,024) 366,471 (24,144) (840,697)
Interest income
(expense).............. 848,510 (836,797) 836,797 (5) 848,510 (119,011) 75,011 (5) 804,510
----------- ---------- ---------- ---------- ---------- -------- ----------
Net income (loss)...... $(1,307,422) $1,221,428 $ (248,520) $ (334,514) $ 247,460 $ 50,867 $ (36,187)
=========== ========== ========== ========== ========== ======== ==========
Net loss per common
share(6).............. $ (0.10) $ (0.02) $ (0.00)
=========== ========== ==========
Weighted average
number of common and
equivalent shares
outstanding during
the period(6)......... 12,652,110 13,589,464 13,808,783
=========== ========== ==========
</TABLE>
F-2
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITION ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $1,137,841 $458,068 $ $1,595,909 $231,426 $ $ 1,827,335
Other revenue.......... 32,988 15,966 48,954 13,297 62,251
---------- -------- -------- ---------- -------- ------- -----------
Total revenue........ 1,170,829 474,034 1,644,863 244,723 1,889,586
---------- -------- -------- ---------- -------- ------- -----------
Costs and expenses:
Property operating
expenses.............. 442,540 152,804 595,344 167,465 762,809
Corporate operating
and property
management expenses... 1,580,655 38,961 1,619,616 18,047 (11,260)(2) 1,626,403
Site selection costs... 823,733 823,733 823,733
Depreciation and
amortization.......... 203,343 49,399 6,038 (4) 258,780 18,132 21,868 (4) 298,780
---------- -------- -------- ---------- -------- ------- -----------
Total costs and
expenses............ 3,050,271 241,164 6,038 3,297,473 203,644 10,608 3,511,725
---------- -------- -------- ---------- -------- ------- -----------
Income (loss) from
operations.......... (1,879,442) 232,870 (6,038) (1,652,610) 41,079 (10,608) (1,622,139)
Interest income
(expense).............. 1,450,132 1,450,132 (31,836) 6,836 (5) 1,425,132
---------- -------- -------- ---------- -------- ------- -----------
Net income (loss)...... $ (429,310) $232,870 $ (6,038) $ (202,478) $ 9,243 $(3,772) $ (197,007)
========== ======== ======== ========== ======== ======= ===========
Net loss per common
share(6).............. $ (0.02) $ (0.01) $ (0.01)
========== ========== ===========
Weighted average
number of common
shares outstanding
during the period(6).. 22,467,393 22,853,092 22,944,092
========== ========== ===========
</TABLE>
- ---------------------
(1) To eliminate the estimated revenues and expenses for the Acquired
Facilities, the Marietta Facility and the KHEC Facility for the period
January 1, 1995 through January 8, 1995 in order to present a period
comparable to the historical period for the Company.
(2) To eliminate in consolidation management fees charged to the Marietta
Facility prior to being acquired by the Company and franchise fees
incurred by KHEC.
(3) Reflects estimated increases in: (i) salaries and benefits--$238,000; (ii)
state capital-based taxes--$150,000; (iii) audit and tax fees--$75,000;
(iv) legal expenses--$37,000; (v) directors' and officers' insurance--
$150,000; (vi) additional expenses--$150,000, as if the Company had been a
public company on the date of inception.
(4) To adjust depreciation and amortization expense to reflect the expense
based on the purchase price paid and to be paid by the Company for the
Acquired Facilities, the Marietta Facility, and the KHEC Facility for any
period prior to acquisition.
(5) To eliminate non-continuing interest expense paid by the Acquired
Facilities, the Marietta Facility and the KHEC Facility prior to
acquisition, net of interest income earned by the Company on the amount of
cash used in the acquisitions.
(6) See notes 2 and 5 to the Company's consolidated financial statements.
F-3
<PAGE>
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
This unaudited pro forma consolidated balance sheet is presented as if this
offering had been completed and the proposed acquisition of the KHEC Facility
had occurred on March 31, 1996. Such pro forma information is based upon the
consolidated balance sheet of the Company and the balance sheet of KHEC as of
March 31, 1996. It should be read in conjunction with the financial statements
listed in the index on page F-1 of this Prospectus. In management's opinion,
all adjustments necessary to reflect the effects of these transactions have
been made.
This unaudited pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1996, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
PROPOSED
ACTUAL ACQUISITION ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $104,010,918 $ 40,136 $ (2,040,136)(1) $324,369,043
222,358,125 (2)
Refundable deposits... 621,654 621,654
Supply inventories.... 291,266 40,338 (40,338)(1) 291,266
Prepaid expenses...... 366,142 366,142
Other current assets.. 56,768 26,569 (26,569)(1) 56,768
------------ ---------- ------------ ------------
Total current
assets............. 105,346,748 107,043 220,251,082 325,704,873
------------ ---------- ------------ ------------
Property and equipment,
net.................... 51,658,313 1,454,178 3,570,822 (1) 56,683,313
Site deposits and
preacquisition costs... 3,913,811 3,913,811
Deferred loan costs..... 5,294,114 8,327 (8,327)(1) 5,294,114
Other assets............ 156,741 156,741
------------ ---------- ------------ ------------
$166,369,727 $1,569,548 $223,813,577 $391,752,852
============ ========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 925,504 $ 15,730 $ (15,730)(1) $ 925,504
Accrued salaries and
related expenses..... 67,855 15,537 (15,537)(1) 67,855
Due to related
parties.............. 71,845 113,486 (113,486)(1) 71,845
Other accrued
expenses............. 440,612 46,881 (46,881)(1) 440,612
Deferred revenue...... 330,856 9,499 (9,499)(1) 330,856
Current maturities of
long-term debt....... 64,454 (64,454)(1)
------------ ---------- ------------ ------------
Total current
liabilities........ 1,836,672 265,587 (265,587) 1,836,672
------------ ---------- ------------ ------------
Long-term debt.......... 1,105,358 (1,105,358)(1)
Shareholders' Equity:
Preferred stock, $.01
par value, 10,000,000
shares authorized, no
shares issued or
outstanding..........
Common stock, $.01 par
value, 200,000,000
shares authorized,
22,853,092 and
29,944,092 shares
issued and
outstanding for
Actual and Pro Forma,
respectively......... 228,531 174,000 (173,090)(1) 299,441
70,000 (2)
Additional paid in
capital.............. 166,041,256 30,270 2,993,820 (1) 391,353,471
222,288,125 (2)
Due from affiliated
companies and prepaid
services............. (521,395) 521,395 (1)
Accumulated
(deficit)/retained
earnings............. (1,736,732) 515,728 (515,728)(1) (1,736,732)
------------ ---------- ------------ ------------
Total shareholders'
equity............. 164,533,055 198,603 225,184,522 389,916,180
------------ ---------- ------------ ------------
$166,369,727 $1,569,548 $223,813,577 $391,752,852
============ ========== ============ ============
</TABLE>
- ---------------------
(1) To reflect the purchase adjustments relating to the proposed acquisition
of the KHEC Facility assuming the acquisition is completed through the
issuance of approximately 91,000 shares of Common Stock and to reflect the
use of $2,000,000 of the Company's cash representing the estimated costs
to remodel and to convert the property to an extended stay lodging
facility.
(2) To reflect the estimated net proceeds of this offering.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of Extended Stay
America, Inc. and subsidiaries (the "Company") as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the period from January 9, 1995 (inception) through December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Extended Stay
America, Inc. and subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the period from January
9, 1995 (inception) through December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
January 26, 1996
F-5
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents (including securities
purchased under agreements to resell of
$122,904,142 at December 31, 1995).............. $123,357,510 $104,010,918
Refundable deposits.............................. 344,064 621,654
Supply inventories............................... 92,817 291,266
Prepaid expenses................................. 318,541 366,142
Other current assets............................. 20,758 56,768
------------ ------------
Total current assets........................... 124,133,690 105,346,748
------------ ------------
Property and equipment, net........................ 18,205,537 51,658,313
Site deposits and preacquisition costs............. 1,931,215 3,913,811
Deferred loan costs................................ 5,293,119 5,294,114
Other assets....................................... 55,088 156,741
------------ ------------
$149,618,649 $166,369,727
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................. $ 670,708 $ 925,504
Accrued salaries and related expenses............ 271,230 67,855
Due to related parties........................... 133,149 71,845
Other accrued expenses........................... 691,117 440,612
Deferred revenue................................. 330,856
Note payable..................................... 630,200
------------ ------------
Total current liabilities...................... 2,396,404 1,836,672
------------ ------------
Commitments
Shareholders' Equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued and
outstanding.....................................
Common stock, $.01 par value, 200,000,000 shares
authorized, 22,130,855 and 22,853,092 shares
issued and outstanding, respectively............ 221,309 228,531
Additional paid in capital....................... 148,308,358 166,041,256
Accumulated deficit.............................. (1,307,422) (1,736,732)
------------ ------------
Total shareholders' equity..................... 147,222,245 164,533,055
------------ ------------
$149,618,649 $166,369,727
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 9, JANUARY 9,
1995 1995 FOR THE
(INCEPTION) (INCEPTION) THREE MONTHS
THROUGH THROUGH ENDED
DECEMBER MARCH 31, MARCH 31,
31, 1995 1995 1996
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue........................... $ 817,133 $ $1,137,841
Management fees........................ 17,775
Other revenue.......................... 42,977 32,988
----------- ----------
Total revenue........................ 877,885 1,170,829
----------- ----------
Costs and expenses:
Property operating expenses............ 332,523 442,540
Corporate operating and property
management expenses (including
$386,000 to related parties for the
period ending December 31, 1995)...... 2,042,039 195,823 1,580,655
Site selection costs................... 512,529 52,778 823,733
Depreciation and amortization.......... 146,726 203,343
----------- ---------- ----------
Total costs and expenses............. 3,033,817 248,601 3,050,271
----------- ---------- ----------
Loss from operations................. (2,155,932) (248,601) (1,879,442)
Interest income.......................... 848,510 1,450,132
----------- ---------- ----------
Net loss............................. $(1,307,422) $ (248,601) $ (429,310)
=========== ========== ==========
Net loss per common share............ $ (0.10) $ (0.02) $ (0.02)
=========== ========== ==========
Weighted average number of common and
equivalent shares outstanding during
the period.......................... 12,652,110 11,489,017 22,467,393
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Issuance of common stock, net of
issuance costs of $5,709,337... 22,130,855 $221,309 $148,308,358
Net loss........................ $(1,307,422)
---------- -------- ------------ -----------
Balances, December 31, 1995..... 22,130,855 221,309 148,308,358 (1,307,422)
Issuance of common stock
(unaudited).................... 722,237 7,222 17,845,642
Additional payouts of initial
public offering costs
(unaudited).................... (112,744)
Net loss (unaudited)............ (429,310)
---------- -------- ------------ -----------
Balances, March 31, 1996
(unaudited).................... 22,853,092 $228,531 $166,041,256 $(1,736,732)
========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
JANUARY 9, 1995 PERIOD FROM
(INCEPTION) JANUARY 9, 1995
THROUGH (INCEPTION) FOR THE THREE
DECEMBER 31, THROUGH MARCH 31, MONTHS ENDED
1995 1995 MARCH 31, 1996
--------------- ----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (1,307,422) $(248,601) $ (429,310)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization.............. 146,726 203,343
Write-off of site deposits
and preacquisition costs.. 288,655 187,418
Change in:
Refundable deposits....... (45,516) (3,371) (117,590)
Supply inventories........ (92,817) (24,930)
Prepaid expenses.......... (318,541) (5,345) (51,154)
Other current assets...... (26,284) (36,010)
Accounts payable.......... 65,504 205,361
Accrued expenses.......... 355,397 89,537 224,915
Due to related parties.... 133,149 54,857 (133,149)
Deferred revenue.......... 330,856
------------ --------- ------------
Net cash (used in)
provided by operating
activities.............. (801,149) (112,923) 359,750
------------ --------- ------------
Cash flows from investing
activities:
Acquisition of extended stay
properties.................. (2,342,346) (355,579)
Additions to property and
equipment................... (13,230,022) (281,301) (15,356,090)
Payments for site deposits
and preacquisition costs.... (2,579,667) (120,086) (2,738,578)
Refunds of deposits on
property sites.............. 191,666 240,000
Payments for other assets.... (65,436) (60,746)
------------ --------- ------------
Net cash used in
investing activities.... (18,025,805) (401,387) (18,270,993)
------------ --------- ------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock................ 143,882,880
Additions to deferred loan
costs....................... (1,698,416) (21,698)
Additions to prepaid
registration costs.......... (52,035)
Proceeds from related party
loans....................... 6,135,462 521,031
Payments on related party
loans....................... (6,135,462)
Payment of note payable...... (630,200)
Payments of initial public
offering costs.............. (731,416)
------------ --------- ------------
Net cash provided by
(used in) financing
activities.............. 142,184,464 521,031 (1,435,349)
------------ --------- ------------
Increase (decrease) in
cash.................... 123,357,510 6,721 (19,346,592)
Cash and cash equivalents at
beginning of period.......... 123,357,510
------------ --------- ------------
Cash and cash equivalents at
end of period................ $123,357,510 $ 6,721 $104,010,918
============ ========= ============
Noncash investing and
financing transactions:
Issuance of common stock for
acquisition of extended stay
properties.................. $ 1,700,000 $ 17,852,864
============ ============
Capitalized or deferred items
included in accounts payable
and accrued liabilities..... $ 1,212,154 $ 454,178 $ 654,639
============ ========= ============
Note payable for purchase of
property site............... $ 630,200
============
Issuance of common stock for
deferred loan costs......... $ 3,574,000
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Extended Stay America, Inc. (the "Company") was incorporated on January 9,
1995 as a Delaware corporation to develop, own, and operate extended stay
lodging facilities designed to appeal to value-conscious guests. Operations of
the Company's first extended stay facility commenced on August 1, 1995. The
Company acquired a second extended stay facility on August 18, 1995 (Note 5).
The Company's current operating subsidiaries are ESA Development, Inc. and ESA
Properties, Inc., which acquire and develop properties, and ESA Management,
Inc., which provides management services for all of the lodging facilities
owned by the Company and its subsidiaries. The Company expects that each
lodging facility will be owned by a separate single-purpose subsidiary formed
for such purpose.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk. The Company maintained deposits totaling
$123,357,510 at December 31, 1995, with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is
the estimated fair value at December 31, 1995.
The Company invests excess funds in an overnight sweep account with
NationsBank which invests in short-term, interest-bearing reverse repurchase
agreements. On December 31, 1995, the Company had invested $122,904,142 in
U.S. Government securities under agreements to resell. Due to the short-term
nature of these investments, the Company did not take possession of the
securities, which were instead held by the bank. The market value of the
securities held pursuant to the agreements approximates the carrying amount.
Supply Inventories. Supply inventories consist principally of linen,
cleaning and other room supplies and are stated at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
Property and Equipment. Property and equipment is stated at cost. The
Company capitalizes interest, salaries and related costs for site selection,
design and construction supervision.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 3-7 years
</TABLE>
For the period from January 9, 1995 through December 31, 1995 the Company
incurred interest of $98,217 all of which was capitalized and included in the
cost of buildings and improvements.
F-10
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preacquisition Costs. The Company incurs costs related to the acquisition of
property sites. These costs are capitalized when it is probable that a site
will be acquired. These costs are reclassified to property and equipment upon
acquisition. In the event the acquisition is not consummated, the costs are
charged to site selection costs. All other site selection costs are expensed
as incurred.
Deferred Loan Costs. The Company has incurred costs in obtaining financing.
These costs have been deferred and will be amortized over the life of the
respective loans using the effective yield method.
Preopening Costs. The Company capitalizes compensation and other training-
related costs incurred prior to the opening of a property. Included in other
current assets at December 31, 1995 are costs of $7,736, net of accumulated
amortization of $5,526, which are being amortized over a period of twelve
months.
Organization Costs. Organization costs at December 31, 1995 of $41,388 are
included in other assets, net of accumulated amortization of $10,348, and are
being amortized over sixty months using the straight-line method.
Income Taxes. Income taxes for the Company are determined in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the use of a liability method in which deferred income taxes are provided for
temporary differences between the financial reporting and income tax basis of
assets and liabilities using the income tax rates, under existing legislation,
expected to be in effect at the date such temporary differences are expected
to reverse.
Revenue Recognition. Room revenue and other income are recognized when
earned. Management fees of $17,775 were recognized as earned and represent
fees charged to Welcome Inn America 89-1, L.P. for the management of its
extended stay property for the period May 1, 1995 through August 18, 1995
prior to the acquisition of such property by the Company (Note 5).
Business Segment. The Company operates principally in one business segment
which is to develop, own, and operate extended stay lodging facilities.
Net Loss Per Common Share. The net loss per common share amount in the
statement of operations for the three months ended March 31, 1996 has been
computed in accordance with Accounting Principles Board Opinion (APB) No. 15.
The net loss per common share amount for the year ended December 31, 1995 and
for the three months ended March 31, 1995 has been computed in accordance with
a Staff Accounting Bulletin (SAB) of the Securities and Exchange Commission.
According to the SAB, equity securities, including stock, warrants, options
and other potentially dilutive securities, issued within a twelve-month period
prior to an initial public offering of common stock must be treated as common
stock equivalents when computing earnings per share for all periods presented
if the issue price of the common stock or the exercise price of the warrants,
options or other potentially dilutive securities is substantially less than
the proposed initial public offering price, including loss years where the
impact of the incremental shares is anti-dilutive. As permitted by the SAB,
the treasury stock method has been used in determining the weighted average
number of shares of common stock outstanding during the periods presented.
On October 19, 1995, the Board of Directors of the Company declared a 210-
for-1 stock split effected in the form of a dividend. Accordingly, all shares
and per share amounts have been adjusted retroactively to reflect this event.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1995 and 1996 and for each of the three-month periods then ended are
unaudited.
F-11
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
<S> <C>
Land and improvements, including land under current
development................................................ $ 9,074,172
Buildings and improvements.................................. 5,350,107
Furniture, fixtures and equipment........................... 1,197,481
Construction in progress.................................... 2,714,629
-----------
18,336,389
Less accumulated depreciation............................... 130,852
-----------
Total property and equipment............................ $18,205,537
===========
</TABLE>
The Company had commitments to construct additional extended stay properties
totaling approximately $23,000,000 at December 31, 1995.
NOTE 4--OPTIONS TO PURCHASE PROPERTY SITES
As of December 31, 1995, the Company had options to purchase parcels of real
estate at 32 locations in 14 states. The Company has paid $710,000 in
connection with these options. If for any reason the Company does not acquire
these parcels, the amounts paid in connection with the options are generally
refundable. These amounts are included in site deposits and preacquisition
costs.
NOTE 5--ACQUISITION OF EXTENDED STAY PROPERTIES
On August 18, 1995 the Company acquired an existing extended stay property
from Welcome Inn America 89-1, L.P. for $4,042,346 which was paid for by the
issuance of 357,000 shares of common stock valued at $1,700,000 and payment of
$2,342,346 in cash.
On January 26, 1996, the Company acquired an existing extended stay property
from Apartment/Inn, L.P. for approximately $8,324,000 which was paid for by
the issuance of 293,629 shares of common stock plus the payment of related
expenses of approximately $106,000 in cash.
On February 23, 1996, the Company acquired two existing extended stay
properties from Hometown Inn I, LTD and Hometown Inn II, LTD for approximately
$9,603,000 which was paid for by the issuance of 428,608 shares of common
stock and $75,000 in cash plus the payment of related expenses of $175,000 in
cash. (Unaudited)
These acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of operations of the properties are
included in the Consolidated Statement of Operations from the dates of
acquisition.
F-12
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following unaudited pro forma condensed statements of operations of the
Company have been updated to include all acquisitions occurring through March
31, 1996, as discussed above, and the issuance of shares to acquire and to
fund the cash portion of the purchase prices as if the acquisitions had
occurred on January 9, 1995 (the date of inception of the Company).
Accordingly, the unaudited pro forma statement of operations for the period
January 9, 1995 through December 31, 1995 differs from the statement included
in the Company's 1995 annual report to shareholders. This statement also
reflects estimated incremental expenses to operate as a publicly held company
as if the Company were publicly held on the date of inception. This pro forma
condensed statement of operations is not necessarily indicative of what actual
results of operations of the Company would have been assuming such
transactions had been completed as of January 9, 1995, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE
JANUARY 9, 1995 JANUARY 9, 1995 THREE MONTHS
(INCEPTION) THROUGH (INCEPTION) THROUGH ENDED
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......... $ 5,434,720 $1,128,223 $1,595,909
Other revenue......... 253,351 57,791 48,954
----------- ---------- ----------
Total revenue....... 5,688,071 1,186,014 1,644,863
----------- ---------- ----------
Costs and expenses:
Property operating
expenses............. 2,332,561 522,856 595,344
Corporate operating
and property
management expenses.. 3,144,491 473,658 1,619,616
Site selection costs.. 512,529 52,778 823,733
Depreciation and
amortization......... 881,514 213,486 258,780
----------- ---------- ----------
Total costs and
expenses........... 6,871,095 1,262,778 3,297,473
----------- ---------- ----------
Loss from
operations......... (1,183,024) (76,763) (1,652,610)
Interest income....... 848,510 1,450,132
----------- ---------- ----------
Net loss............ $ (334,514) $ (76,763) $ (202,478)
=========== ========== ==========
Net loss per common
share and
equivalent......... $ (0.02) $ (0.01) $ (0.01)
=========== ========== ==========
Weighted average
number of common
and equivalent
shares outstanding
during the period.. 13,589,464 12,493,366 22,853,092
=========== ========== ==========
</TABLE>
NOTE 6--NOTE PAYABLE
In conjunction with the acquisition of a property site, the Company issued a
note payable to the seller in the amount of $630,200. The note bore interest
at a rate of three percent per year and was paid on January 2, 1996. The note
was collateralized by a deed of trust on the property.
NOTE 7--PREFERRED STOCK
Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares
of each series, the Board will designate for each such series, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms
or conditions of redemption, as are permitted by law. No shares of preferred
stock are outstanding and the Company has no present plans to issue any shares
of preferred stock.
NOTE 8--STOCK OPTION PLANS
The Company has adopted the 1995 Employee Stock Option Plan to attract and
retain employees and consultants. Under the plan, options may be granted with
respect to a total of not more than 1,677,060 shares of common stock, subject
to antidilution and other adjustment provisions. No options may be granted
under the plan after August 18, 2005. The options vest over a four-year
period.
During the period January 9, 1995 through December 31, 1995, the
compensation committee granted, under the plan, 1,132,501 ten-year options to
purchase common stock at exercise prices per share ranging from $4.76
F-13
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to $13.00. The option price is equal to the fair market value of the stock on
the date of grant, as determined by the Board of Directors. No options to
purchase common stock under the plan are currently exercisable.
During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1995 plan 544,372 additional options to purchase
common stock at exercise prices per share ranging from $21.00 to $30.25.
(Unaudited)
Pursuant to an agreement with an officer of ESA Development, Inc. ("ESA
Development"), such officer was granted options in June 1995 to purchase a
total of 1,437.5 shares of ESA Development common stock. In March 1996, the
agreement and options were terminated. (Unaudited)
The Company has adopted the 1995 Stock Option Plan for Non-Employee
Directors. Under the plan, options may be granted with respect to a total of
not more than 240,000 shares of common stock of the Company subject to the
antidilution and other adjustment provisions. Each option shall be for a term
of ten years and shall become exercisable six months after the date of its
grant. Options to purchase an aggregate of 80,000 shares of the Company's
common stock were granted to non-employee directors of the Company effective
upon the Company's initial public offering of its common stock on December 13,
1995 at an exercise price per share of $13.00 (the initial public offering
price). Pursuant to the plan, subsequent non-employee directors of the Company
will be granted a one-time option to purchase 20,000 shares of the Company's
common stock upon their initial election to the Board of Directors of the
Company at a price equal to the fair market value of the stock on the date of
grant. During the four-year period following the initial election of a non-
employee director to the Board of Directors, an additional option covering
5,000 shares of common stock of the Company shall be granted to such non-
employee director on each anniversary of such non-employee director's initial
option grant, provided that not more than four such additional options shall
be granted to any one non-employee director. No options may be granted under
the plan after November 17, 2005. As of December 31, 1995, no options to
purchase common stock under the plan were exercisable.
Effective January 24, 1996, the Company has adopted (subject to shareholder
approval) the 1996 Employee Stock Option Plan to attract and retain employees
and consultants. Under the plan, options may be granted with respect to a
total of not more than 2,500,000 shares of common stock, subject to
antidilution and other adjustment provisions. No options may be granted under
the plan after January 24, 2006. The options vest over a four-year period.
During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1996 plan 679,385 options to purchase common stock
at exercise prices per share ranging from $21.00 to $25.88 under this plan.
(Unaudited)
NOTE 9--MORTGAGE FACILITY
On October 31, 1995, the Company executed a mortgage facility (the "Mortgage
Facility") for up to $200 million to be used to finance, on a long-term basis,
newly constructed extended stay lodging facilities. The Mortgage Facility
provides that after the first $100 million of borrowings, the availability of
the next $60 million is contingent upon (1) the Company's operating facilities
meeting certain debt coverage ratios, and (2) the successful completion of an
initial public offering of the Company's common stock which was completed on
December 19, 1995. An additional $40 million will become available at the
option of the Company, subject to the Company having at least 10 facilities
which meet certain debt coverage ratios. Draws under the Mortgage Facility
will be made on an individual property basis in amounts ranging from 50% to
75% of construction costs, depending on the operating results of the
individual property. The Mortgage Facility provides for the following fees to
be paid by the Company: (1) a commitment fee, $1,600,000 of which was paid
pursuant to the execution of the Mortgage Facility $400,000 of which will be
paid if the availability under the Mortgage Facility is increased; (2) a
drawdown fee of 1% of the funds loaned under the Mortgage Facility; and (3) a
fee paid by the issuance of 750,540 shares of common stock of the Company at
the time the Mortgage Facility was executed. These fees, which include the
estimated fair market value of the common stock issued to the lender, will be
F-14
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amortized over the life of the Mortgage Facility using the effective yield
method, thus increasing the effective interest rate above the stated interest
rate discussed below. Additionally, the lender was provided the right, which
it has exercised, to purchase 500,430 shares of common stock at a price of
$4.76 per share upon the execution of the Mortgage Facility. The Mortgage
Facility also provides for additional fees in the event of termination or
nonusage of amounts in excess of $100 million of up to 2.0% of the portion of
the facility so terminated or unused. All amounts borrowed under the Mortgage
Facility will be fully guaranteed by the Company and will be collateralized
by, among other things, first mortgages on the properties financed and
assignment of leases, rents and security deposits related to each property.
The amounts drawn under the Mortgage Facility will bear interest at a base
rate equal to the ten-year U.S. Treasury securities rate plus 4.0% at the
times the loans are made. Advances under the Mortgage Facility will be
provided on an interest only basis for a pre-stabilization period and will be
amortized based on a 25-year schedule thereafter with a final maturity on the
December 31 following the tenth anniversary of the date that the loan begins
to amortize.
Prepayment of mortgage loans may be made subject to specified penalties
provided certain conditions are met. Such prepayments may be made without
penalty within five years of their respective final maturity dates. The
Mortgage Facility provides that the Company must maintain a tangible net worth
of not less than $40,000,000 and amounts due under the Mortgage Facility may
at any time become immediately due and payable if the current members of the
Board of Directors cease to constitute a majority of the board. The Company
must place $22,500,000 in an escrow account in the name of the lender prior to
obtaining the first loan and an additional $22,500,000 once the loan amount
exceeds $33,750,000. Funds deposited in the escrow account will be classified
as noncurrent and will be used to acquire and construct extended stay lodging
facilities. The loan also requires the Company to fund certain other escrow
accounts. The Company's dividends cannot exceed 50% of the excess of its net
income for any period over its cumulative losses not previously applied in
computing the limitation.
The Company believes that there is no material difference in the carrying
amount (including the terms and conditions outlined above) and estimated fair
value of the Company's Mortgage Facility.
NOTE 10--RELATED PARTY TRANSACTIONS
During the period ended December 31, 1995, the Company borrowed under an
informal revolving loan agreement from shareholders and their affiliates,
which was paid on August 18, 1995. The maximum amount outstanding during the
period was approximately $4,476,000. Interest payments of approximately
$92,000 were made on the loans from shareholders and their affiliates, all of
which were capitalized and included in the cost of buildings and improvements.
The Company leases office space on a month-to-month basis from a company on
whose board the Chief Executive Officer of the Company serves. The Company
recognized rent expense of $18,000 through December 31, 1995 related to this
lease. In addition, the Company leases office space on a month-to-month basis
from a company owned by the Chairman of the Board of the Company. The Company
recognized rent expense of $15,000 through December 31, 1995 related to this
lease.
During 1995, the Company incurred charges of approximately $412,000 from a
company controlled by a shareholder for the use of airplanes, including
$133,000 in amounts due to related parties at December 31, 1995. Approximately
$70,000 of such charges were incurred in connection with the Company's initial
public offering and approximately $342,000 is included in corporate operating
and property management expenses. Approximately $126,000 in charges were
incurred from a law firm, one of the partners of which is a director of the
Company. Substantially all of such charges were incurred in connection with
the Company's organization, initial public offering and obtaining the Mortgage
Facility.
The Company acquired a property site for approximately $562,000 in cash from
a partnership in which certain shareholders are partners during 1995.
F-15
<PAGE>
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES
The Company adopted SFAS 109 upon inception. Under the provisions of SFAS
109, there was no income tax expense on the net loss for the period ended
December 31, 1995. Accordingly, there is no current nor deferred federal or
state income tax expense in the initial period.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Start up expenses capitalized for tax......................... $242,000
Net operating loss carryforward............................... 155,000
Other......................................................... 78,000
--------
Total gross deferred tax asset.............................. 475,000
Less valuation allowance........................................ (453,000)
--------
Net deferred tax asset...................................... 22,000
--------
Deferred tax liability:
Fixed assets, due to differences in depreciation.............. (22,000)
--------
Net deferred tax liability.................................. $ -0-
========
</TABLE>
A valuation allowance of $453,000 was established in the Company's initial
period. The Company believes the reversal of existing taxable temporary
differences will be sufficient to recognize the remaining deferred tax assets.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $450,000, which are available to
offset future federal taxable income, if any, through 2010.
No income taxes were paid during the period January 9, 1995 through December
31, 1995.
NOTE 12--INITIAL PUBLIC OFFERING
On December 19, 1995, the Company closed an initial public offering of
5,060,000 shares of its common stock at a public offering price of $13.00 per
share and a concurrent offering to existing shareholders of 2,067,825 shares
of common stock at an offering price of $12.09 per share, being the initial
public offering price per share less the underwriting discounts and
commissions. The proceeds to the Company of such offerings were approximately
$85,275,000, net of estimated offering expenses.
NOTE 13--EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires the Company to
identify properties for which it has committed to an exit plan or which may be
otherwise impaired. The fixed assets for such properties must be written down
to fair market value. The Company anticipates that the adoption of SFAS 121,
required for fiscal years beginning after December 15, 1995, will not result
in a reduction of net fixed assets or an increase in expenses in the fiscal
year 1996 statement of operations.
The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules.
Companies that choose not to record compensation expense under the new rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company has not yet determined the financial statement
impact of SFAS 123
F-16
<PAGE>
and has elected not to recognize the impact of this pronouncement in its
fiscal 1995 statement of operations, but will disclose as required in the
fiscal 1996 financial statements on a comparative basis the effect of SFAS 123
on net income and earnings per share.
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED)
The Company executed two purchase agreements for the acquisition of two
lodging facilities, each of which is subject to certain terms and conditions.
In addition, the Company received a commitment for a new mortgage facility
which is expected to provide up to $300 million in mortgage financing, subject
to certain conditions and limitations, for completed facilities. The Company
expects that upon completion of this new mortgage facility, it will reduce the
size of the existing mortgage facility to $100 million.
The Company entered into (i) a 10-year lease for a suite at Joe Robbie
Stadium for a base rental of $115,000 per year, subject to certain additional
charges and periodic escalation, and (ii) a three-year lease for a suite at
Homestead Motor Sports Complex for a base rental of $53,250 per year, subject
to certain additional charges. The Chairman of the Company's Board of
Directors owns Joe Robbie Stadium and has an approximately 50% interest in
Homestead Motor Sports Complex.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying statements of operations, partners' deficit
and cash flows of Welcome Inn America 89-1, L.P. for each of the two years
ended December 31, 1994 and the period from January 1, 1995 through August 18,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Welcome Inn America 89-1, L.P.
operations and its cash flows for each of the two years in the period ended
December 31, 1994 and the period from January 1, 1995 through August 18, 1995
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
October 16, 1995
F-18
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995
-------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $927,593 $1,009,872 $670,954
Other, net............................... 71,778 69,415 41,883
-------- ---------- --------
Total revenue.......................... 999,371 1,079,287 712,837
-------- ---------- --------
Costs and expenses:
Property operating expenses.............. 452,951 495,182 322,337
Property management fees to partners..... 104,051 66,564 44,880
Depreciation and amortization............ 138,987 141,362 95,546
-------- ---------- --------
Total costs and expenses............... 695,989 703,108 462,763
-------- ---------- --------
Income from operations................. 303,382 376,179 250,074
Interest expense:
Bank..................................... 185,518 211,607 184,226
Partners................................. 196,788 149,032 87,926
-------- ---------- --------
Total interest expense................. 382,306 360,639 272,152
-------- ---------- --------
Net income (loss)...................... $(78,924) $ 15,540 $(22,078)
======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF PARTNERS' DEFICIT
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
AND THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 18, 1995
<TABLE>
<S> <C>
Balance, January 1, 1993............................................ $(611,817)
Net loss............................................................ (78,924)
---------
Balance, December 31, 1993.......................................... (690,741)
Net income.......................................................... 15,540
---------
Balance, December 31, 1994.......................................... (675,201)
Net loss............................................................ (22,078)
---------
Balance, August 18, 1995............................................ $(697,279)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1995
---------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (78,924) $ 15,540 $(22,078)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation......................... 126,110 127,456 86,760
Amortization......................... 12,877 13,906 8,786
Change in:
Accounts receivable................. 106 (7,115) 117
Other current assets................ (496) (2,851) 5,672
Accounts payable.................... 3,737 (3,801) 43,481
Accrued expenses.................... 8,361 (1,483) (17,350)
Accrued interest.................... (68,493) (112,629) 79,628
Accrued salaries.................... (1,625) 496 (10,338)
--------- ----------- --------
Net cash provided by operating
activities............................ 1,653 29,519 174,678
--------- ----------- --------
Cash flows from investing activities:
Expenditures for buildings and
improvements......................... (30,547) (660)
Purchases of furniture, fixtures and
equipment............................ (5,052) (31,921)
--------- ----------- --------
Net cash used in investing activities.. (35,599) (660) (31,921)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from long-term debt.......... 2,500,000
Proceeds from notes payable to
partners............................. 260,000
Principal payments on long-term debt.. (209,333) (1,874,667) (96,000)
Principal payments on notes payable to
partners............................. (693,781)
Additions to deferred loan costs...... (18,000)
--------- ----------- --------
Net cash provided by (used in)
financing activities.................. 32,667 (68,448) (96,000)
--------- ----------- --------
Net increase (decrease) in cash........ (1,279) (39,589) 46,757
Cash at beginning of periods........... 123,676 122,397 82,808
--------- ----------- --------
Cash at end of periods................. $ 122,397 $ 82,808 $129,565
========= =========== ========
Supplemental cash flow disclosure,
interest paid......................... $ 450,799 $ 473,268 $192,524
========= =========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
WELCOME INN AMERICA 89-1, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Welcome Inn America 89-1, L.P. (the "Partnership") is a Georgia limited
partnership that operates an extended stay facility (formerly known as the
"Welcome Inn") in Marietta, Georgia.
On August 18, 1995, the Partnership's extended stay facility was acquired by
Extended Stay America, Inc. (the "Company"). In order to present comparable
results of operations and cash flows of the Partnership, the accompanying
financial statements represent the historical results of operations and cash
flows of the Partnership through August 18, 1995, immediately prior to the
acquisition by the Company. Accordingly, any gain or loss on the sale of
assets to the Company has not been recognized in the accompanying financial
statements.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the
life of the respective loans using the effective yield method.
Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
NOTE 3--LONG-TERM DEBT
Interest expense related to long-term debt consisting of mortgages held by
various banks and partners. Certain notes have variable rates of interest tied
to various commonly used indices.
The following is a summary of long-term debt on which interest expense was
incurred:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Note payable to a bank paid in August 1995............ $2,416,000
Note payable to a bank paid in 1994................... $1,790,667
Note payable to a partner, bearing interest at twelve
percent per year...................................... 1,716,191 1,022,410
---------- ----------
$3,506,858 $3,438,410
========== ==========
</TABLE>
NOTE 4--RELATED PARTY TRANSACTIONS
Management fees and interest charged by partners are as follows:
<TABLE>
<CAPTION>
MANAGEMENT INTEREST
FEES EXPENSE
<S> <C> <C>
1993.................................................... $104,051 $196,788
1994.................................................... 66,564 149,032
Period from January 1, 1995 to August 18, 1995.......... 44,880 87,926
</TABLE>
Management fees in 1993 included a one time bonus payment to a partner of
approximately $42,000.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheets of Apartment/Inn, L.P. as of
December 31, 1994 and 1995, and the related statements of operations and
partners' deficit and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Apartment/Inn, L.P. at
December 31, 1994 and 1995 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
January 26, 1996
F-23
<PAGE>
APARTMENT/INN, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 379,272 $ 73,407
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$10,933 in 1994 and $14,627 in 1995................ 19,268 25,448
Related parties..................................... 16,568 68,826
Refundable property taxes............................. 20,062
Other current assets.................................. 3,937 3,142
---------- ----------
Total current assets.............................. 419,045 190,885
---------- ----------
Property and equipment, net............................. 2,855,407 2,718,312
Other assets............................................ 13,845 9,502
---------- ----------
$3,288,297 $2,918,699
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 27,982 $ 18,292
Accrued salaries...................................... 4,023 5,216
Accrued interest...................................... 26,800 26,800
Other accrued expenses................................ 28,552 17,272
Current maturities of long-term debt.................. 224,773 163,475
---------- ----------
Total current liabilities......................... 312,130 231,055
---------- ----------
Long-term debt.......................................... 3,230,201 3,022,197
---------- ----------
Total liabilities..................................... 3,542,331 3,253,252
---------- ----------
Partners' deficit....................................... (254,034) (334,553)
---------- ----------
$3,288,297 $2,918,699
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
APARTMENT/INN, L.P.
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
<S> <C> <C>
Revenue:
Room revenue......................................... $1,696,763 $1,820,680
Other, net........................................... 77,735 76,909
---------- ----------
Total revenue...................................... 1,774,498 1,897,589
---------- ----------
Costs and expenses:
Property operating expenses.......................... 745,434 755,176
Property management fees to partners................. 106,059 113,215
Depreciation and amortization........................ 202,568 173,936
---------- ----------
Total costs and expenses........................... 1,054,061 1,042,327
---------- ----------
Income from operations............................... 720,437 855,262
Interest expense....................................... 418,758 394,413
---------- ----------
Net income........................................... 301,679 460,849
Partners' deficit, beginning of year................... (467,793) (254,034)
Distributions........................................ (87,920) (541,368)
---------- ----------
Partners' deficit, end of year......................... $ (254,034) $ (334,553)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
APARTMENT/INN, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $301,679 $460,849
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 163,775 169,593
Amortization............................................. 38,793 4,343
Change in:
Accounts receivable..................................... (4,433) (58,438)
Refundable property taxes............................... (20,062)
Other current assets.................................... 10,755 795
Accounts payable........................................ 11,621 (9,690)
Accrued expenses........................................ 11,109 (11,280)
Accrued salaries........................................ 55 1,193
-------- --------
Net cash provided by operating activities.............. 533,354 537,303
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (29,333) (32,498)
-------- --------
Net cash used in investing activities.................. (29,333) (32,498)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt...................... (130,778) (269,302)
Payments of deferred loan costs........................... (5,234)
Distributions to partners................................. (87,920) (541,368)
-------- --------
Net cash used in financing activities.................. (223,932) (810,670)
-------- --------
Net increase (decrease) in cash............................ 280,089 (305,865)
-------- --------
Cash at beginning of periods............................... 99,183 379,272
-------- --------
Cash at end of periods..................................... $379,272 $ 73,407
======== ========
Supplemental cash flow disclosure, interest paid........... $418,758 $394,413
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
APARTMENT/INN, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Apartment/Inn, L.P. (the "Partnership") is a Georgia limited partnership
that operates an extended stay facility (known as the "Apartment Inn") in
Norcross, Georgia. On January 26, 1996, the Partnership's extended stay
facility was acquired by Extended Stay America, Inc.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is
the estimated fair value at December 31, 1995.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the
life of the respective loans using the effective yield method. Deferred loan
costs are included in other assets.
Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................... $ 635,639 $ 635,639
Building and improvements.......................... 2,492,855 2,509,540
Furniture and fixtures............................. 671,287 687,100
---------- ----------
3,799,781 3,832,279
Less accumulated depreciation...................... 944,374 1,113,967
---------- ----------
$2,855,407 $2,718,312
========== ==========
</TABLE>
F-27
<PAGE>
APARTMENT/INN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following as of December
31: 1994 1995
<S> <C> <C>
Mortgage loan, principal and interest payable $44,529
monthly with a final balloon payment due June 1997,
interest at 12%....................................... $3,322,879 $3,137,376
Mortgage loan, principal and interest payable $6,000
monthly through August 1996, interest at 18%.......... 111,462 45,145
Other.................................................. 20,633 3,151
---------- ----------
3,454,974 3,185,672
Less current maturities................................ (224,773) (163,475)
---------- ----------
Long term debt, net of current maturities.............. $3,230,201 $3,022,197
========== ==========
</TABLE>
The mortgage loans are collateralized by substantially all of the
Partnership's property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$163,475; 1997--$3,022,197.
The Partnership believes that there is no material difference in the
carrying amount and estimated fair value of the Partnership's long-term debt,
since all of it matures on or prior to June 1997.
NOTE 5--RELATED PARTY TRANSACTIONS
Management fees charged by and room revenue charged to a company controlled
by a partner are as follows:
<TABLE>
<CAPTION>
MANAGEMENT ROOM
FEES REVENUE
<S> <C> <C>
1994................................................... $106,059 $ --
1995................................................... 113,215 45,607
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying combined balance sheets of Hometown Inn I,
LTD and Hometown Inn II, LTD (the "Partnerships") as of December 31, 1994 and
1995, and the related combined statements of operations and partners' capital
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Hometown Inn I,
LTD and Hometown Inn II, LTD at December 31, 1994 and 1995 and the combined
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
February 23, 1996
F-29
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 177,079 $ 362,357
Accounts receivable, net of allowance for doubtful
accounts of $3,813 in 1994 and $7,686 in 1995.......... 3,751 32,260
Supply inventories...................................... 26,660 26,660
Advance to affiliate.................................... 91,938
Other current assets.................................... 2,913
---------- ----------
Total current assets.................................. 207,490 516,128
Property and equipment, net............................... 4,966,202 4,964,094
Other assets.............................................. 7,000 17,733
---------- ----------
$5,180,692 $5,497,955
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 15,801 $ 29,912
Accrued expenses........................................ 75,304 60,274
Deposits................................................ 19,660 161,970
Advances from affiliates................................ 159,120 204,120
Current maturities of long-term debt.................... 117,903 185,949
---------- ----------
Total current liabilities............................. 387,788 642,225
Long-term debt............................................ 1,483,324 1,529,874
---------- ----------
Total liabilities..................................... 1,871,112 2,172,099
Partners' capital......................................... 3,309,580 3,325,856
---------- ----------
$5,180,692 $5,497,955
========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $1,802,707 $2,123,589 $2,234,569
Other, net............................... 84,679 99,719 96,617
---------- ---------- ----------
Total revenue.......................... 1,887,386 2,223,308 2,331,186
---------- ---------- ----------
Costs and expenses:
Property operating expenses.............. 1,074,103 1,143,716 989,337
Property management fees to related
party................................... 105,600 105,600 144,357
Depreciation and amortization............ 229,142 232,632 244,603
---------- ---------- ----------
Total costs and expenses............... 1,408,845 1,481,948 1,378,297
---------- ---------- ----------
Income from operations..................... 478,541 741,360 952,889
Interest expense........................... 131,848 137,532 170,232
---------- ---------- ----------
Net income............................. 346,693 603,828 782,657
Partners' capital, beginning of year....... 3,538,770 3,455,553 3,309,580
Distributions............................ (429,910) (749,801) (766,381)
---------- ---------- ----------
Partners' capital, end of year............. $3,455,553 $3,309,580 $3,325,856
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE>
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 346,693 $ 603,828 $ 782,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 229,142 232,632 243,056
Amortization.............................. 1,547
Change in:
Accounts receivable..................... 9,271 37,488 (28,509)
Other assets............................ (1,377) 1,377 (2,913)
Accounts payable........................ 944 (26,506) 14,111
Deposits................................ 3,927 8,833 142,310
Accrued expenses........................ (10,763) 11,346 (15,030)
--------- --------- ---------
Net cash provided by operating activities... 577,837 868,998 1,137,229
--------- --------- ---------
Cash flows from investing activities,
purchases of property and equipment.......... (34,818) (41,384) (240,948)
--------- --------- ---------
Cash flows from financing activities:
Payments of deferred loan costs............. (12,280)
Advances to affiliates...................... (91,938)
Advances from affiliates.................... 73,650 85,470 45,000
Principle payments on long-term debt........ (97,549) (130,956) (130,404)
Proceeds from issuance of long-term debt.... 245,000
Distributions to partners................... (429,910) (749,801) (766,381)
--------- --------- ---------
Net cash used in financing activities. (453,809) (795,287) (711,003)
--------- --------- ---------
Net increase in cash.......................... 89,210 32,327 185,278
Cash at beginning of periods.................. 55,542 144,752 177,079
--------- --------- ---------
Cash at end of periods........................ $ 144,752 $ 177,079 $ 362,357
========= ========= =========
Supplemental cash flow disclosure, interest
paid......................................... $ 125,141 $ 136,809 $ 170,227
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-32
<PAGE>
HOMETOWN INN I, LTD, HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation. The combined financial statements include the assets,
liabilities, capital and results of operations of two limited partnerships,
Hometown Inn I, LTD and Hometown Inn II, LTD. Where referred to herein, the
"Partnerships" include the two entities listed above. All significant
intercompany accounts and transactions have been eliminated.
Description of Business. The Partnerships operate two extended stay
facilities in Norcross, Georgia and Riverdale, Georgia. On February 23, 1996,
the Partnerships' extended stay facilities were acquired by Extended Stay
America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk. The Partnerships maintained deposits totalling
$362,357 at December 31, 1995 with one bank. Deposits in excess of $100,000
are not insured by the Federal Deposit Insurance Corporation.
Cash and cash equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is
the estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning
and other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.
The estimated useful lives on the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
</TABLE>
Deferred Loan Costs. The Partnerships have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the
life of the respective loan using the effective yield method. Deferred loan
costs are included in other assets.
Income Taxes. Any income taxes related to income earned by the Partnerships
are paid by the partners.
Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................ $ 646,007 $ 646,007
Building and improvements....................... 4,893,161 4,893,161
Furniture and fixtures.......................... 785,355 1,006,213
----------- -----------
6,324,523 6,545,381
Less accumulated depreciation................... (1,358,321) (1,581,287)
----------- -----------
$ 4,966,202 $ 4,964,094
=========== ===========
</TABLE>
F-33
<PAGE>
HOMETOWN INN I, LTD, HOMETOWN INN II, LTD
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
Long-term debt consists of the following as of December
31:
<S> <C> <C>
Mortgage loan, principal and interest payable monthly at
approximately $23,000 through January 1997, interest at
prime plus 1%........................................... $1,601,227 $1,483,325
Mortgage loan principal and interest payable monthly at
approximately $5,300 through August 2000, interest at
11%..................................................... 232,498
---------- ----------
1,601,227 1,715,823
Less current maturities.................................. 117,903 185,949
---------- ----------
Long-term debt, net of current maturities................ $1,483,324 $1,529,874
========== ==========
</TABLE>
The mortgage loans are collateralized by substantially all of the
Partnerships' property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$185,949; 1997--$1,382,719; 1998--$50,217; 1999--
$56,028; 2000--$40,910.
The Partnerships believe that there is no material difference in the
carrying amount and estimated fair value of the long-term debt.
4. RELATED PARTY TRANSACTIONS:
Management fees are charged by a related entity controlled by the partners
and advances are made to and taken by the related entity from the Partnerships
as follows:
<TABLE>
<CAPTION>
MANAGEMENT ADVANCES TO ADVANCES FROM
FEES RELATED ENTITY RELATED ENTITY
<S> <C> <C> <C>
1993............................. $105,600 $ $ 73,650
1994............................. 105,600 159,120
1995............................. 144,357 91,938 204,120
</TABLE>
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of Kipling Hospitality
Enterprise Corporation as of December 31, 1995 and the related statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kipling Hospitality
Enterprise Corporation at December 31, 1995 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Spartanburg, South Carolina
May 4, 1996
F-35
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 37,728 $ 40,136
Accounts receivable................................. 24,058 21,255
Supply inventories.................................. 40,338 40,338
Prepaid and other current assets.................... 32,425 5,314
---------- ----------
Total current assets.............................. 134,549 107,043
---------- ----------
Property and equipment, net........................... 1,468,171 1,454,178
Deferred loan costs, net.............................. 9,797 8,327
---------- ----------
$1,612,517 $1,569,548
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $ 40,758 $ 15,730
Accrued salaries and related expenses............... 16,152 15,537
Accrued property taxes.............................. 31,350 39,475
Accrued expenses.................................... 14,136 7,406
Deferred revenue.................................... 7,062 9,499
Note payable to related party....................... 33,486 33,486
Note payable to former shareholder.................. 80,000 80,000
Current maturities of long-term debt................ 63,437 64,454
---------- ----------
Total current liabilities......................... 286,381 265,587
---------- ----------
Long-term debt........................................ 1,116,934 1,105,358
---------- ----------
Total liabilities................................. 1,403,315 1,370,945
---------- ----------
Shareholder's Equity:
Common stock, $2 par value, 100,000 shares
authorized, 87,000 shares issued and outstanding... 174,000 174,000
Additional paid in capital.......................... 30,270 30,270
Due from affiliated companies and prepaid services.. (515,053) (521,395)
Retained earnings................................... 519,985 515,728
---------- ----------
209,202 198,603
---------- ----------
$1,612,517 $1,569,548
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......................... $1,255,118 $273,374 $231,426
Telephone income...................... 47,426 11,740 7,595
Other, net............................ 22,075 5,592 5,702
---------- -------- --------
Total revenue....................... 1,324,619 290,706 244,723
---------- -------- --------
Costs and expenses:
Property operating expenses........... 736,994 165,893 167,465
Management salaries................... 53,269 11,013 6,787
Franchise expense..................... 58,093 12,348 11,260
Depreciation and amortization......... 89,018 16,634 18,132
---------- -------- --------
Total costs and expenses............ 937,374 205,888 203,644
---------- -------- --------
Income from operations.................. 387,245 84,818 41,079
Other income (expense):
Loss on sale of property and
equipment............................ (20,774)
Interest income....................... 20,287 66 76
Interest expense...................... (139,298) (34,788) (31,912)
---------- -------- --------
Net income.......................... 247,460 50,096 9,243
Retained earnings, beginning of period.. 374,996 374,996 519,985
Dividends............................. (102,471) (13,500)
---------- -------- --------
Retained earnings, end of period........ $ 519,985 $425,092 $515,728
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $247,460 $ 50,096 $ 9,243
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 74,140 15,164 16,662
Amortization............ 14,878 1,470 1,470
Loss on sale of property
and equipment.......... 20,744
Change in:
Accounts receivable..... 6,398 4,021 2,804
Prepaid and other
current assets......... (31,709) 1 27,111
Accounts payable........ 8,996 (15,584) (25,028)
Accrued expenses........ (1,259) 28,159 3,217
-------- -------- --------
Net cash provided by
operating activities. 339,648 83,327 35,479
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (72,240) (41,216) (2,670)
Proceeds from sale of
property and equipment... 13,779
-------- -------- --------
Net cash used in
investing activities. (58,461) (41,216) (2,670)
-------- -------- --------
Cash flows from financing
activities:
Advances to affiliated
companies................ (46,434) (6,342)
Advances from affiliated
companies................ 4,988
Principal payments on
long-term debt........... (124,345) (9,693) (10,559)
Proceeds from issuance of
long-term debt........... 10,065
Dividends................. (102,471) (13,500)
-------- -------- --------
Net cash used in
financing activities. (263,185) (4,705) (30,401)
-------- -------- --------
Net increase in cash........ 18,002 37,406 2,408
Cash at beginning of period. 19,726 19,726 37,728
-------- -------- --------
Cash at end of period....... $ 37,728 $ 57,132 $ 40,136
======== ======== ========
Noncash financing
transaction, prepaid
services to former
shareholder................ $ 80,000
========
Supplemental cash flow
disclosure, interest paid.. $149,804 $ 34,995 $ 37,612
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business. Kipling Hospitality Enterprise Corporation (the
"Company") operates a franchise hospitality property in Lakewood, Colorado. In
1996, the Company entered into an agreement to sell its hospitality property
and equipment to Extended Stay America, Inc.
Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is
the estimated fair value at December 31, 1995.
Supply Inventory. Supply inventories consist primarily of linen, cleaning
and other room supplies and are stated at the lower of cost or market.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. Maintenance and repairs are charged
to operations as incurred; major renewals and improvements are capitalized.
The gain or loss on the disposition of property and equipment is recorded in
the year of disposition.
The lives on the assets are as follows:
<TABLE>
<S> <C>
Building and improvements........................................ 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>
Franchise Fee. Franchise fee is stated at cost and is amortized on a
straight-line basis over the period of the franchise agreement.
Income Taxes. The Company's shareholder elected that the Company be subject
to S Corporation regulations under the Internal Revenue Code. As such, the
shareholder is liable for federal and state income taxes.
Deferred Loan Costs. The Company has incurred costs in obtaining financing.
The costs have been deferred and are being amortized on a straight-line basis
over the life of the respective loans.
Revenue Recognition. Room revenue and other income are recognized when
earned.
Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1995 and 1996 and for each of the three-month periods then ended are
unaudited.
F-39
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Land.......................................................... $ 539,000
Building and improvements..................................... 990,132
Furniture and fixtures........................................ 214,997
Transportation equipment...................................... 38,708
----------
1,782,837
Less accumulated depreciation................................. 314,666
----------
$1,468,171
==========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Mortgage loan, principal and interest payable at approximately
$13,450 monthly through September 1997, interest at the
bank's base rate (base rate was 9.75% at December 31, 1995)
plus 2%...................................................... $1,172,664
Other......................................................... 7,707
----------
1,180,371
Less current maturities....................................... 63,437
----------
Long-term debt, net of current maturities..................... $1,116,934
==========
</TABLE>
The mortgage loan is collateralized by substantially all of the Company's
property and equipment. Aggregate maturities of long-term debt are as follows:
1996--$63,437; 1997--$1,116,934.
The Company believes that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.
4. NOTE PAYABLE TO FORMER SHAREHOLDER:
The Company entered into a note payable agreement on September 15, 1995 to
pay a former shareholder $100,000 to perform consulting, accounting, and
bookkeeping services over a five year period. The note bears interest at 7%
and is payable in five annual installments commencing on September 15, 1995.
5. RELATED PARTY TRANSACTIONS:
Certain members of the Company's management provide management services to
companies owned by the shareholder. The Company allocated approximately
$45,000 of expenses to the affiliated companies in 1995 for providing these
services. Due from affiliated companies and prepaid services at December 31,
1995 consists of:
<TABLE>
<S> <C>
Advances to affiliated companies................................ $326,000
Prepaid services to former shareholder (Note 4)................. 80,000
Receivable for allocated management services.................... 109,053
--------
$515,053
========
</TABLE>
F-40
<PAGE>
KIPLING HOSPITALITY ENTERPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
6. LITIGATION
From time to time, the Company has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition.
F-41
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXTENDED STAYAMERICA EFFICIENCY STUDIOS
[PHOTO OF INTERIOR CORRIDOR LOBBY] [PHOTO OF EXTERIOR CORRIDOR LOBBY]
[PHOTO OF INTERIOR CORRIDOR ROOM] [PHOTO OF EXTERIOR CORRIDOR ROOM]
[PHOTO OF INTERIOR CORRIDOR BATHROOM] [PHOTO OF EXTERIOR CORRIDOR BATHROOM]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OF-
FERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 11
Use of Proceeds........................................................... 11
Price Range of Common Stock............................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 12
Selected Financial Data................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 19
Management................................................................ 26
Certain Transactions...................................................... 34
Principal Shareholders.................................................... 35
Financing................................................................. 36
Description of Capital Stock.............................................. 39
Shares Eligible for Future Sale........................................... 41
Underwriting.............................................................. 42
Legal Matters............................................................. 43
Experts................................................................... 43
Available Information..................................................... 44
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,000,000 SHARES
[LOGO OF EXTENDED STAYAMERICA APPEARS HERE]
COMMON STOCK
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALLEN & COMPANY
INCORPORATED
CS FIRST BOSTON
SMITH BARNEY INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 92,298
NASD filing fee................................................. 27,267
Blue Sky fees and expenses...................................... 35,000
Printing and engraving expenses................................. 150,000
Transfer Agent fees and expenses................................ 5,000
Legal fees and expenses......................................... 90,000
Accounting fees and expenses.................................... 75,000
Miscellaneous................................................... 25,435
--------
Total....................................................... $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware authorizes the
Company to indemnify its directors and officers under specified circumstances.
The Restated Certificate of Incorporation and Bylaws of the Company provide
that the Company shall indemnify, to the extent permitted by Delaware law, its
directors and officers (and may indemnify its employees and agents) against
liabilities (including expenses, judgments, and settlements) incurred by them
in connection with any actual or threatened action, suit, or proceeding to
which they are or may become parties and which arises out of their status as
directors, officers, or employees.
The Company's Restated Certificate of Incorporation and Bylaws eliminate, to
the fullest extent permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for a breach of such
director's fiduciary duty of care except for liability where a director (a)
breaches his or her duty of loyalty to the Company or its stockholders, (b)
fails to act in good faith or engages in intentional misconduct or knowing
violation of law, (c) authorizes payment of an illegal dividend or stock
repurchase, or (d) obtains in improper personal benefit. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his responsibilities under any other law, including the federal securities
laws.
The directors and officers of the Company are insured within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of actions, suits, or proceedings and certain
liabilities which might be imposed as a result of such actions, suits, or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In January 1995, the Company issued 1,677,060 shares of Common Stock to its
initial stockholder for a $2,000 contribution to the capital of the Company.
Such securities were issued without registration under the Securities Act, in
reliance upon the exemption in Section 4(2) of the Securities Act.
In August 1995, pursuant to subscription agreements, the Company issued to
approximately 30 accredited investors 11,718,000 shares of Common Stock in
exchange for a $55,800,000 contribution to the capital of the Company made in
August and October of 1995. The above-referenced shares were issued without
registration under the Securities Act, in reliance upon the exemption in
Section 4(2) of the Securities Act.
II-1
<PAGE>
In August 1995, pursuant to a Contribution Agreement dated August 18, 1995
between the Company and Welcome Inn America 89-1, L.P. the Company issued
357,000 shares of Common Stock in exchange for certain assets and real
property. The above-referenced shares were issued without registration under
the Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.
Pursuant to a commitment agreement dated August 31, 1995, the Company issued
shares of Common Stock to DLJ and one of its affiliates as described under
"Financing." The above-referenced shares were issued without registration
under the Securities Act, in reliance upon the exemption in Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
1.1 Revised Proposed form of Underwriting Agreement.
2.1* Contribution Agreement, dated August 18, 1995, between
the Company and Welcome Inn America 89-1, L.P.
2.2** Agreement to Purchase Hotel and related agreements dated
January 24, 1996 between the Company and John W. Baker
and Apartment/Inn, L.P.
2.3** Agreement to Purchase Hotel and related agreements dated
February 23, 1996 among ESA 0992, Inc., ESA 0993, Inc.,
Hometown Inn I, LTD, and Hometown Inn II, LTD.
2.4*** Agreement to Purchase Hotel dated May 1, 1996 and re-
lated agreements among ESA Properties, Inc., Kipling
Hospitality Enterprise Corporation, and J. Craig McBride
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated Bylaws of the Company
4.1* Specimen certificate representing shares of Common Stock
5.1++ Opinion of Bell, Boyd & Lloyd as to the legality of the
Common Stock
10.1* Form of Subscription Agreement and related Demand Note
and Stockholders Agreement between the Company and ap-
proximately 30 investors entered into in August 1995
10.2(a)* Commitment for Mortgage Facility between the Company and
DLJ Mortgage Capital, Inc. ("DLJMC")
10.2(b)* Mortgage Facility, dated October 31, 1995, between the
Company and DLJMC
10.3*** Amended and Restated 1995 Employee Stock Option Plan of
the Company
10.4* Employment Agreement, dated as of June 1, 1995, between
ESA Development, Inc. and Harold E. Wright
10.5* Stock Option Agreement, dated as of June 1, 1995, be-
tween ESA Development, Inc. and Harold E. Wright
10.6*** 1995 Stock Option Plan for Non-Employee Directors of the
Company
10.7* Contract to Buy and Sell Real Property, dated April 20,
1995, between the Company and North Town Associates,
L.P.
10.8* Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company
10.9* Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
10.10*** Amended and Restated 1996 Employee Stock Option Plan
of the Company
10.11*** Employment Agreement, dated as of March 18, 1996, be-
tween ESA Development, and Harold E. Wright
10.12++ Aircraft Dry Lease, dated April 5, 1996, between Mor-
gan Corp. and the Company
10.13*** Homestead Motorsports Complex Executive Suite License
Agreement dated February 14, 1996 among The Homestead
Motorsports Joint Venture, Miami Motorsports Joint
Venture, and the Company
10.14*** Joe Robbie Stadium Executive Suite License Agreement
dated March 18, 1996 between Robbie Stadium Corpora-
tion and the Company
10.15(a)*** Commitment letter for mortgage facility between the
Company and CS First Boston Mortgage Capital
Corporation ("CSFBMC")
10.15(b) Credit Facility Agreement, dated May 24, 1996, between
the Company and CSFBMC
11.1*** Revised Statement re: Computation of Per Share Loss
21.1++ List of subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P. (included in Part
II of this registration statement)
23.2++ Consent of Bell, Boyd & Lloyd (included in Exhibit
5.1)
24.1* Powers of Attorney (included on the signature page of
this registration statement)
27.1++ Financial Data Schedule (for EDGAR filings only)
</TABLE>
- ---------------------
++Previously filed.
*Incorporated by reference to the corresponding exhibit to the Company's
Registration Statement on Form S-1, Registration No. 33-98452.
**Incorporated by reference to the corresponding exhibit to the Company's
Registration Statement on Form S-1, Registration No. 333-102.
***Incorporated by reference to the corresponding exhibit to the Company's
Report on Form 10-Q for the quarter ended March 31, 1996.
+This information appears only in the manually signed copy of this
Registration Statement.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable, or the information has been provided in the consolidated financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action,
suit, or proceeding) is asserted against the Company by such director,
officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FT.
LAUDERDALE, STATE OF FLORIDA, ON MAY 28TH, 1996.
Extended Stay America, Inc.
/s/ Robert A. Brannon
By:__________________________________
Robert A. Brannon
Senior Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 28TH, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
George D. Johnson, Jr.* President and Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert A. Brannon Senior Vice President, Chief Financial
___________________________________________ Officer, Secretary, and Treasurer
Robert A. Brannon
PRINCIPAL ACCOUNTING OFFICER:
Gregory R. Moxley* Vice President--Finance and Controller
A MAJORITY OF THE DIRECTORS:
H. Wayne Huizenga* Director
Donald F. Flynn* Director
George D. Johnson, Jr.* Director
Stewart H. Johnson* Director
John J. Melk* Director
Peer Pedersen* Director
</TABLE>
/s/ Robert A. Brannon
*By:_________________________________
Robert A. Brannon
Attorney-in-fact
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 26, 1996 on our audit of the consolidated financial
statements of Extended Stay America, Inc., our report dated January 26, 1996
on our audits of the financial statements of Apartment/Inn, L.P., our report
dated February 23, 1996 on our audits of the combined financial statements of
Hometown Inn I, LTD and Hometown Inn II, LTD, our report dated October 16,
1995 on our audits of the financial statements of Welcome Inn America 89-1,
L.P. and our report dated May 4, 1996 on our audit of the financial statements
of Kipling Hospitality Enterprise Corporation. We also consent to the
references to our firm under the captions "Experts" and "Selected Financial
Data."
Coopers & Lybrand L.L.P.
Spartanburg, South Carolina
May 24, 1996
II-6
<PAGE>
EXHIBIT 1.1
7,000,000 Shares
EXTENDED STAY AMERICA, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
May __, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALLEN & COMPANY INCORPORATED
CS FIRST BOSTON CORPORATION
SMITH BARNEY INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Extended Stay America, Inc., a Delaware corporation (the "Company")
proposes to issue and sell 7,000,000 shares of its Common Stock, par value $.01
per share (the "Firm Shares") to the several underwriters named in Schedule I
hereto (the "Underwriters"). The Company also proposes to issue and sell to
the several Underwriters not more than 1,050,000 additional shares of its Common
Stock, par value $.01 per share (the "Additional Shares") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the
Additional Shares are herein collectively called the Shares. The shares of
common stock of the Company, par value $.01 per share, to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the Common Stock.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 (Registration No. 333-03373)
including a prospectus relating to the Shares, which may be amended. The
<PAGE>
registration statement as amended at the time when it becomes effective,
including a registration statement (if any) filed pursuant to Rule 462(b) under
the Act increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A or Rule 434 under the Act, is hereinafter
referred to as the Registration Statement; and the prospectus (including any
prospectus subject to completion meeting the requirements of Rule 434(b) under
the Act provided by the Company with any term sheet meeting the requirements of
Rule 434(b) as the prospectus provided to meet the requirements of Section 10(a)
of the Act) in the form first used to confirm sales of Shares is hereinafter
referred as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to its terms and
conditions, the Company agrees to issue and sell, and each Underwriter agrees,
severally and not jointly, to purchase from the Company at a price per share of
$_____ (the "Purchase Price") the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to 1,050,000 Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof. The date specified
in any such notice shall be a business day (i) no earlier than the Closing Date
(as hereinafter defined), (ii) no later than ten business days after such notice
has been given and (iii) no earlier than two business days after such notice has
been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
The Company hereby agrees to use all reasonable efforts to deliver not
later than the date hereof an agreement (a "lockup
2
<PAGE>
agreement") executed by (i) each of the directors and officers of the Company,
and (ii) each stockholder listed on Annex I hereto, pursuant to which each such
person agrees, not to offer, sell, contract to sell, grant any option to
purchase, or otherwise dispose of any Common Stock or any securities convertible
into or exercisable or exchangeable for such Common Stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such Common Stock, except to the Underwriters pursuant to this
Agreement, for a period of 90 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such period (i) the Company may grant
stock options pursuant to the Company's existing stock option plans, (ii) the
Company may issue shares of its common stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and (iii)
the Company may issue shares of its common stock as consideration for
acquisitions provided that such shares are subject to restrictions on
disposition during such 90-day period equivalent to those in the lockup
agreements referred to in the first sentence of this paragraph.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and payment for
the Firm Shares shall be made at 10:00 A.M., New York City time, on the third
business day unless otherwise permitted by the Commission pursuant to Rule 15c6-
1 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively called the "Exchange
Act") (such day being referred to as the "Closing Date") following the date of
the public offering, at such place as you shall designate. The Closing Date
and the location of delivery of and the form of payment for the Firm Shares may
be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at such place as you shall designate
at 10:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 (an "Option Closing Date").
Any such Option Closing Date and the location of delivery of and the form of
payment for such Additional Shares may be varied by agreement between you and
the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in
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writing not later than two full business days prior to the Closing Date or an
Option Closing Date, as the case may be. Such certificates shall be made
available to you for inspection not later than 9:30 A.M., New York City time, on
the business day next preceding the Closing Date or the applicable Option
Closing Date, as the case may be. Certificates in definitive form evidencing
the Shares shall be delivered to you on the Closing Date or the applicable
Option Closing Date, as the case may be, with any transfer taxes thereon duly
paid by the Company, for the respective accounts of the several Underwriters,
against payment of the Purchase Price therefor by wire transfer of immediately
available funds to an account designated by the Company.
5. Agreements of the Company. The Company agrees with you:
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment to it becomes effective,
(ii) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, and
(iv) of the happening of any event during the period referred to in
paragraph (e) below which makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(c) To furnish to you, without charge, five signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time
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when it becomes effective, or to make any amendment or supplement to the
Prospectus (including the issuance or filing of any term sheet within the
meaning of Rule 434) of which you shall not previously have been advised
or to which you shall reasonably object; and to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or supplement to the Prospectus (including the
issuance or filing of any term sheet within the meaning of Rule 434) which
may be necessary or advisable in connection with the distribution of the
Shares by you, and to use its best efforts to cause the same to become
promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request; provided, that in the event that an Underwriter is
required to deliver a Prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issuance of the
Prospectus, upon the request of such Underwriter but at its expense, the
Company will prepare and deliver to such Underwriter as many copies as it
may request of a Prospectus (as amended or supplemented) complying with
Section 10(a)(3) of the Act.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the reasonable opinion of counsel for the
Underwriters it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if it
is necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by
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dealers under the state securities or Blue Sky laws of such jurisdictions
as you may request, to continue such qualification in effect so long as
required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to
effect such registration or qualification; provided, however, that the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it
is not so qualified or required to file such consent.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which
shall satisfy the provisions of Section 11(a) of the Act, and to advise
you in writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of
and for the preceding year, certified by independent certified public
accountants, and (ii) to make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly
period of each fiscal year) to such holders, a consolidated balance sheet,
a consolidated statement of operations and a consolidated statement of
cash flows (and similar financial reports of all unconsolidated
subsidiaries, if any) as of the end of and for such period, and for the
period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods
of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
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(k) Except to the extent provided in subsection (e) of this Section
5, to pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the
printing and delivery of the Prospectus and all amendments or supplements
to it during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states (including in each case
the reasonable fees and disbursements of counsel for the Underwriters
relating to such registration or qualification and memoranda relating
thereto), (v) filings and clearance with the National Association of
Securities Dealers, Inc. in connection with the offering, (vi) the listing
of the Shares on the National Association of Securities Dealers Automated
Quotation system ("Nasdaq") National Market and (vii) furnishing such
copies of the Registration Statement, the Prospectus and all amendments
and supplements thereto as may be requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold.
(l) To use all reasonable efforts to maintain the inclusion of the
Common Stock in the Nasdaq National Market (or on a national securities
exchange) for a period of five years after the effective date of the
Registration Statement.
(m) To use all reasonable efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date or any Option Closing Date, as the case
may be, and to satisfy all conditions precedent to the delivery of the
Shares.
6. Representations and Warranties of the Company. The Company represents
and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for
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such purpose are pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) Any term sheet and prospectus subject to completion provided by
the Company to the Underwriters for use in connection with the offering
and sale of the Shares pursuant to Rule 434 under the Act together are not
materially different from the prospectus included in the Registration
Statement (exclusive of any information deemed a part thereof by virtue of
Rule 434(d)).
(d) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, and each Registration Statement
filed pursuant to Rule 462(b) under the Act, if any, complied when so
filed in all material respects with the Act; and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(e) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of
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property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(f) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(g) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights; and the Shares have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(h) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained
in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, to which the Company or
any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby (i) will not require
any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body (except
as such may be required under the securities or Blue Sky laws of the
various states), (ii) will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, (x) the charter or by-
laws of the Company or any of its subsidiaries or (y) any agreement,
indenture or other instrument to which it or any of its subsidiaries is a
party or by which it or any of its subsidiaries or their respective
property is bound, and (iii) will not violate or conflict with any laws,
administrative
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regulations or rulings or court decrees applicable to the Company, any of
its subsidiaries or their respective property, except for such failures to
obtain consents, approvals, authorizations or orders, and such conflicts,
breaches, defaults and violations referred to in clauses (i), (ii)(y) and
(iii) which would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, and would not adversely affect the
Company's ability to perform its obligations under this Agreement.
(k) Except as otherwise set forth in the Prospectus, there are no
material legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated. No contract or document
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
is not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or state
wages and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, which in
each case might result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries, taken as a whole.
(m) The Company and each of its subsidiaries has such material
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("permits"), including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business; the Company
and each of its subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of its subsidiaries.
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(n) Except as otherwise set forth in the Prospectus or such as are
not material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, which might result in
any material adverse change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries
taken as a whole, and the Company and its subsidiaries enjoy peaceful and
undisturbed possession under all such leases to which any of them is a
party as lessee with such exceptions as do not materially interfere with
the use made by the Company or such subsidiary.
(o) The Company and each of its subsidiaries maintains reasonably
adequate insurance.
(p) Coopers & Lybrand L.L.P. are independent public accountants with
respect to the Company, Welcome Inn 89-1, L.P. ("Welcome"), Apartment/Inn,
L.P. ("Apartment/Inn"), Hometown Inn I, LTD and Hometown Inn II, LTD
("Hometown") and Kipling Hospitality Enterprises Corporation ("KHEC") as
required by the Act.
(q) The financial statements, together with related notes forming
part of the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and its subsidiaries, of Welcome, Apartment/Inn, Hometown, KHEC
and of the Company and its subsidiaries on a pro forma basis, in each case
on the basis stated in the Registration Statement at the respective dates
or for the respective periods to which they apply; such statements and
related notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) is, in all
material respects, accurately presented and, to the extent derived from
the books and records of the Company, prepared on a basis consistent with
such financial statements and the books and records of the Company.
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(r) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(s) Except as otherwise set forth in the Prospectus no holder of any
security of the Company has any right to require registration of shares of
Common Stock or any other security of the Company.
(t) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(u) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the
Company or any subsidiary thereof except as otherwise disclosed in the
Registration Statement.
(v) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(w) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(x) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
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7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities and judgments
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use therein; provided
that, insofar as this indemnity agreement relates to any untrue statement or
omission, or any alleged untrue statement or omission, made in a preliminary
prospectus, but cured in the Prospectus, it shall not inure to the benefit of an
Underwriter (or to the benefit of any person who controls such Underwriter) if
it is established that a copy of the Prospectus (as then amended or supplemented
if then so amended or supplemented) was not delivered by such Underwriter to the
person asserting the claim arising from such untrue statement or omission, or
such alleged untrue statement or omission, at or prior to the time required by
the Act (but only if the Company had previously furnished copies thereof to the
Underwriters), and delivery thereof would have constituted a defense to the
claim asserted by such person.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company, such
Underwriter shall promptly notify the Company in writing and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all reasonable fees and
expenses. Any Underwriter or any such controlling person shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the employment of such
counsel shall have been specifically authorized in writing by the Company, (ii)
the Company shall have failed to assume the defense and employ counsel or (iii)
the named parties to any such action (including any impleaded parties) include
both such Underwriter or such controlling person and the Company and such
Underwriter or such
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controlling person shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the Company (in which case the Company shall not have the
right to assume the defense of such action on behalf of such Underwriter or such
controlling person, it being understood, however, that the Company shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all such Underwriters and controlling persons, which firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation and that all such
reasonable fees and expenses shall be reimbursed promptly upon presentation for
payment). The Company shall not be liable for any settlement of any such
action effected without its written consent but if settled with the written
consent of the Company, the Company agrees to indemnify and hold harmless any
Underwriter and any such controlling person from and against any loss or
liability by reason of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and any person controlling the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter but only with reference
to information relating to such Underwriter furnished in writing by or on behalf
of such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any preliminary prospectus. In case any action shall be
brought against the Company, any of its directors, any such officer or any
person controlling the Company based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity may
be sought against any Underwriter, the Underwriter shall have the rights and
duties given to the Company (except that if the Company shall have assumed the
defense thereof, such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter), and the
Company, its directors, any such officers and any person controlling the Company
shall have the rights and duties given to the Underwriter, by Section 7(b)
hereof.
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(d) If the indemnification provided for in this Section 7 is unavailable
to an indemnified party in respect of any losses, claims, damages, liabilities
or judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and judgments in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares and also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as, but only if a court deems appropriate, any other relevant equitable
considerations. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm
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Shares under this Agreement are subject to the satisfaction of each of the
following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the
same force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M. (and in the case of a Registration Statement filed under
Rule 462(b) of the Act, not later than 10:00 p.m.), New York City time, on
the date of this Agreement or at such later date and time as you may
approve in writing, and at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c)(i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company, (ii) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus there shall not have been any change, or any development
involving a prospective material adverse change, in the capital stock or
in the long-term debt of the Company from that set forth in the
Registration Statement and Prospectus, (iii) the Company and its
subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole,
other than those reflected in the Registration Statement and the
Prospectus and (iv) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by George D. Johnson, Jr. and
Robert A. Brannon, in their capacities as the President and Chief
Executive Officer and Chief Financial Officer of the Company, confirming
the matters set forth in paragraphs (a), (b), (c), (g), and (h) of this
Section 8.
(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Bell, Boyd & Lloyd, counsel for the Company, to the effect that:
(i) the Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its
16
<PAGE>
jurisdiction of incorporation and has the corporate power and
authority required to carry on its business as it is currently being
conducted and to own, lease and operate its properties;
(ii) the Company and each of its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(iii) all of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly and validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of
any nature;
(iv) all the outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(v) the Shares have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will have been validly issued and will be fully paid
and non-assessable, and the issuance of such Shares is not subject to
any preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company;
(vii) the authorized capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description
thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued
and no proceedings for that purpose are, to the knowledge of such
counsel, pending before or contemplated by the Commission;
(ix) the statements under the captions "Management", "Certain
Transactions", "Financing", "Description of Capital Stock" and
"Shares Eligible for
17
<PAGE>
Future Sale" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement insofar as such statements constitute a
summary of legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor
any of its subsidiaries is in default in the performance of any
obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other agreement,
indenture or instrument material to the conduct of the business of
the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which it or any
of its subsidiaries or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement
by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under the Act or
other securities or Blue Sky laws) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any of its
subsidiaries, or any agreement, indenture or other instrument of
which such counsel has knowledge to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective properties are bound, or violate or
conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company or any of its subsidiaries or
their respective properties;
(xii) after due inquiry, such counsel does not know of any
legal or governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of
their respective property is subject which is required to be
described in the Registration Statement or the Prospectus and is not
so described, or of any contract or other document which is required
to be described in the Registration Statement or the Prospectus or is
18
<PAGE>
required to be filed as an exhibit to the Registration Statement
which is not described or filed as required;
(xiii) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(xiv) to the best of such counsel's knowledge, after due
inquiry, no holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security
of the Company; and
(xv) (1) the Registration Statement (including any
Registration Statement and under Rule 462(b) of the Act, if any) and
the Prospectus and any supplement or amendment thereto (except for
financial statements and statistical data as to which no opinion need
be expressed) comply as to form in all material respects with the
Act, and (2) such counsel believes that (except for financial
statements and statistical data, as aforesaid) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that the Prospectus, as amended or
supplemented, if applicable (except for financial statements and
statistical data, as aforesaid) does not contain any untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In giving such opinion such counsel may rely as to factual matters on
information in certificates of officers of the Company and public officials and,
with respect to the matters covered in clause (xv), such counsel may state that
their opinion and belief are based upon their participation in the preparation
of
19
<PAGE>
the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
The opinion of Bell, Boyd & Lloyd described in paragraph (d) shall be
rendered to you at the request of the Company and shall so state therein.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Sidley & Austin, counsel for the Underwriters, as to the
matters referred to in clauses (v), (vi), (viii), (ix) (but only with
respect to the statements under the caption "Description of Capital Stock"
and adding an opinion in such form with respect to the opinion under the
caption "Underwriting") and (xv) of the foregoing paragraph (d). In
giving such opinion such counsel may rely as to factual matters on
information in certificates of officers of the Company and public
officials and, with respect to the matters covered by clause (xv) such
counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification except as specified.
(f) You shall have received a letter on and as of the Closing Date,
in form and substance satisfactory to you, from Coopers & Lybrand L.L.P.,
independent public accountants, with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form and substance of the
letter delivered to you by Coopers & Lybrand L.L.P. on the date of this
Agreement.
20
<PAGE>
(g) The Company shall have delivered to you the agreements specified
in Section 2 hereof.
(h) The Company shall not have failed at or prior to the Closing
Date to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to
the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement shall
become effective upon the later of (a) execution of this Agreement and (b) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date by
you by written notice to the Company if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, of the
Company or any of its subsidiaries or the earnings, affairs, or business
prospects of the Company or any of its subsidiaries, whether or not arising in
the ordinary course of business, which would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (iii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market or limitation on prices for securities on any such
exchange or National Market, (iv) the declaration of a banking moratorium by
either federal or New York State authorities or (v) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
21
<PAGE>
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it or they have agreed to
purchase hereunder on such date and the aggregate number of Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters, as the case may be, agreed but failed or refused to purchase is
not more than one-tenth of the total number of Shares to be purchased on such
date by all Underwriters, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I bears to the total number of Firm Shares which all the
non-defaulting Underwriters with respect to such Closing Date or Option Closing
Date, as the case may be, have agreed to purchase, or in such other proportion
as you may specify, to purchase the Firm Shares or Additional Shares, as the
case may be, which such defaulting Underwriter or Underwriters, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the number of Firm Shares or Additional Shares, as the case may be,
which any Underwriter has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
number of Firm Shares or Additional Shares, as the case may be, without the
written consent of such Underwriter. If on the Closing Date or on an Option
Closing Date, as the case may be, any Underwriter or Underwriters shall fail or
refuse to purchase Firm Shares, or Additional Shares, as the case may be, and
the aggregate number of Firm Shares or Additional Shares, as the case may be,
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date by all Underwriters and
arrangements satisfactory to you and the Company for purchase of such Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the Company.
In any such case which does not result in termination of this Agreement, either
you or the Company shall have the right to postpone the Closing Date or the
applicable Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to Extended
Stay America, Inc., 500 East Broward Avenue, Suite 950, Ft. Lauderdale, Florida
33394, with a copy to John T. McCarthy, Bell, Boyd & Lloyd, 70 W. Madison
Street, Chicago, Illinois 60602, and (b) if to any Underwriter or to you, to
you c/o Donaldson, Lufkin & Jenrette Securities
22
<PAGE>
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, its officers and directors and
of the several Underwriters set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter or by or on
behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of any
failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement or pursuant to the provisions of
Section 9(i) of this Agreement, the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, any
controlling persons referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include a purchaser of any of the
Shares from any of the several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
23
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
EXTENDED STAY AMERICA, INC.
By: _______________________
George D. Johnson, Jr.
President and CEO
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALLEN & COMPANY INCORPORATED
CS FIRST BOSTON CORPORATION
SMITH BARNEY INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------
Jeffrey Klein
Managing Director
24
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Allen & Company Incorporated
CS First Boston Corporation
Smith Barney Inc.
----------------
Total 7,000,000
================
25
<PAGE>
ANNEX I
-------
Names of Stockholders Delivering Lockup Agreements
--------------------------------------------------
26
<PAGE>
[LETTERHEAD OF BELL, BOYD & LLOYD]
May 24, 1996
Extended Stay America, Inc.
500 E. Broward Boulevard
Ft. Lauderdale, Florida 33394
Ladies and Gentlemen:
REGISTRATION STATEMENT ON FORM S-1
We have represented Extended Stay America, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of a registration statement
on Form S-1 (the "Registration Statement"), filed under the Securities Act of
1933, as amended, for the purpose of registering 8,050,000 shares of common
stock, $.01 par value (the "Common Stock"), of the Company (the "Shares") to be
sold by the Company to a group of underwriters pursuant to an underwriting
agreement (the "Underwriting Agreement"), which Shares include 1,050,000 shares
of Common Stock which may be issued by the Company pursuant to an over-allotment
option granted to the underwriters. In this connection, we have examined
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate and other records, certificates and other papers as we
deemed it necessary to examine for the purpose of this opinion, including the
Registration Statement, the form of Underwriting Agreement and pertinent
resolutions of the board of directors of the Company.
Based upon such examination, it is our opinion that the Shares are legally
authorized and, upon issuance and delivery thereof to the underwriters in
accordance with the terms of the Underwriting Agreement and the receipt by the
Company of the purchase price therefor, will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references made to us in the Prospectus forming a part of
the Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required by Section 7 of the
Securities Act of 1933.
Very truly yours,
/s/ Bell, Boyd & Lloyd
<PAGE>
CREDIT FACILITY AGREEMENT
Between
EXTENDED STAY AMERICA, INC.
"ESA"
---
and
CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
"Lender"
------
Dated as of May 17, 1996
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1 DEFINITIONS AND ACCOUNTING TERMS....................................... 1
1.1 Defined Terms................................................... 1
1.2 Computation of Time Periods..................................... 17
1.3 Accounting Terms................................................ 17
1.4 Certain Terms................................................... 17
2 AMOUNTS AND TERMS OF THE LOANS......................................... 17
2.1 The Loans....................................................... 17
2.2 Making the Loans................................................ 17
2.3 Fees............................................................ 18
2.4 Repayment of the Loans.......................................... 19
2.5 Payment of Interest and Principal............................... 19
2.6 Capital Adequacy................................................ 19
2.7 Payments and Computations....................................... 20
2.8 Taxes........................................................... 20
2.9 Conversion Option............................................... 21
3 CONDITIONS OF LENDING.................................................. 22
3.1 Conditions Precedent to the First Loan.......................... 22
3.2 Conditions Precedent to Each Loan............................... 23
4 PROPERTY SPECIFIC CONDITIONS PRECEDENT................................. 26
4.1 Developed Hotel Properties - General Prerequisites.............. 26
4.2 Acquired Hotel Properties - General Prerequisites............... 29
4.3 Extended Approval Periods....................................... 29
5 COMPUTATION OF LOAN AMOUNTS............................................ 30
5.1 Amount of the Loan for a Developed Property..................... 30
5.2 Amount of the Loan.............................................. 30
5.3 Value........................................................... 30
6 REALLOCATION OF DEBT................................................... 30
7 REPRESENTATIONS AND WARRANTIES......................................... 31
7.1 Organization and Authority...................................... 31
7.2 Power........................................................... 31
7.3 Authorization of Borrowing...................................... 31
7.4 Other Agreements................................................ 32
i
<PAGE>
SECTION PAGE
7.5 Maintenance of Existence........................................ 32
7.6 Financial Requirements.......................................... 32
7.7 No Defaults..................................................... 33
7.8 Governmental Consents and Approvals............................. 34
7.9 Investment Company Act Status................................... 34
7.10 Compliance with Law............................................. 34
7.11 Financial Information........................................... 34
7.12 Federal Reserve Regulations..................................... 34
7.13 Pending Litigation.............................................. 35
7.14 Solvency; No Bankruptcy......................................... 35
7.15 Not Foreign Person.............................................. 35
7.16 Ownership of ESA; Subsidiaries.................................. 35
7.17 ERISA........................................................... 36
8 COVENANTS OF ESA....................................................... 36
8.1 Continuing Nature of Representations............................ 36
8.2 Financial Reports............................................... 37
8.3 Reporting Requirements.......................................... 38
8.4 Litigation...................................................... 39
8.5 No Further Indebtedness......................................... 39
8.6 Restricted Payments............................................. 40
8.8 Further Acts, Etc............................................... 40
8.9 Guaranty........................................................ 41
8.10 Plans, Pension Plans and ESOPs.................................. 41
9 FURTHER CONDITIONS PRECEDENT TO EACH LOAN;
TERMINATION OF FACILITY................................................ 42
10 TRANSFER OR ENCUMBRANCE................................................ 43
10.1 Definition of Transfer.......................................... 43
10.2 No Transfer..................................................... 43
10.3 Permitted Assumption............................................ 43
11 ESTOPPEL CERTIFICATES.................................................. 44
12 EVENTS OF DEFAULT...................................................... 44
12.1 Events of Default............................................... 44
12.2 General Remedies............................................... 47
12.3 General Provisions Regarding Remedies........................... 48
13 PREPAYMENT............................................................. 48
ii
<PAGE>
SECTION PAGE
13.1 Fixed Rate Loans................................................ 48
13.2 Floating Rate Loans............................................. 48
13.3 Sub-Performing, Unseasoned Loans................................ 49
13.4 Conditions Precedent to Prepayment.............................. 49
13.5 Additional Required Prepayment.................................. 49
13.6 Fixed Rate Prepayment Premium................................... 50
13.7 Release of Lien for Prepaid Loan................................ 50
14 LENDER ASSIGNMENTS..................................................... 50
15 MISCELLANEOUS.......................................................... 51
15.1 Representations and Warranties of ESA and Lender................ 51
15.2 Amendments, Etc................................................. 52
15.3 Notices, Etc.................................................... 52
15.4 No Waiver; Remedies............................................. 53
15.5 Costs; Expenses; Indemnities.................................... 53
15.6 Right of Set-off................................................ 55
15.7 Binding Effect.................................................. 55
15.8 Governing Law; Severability..................................... 55
15.9 Submission to Jurisdiction; Service of Process.................. 56
15.10 Section Titles.................................................. 56
15.11 Execution in Counterparts....................................... 56
15.12 Entire Agreement................................................ 56
15.13 Confidentiality................................................. 56
15.14 Waiver of Jury Trial............................................ 57
15.15 Waiver of Notice................................................ 57
15.16 Actions and Proceedings......................................... 57
15.17 Usury Laws...................................................... 57
15.18 Remedies of ESA................................................. 58
15.19 Offsets, Counterclaims and Defenses............................. 58
15.20 Waiver of Statute of Limitations................................ 58
15.21 Advances........................................................ 58
15.22 Application of Default Rate Not a Waiver........................ 58
15.23 No Joint Venture or Partnership................................. 59
15.24 Time of the Essence............................................. 59
15.25 ESA's and Borrower's Obligations Absolute....................... 59
15.26 [RESERVED]...................................................... 59
15.27 [RESERVED]...................................................... 59
15.28 Securitization Opinions......................................... 59
15.29 Cooperation with Rating Agencies and Potential Investors........ 60
15.30 Securitization Financials....................................... 60
iii
<PAGE>
SECTION PAGE
15.31 Securitization Underwriting..................................... 60
15.32 Limitation of ESA Expenses...................................... 60
Schedule 7.16 Subsidiaries, Shareholder Agreements, and Stock Option Plans
Schedule 12.1P Current Board of Directors of ESA
Schedule 15.5A Limits on Third Party Expenses
Exhibit 1.1A Form of Assignment Agreement
Exhibit 1.2 Form of Mortgage
Exhibit 1.3A Form of Fixed Rate Note
Exhibit 1.3B Form of Floating Rate Note
Exhibit 2.5 Calculation of Amortization
Exhibit 3.1D-1 Form of ESA's counsel opinion
Exhibit 3.1D-2 Form of ESA non-consolidation opinion (pre-securitization)
Exhibit 3.2B Form of Property Loan Agreement
Exhibit 3.2C(iv) Form of Loan opinion
Exhibit 7.6H Form of Standstill Agreement
Exhibit 15.28 Form of ESA non-consolidation opinion (post-securitization)
INDEX OF DEFINED TERMS
Acquired Hotel Property....................... 1
Acquired Hotel Statement...................... 29
Additional Required Prepayment................ 50
Advisory Fee.................................. 18
Affiliate..................................... 1
Agreement..................................... 1
Applicable Amortization Period................ 2
Applicable Loan Amount........................ 2
Applicable Loan Constant...................... 2
Applicable Loan Constant Amortization
Period....................................... 2
Appraisal..................................... 2
Approved Hotel................................ 2
Approved Manager Standard..................... 2
Assignment Agreement.......................... 2
Assumed Rate.................................. 2
Bank.......................................... 2
Borrower...................................... 2
Business Day.................................. 3
Cash Flow Available for Debt Service.......... 3
Claim......................................... 14
Closing Date.................................. 3
Code.......................................... 3
Collateral.................................... 3
Collateral Documents.......................... 23
Commitment.................................... 3
Construction Budget........................... 27
Construction Costs............................ 3
Contingent Obligation......................... 3
Contractual Obligation........................ 4
Debt.......................................... 14
Debt Service.................................. 4
Debt Service Coverage......................... 4
Default....................................... 5
Default Rate.................................. 5
Default Rate Interest......................... 5
Developed Hotel Property...................... 5
Development Hotel Statement................... 28
Dollars....................................... 5
Environmental Report.......................... 27
ERISA......................................... 5
ERISA Affiliate............................... 5
iv
<PAGE>
ESA........................................... 1
ESA Cumulative Unapplied Losses............... 5
ESA Net Income................................ 5
ESOP.......................................... 5
Event of Default.............................. 44
Facility...................................... 17
Federal Release............................... 15
Final Borrowing Date.......................... 5
Fiscal Year................................... 5
Fixed Rate Base Rate.......................... 6
Fixed Rate Interest Rate...................... 6
Fixed Rate Loan............................... 6
Fixed Rate Lockout............................ 48
Fixed Rate or Fixed Rate Interest Rate........ 6
Fixed Rate Prepayment Premium................. 50
Fixed Rate Spread............................. 6
Floating Rate Base Rate....................... 6
Floating Rate Interest Rate................... 6
Floating Rate Loan............................ 6
Floating Rate Lockout......................... 48
Floating Rate or Floating Rate Interest Rate.. 6
Floating Rate Spread.......................... 6
GAAP.......................................... 6
Governmental Authority........................ 6
Hotel Property................................ 7
Identified Rate............................... 18
Indebtedness.................................. 7
Indemnitee.................................... 53
Independent................................... 8
Interest Period............................... 8
IRS........................................... 8
Leases........................................ 8
Legal Requirement............................. 8
Lender........................................ 1
Lending Office................................ 8
LIBOR......................................... 8
Lien.......................................... 9
Liquidity Reserve............................. 25
Liquidity Reserve Account..................... 25
Loan.......................................... 9
Loan Amount................................... 9
Loan Constant................................. 9
Loan Documents................................ 10
Loan Group.................................... 18
Loan Party.................................... 10
Loans......................................... 9
Management Agreement.......................... 10
Manager....................................... 10
Material Adverse Change....................... 10
Material Subsidiary........................... 10
Maturity Date................................. 10
Minimum Identified Rate Advance............... 18
Mortgages..................................... 10
Multiemployer Plan............................ 11
Net Operating Income.......................... 11
Net Proceeds.................................. 11
Net Worth..................................... 11
Note.......................................... 12
Notice of Borrowing........................... 17
Obligations................................... 12
Other Taxes................................... 21
Payment Date.................................. 12
PBGC.......................................... 12
Pension Plan.................................. 12
Permitted Encumbrances........................ 23
Person........................................ 12
Plan.......................................... 12
Plans......................................... 41
Prepayment.................................... 49
Principal Amount.............................. 13
Principal Payments............................ 13
Property Loan Agreement....................... 23
Proposed Hotel................................ 13
Rating Agency................................. 13
Realty........................................ 27
Recognized Appraiser.......................... 13
Rent.......................................... 13
Requirement of Law............................ 13
Responsible Officer........................... 14
Single Purpose Entity......................... 14
Solvent....................................... 14
Stated Maturity............................... 14
Stock......................................... 15
Stock Equivalents............................. 15
Stock Market Capitalization................... 15
Subsidiary.................................... 15
Tangible Net Worth............................ 15
Taxes......................................... 20
Title Insurance Policy........................ 24
Transfer...................................... 43
Treasury Rate................................. 15
Unrestricted Cash On Hand..................... 16
Unscheduled Payments.......................... 16
Value......................................... 30
Yield Maintenance Premium..................... 16
v
<PAGE>
CREDIT FACILITY AGREEMENT, dated as of the 17th day of May, 1996, between
EXTENDED STAY AMERICA, INC., a Delaware corporation ("ESA"), having an address
at 500 East Broward Boulevard, Suite 950, Fort Lauderdale, FL 33394-3073 and CS
FIRST BOSTON MORTGAGE CAPITAL CORPORATION, a Delaware corporation ("Lender"),
having an address at 55 East 52nd Street, New York, NY 10055.
W I T N E S S E T H :
-------------------
WHEREAS, ESA has requested that Lender make loan advances to ESA's
Subsidiaries of up to $300,000,000 in aggregate principal amount outstanding at
any one time, for the purposes hereinafter specified; and
WHEREAS, Lender is willing to make funds available for such purposes upon
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1 DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Acquired Hotel Property" means a Hotel Property with a certificate of
occupancy at the time of acquisition and at least 12 months of operating
history.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
"Agreement" means this Credit Facility Agreement, together with all
Exhibits and Schedules hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
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"Applicable Amortization Period" means, for a Floating Rate Loan, twenty
years and for a Fixed Rate Loan, fifteen years.
"Applicable Loan Amount" means, an amount which would result in a Debt
Service Coverage of 1.4, calculated as of the date of a Notice of Borrowing,
using the Applicable Loan Constant.
"Applicable Loan Constant" means, as of the date of the initial rate of a
Loan is determined, the higher of: (a) the Loan Constant calculated using the
Applicable Loan Constant Amortization Period and the Floating Rate Interest Rate
or Fixed Rate Interest Rate, as applicable, and (b) 11.5%.
"Applicable Loan Constant Amortization Period" means, for a Developed Hotel
Property, twenty-five years and for an Acquired Hotel Property, twenty years.
"Appraisal" means an appraisal using methodologies reasonably acceptable to
Lender at the time such appraisal is or was made and performed by a Recognized
Appraiser.
"Approved Hotel" means any Hotel approved by Lender pursuant to Section 4.1
or Section 4.2 hereof.
"Approved Manager Standard" means the standard of business operations,
practices and procedures customarily employed by entities having a senior
executive with at least seven (7) years' experience in the management of motels
or residence hotels, it being agreed that ESA Management, Inc. satisfies the
Approved Manager Standard on the date hereof.
"Assignment Agreement" means, with respect to each Hotel Property, an
Assignment of Leases and Rents and Security Deposits, substantially in the form
of Exhibit 1.1A, to be given by the relevant Borrower to Lender.
"Assumed Rate" means 9.9% per annum.
"Bank" means Citibank, N.A., or any other bank hereafter selected by
Lender.
"Borrower" means a Single Purpose Entity, as approved by Lender, which
shall be a corporation wholly owned (directly or indirectly) by ESA and over
which ESA has control (as defined in the definition of Affiliate), that executes
and delivers a Note for so long as such Note is outstanding and which is the
owner of the Hotel Property which is collateral securing such Note.
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"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City.
"Cash Flow Available for Debt Service" means Net Operating Income for each
Hotel Property less the annualized (or portion thereof) Recurring FF & E Monthly
Amount, as such term is defined in the Property Loan Agreement, for such Hotel
Property or in the case of a Developed Hotel, Net Operating Income less the
annualized (or portion thereof) Recurring FF&E Monthly Amount, projected by a
Loan Party and approved by Lender.
"Closing Date" means the date on which any Loan is advanced.
"Code" means the Internal Revenue Code of 1986, as amended and as it may be
further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto.
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by any Loan Party in or upon which a
Lien is granted under any of the Collateral Documents.
"Commitment" means that certain loan commitment letter dated May 7, 1996,
by and among Lender, and ESA.
"Construction Costs" means reasonable third-party out-of-pocket costs
incurred by ESA or the applicable Borrower for the construction of an Approved
Hotel, including: (i) the purchase price of the land, along with related title
insurance and recording fees, (ii) the costs incurred to improve the land to a
state upon which the building(s) can be constructed and operated, (iii) the
costs incurred in making the required utilities available at the property, (iv)
all survey, architect, environmental, and engineering fees, (v) all tap, impact,
and similar fees, (vi) the costs incurred to construct and furnish the
buildings, including the office, laundry, and storage areas, (vii) the cost of
landscaping and signage, (viii) construction loan interest calculated at the
lower of the actual interest rate or 10% per annum and construction loan fees
calculated at the lower of the actual fees or 1% of the construction loan to the
extent that such interest and fees are paid to a Person that is not an Affiliate
of ESA or the Borrower, (ix) reasonable legal and professional fees incurred in
pursuit of the preceding, (x) a development fee equal to 3.6% of the preceding
items which may be paid to an Affiliate of the Borrower in lieu of corporate
expenses and overhead, and (xi) a loan fee of 1% of the amount of the preceding
which is financed by the Lender.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness or Contractual Obligation of another Person, if the purpose or
intent of such Person in incurring
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the Contingent Obligation is to provide assurance to the obligee of such
Indebtedness or Contractual Obligation that such Indebtedness or Contractual
Obligation will be paid or discharged, or that any agreement relating thereto
will be complied with, or that any holder of such Indebtedness or Contractual
Obligation will be protected (in whole or in part) against loss in respect
thereof. Contingent Obligations of a Person include, without limitation,
(a) the direct or indirect guarantee, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of an obligation
of another Person, and
(b) any liability of such Person for an obligation of another Person
through any agreement (contingent or otherwise) to (i) purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of a loan,
advance, stock purchase, capital contribution or otherwise), (ii) maintain the
solvency or any balance sheet item, level of income or financial condition of
another Person, (iii) purchase, sell or lease (as lessor or lessee) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such obligation or to assure the holder of such obligation
against loss, or (iv) supply funds to or in any other manner invest in such
other Person (including, without limitation, to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii) or (iv) of this sentence the primary purpose or intent thereof is as
described in the preceding sentence.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any material agreement, instrument or
undertaking to which such Person is a party or by which it or any of the
property owned by it is bound.
"Debt Service" means for any period, the amount of interest and principal
payments due and payable in accordance with the relevant Note during an
applicable period which interest, in respect of Floating Rate Loans, shall be
computed at the Floating Rate Interest Rate applicable at the beginning of such
period.
"Debt Service Coverage" means the quotient obtained by dividing the Cash
Flow Available for Debt Service for a Hotel Property by the Debt Service (for
the applicable period) for such Hotel Property.
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"Default" means any event that would constitute an Event of Default if all
requirements in connection therewith for the giving of notice, the lapse of
time, and the happening of any further condition, event or act, had been
satisfied.
"Default Rate" shall be a rate equal to four percent (4%) above the rate
otherwise applicable, subject to Section 15.17 hereof.
"Default Rate Interest" means, to the extent the Default Rate becomes
applicable, interest in excess of the interest that would have accrued on (a)
the Loans and (b) any accrued but unpaid interest, if the Default Rate was not
applicable.
"Developed Hotel Property" means a Hotel Property built by ESA or any
Affiliate for use as an extended stay facility or an operating Hotel Property
acquired by ESA or any Affiliate, which when acquired, had less than 12 months
of operating history.
"Dollars" and the sign "$" each mean the lawful money of the United States
of America.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), as amended from time to time and any regulations
issued pursuant thereto, as may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control or treated as a single employer with any Loan Party within
the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"ESA Cumulative Unapplied Losses" means the cumulative net losses of ESA,
if any, for all Fiscal Years since the incorporation of ESA ending with the
Fiscal Year prior to the Fiscal Year in which ESA Net Income is being calculated
for the purpose of determining if a dividend is permitted to be paid in
accordance with Section 8.6.
"ESA Net Income" means the aggregate net income of ESA for the applicable
period determined on a consolidated basis in conformity with GAAP.
"ESOP" means any employee stock ownership plan or arrangement as defined in
Section 407(d)(6) of ERISA or Code Section 4975(e)(7).
"Final Borrowing Date" means May 17, 1999.
"Fiscal Year" means the twelve month period commencing on January 1 and
ending on December 31 during each year of the term of this Agreement, or such
other fiscal year of
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ESA or any Borrower as ESA or such Borrower may select from time to time with
the prior written reasonable consent of Lender.
"Fixed Rate Base Rate" means the Treasury Rate.
"Fixed Rate or Fixed Rate Interest Rate" means the Fixed Rate Base Rate
plus the Fixed Rate Spread.
"Fixed Rate Loan" means a Loan that bears interest with reference to the
Fixed Rate Interest Rate.
"Fixed Rate Spread" means an amount calculated in the following manner for
each Fixed Rate Loan; if prior to the advance of the applicable Loan for which
the Fixed Rate Spread is being calculated, Lender has advanced Fixed Rate Loans
in amounts (i) equal to or less than $75,000,000, then the Fixed Rate Spread for
such Loan is 3.85% (385 basis points); (ii) equal to or greater than $75,000,001
but equal to or less than $150,000,000, then the Fixed Rate Spread for such Loan
shall be 3.75% (375 basis points); (iii) equal to or greater than $150,000,001
but less than or equal to $225,000,000, then the Fixed Rate Spread for such Loan
shall be 3.65% (365 basis points); (iv) equal to or greater than $225,000,001,
then the Fixed Rate Spread for such Loan shall be 3.55% (355 basis points); it
being understood that once a Fixed Rate Spread has been determined for a Loan,
in no event shall it be reduced.
"Floating Rate Base Rate" means LIBOR.
"Floating Rate or Floating Rate Interest Rate" means the Floating Rate Base
Rate plus the Floating Rate Spread.
"Floating Rate Loan" means a Loan that bears interest with reference to the
Floating Rate Interest Rate.
"Floating Rate Spread" means an amount equal to 3% (300 basis points).
"GAAP" means generally accepted accounting principles in the United States
of America, as of the date of the applicable financial report, consistently
applied.
"Governmental Authority" means, with respect to any Person, any federal or
state government or other political subdivision thereof and any entity,
including any regulatory or administrative authority or court, exercising
executive, legislative, judicial, regulatory or administrative or quasi-
administrative functions of or pertaining to government, and any arbitration
board or tribunal in each case, having jurisdiction over such applicable Person
or
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such Person's property and any stock exchange on which shares of capital stock
of such Person are listed or admitted for trading.
"Hotel Property" means each of the Approved Hotels financed or refinanced
by a Borrower using the proceeds of a Loan or Loans made by Lender hereunder
while the respective Loans are outstanding.
"Indebtedness" of any Person means:
(i) all indebtedness of such Person for borrowed money (including,
without limitation, reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured) or for the deferred purchase price of property or services,
(ii) all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments,
(iii) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property),
(iv) all capitalized lease obligations of such Person,
(v) all Contingent Obligations of such Person,
(vi) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value any Stock or Stock Equivalents of such
Person, valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends,
(vii) all obligations of such Person under interest rate swap or
hedging contracts,
(viii) all Indebtedness referred to in clause (i), (ii), (iii), (iv),
(v), (vi) or (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
general intangibles) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness,
(ix) in the case of ESA or any Borrower, the Obligations, and
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(x) all liabilities of such Person that would be shown on a balance
sheet of such Person prepared in conformity with GAAP.
"Independent" means, when used with respect to any Person, a Person who (i)
is in fact independent, (ii) does not have any direct financial interest or any
material indirect financial interest in ESA, or in any Affiliate of ESA or any
constituent partner, shareholder, member or beneficiary of ESA and (iii) is not
connected with ESA or any Affiliate of ESA or any constituent partner,
shareholder, member or beneficiary of ESA as an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions.
Whenever it is herein provided that any Independent Person's opinion or
certificate shall be provided, such opinion or certificate shall state that the
Person executing the same has read this definition and is Independent within the
meaning hereof.
"Interest Period" shall mean for each Loan, the period commencing on the
date of such Loan and thereafter commencing on each Payment Date, and ending on
the day prior to the first Payment Date thereafter for each such Interest
Period.
"IRS" means the Internal Revenue Service, or any successor thereto.
"Leases" means, with respect to ESA or any Borrower, all leases, licenses
and other occupancy agreements affecting real property owned by ESA or any
Subsidiary as such may be amended, supplemented or otherwise modified from time
to time to the extent permitted by this Agreement.
"Legal Requirement" means as to any Person, the certificate of
incorporation and by-laws or other organization or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Lending Office" means, with respect to Lender, the office located at 55
East 52nd Street, New York, NY 10055-0186 or such other office of Lender (in the
United States of America) as Lender may from time to time specify to ESA.
"LIBOR" means the rate (expressed as a percentage per annum) for deposits
in U.S. dollars, for a 30 day period, that appears on Telerate Page 3750 (or the
successor thereto) as of 11:00 a.m., London, England time, on the related
Determination Date. As used herein "Determination Date" shall mean the date two
London business days prior to the first day of each Interest Period for a Loan.
If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London,
England time, on such Determination Date, LIBOR shall be the arithmetic mean of
the offered rates (expressed as a percentage per annum) for deposits in
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U.S. dollars for a 30 day period that appear on the Reuters Screen LIBOR Page as
of 11:00 a.m., London, England time, on such Determination Date, if at least two
such offered rates so appear. If fewer than two such offered rates appear on
the Reuters Screen LIBOR Page as of 11:00 a.m., London, England time, on such
Determination Date, Lender shall request the principal London, England office of
any four major reference banks in the London interbank market selected by Lender
to provide such bank's offered quotation (expressed as a percentage per annum)
to prime banks in the London interbank for deposits in U.S. dollars for a 30 day
period as of 11:00 a.m., London, England time, on such Determination Date for
the amounts of not less than U.S. $1,000,000. If at least two such offered
quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations. If fewer than two such offered quotations are so provided, Lender
shall request any three major banks in New York City selected by Lender to
provide such bank's rate (expressed as a percentage per annum) for loans in U.S.
dollars to leading European banks for a 30 day period as of approximately 11:00
a.m., New York City time, on the applicable Determination Date for amounts of
not less than U.S. $1,000,000. If at least two such rates are so provided,
LIBOR shall be the arithmetic mean of such rates. If fewer than two such rates
are so provided, then LIBOR shall be LIBOR as in effect prior to the applicable
Determination Date. LIBOR shall be determined in accordance with this paragraph
by Lender or its agent, whose determination shall be conclusive, absent manifest
error.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to secure
payment of any Indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a capitalized lease, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing, under the Uniform
Commercial Code or comparable law of any jurisdiction, of any financing
statement naming the owner of the asset to which such Lien relates as debtor
(excluding precautionary filings).
"Loan" or "Loans" means the Fixed Rate Loans and the Floating Rate Loans
advanced or to be advanced by Lender to each Borrower pursuant to the terms
hereof.
"Loan Amount" means the total amount outstanding under the Loans or
otherwise owing under the Notes or hereunder from time to time.
"Loan Constant" means a number calculated by dividing: (x) the annualized
equal monthly payments of principal and interest sufficient to completely
amortize a loan over a given period at a given interest rate by (y) a given loan
amount.
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"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents and each certificate, agreement or document executed by a
Loan Party and delivered to Lender in connection with or pursuant to any of the
foregoing, as such agreements, documents or instruments may be amended, modified
or supplemented from time to time.
"Loan Party" means ESA and each Borrower.
"Management Agreement" means an agreement relating to the operation and/or
management of a Hotel Property between the appropriate Borrower and a Manager,
substantially in a form as shall be approved by Lender, which approval shall not
be unreasonably withheld or delayed.
"Manager" means ESA Management, Inc., a wholly owned subsidiary of ESA, or
such other manager meeting the Approved Manager Standard as shall be approved by
Lender (which approval shall not be unreasonably withheld or delayed), as
manager under the Management Agreement.
"Material Adverse Change" means a material adverse change in (a) the
condition (financial or otherwise), business, performance, prospects, operations
or properties of ESA and its Subsidiaries taken as one enterprise or ESA and the
Borrowers taken as one enterprise, (b) the legality, validity or enforceability
of any Loan Document, (c) the perfection or priority of the Liens granted
pursuant to the Collateral Documents, (d) the ability of any Borrower (or if
then guaranteed by ESA, then the ability of ESA and such Borrower) to repay the
Obligations or of any Loan Party to perform its material obligations under any
Loan Document, or (e) the rights and remedies of Lender under the Loan
Documents.
"Material Subsidiary" means any Subsidiary which has ten million dollars or
more of Indebtedness.
"Maturity Date," when used with respect to each Note, means the Stated
Maturity for the Loan evidenced by such Note or such other date pursuant to the
Note on which the final payment of principal, and premium, if any, on which the
Note becomes due and payable as therein or herein provided, whether at Stated
Maturity or by declaration of acceleration, or otherwise.
"Mortgages" means the valid and enforceable first priority mortgages or
deeds of trust made or required herein to be made by each Borrower,
substantially in the form of Exhibit 1.2 (but modified as required by Lender's
local counsel to meet state-specific requirements
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and customs), as such Mortgages may be amended, supplemented or otherwise
modified from time to time.
"Multiemployer Plan" means, as of any applicable date, a multiemployer
plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party,
any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make,
or within the six-year period ending at such date, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
"Net Operating Income" means in each Fiscal Year or portion thereof during
the term hereof, Operating Income less Operating Expenses. Operating Income
means, in each Fiscal Year or portion thereof during the term hereof, all
revenue derived by a Borrower arising from the Hotel Property including, without
limitation, Rent, and all other income (including laundry, vending, and other
service income), adjusted to reflect the lesser of actual occupancy or 95%.
Operating Expenses means, in each Fiscal Year or portion thereof during the term
hereof, all expenses directly attributable to the operation, repair and
maintenance of the Hotel Property including, without limitation, Impositions (as
defined in the Mortgages), insurance premiums, management fees (calculated as 4%
of gross revenues), satellite and cable television and telephone expenses,
payments to third party suppliers, general and administrative and marketing
expenses, utilities, housekeeping expenses, employee taxes and benefits.
Operating Expenses shall also include reserves for Contingent Obligations (but
shall exclude any payments made from such reserves). Operating Expenses shall
not include interest, principal and premium, if any, due under the Notes or
otherwise in connection with the Loans, income taxes, extraordinary capital
improvements costs, or any non-cash charge or expense such as depreciation.
"Net Proceeds" means the excess of (i)(x) the purchase price (at
foreclosure or otherwise) actually received by Lender with respect to a Hotel
Property as a result of the exercise by Lender of its rights, powers, privileges
and other remedies after the occurrence of an Event of Default, or (y) in the
event that Lender (or Lender's nominee) is the purchaser at foreclosure by
credit bid, then the amount of such credit bid, in either case, over (ii) all
costs and expenses, including, without limitation, all attorneys' fees (to the
extent approved by the court in the case of judicial foreclosure) and
disbursements and any brokerage fees, if applicable, incurred by Lender in
connection with the exercise of such remedies, including the sale of such Hotel
Property after a foreclosure against such Hotel Property.
"Net Worth" of any Person means at any date the excess of (a) the total
assets of such Person and its Subsidiaries at such date determined on a
consolidated basis in conformity with GAAP over (b) all obligations which in
conformity with GAAP would be included in
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determining total liabilities as shown on the liabilities side of a consolidated
balance sheet of such Person and its Subsidiaries at such date.
"Note" means any of several promissory notes, made by each of the Borrowers
owning the respective Hotel Property, payable to the order of Lender in a
principal amount equal to the relevant Loan advance, substantially in the form
of Exhibit 1.3A or Exhibit 1.3B, evidencing the Indebtedness of each Borrower to
Lender resulting from the Loans made by Lender.
"Obligations" means the Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing by ESA, Borrowers and all Subsidiaries
to Lender, any Affiliate of Lender or any Indemnitee, of every type and
description, present or future, whether or not evidenced by any note, guaranty
or other instrument, arising under this Agreement or under any other Loan
Document, whether or not for the payment of money, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including,
without limitation, those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising and however acquired. The
term "Obligations" includes, without limitation, all interest, charges,
expenses, fees, attorneys' fees and disbursements and any other sum chargeable
to ESA and all Subsidiaries under this Agreement or any other Loan Document.
"Payment Date" means, with respect to each month, the first calendar day in
such month, or if such day is not a Business Day, the next following Business
Day.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" means a plan, other than a Multiemployer Plan, which is
covered by Title IV of ERISA or Code Section 412 and which any Loan Party, any
of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Person" means an individual, partnership, corporation (including, without
limitation, a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a Governmental Authority.
"Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA,
which any Loan Party or any of its Subsidiaries maintains, contributes to or has
an obligation to contribute to on behalf of participants who are or were
employed by any of them.
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"Principal Amount" means the aggregate principal balance of any Loan as
such amount may be increased or decreased from time to time pursuant to the
terms of this Agreement, the Notes or the other Loan Documents.
"Principal Payments" means all payments of principal made pursuant to the
terms of the Notes.
"Proposed Hotel" means any proposed Developed Hotel Property or proposed
Acquired Hotel Property to be used for the purpose of offering extended stay
hotel services or other mid-term lodging services that ESA desires to finance
using the proceeds of a Loan made by Lender hereunder.
"Rating Agency" means any nationally recognized statistical agency selected
by Lender including, without limitation, Duff & Phelps Rating Co., Fitch
Investors Services, Inc., Moody's Investors Services, Inc., and/or Standard and
Poors Corporation, collectively, and any successor to any of them; provided,
however, that at any time during which the Loan is an asset of a securitization,
"Rating Agency" means the rating agency or rating agencies that from time to
time rate the securities issued in connection with such securitization.
"Recognized Appraiser" means a qualified and MAI certified professional
appraiser as may be selected or approved by Lender, having at least five (5)
years' prior experience in performing real estate appraisals in the geographic
area where the property being appraised is located, having a recognized
expertise in appraising properties operated as hotel or other lodging
facilities.
"Rent" means room charges, rental revenues (whether denominated as basic
rent, additional rent, percentage rent, escalation payments, electrical
payments, telephone charges or otherwise) and other fees and charges payable by
guests or users, whether pursuant to Leases or otherwise in connection with the
Hotel Property.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all food, health and safety laws, and all applicable trade laws and
requirements, including, without limitation, all disclosure requirements of
Environmental Laws, ERISA and all orders, judgments, decrees or other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
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"Responsible Officer" means, with respect to any Person, any of the
principal executive officers or general partners of such Person.
"Single Purpose Entity" means a Person, other than an individual, which is
formed or organized solely for the purpose of holding, directly, an undivided
100% ownership interest in a Hotel Property (unless Lender, in its sole
discretion, consents to the Single Purpose Entity owning more than one Hotel
Property), does not engage in any business unrelated to the Hotel Property, does
not have any assets other than those related to its interest in the Hotel
Property or any indebtedness other than as permitted by this Agreement or the
other Loan Documents, has its own separate books and records and has its own
accounts, in each case that are separate and apart from the books and records
and accounts of any other Person, holds itself out as being a Person, separate
and apart from any other Person and meets Lender's reasonable requirements
(including organizational and structural requirements) to establish that, after
the guaranty of ESA as provided in Section 8.9 is terminated with respect to the
applicable Loan pursuant to Section 8.9 and the obligations of ESA in Section
15.5 are terminated, such Person would not be consolidated with ESA for
bankruptcy purposes.
"Solvent" means, as to any Person, that (a) the sum of the assets of such
Person, at a fair valuation, exceeds its liabilities, including contingent
liabilities, (b) such Person has sufficient capital with which to conduct its
business as presently conducted and as proposed to be conducted and (c) such
Person has not incurred debts, and does not intend to incur debts, beyond its
ability to pay such debts as they mature. For purposes of this definition,
"debt" means any liability on a claim, and "claim" means (a) a right to payment,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured, or (b) a right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured. With respect to any
such contingent liabilities, such liabilities shall be computed in accordance
with GAAP at the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Stated Maturity," when used with respect to the Notes or any installment
of interest and/or principal payment thereunder, means (i) with regard to any
Fixed Rate Loan and all other amounts due hereunder (other than in regard to any
Floating Rate Loan), the earlier of: (x) the date seven years and three months
after the first Fixed Rate Loan is advanced hereunder or (y) May 17, 2004; and
(ii) with regard to any Floating Rate Loan, May 17, 1999.
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"Stock" means shares of capital stock, beneficial or partnership interests,
participations or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or non-voting, and includes,
without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities convertible into or exchangeable
for Stock and all warrants, options or other rights to purchase or subscribe for
any stock, whether or not presently convertible, exchangeable or exercisable.
"Stock Market Capitalization" means, on any given day, the market closing
price, per share, of outstanding common and preferred shares of ESA multiplied
by the respective number of authorized, issued and outstanding common and
preferred shares of ESA.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or controlled by such Person and/or one or more
Subsidiaries of such Person (irrespective of whether, at the time, Stock of any
other class or classes of such entity shall have or might have voting power by
reason of the happening of any contingency).
"Tangible Net Worth" of any Person means, at any date, the Net Worth of
such Person at such date, excluding, however, from the determination of the
total assets of such Person at such date, (i) all goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles, (ii) deferred charges or unamortized debt
discount and expense, (iii) all reserves carried and not deducted from assets,
(iv) treasury stock and capital stock, obligations or other securities of, or
capital contributions to, or investments in, any Subsidiary of such Person, (v)
securities which are not readily marketable, (vi) cash held in a sinking or
other analogous fund (other than funds held by Lender pursuant to this Agreement
or any other Loan Document) established for the purpose of redemption,
retirement, defeasance or prepayment of any stock or Indebtedness, (vii) any
write-up in the book value of any asset resulting from a revaluation thereof,
and (viii) any items not included in clauses (i) through (vii) above which are
treated as intangibles in conformity with GAAP.
"Treasury Rate" means, at the time of determination, a fixed rate equal to
the linear interpolation of the yields of the five year and ten year U.S.
Treasury Constant Maturities, as published in the most current Federal Reserve
Statistical Release H.15-Selected Interest Rates (the "Federal Release"),
approximating that of a hypothetical noncallable U.S. Treasury
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obligation with a seven year maturity. In the event the Federal Release is no
longer published, Lender shall select a comparable publication to determine the
Treasury Rate.
"Unrestricted Cash on Hand" means cash or cash equivalents held by ESA, at
the time of determination, the use of which has not been restricted or pledged.
"Unscheduled Payments" means (i) all Loss Proceeds (as defined in the
Property Loan Agreement) that any Borrower has elected or is required to apply
to the repayment of the Loans pursuant to this Agreement, the Notes or any other
Loan Documents, (ii) any funds representing a voluntary or involuntary principal
prepayment other than scheduled Principal Payments, (iii) any Net Proceeds and
(iv) any amounts paid from the Curtailment Reserve Sub-Account (as defined in
the Property Loan Agreement).
"Yield Maintenance Premium" means the premium that shall be the product of
(1) a fraction, the numerator of which is the positive excess, if any, of
(i) the present value of all future payments of principal and interest
on the Principal Amount, including the principal amount due at maturity, to
be made on the relevant Notes before the prepayment in question, discounted
at an interest rate per annum equal to the sum of (a) the Treasury Constant
Maturity Yield Index published during the second full week preceding the
date on which such premium is payable for instruments having a maturity
coterminous with the remaining term of the Notes, and (b) fifty (50) basis
points, over
(ii) the Principal Amount immediately before such prepayment, and
the denominator of which is the Principal Amount immediately prior to
the prepayment, and
(2) the Principal Amount being prepaid; provided, however, that if there is
no Treasury Constant Maturity Yield Index for instruments having a maturity
coterminous with the remaining term of the Notes, then the index referred to in
(1) above shall be equal to the weighted average yield to maturity of the
Treasury Constant Maturity Yield Indices with maturities next longer and shorter
than such remaining average life to maturity, calculated by averaging (and
rounding upward to the nearest whole multiple of 1/100 of 1% per annum, if the
average is not such a multiple) the yields of the relevant Treasury Constant
Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with
any figure of 1/200 of 1% or above rounded upward).
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1.2 Computation of Time Periods. In this Agreement, in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding" and the word "through" means "to and including."
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4 Certain Terms.
A. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, and not to any particular
Article, Section, subsection or clause in this Agreement. References herein to
an Exhibit, Schedule, Article, Section, subsection or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Agreement.
B. The term "Lender" includes its successors and each assignee of
Lender who becomes a party hereto pursuant to Article 14.
2 AMOUNTS AND TERMS OF THE LOANS
2.1 The Loans.
A. On the terms and subject to the conditions contained in this
Agreement, Lender agrees to make Loans to Borrowers from time to time on
Business Days during the period from the date hereof through the Final Borrowing
Date in an aggregate outstanding amount not to exceed THREE HUNDRED MILLION
DOLLARS ($300,000,000) (the "Facility") to be used for the purpose of financing
Approved Hotels. Amounts repaid or prepaid pursuant to each Loan may not be
reborrowed, subject to reallocation of any Loan in accordance with Article 6.
No Loans may be borrowed after the Final Borrowing Date. The Loans shall be
evidenced by the Notes and secured by the Mortgages and the other Loan
Documents.
2.2 Making the Loans.
A. Each Loan shall be made on notice, given by ESA and the Borrower
to Lender not later than 12:00 noon (New York City time) on the tenth (10th)
Business Day prior to the date of the proposed Loan. Each such notice (a
"Notice of Borrowing") shall
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specify (i) the date of such proposed Loan, (ii) the amount of such proposed
Loan, (iii) subject to Section 2.2D and 2.9C, the Identified Rate for the
proposed Loan, (iv) the account or accounts to which the Loan should be made,
(v) details of the Approved Hotel for which the proceeds of the proposed Loan
shall be used and how the Loan proceeds will be applied and (vi) evidence
satisfactory to Lender of the calculation of the Value and the Debt Service
Coverage for the relevant Hotel Property and calculation of the amount of the
Loan demonstrating that assuming such Loan was made on the date of the Notice of
Borrowing, it complied with the limitations set forth in Section 5.1 or 5.2, as
applicable.
B. Upon fulfillment of the applicable conditions set forth in
Articles 3 and 4, and subject to the restrictions in Section 5.1 or 5.2, as
applicable, Lender shall on the date of the proposed Loan, make available to the
relevant Borrower at the account or accounts specified in the Notice of
Borrowing, in immediately available federal funds, the Loan.
C. Each Notice of Borrowing shall be irrevocable and binding on ESA
and the relevant Borrower. The Loan Party which gave the Notice of Borrowing
shall indemnify Lender for the difference between the interest on the amount
stated in the Notice of Borrowing at the applicable Fixed Rate Base Rate or
Floating Rate Base Rate, as applicable, and Lender's actual cost of funds not
advanced from time to time for the period of any delay (not to exceed the period
until the date of the next draw or draws hereunder aggregating the amount of the
sum not borrowed is reached), plus any cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Lender to
fund any Loan to be made by Lender when such Loan, as a result of any failure
(by any party other than Lender) to fulfill on or before the date specified in
any Notice of Borrowing for a proposed Loan the applicable conditions set forth
in Articles 3 and 4.
D. Once ESA or any Borrower has selected the Fixed Rate Interest
Rate or Floating Rate Interest Rate (the "Identified Rate"), any Notice of
Borrowing must select the Identified Rate until Lender has advanced, in the
aggregate, Loans using such Identified Rate in an amount equal to or greater
than $50,000,000 (a "Minimum Identified Rate Advance", each such group of Loans
consecutively made and aggregating to a Minimum Identified Rate Advance, a "Loan
Group"). Upon reaching the Minimum Identified Rate Advance, for the next
following Loan, ESA or any Borrower may select a new Identified Rate, which once
selected, must remain the Identified Rate until the Minimum Identified Rate
Advance is reached with respect to such Identified Rate.
2.3 Fees. ESA agrees to pay to Lender on behalf of the Borrowers on the
date hereof, a non-refundable advisory fee in the sum of THREE MILLION
($3,000,000) (the "Advisory Fee").
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2.4 Repayment of the Loans. The Principal Amount of the respective Loans,
together with all accrued and unpaid interest thereon and all other amounts due
under the respective Notes and the other Loan Documents, shall be due and
payable on the Maturity Date. Upon payment in full (as set forth above) of a
respective Loan and of all other Loans maturing on the same Maturity Date, the
Hotel Property of the relevant Borrower shall be released from the relevant
mortgage and all other Collateral Documents.
2.5 Payment of Interest and Principal. Each Borrower shall pay on each
Payment Date an amount consisting of a payment on account of interest plus a
payment on account of principal, which amount in respect of interest shall equal
the full amount of interest accrued on all Loans of such Borrower and in respect
of principal shall equal the amount which would be the amount for such Payment
Date on an amortization schedule based on equal monthly payments of principal
and interest which, would be sufficient to completely amortize the Principal
Amount over the Applicable Amortization Period at the Assumed Rate for Floating
Rate Loans or the Fixed Rate Interest Rate for Fixed Rate Loans. Payments shall
be made monthly, in arrears, on the first Payment Date and on each Payment Date
thereafter until the date the Principal Amount is paid in full. Interest shall
accrue at the following rates per annum:
A. Subject to Section 15.17 hereof, for Floating Rate Loans, equal
at all times during the applicable Interest Period for each Floating Rate Loan
to the Floating Rate Interest Rate for such Interest Period in effect on the
first day of such Interest Rate.
B. Subject to Section 15.17 hereof, for Fixed Rate Loans, at a rate
per annum equal at all times to the Fixed Rate, as determined on the date of the
advance of such Fixed Rate Loan.
Notwithstanding the forgoing, and subject to Section 15.17, after the
occurrence of any Event of Default, the interest applicable to all of the Loans
shall be the Default Rate. Lender shall give prompt notice to the Borrowers of
the applicable interest rate determined by Lender. Examples of calculations
made in conformity with this section are attached as Exhibit 2.5.
2.6 Capital Adequacy. If (i) the introduction of or any change in the
interpretation of any law or regulation, (ii) compliance with any law or
regulation, or (iii) compliance with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be
maintained by Lender or any corporation controlling Lender and Lender reasonably
determines that such amount is based upon the existence of Lender's unfunded
commitments under this Agreement and its other commitments of this type, then,
upon demand by Lender, ESA shall pay to Lender, from time to time as specified
by Lender,
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additional amounts sufficient to compensate Lender for the cost of maintaining
any excess capital in the light of such circumstances, to the extent that Lender
reasonably determines such increase in capital to be allocable to the existence
of the Lender's unfunded commitments hereunder to ESA. A certificate as to such
amounts submitted to ESA by Lender shall be conclusive and binding for all
purposes absent manifest error.
2.7 Payments and Computations.
A. ESA and each Borrower shall make its required payments hereunder
and under the Notes not later than 12:00 noon (New York City time) on the day
when due, in Dollars, to Lender at its address referred to in Section 15.3 in
immediately available funds without set-off, deduction or counterclaim, to be
applied in accordance with the terms of this Agreement. Payments received by
Lender after 12:00 noon (New York City time) shall be deemed to be received on
the next Business Day.
B. All computations of interest shall be made by Lender on the basis
of a year of 360 days consisting of twelve 30-day months in the case of Fixed
Rate Loans and actual days elapsed in the case of Floating Rate Loans. Each
determination by Lender of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
C. Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of any Loan to be made in the next calendar month, such payment shall
be made on the immediately preceding Business Day and such prepayment shall in
such case be included in the computation of payment of interest or fee, as the
case may be.
2.8 Taxes.
A. Any and all payments by Borrowers under each Loan Document shall
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding taxes measured by Lender's income,
and franchise taxes imposed on Lender, by the jurisdiction under the laws of
which Lender is organized or doing business or any political subdivision thereof
and taxes measured by Lender's net income, and franchise taxes imposed on
Lender, by the jurisdiction of Lender's Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities, "Taxes"). If Borrowers shall be required
by law to deduct any
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Taxes from or in respect of any sum payable hereunder to Lender (i) the sums
payable shall be increased as may be necessary so that after making all required
deductions (including, without limitation, deductions applicable to additional
sums payable under this Section) Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrowers shall make
such deductions, (iii) Borrowers shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with applicable law,
(iv) Borrowers shall deliver to Lender evidence of such payment to the relevant
taxation or other authority and (v) Lender shall credit Borrowers against the
indemnity obligations contained in this Section for any tax benefits derived by
Lender as a result of tax payments made by Borrowers pursuant to this Section.
B. In addition, Borrowers agree to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction which arise from any payment made under any Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, any Loan Document (collectively, "Other Taxes").
C. Borrowers will indemnify Lender for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section) paid by Lender and any
liability (including, without limitation, for penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within 30 days after the date Lender makes written demand therefor.
D. Upon request, within 30 days after the date of any payment of
Taxes or Other Taxes, Borrowers will furnish to Lender, the original or a
certified copy of a receipt evidencing payment thereof, if such receipt is given
by the local authority.
E. The agreements and obligations of the Borrowers contained in this
Section shall survive the payment in full of the Obligations.
2.9 Conversion Option. Provided there is no Event of Default hereunder or
under any other Loan Document, a Borrower shall have the option to convert
Floating Rate Loans to Fixed Rate Loans in accordance with and subject to the
following conditions:
A. No Floating Rate Loan may be converted into a Fixed Rate Loan by
any Borrower after it has been assigned or participated by Lender.
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B. Borrowers may not convert any Floating Rate Loans to Fixed Rate
Loans, if after giving effect to such conversion, Lender, in the aggregate,
would have less than $50,000,000 but more than $0 in Floating Rate Loans
outstanding.
C. To the extent that Loans have been converted pursuant to Section
2.9B, the Identified Rate in any subsequent Notices of Borrowings must be the
Fixed Rate until a Minimum Identified Rate Advance or an integral multiple
thereof is satisfied.
D. Any conversion must be made on a Payment Date. Borrower must
give Lender at least 15 days notice of its intent to convert any Loans and pay
all expenses of Borrower and Lender in connection with the conversion.
E. In addition to the other requirements of this Section, a Loan may
be converted only if it has a Debt Service Coverage, on the date Borrower gives
Lender notice of the proposed conversion, of 1.25 using the Applicable Loan
Constant for a Fixed Rate Loan.
3 CONDITIONS OF LENDING
3.1 Conditions Precedent to the First Loan. The obligation of Lender to
make the first Loan is subject to satisfaction of the condition precedent that
Lender shall have received, on the Closing Date with respect to such Loan, the
following, each dated as of such Closing Date unless otherwise indicated, in
form and substance reasonably satisfactory to Lender.
A. Evidence, acceptable to Lender in its sole discretion, of the
successful completion by ESA of an issuance of Stock valued, at the initial
offering price multiplied by the number of shares of Stock issued, equal in
amount to at least $100,000,000.
B. Evidence, acceptable to Lender in its sole discretion, that ESA
and any Affiliate have satisfied any and all obligations to draw on other lines
of credit or sources of financing or received waivers thereof.
C. [RESERVED].
D. Favorable opinions of either Johnson, Smith, Hibbard & Wildman
Law Firm L.L.P. or Pedersen & Houpt, a professional corporation, counsel to ESA
as to such matters as Lender may reasonably request (including nonconsolidation
with respect to ESA and every Borrower), substantially in the form of Exhibits
3.1D-1 and 3.1D-2.
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E. A certificate, signed by a Responsible Officer of ESA, stating
that the representations and warranties set forth herein are true and correct on
the Closing Date, after giving effect to the Loans being made on the Closing
Date and no Default or Event of Default then exists or will exist from the Loan
being made on such date.
3.2 Conditions Precedent to Each Loan. The obligation of Lender to make
any Loan shall be subject to the further conditions precedent (in addition to
the requirements enumerated in Section 3.1) that:
A. ESA and Borrower shall have satisfied the conditions of Articles
4 and 9 and any other obligations or conditions precedent under any other Loan
Document.
B. Borrower and Lender shall have entered into a Property Loan
Agreement (the "Property Loan Agreement"), substantially in the form of Exhibit
3.2B.
C. Upon the date on which Lender shall make any Loan, ESA and the
relevant Borrower, as applicable, shall have executed and delivered to Lender
the following (together with any other document now or hereafter executed and
delivered by a Loan Party granting a Lien on any of its property to secure
payment of the Obligations, collectively, the "Collateral Documents") with
respect to the Approved Hotel, each dated as of the date of such Loan, in form
and substance reasonably satisfactory to Lender:
i. The Note duly executed by the appropriate Borrower, payable
to the order of Lender.
ii. A Mortgage duly executed and acknowledged by the
appropriate Borrower for the Hotel Property in connection with which the Loan is
being advanced, which Mortgage shall secure (x) the Note referenced in Section
3.2C(i) and (y) all other Notes which shall have been or shall thereafter be
executed and delivered to Lender in connection with the Loans; provided that
said Mortgage shall not secure any obligation of ESA, ESA Management, Inc. or
ESA Development, Inc. after securitization and further provided, that if the
Hotel Property is located in a state with a mortgage recording tax and an
additional mortgage recording tax would be payable as a result of Section
3.2C(ii)(y), then the maximum recoverable principal indebtedness under such
Mortgage shall be 250% of the Value of such Hotel Property when such Loan is
made. Said Mortgage shall be a valid, enforceable and perfected first lien on
the Hotel Property, free and clear of all encumbrances, except for the items set
forth as exceptions to or subordinate matters in the Title Insurance Policy
(hereinafter defined), none of which, individually or in the aggregate,
materially interfere with the benefits of the security intended to be provided
by the Mortgage or materially affect the value or marketability of the Hotel
Property (such items, the "Permitted Encumbrances").
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iii. A paid and effective commitment for title insurance (a
"Title Insurance Policy") issued by a title company acceptable to Lender, in
such form and amounts as are reasonably acceptable to Lender, insuring that such
Mortgage is a valid, first priority Lien on such Hotel Property subject only to
(i) such exceptions to title which shall have been included in the title report
delivered to Lender pursuant to Section 4.1A or 4.2A and which were not included
in Lender's letter of acceptance pursuant to Section 4.1 or 4.2 as objections to
title, (ii) such other exceptions to title as shall be acceptable to Lender in
its reasonable discretion and containing such endorsements and affirmative
insurance as Lender may reasonably require (including first loss, last dollar,
tie-in and cluster endorsements) together and as are obtainable in the
applicable jurisdiction together with co-insurance and re-insurance agreements
and true copies of each document, instrument or certificate required by the
terms of each such policy, or required to be, or have been, executed, filed, or
recorded, in connection with such Mortgage and (iii) a zoning opinion or letter
from the relevant Governmental Authority providing assurances as to zoning in
form reasonably satisfactory to Lender provided, however, if the Property is
located in a jurisdiction where a zoning endorsement is available, then Lender
may require an zoning endorsement to the Title Insurance Policy, but ESA or
Borrower's obligation to pay for such endorsement shall be limited to $600.
iv. An opinion reasonably satisfactory to Lender of counsel
and/or local counsel retained by Borrower with respect to the validity and
enforceability of the Collateral Documents, substantially in the form of Exhibit
3.2C(iv).
v. Duly executed UCC-1 Financing Statements under the
applicable Uniform Commercial Code to be filed in connection with such Mortgage
in form and substance reasonably satisfactory to Lender, to perfect the Lien
created by the applicable Mortgage.
vi. Payment of all title insurance premiums, and all
documentary, stamp or intangible taxes, recording fees and mortgage taxes
payable in connection with the recording of any of the Loan Documents or the
issuance of the Title Insurance Policy.
vii. An assignment of the Management Agreement, permits and
contracts for the Hotel Property, duly executed by ESA or Borrower, as
applicable, and Manager, and a copy of the Management Agreement in respect of
the Hotel Property, certified by a Responsible Officer.
viii. An Assignment Agreement, duly executed by the relevant
Borrower.
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D. Borrower shall have delivered to Lender evidence that the
insurance required by the terms of the Mortgage is in full force and effect.
E. [RESERVED].
F. The Hotel Property that shall be the subject of such Loan shall,
on the date such Loan is proposed to be advanced, be wholly owned by a Borrower
that is a Single Purpose Entity that is owned (directly or indirectly) by ESA.
G. The following shall be true on the date of such Loan, before and
after giving effect thereto and to the application of the proceeds therefrom
(and the acceptance by Borrower of the proceeds of such Loan shall constitute a
representation and warranty by Borrower that on the date of such Loan such
statements are true):
i. The representations and warranties of ESA contained in
Article 7 and of each Loan Party in the other Loan Documents are correct on and
as of such date as though made on and as of such date; and
ii. No Default or Event of Default then exists or will result
from the Loan being made on such date.
H. The making of the Loans on such date does not violate any
Requirement of Law and is not enjoined, temporarily, preliminarily or
permanently.
I. Borrower shall have furnished to Lender a certificate of the
Secretary, Assistant Secretary or any other authorized officer of Borrower
certifying (i) the resolutions of its Board of Trustees or Directors, as
appropriate, approving each Loan Document to which it is a party, (ii) all
documents evidencing other necessary trust or corporate action, as appropriate,
and required governmental and third party approvals, licenses and consents with
respect to each Loan Document to which it is a party and the transactions
contemplated thereby, (iii) a copy of its certificates of incorporation and
certificate of good standing (certified as of a recent date by the Secretary of
State of the state of formation of Borrower) and its by-laws, and (iv) the names
and true signatures of each of its officers who has been authorized to execute
and deliver any Loan Document or other document required hereunder to be
executed and delivered by or on behalf of such Person.
J. All costs and accrued and unpaid fees and expenses (including,
without limitation, legal fees and expenses) required to be paid to Lender on or
before the Closing Date and all interest and principal then due and payable
hereunder shall have then been paid.
K. [RESERVED].
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L. At the closing of each Loan, the Borrower shall have funded a
reserve (a "Liquidity Reserve") into an interest-bearing escrow account
designated by Lender and in the name of Lender and as additional collateral for
Lender (the "Liquidity Reserve Account") for the relevant Loan, which Liquidity
Reserve shall be in an amount equal to four months' Debt Service for the
relevant Hotel Property. ESA hereby grants Lender a security interest in the
Liquidity Reserve Account. In the event that: (i) the Hotel Properties which
are open and operating for 90 days or longer taken as a whole have achieved and
maintained an aggregate average Debt Service Coverage equal to or greater than
1.25 during the most recent three consecutive months expiring on January 1,
April 1, July 1 or October 1 and the relevant Hotel Property has achieved and
maintained a Debt Service Coverage equal to or greater than 1.25 for the same
period, (ii) no Event of Default exists and no event exists which but for the
giving of notice or the passage of time, or both, would constitute an Event of
Default, and (iii) provided the relevant Borrower delivers to Lender an
certificate signed by a Responsible Officer evidencing, to Lender's reasonable
satisfaction and confirmation, that such Debt Service Coverage tests have been
met, then Lender shall refund or make available to the Borrower the amount by
which the funds in the Liquidity Reserve Account which were deposited in
connection with such Hotel Property exceed one month's Debt Service for the Loan
then outstanding, provided that the Liquidity Reserve required to be deposited
by Borrower with respect to subsequent Loans, shall nonetheless be in the
initial amount equal to four month's Debt Service for the relevant Hotel
Property. Interest earned on the Liquidity Reserve shall be paid to the
relevant Borrower quarterly as long as there is no Event of Default hereunder.
If an Event of Default shall occur hereunder, then without notice to ESA or to
Borrower, Lender may withdraw and apply or cause to be applied any funds in the
Liquidity Reserve Account to the Loans, in such order as Lender may elect. Upon
the Maturity Date and the repayment and satisfaction of the Obligations in full,
Lender shall refund any remaining funds in the Liquidity Reserve Account to the
respective Borrower, as appropriate.
M. All escrows required under the Property Loan Agreement have been
funded.
4 PROPERTY SPECIFIC CONDITIONS PRECEDENT
4.1 Developed Hotel Properties - General Prerequisites. The obligation of
Lender to make a Loan with respect to any Developed Hotel Property shall be
subject to the following:
A. prior to commencement of construction of the Proposed Hotel, ESA
shall have delivered to Lender (and Lender shall have issued its approval of)
the following, all in form and substance reasonably satisfactory to Lender:
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i. details of the location of the Proposed Hotel, including the
land thereunder, the existing, if any, and proposed improvements and
fixtures thereon including any significant deviations from ESA's typical
construction program and all easements and rights benefiting the Proposed
Hotel, (collectively, the "Realty") and the interest to be acquired;
ii. a written report of an investigation by an environmental
consultant (the "Environmental Report"), reasonably acceptable to Lender,
containing at least a Phase I site assessment (and, if appropriate, a Phase
II assessment) and addressing any significant environmental, health and
safety violations, hazards or liabilities to which the owner or operator of
the Proposed Hotel may be subject, which report shall demonstrate, to the
reasonable satisfaction of Lender, that the Proposed Hotel and the
operations thereof are in compliance in all material respects with all
applicable Environmental Statutes (as defined in the Mortgage) and are not
subject to any material environmental liabilities and costs;
iii. a construction budget (the "Construction Budget") of the
anticipated Construction Costs which may include a 5% contingency;
iv. plans and specifications of the Proposed Hotel, reasonably
acceptable to a licensed engineer appointed by Lender;
v. a pro-forma operating statement (based on information
available to ESA after diligent inquiry that includes detailed line-item
justification and explanations) including projected Net Operating Income of
the Proposed Hotel for a twelve-month period;
vi. pro forma balance sheets and the related consolidated
statements of changes in owner's equity (deficit) in respect of such
Proposed Hotel;
vii. a detailed market analysis of the local and regional market
in which the Proposed Hotel will operate, including aerial photos and
descriptions of market "demand generators";
viii. a copy of the proposed form of Management Agreement, if
any, reasonably acceptable to Lender;
ix. [RESERVED];
x. such additional site-specific documents, information and
material as Lender may reasonably require; and
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xi. a current title report issued by a title company reasonably
acceptable to Lender.
Lender shall issue its acceptance (which acceptance may include, in the case of
the title report issued pursuant to Section (xi), a list of such exceptions to
title which are not acceptable to Lender) or rejection of the foregoing not
later than the date which is 6 Business Days after receipt of items (iii), (iv),
(v) and (vi) in final form as designated by Borrower, provided that all items
other than (iii), (iv), (v) and (vi) were provided in final form and that items
(iii), (v) and (vi) were provided in draft form no later than 15 Business Days
prior to such response date. Lender's failure to deliver its acceptance or
rejection of the foregoing items within such period shall be deemed its
rejection thereof. Upon acceptance in accordance with this clause, the relevant
Proposed Hotel shall be deemed an Approved Hotel.
B. No later than 6 Business Days prior to a Notice of Borrowing for
a requested Loan, ESA shall deliver to Lender a Developed Hotel Statement. For
the purposes hereof, "Developed Hotel Statement" means a package containing each
of the following in respect of any Proposed Hotel, all in form and content
reasonably satisfactory to Lender:
i. a letter from the consultant which prepared the Environmental
Report stating that after due inquiry, it has no reason to believe that the
current environmental, health and safety conditions at the Hotel Property
are in any way worse than those indicated in the Environmental Report;
ii. a current title report (including UCC searches in the
jurisdictions as in the opinion of Lender may be necessary or appropriate),
ALTA survey and surveyor's certification, issued by a title
company/surveyor reasonably acceptable to Lender;
iii. a written statement of an engineering consultant or
architect reasonably acceptable to Lender confirming that the Hotel
Property was constructed in accordance with the plans and specifications
previously submitted to Lender;
iv. the final certificate of occupancy (or its equivalent, if
then being issued by appropriate Governmental Authorities) as issued for
the Proposed Hotel as well as all certificates, licenses and permits
necessary for the operation of the Hotel Property as determined in
accordance with any Requirement of Law;
v. a final Appraisal of the Approved Hotel; and
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vi. documents evidencing the due formation of a Borrower as a
wholly owned direct or indirect Subsidiary of ESA, which Borrower shall
hold title to the Hotel Property and shall be a Single Purpose Entity; and
vii. proof of ESA's actual Construction Costs, certified by an
officer of ESA to Lender, including, but not limited to, a report, with
supporting explanations, of any variance from the Construction Budget.
viii. an updated pro-forma reconciled, with supporting
explanations, to the pro-forma required in Section 4.1A(v).
4.2 Acquired Hotel Properties - General Prerequisites. The obligation of
Lender to make a Loan with respect to any Acquired Hotel Property shall be
subject to the following:
A. No later than 6 Business Days prior to a Notice of Borrowing for
a requested Loan, ESA shall deliver to Lender an Acquired Hotel Statement. For
the purposes hereof, "Acquired Hotel Statement" means a package containing each
of the following in respect of any Acquired Hotel, all in form and substance
reasonably satisfactory to Lender:
i. The items listed in Section 4.1A(i), (ii), (v), (x) and
4.1B(ii), (v), (vi), and, if applicable, 4.1B(vii) and, if available,
4.1A(iv).
ii. Actual operating results for the Acquired Hotel for the
previous one year or such longer period, if available.
iii. Proof of ESA's costs of acquisition and redevelopment
costs, certified by an Officer of ESA to Lender.
Lender shall issue its acceptance within 6 Business Days (which acceptance may
include, in the case of the title report issued pursuant to section (i), a list
of such exceptions to title which are not acceptable to Lender) Lender's
failure to deliver its acceptance or rejection of the foregoing items within
such period shall be deemed its rejection thereof. Upon acceptance in
accordance with this clause, the relevant Proposed Hotel shall be deemed an
Approved Hotel.
4.3 Extended Approval Periods. Notwithstanding the foregoing, for the
first four Proposed Hotels presented to Lender in accordance with Section 4, and
in any event for at least one Hotel presented under Section 4.1 and one
presented under Section 4.2, any period of time within which Lender is required
to make a decision shall be doubled.
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5 COMPUTATION OF LOAN AMOUNTS
5.1 Amount of the Loan for a Developed Property. Each Loan for a
Developed Property shall be in an amount equal to the lowest of:
A. the amount requested in the Notice of Borrowing; or
B. sixty-five percent (65%) of the lesser of:
i. the Construction Budget previously approved by Lender with
respect to the applicable Developed Hotel; or
ii. the Value of the applicable Developed Hotel; or
C. the Applicable Loan Amount.
5.2 Amount of the Loan. Each Loan for an Acquired Hotel shall be in an
amount equal to the lowest of:
A. the amount requested in the Notice of Borrowing; or
B. sixty-five percent (65%) of the Value of the Acquired Hotel; or
C. the Applicable Loan Amount.
5.3 Value. For the purposes of this Agreement, "Value" shall mean the
lower of (a) for a Developed Hotel Property, the Construction Costs or for an
Acquired Hotel Property, the actual cost of acquisition of the land and
improvements and redevelopment or renovation costs, and (b) the amount reflected
in a current (current being within six months prior to the date of the proposed
Loan advance) MAI appraisal of the completed Hotel Property issued by a
Recognized Appraiser.
6 REALLOCATION OF DEBT
As of the last day of the 18th or 24th full calendar month after the completion
of a Loan Group, (or with respect to a partial Loan Group then on the last day
of the 18th or 24th full calendar month after the first Loan in said partial
Loan Group was advanced) Lender may reallocate among the Loans in a Loan Group
prior to any securitization thereof, if any, in order to maintain a minimum Debt
Service Coverage of 1.25 with respect to all such Loans in the Loan Group, as
determined and designated by Lender in its sole discretion. If
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requested by Lender, ESA shall, within ten (10) days after demand by Lender,
cause the relevant Borrowers to execute an allonge to the relevant Note and an
amendment to any Mortgage (and ESA or the relevant Borrowers shall pay all title
insurance premiums and all documentary, stamp or intangible taxes, recording
fees and mortgage recording tax payable in connection therewith) and any and all
necessary or desirable documents necessary to reflect the increased Loan Amount
allocated to the relevant Hotel Property. Any reallocation pursuant to this
Section 6 shall be treated by the Lender and the Borrower as an extension of
additional credit to the Borrower under any Loan which is increased and a
prepayment (without penalty) by a Borrower under any Loan that is decreased
thereby. In no event may Lender allocate Loans to ESA, ESA Management, Inc. or
ESA Development, Inc.
7 REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, ESA represents, warrants and
covenants to Lender as follows:
7.1 Organization and Authority. ESA (i) is a corporation, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation and (ii) has all requisite power and authority and all necessary
licenses and permits to carry on its business as now conducted and as presently
proposed to be conducted.
7.2 Power. ESA has full power and authority to own its property and
assets and to carry on its business and operations as now being conducted and as
presently contemplated, to execute, deliver and perform, as applicable, the Loan
Documents to which it is a party.
7.3 Authorization of Borrowing. The execution, delivery and performance
of this Agreement, and the consummation of the Loans have been duly authorized
by ESA by all requisite action (including, without limitation, approvals of
shareholders) and will constitute the legal, valid and binding obligation of
ESA, enforceable against ESA in accordance with its terms, except as enforcement
may be stayed or limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether considered in proceedings at law or in equity) and will not (i) violate
any provision of its certificate of incorporation, by-laws, or, to its
knowledge, any law, judgment, order, rule or regulation of any court,
arbitration panel or other Governmental Authority, domestic or foreign, or other
Person affecting or binding upon ESA or the Hotel Property, or (ii) violate any
provision of any indenture, agreement, mortgage, contract or other instrument to
which ESA is a party or by which any of its property, assets or revenues are
bound, or be in conflict with, result in an acceleration of any obligation or a
breach of or constitute (with notice or lapse of time or both) a default or
require any payment or
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prepayment under, any such indenture, agreement, mortgage, contract or other
instrument, or (iii) result in the creation or imposition of any lien, except
those in favor of Lender as provided in the Loan Documents to which it is a
party.
7.4 Other Agreements. ESA is not a party to nor is otherwise bound by any
agreement or instrument that is reasonably likely to result in a Material
Adverse Change. ESA is not in violation of its corporate organizational
documents or other restriction or any agreement or instrument by which it is
bound, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or Governmental Authority, or any Legal Requirement, in each
case, applicable to ESA or the Hotel Property, except for such violations that
would not, individually or in the aggregate, have a Material Adverse Change.
7.5 Maintenance of Existence.
A. ESA at all times since formation has complied, and will continue
to comply, with the provisions of its certificate of incorporation and by-laws
and the laws of its jurisdiction of formation relating to corporations.
B. All statutory requirements regarding the existence of ESA have
been observed at all times since its formation and will continue to be observed.
C. ESA has at all times accurately maintained, and will continue to
accurately maintain, financial statements, accounting records and other
corporate documents separate from those of any other Person. ESA has at all
times since its formation accurately maintained, and will continue to accurately
maintain, its own bank accounts, payroll and separate books of account.
D. ESA has at all times paid, and will continue to pay, its own
liabilities from its own separate assets.
7.6 Financial Requirements.
A. The Stock Market Capitalization of ESA is at least $300,000,000.
B. ESA has been at all times, and will continue to be, adequately
capitalized in light of the nature of its business.
C. ESA has a Tangible Net Worth of not less than $50,000,000.
D. ESA has Unrestricted Cash on Hand of at least $20,000,000.
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E. ESA has a Book Debt/Total Capitalization Ratio (on a consolidated
basis and otherwise as determined in accordance with GAAP) less than or equal to
.7:1.
F. ESA has and will maintain an aggregate debt service coverage of
at least 1.4 on a consolidated basis and otherwise (as determined in accordance
with GAAP). For the purposes of this section, Developed Hotel Properties (and
Acquired Hotel Properties on which $1,000,000 of renovations were made and which
were closed three weeks or more to complete such renovations) placed in service
within the previous nine month period for which there is a Debt Service Coverage
of less than 1.4 shall not be included in this calculation.
G. Any liabilities incurred by ESA in connection with this Agreement
do not and will not render ESA insolvent; ESA is not contemplating either the
filing of a petition by it or a Borrower or a Material Subsidiary under any
state or federal bankruptcy or insolvency laws or the liquidation of all or a
major portion of its property, and ESA has no knowledge of any Person
contemplating the filing of any such petition against it.
H. ESA (a) is not engaged and will not engage in any business other
than the ownership, management (including third party management) and operation
of extended-stay lodging facilities, (b) will not enter into any contract or
agreement with any Affiliate of ESA except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arm's-length basis with third parties other than an Affiliate, (c) has not
made and will not make any loans or advances to any third party (including any
Affiliate except as provided in clause (d) below), other than de minimis
advances to customers, employees and suppliers not to exceed $35,000 for each
Borrower and (d) will not make any loans to Affiliates which are Borrowers
unless (i) the loan, together with any other loans from ESA to such Borrower
which is then outstanding, does not exceed $100,000, (ii) ESA shall have
delivered to Lender an executed subordination and standstill agreement which
shall provide that such loan is not foreclosable and not subject to acceleration
while any Obligations remain outstanding and such other terms as are set forth
in Exhibit 7.6H, (iii) the terms of such loan shall provide that the loan shall
automatically and without further act of ESA or the Borrower, be terminated if
not fully repaid at least 10 days prior to the date that the applicable loan is
to be included as an asset in a securitization, (iv) such loans are unsecured
and (v) no Event of Default has occurred and is continuing. In connection with
the securitization of a Loan affected by this provision, Lender will endeavor to
give notice of such securitization to ESA 20 days prior to such securitization,
but in no event will the failure of Lender to give such notice in any way affect
ESA's obligations hereunder.
7.7 No Defaults. No Default or Event of Default has occurred and is
continuing or would occur as a result of the consummation of the transactions
contemplated by the Loan
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Documents. ESA is not in default in the payment or performance of any of its
Contractual Obligations to Lender in any respect and to any Person other than
Lender which is reasonably likely to result in a Material Adverse Change.
7.8 Governmental Consents and Approvals. ESA has obtained or made all
necessary (i) consents, approvals and authorizations, and registrations and
filings of or with all Governmental Authorities and (ii) consents, approvals,
waivers and notifications of partners, stockholders, creditors, lessors and
other nongovernmental Persons, in each case, which are required to be obtained
or made by ESA in connection with the execution and delivery of, and the
performance by ESA of its obligations under, the Loan Documents.
7.9 Investment Company Act Status. ESA is not an "investment company," or
a company "controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
7.10 Compliance with Law. ESA is in compliance in all material respects
with all Legal Requirements to which it is subject, including, without
limitation, the Occupational Safety and Health Act of 1970, the Americans with
Disabilities Act and ERISA.
7.11 Financial Information. All financial data that has been delivered by
ESA to Lender (i) is complete and correct in all material respects, (ii)
accurately represents the financial condition of the Persons covered thereby as
of the date on which the same shall have been furnished and (iii) has been
prepared in accordance with GAAP (or such other accounting basis as is
reasonably acceptable to Lender) throughout the periods covered. As of the date
hereof, ESA has no contingent liability, liability for taxes or other unusual or
forward commitment not reflected in such financial statements delivered to
Lender, since the date of the last financial statements delivered by ESA to
Lender except as otherwise disclosed in such financial statements or notes
thereto, there has been no change in the assets, liabilities or financial
position of ESA or in the results of operations of ESA that would have a
Material Adverse Change. ESA has not incurred any obligation or liability,
contingent or otherwise not reflected in such financial statements that would
have a Material Adverse Change.
7.12 Federal Reserve Regulations. No part of the proceeds of the Loan will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System or for any other purpose that would be inconsistent with such
Regulations G, T, U or X or any other Regulations of such Board of Governors, or
for any purposes prohibited by Legal Requirements or by the terms and conditions
of the Loan Documents.
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7.13 Pending Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of ESA, threatened against or affecting ESA or
any Hotel Property in any court or before any Governmental Authority that if
adversely determined either individually or collectively has or is reasonably
likely to have a Material Adverse Change. ESA is not in default with respect to
any order of any court or Governmental Authority and the execution and delivery
of, and the performance by ESA of its obligations under, each of the Loan
Documents will not cause or result in any such default.
7.14 Solvency; No Bankruptcy. ESA and each Borrower and Material
Subsidiary (i) is and has at all times been Solvent and will remain Solvent
immediately upon the consummation of the transactions contemplated by the Loan
Documents and (ii) is free from bankruptcy, reorganization or arrangement
proceedings or a general assignment for the benefit of creditors.
7.15 Not Foreign Person. ESA and each Borrower is not a "foreign person"
within the meaning of (S) 1445(f)(3) of the Code.
7.16 Ownership of ESA; Subsidiaries.
A. As of the date hereof, the authorized capital stock of ESA
consists of a single class of 200,000,000 common shares of beneficial interest,
$0.01 par value per share, of which 22,853,092 shares are issued and
outstanding, and a single class of 10,000,000 preferred shares of beneficial
interest, $0.01 par value, of which no shares are issued and outstanding. There
are no Stock Equivalents of ESA except as otherwise provided herein. No Stock
of ESA is subject to any outstanding option, warrant, right of conversion or
purchase or any similar right except as otherwise provided herein. All of the
outstanding capital stock of ESA will be validly issued, fully paid and non-
assessable. No authorized but unissued shares, no treasury shares and, to the
best knowledge of ESA, no other outstanding shares of capital stock of ESA are
subject to any option, warrant, right of conversion or purchase or any similar
right except for employee and director stock option plans or agreements which,
in the aggregate, do not at any time constitute more than 11% of the issued and
outstanding shares of ESA. There are no agreements or understandings with
respect to the voting, sale or transfer of any shares of capital stock of ESA,
or to the best knowledge of ESA, any agreement restricting the transfer or
hypothecation of any such shares other than shareholder agreements disclosed on
Schedule 7.16.
B. Set forth on Schedule 7.16 is a complete and accurate list
showing, as of the date hereof, all Subsidiaries of ESA and, as to each such
Subsidiary, the jurisdiction of its incorporation, the number of shares of each
class of Stock authorized, the number outstanding on the date hereof and the
percentage of the outstanding shares of each such class owned (directly or
indirectly) by ESA. All Subsidiaries are wholly owned by ESA. No
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Stock of any Subsidiary of ESA is subject to any outstanding option, warrant,
right of conversion or purchase or any similar right except as disclosed on
Schedule 7.16. All of the outstanding capital Stock of each such Subsidiary has
been validly issued, is fully paid and non-assessable and is owned by ESA, free
and clear of all Liens. Neither ESA nor any such Subsidiary is a party to, or
has knowledge of, any agreement restricting the transfer or hypothecation of any
shares of Stock of any such Subsidiary, other than the Loan Documents except as
disclosed on Schedule 7.16. ESA does not own or hold, directly or indirectly,
any capital stock or equity security of, or any equity interest in, any Person
other than such Subsidiaries.
7.17 ERISA.
A. There is and there has not been any withdrawal from a
Multiemployer Plan by ESA or any ESA ERISA Affiliate or to the best knowledge of
ESA and any Subsidiary any Reorganization or Liquidation of a Multiemployer Plan
as defined in Title IV of ERISA.
B. Each Plan, Pension Plan and ESOP and any related trust intended
to qualify under Code Sections 401, 409 or 501 has been determined by the IRS to
be so qualified (or an application therefor has been timely made) and to the
best knowledge of ESA nothing has occurred which would cause the loss of such
qualification.
C. Each Plan, Pension Plan and ESOP has been and is operated and
administered in accordance with the terms and conditions governing those plans,
all applicable laws and statutes, including, without limitation, ERISA and the
Code.
D. No obligation exists and no event has occurred, and to the best
knowledge of ESA, any Subsidiary or ERISA Affiliate, no obligation is likely to
arise and no event is likely to occur with respect to any Plan, Pension Plan,
Multiemployer Plan or ESOP (including the establishment thereof) affecting ESA,
any Subsidiary or ERISA Affiliate which either alone is, or in the aggregate
are, reasonably likely to adversely affect ESA's, any Subsidiary's or ERISA
Affiliate's, ability to comply with its duties and obligations under this
Agreement or which would create or have a Material Adverse Change.
8 COVENANTS OF ESA
8.1 Continuing Nature of Representations. ESA shall do or take all
actions necessary to cause all of the representations and warranties contained
in Sections 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.12, 7.14, 7.15 and 7.17 to be and
remain accurate at all times throughout the term of the Loan.
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8.2 Financial Reports.
A. ESA will keep and maintain or will cause to be kept and
maintained on a fiscal year basis, in accordance with the accounting basis used
for ESA's tax returns (or such other accounting basis reasonably acceptable to
Lender) consistently applied, proper and accurate books, records and accounts
reflecting all of the financial affairs of ESA and all items of income and
expense in connection with the operation of each Hotel Property or in connection
with any services, equipment or furnishings provided in connection with the
operation thereof, whether such income or expense may be realized by ESA or by
any other Person whatsoever affiliated with ESA or any Subsidiary, excepting
lessees unrelated to and unaffiliated with ESA who have leased from ESA portions
of the Realty for the purpose of occupying the same. Lender shall have the
right from time to time at all times during normal business hours upon
reasonable notice to examine such books, records and accounts at the office of
ESA or other person maintaining such books, records and accounts and to make
such copies or extracts thereof as Lender shall desire. After the occurrence of
an Event of Default, ESA shall pay any costs and expenses incurred by Lender to
examine ESA's accounting records with respect to each Hotel Property, as Lender
shall determine to be necessary or appropriate in the protection of Lender's
interest.
B. ESA will furnish Lender annually, within 90 days following the
end of each Fiscal Year of ESA, with a complete copy of ESA's financial
statement audited by an Independent certified public accountant that is
reasonably acceptable to Lender in accordance with GAAP (or such other
accounting basis reasonably acceptable to Lender) consistently applied covering
the operation of each Hotel Property for such Fiscal Year (and broken down by
Hotel Property) and containing a statement of revenues and expenses (including
Net Operating Income as defined herein), a statement of assets and liabilities
and a statement of ESA's equity. Together with ESA's annual financial
statements, ESA shall furnish to Lender an Officer's Certificate certifying as
of the date thereof:
i. that the annual financial statements accurately represent the
results of operation and financial condition of ESA and the Hotel Property
all in accordance with GAAP consistently applied, and
ii. whether there exists an event or circumstance that
constitutes, or that upon notice or lapse of time or both would constitute,
a Default under the Notes or any other Loan Document executed and delivered
by ESA, and if such event or circumstance exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy
such event or circumstance.
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C. ESA shall furnish to Lender, within 30 days after Lender's request
therefor, with such further detailed information with respect to the operation
of each Hotel Property and the financial affairs of ESA as may be reasonably
requested by Lender.
8.3 Reporting Requirements. ESA shall furnish to Lender, all at ESA's
sole cost and expense:
A. as soon as available and in any event within 30 days prior to the
end of each Fiscal Year, an annual budget of ESA and Borrowers for the
succeeding Fiscal Year, displaying on a quarterly basis anticipated balance
sheets, forecasted capital expenditures, working capital requirements, rent
revenues, contributions to any FF&E reserves required under any Property Loan
Agreement, interest income, net income, cash flow and sales, all on a
consolidated basis;
B. promptly and in any event within 30 days after ESA, any of its
Subsidiaries or any ERISA Affiliate knows or has reason to know that (i) any
event has occurred, or is reasonably likely to occur, with respect to any Plan,
Pension Plan or Multiemployer Plan or the duties or obligations of ESA, any
Subsidiary or ERISA Affiliate thereunder and which is reasonably likely to have
or cause a Material Adverse Change or (ii) that a withdrawal has occurred or is
reasonably likely to occur with respect to any Multiemployer Plan or to the best
knowledge of ESA or any of its Subsidiaries any Multiemployer Plan is in
Reorganization or Liquidation as defined in Title IV of ERISA, a written
statement of the chief financial officer or other appropriate officer of ESA
describing such event and the action, if any, which ESA, its Subsidiaries and
ERISA Affiliates propose to take with respect thereto and a copy of any notice
filed by or with the PBGC or the IRS pertaining thereto;
C. promptly and in any event within 10 days after receipt thereof, a
copy of any adverse notice, determination letter, ruling or opinion ESA, any of
its Subsidiaries or any ERISA Affiliate receives from the PBGC, the United
States Department of Labor or the IRS with respect to any Plan, other than those
which, in the aggregate, do not have any reasonable likelihood of resulting in a
Material Adverse Change;
D. promptly after the commencement thereof, notice of all actions,
suits and proceedings before any domestic or foreign Governmental Authority or
arbitrator, affecting ESA, any of its Subsidiaries (subject to ESA having
received notice or knowledge thereof), except those which in the aggregate, if
adversely determined, would have no Material Adverse Change;
E. promptly and in any event within 5 Business Days after ESA or any
Borrower becomes aware of the existence of (i) any Default or Event of Default,
(ii) any
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breach or non-performance of, or any default under any Management Agreement, or
any Contractual Obligation which is material to the business, prospects,
operations or financial condition of ESA and its Subsidiaries taken as one
enterprise, or (iii) any Material Adverse Change or any event, development or
other circumstance which has reasonable likelihood of causing or resulting in a
Material Adverse Change, telephonic or telecopied notice in reasonable detail
specifying the nature of such Default, Event of Default, breach, non-
performance, default, event, development or circumstance, including, without
limitation, the anticipated effect thereof, which notice (if by telephone) shall
be promptly confirmed in writing within 5 days;
F. promptly after the sending or filing thereof, copies of all
reports which ESA sends to its security holders generally, and copies of all
reports and registration statements which ESA or any of its Subsidiaries files
with the Securities and Exchange Commission or any national securities exchange
or the National Association of Securities Dealers, Inc.;
G. upon the request of Lender copies of all federal, state and local
tax returns and reports filed by ESA or any of its Subsidiaries in respect of
taxes measured by income (excluding sales, use and like taxes);
H. written notice within 5 days of ESA or any Subsidiary learning of
any proposed acquisition of stock, assets or real property, or any proposed
leasing of property by ESA or any of its Subsidiaries, unless such action is not
reasonably likely to have a Material Adverse Change;
I. promptly, such additional information respecting the condition of
ESA or any of its Subsidiaries or the status or condition of any real property
owned or leased by ESA or its Subsidiaries, or the operation thereof which ESA
is entitled to or can otherwise reasonably obtain, as Lender from time to time
reasonably request; and
J. such other information respecting the business, properties,
condition, financial or otherwise, or operations of ESA or any of its
Subsidiaries as Lender may from time to time reasonably request.
8.4 Litigation. ESA and the Borrowers will promptly notify Lender of any
litigation or governmental proceedings pending or threatened (in writing)
against ESA or any Borrower which might have a Material Adverse Change.
8.5 No Further Indebtedness. ESA and its Affiliates shall not incur any
Indebtedness, other than as permitted under this Agreement, secured by any Hotel
Property
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after the Loan for such Hotel Property is made, provided, however, no Borrower
shall incur any Indebtedness other than as permitted under the Property Loan
Agreement.
8.6 Restricted Payments. ESA shall not and shall not permit any Borrower
to (i) redeem any of its Stock, or (ii) declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account or in respect of any of its Stock or Stock Equivalents,
other than dividends paid to ESA; provided, however, ESA may make aggregate
dividend payments in any Fiscal Year in an amount not to exceed fifty percent
(50%) of the excess, if any, of ESA Net Income for such Fiscal Year less ESA
Cumulative Unapplied Losses. This Section 8.6 shall be null and void from and
after the date that (i) Lender is no longer obligated to advance any Loans and
(ii) all outstanding Loans are included as assets in a securitization. Nothing
contained in this Section 8.6 shall prohibit ESA from issuing Stock upon the
exercise of a stock option contained in an employee or director stock option
plan or agreement, provided that such plans or agreements or the Stock
Equivalents or other rights exercisable thereunder do not, when taken together
in the aggregate, constitute more than 11% of the issued and outstanding shares
of ESA.
8.7 Tax Filings. ESA and Borrowers have filed all federal, state and
local tax returns required to be filed and have paid or made adequate provision
for the payment of all federal, state and local taxes, charges and assessments
payable by ESA or any Borrower. ESA believes that its respective tax returns
properly reflect the income and taxes of ESA for the periods covered thereby,
subject only to reasonable adjustments required by the Internal Revenue Service
or other applicable tax authority upon audit.
8.8 Further Acts, Etc. ESA will (or will cause Borrowers to), at the cost
of ESA or of any Subsidiary, and without expense to Lender, do, execute,
acknowledge and deliver all and every such further acts, deeds, conveyances,
mortgages, assignments, notices of assignments, transfers and assurances as
Lender shall, from time to time, reasonably require, for the better assuring,
conveying, assigning, transferring, and confirming unto Lender the property and
rights mortgaged by the Mortgages, given, granted, bargained, sold, alienated,
enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated, or which ESA
may be or may hereafter become bound to convey or assign to Lender, or for
carrying out or facilitating the performance of the terms of this Agreement or
for filing, registering or recording this Agreement and, on demand, will execute
and deliver and hereby authorizes Lender to execute in the name of ESA without
the signature of ESA to the extent Lender may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments, to
evidence more effectively the lien hereof upon the Hotel Property. ESA grants
to Lender an irrevocable power of attorney coupled with an interest to effect
the intent hereof, all as fully and effectually as ESA might or could do,
provided that ESA's obligations hereunder shall not be materially increased or
altered; and ESA hereby ratifies all
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that Lender shall lawfully do or cause to be done by virtue hereof consistent
with the terms hereof.
8.9 Guaranty. ESA hereby unconditionally and irrevocably guaranties the
full and prompt payment when due at the Maturity Date, and the performance of,
all of the Obligations whether for principal, interest, fees, expenses or
otherwise. The liability of ESA with respect to the Obligations shall be
absolute and unconditional irrespective of (i) any change in any term of or
increase in the amount of any Obligation, (ii) any exchange, release or
nonperfection of any security for the Obligation, (iii) the absence of any
attempt to collect any Obligation from the Borrower, and (iv) any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Borrower or guarantor; provided, however, that the extent of ESA's
guaranty of principal of the Loans under this Section shall be limited to
twenty-five percent (25%) of the Loans outstanding at any time. ESA hereby (i)
waives (A) any requirement that Lender protect, secure, perfect or insure any
security interest in or other Lien on any property subject thereto or exhaust
any right or take any action against the Borrower or any other Person or any
Collateral, and (B) protest or notice with respect to nonpayment of all or any
of the Obligations; and (ii) except as provided in this paragraph, covenants and
agrees that its guaranty will not be discharged except by complete performance
of the Obligations and any other obligations of ESA contained herein. All
Obligations in connection with any Loan which is included as an asset in a
securitization shall, effective on the date of such inclusion, be deemed
excluded from the Obligations of ESA guaranteed under this paragraph.
8.10 Plans, Pension Plans and ESOPs.
A. Except as required under Section 8.10B(iii) hereof, none of ESA,
any Subsidiary or any ESA ERISA Affiliate will establish, amend or change any
Plan, Pension Plan or ESOP (including, without prejudice to the generality of
the foregoing, any defined benefit pension or benefit plan) the effect of which
will, or will be reasonably likely to, create a Material Adverse Change in the
capability of ESA, any Subsidiary or any ERISA Affiliate in complying with its
duties and obligations under this Agreement. Notwithstanding any provision
herein to the contrary, no Borrower will establish, amend or change any Plan,
Pension Plan or ESOP, except as required under Section 8.10B(iii).
B. In respect of each Plan, Pension Plan and ESOP, and in respect of
any trust or other funding vehicle relating thereto, existing at the date hereof
or to be established by ESA or any Subsidiary or any ESA ERISA Affiliate
hereafter (collectively referred to below as the "Plans"):
i. All contributions (including all employer contributions and
employee salary reduction contributions) will be made in accordance with the
terms and
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conditions governing the Plans or by law (without regard to any waivers granted
under Section 412 of the Code), to any funds or trusts established thereunder or
in connection therewith and will be made by the due date thereof, and all
contributions and premiums due to the Pension Benefit Guaranty Corporation will
be promptly and timely made;
ii. There will be no material violation of ERISA or the Code
with respect to the filing of applicable reports, documents and notices
regarding the Plans with the Secretary of Labor and the Secretary of the
Treasury or the furnishing of such documents to the participants or
beneficiaries of the Plans;
iii. All amendments and actions required to keep the Plans in
conformity in all material respects with all of the applicable provisions of
ERISA and other applicable laws will be promptly and timely made or taken;
iv. The Plans will be maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA (including rules
and regulations thereunder) and other applicable federal and state laws and
regulations, and none of ESA or any Subsidiary or any ESA ERISA Affiliate or
"party in interest" or "disqualified person" with respect to the Plans will
engage in a "prohibited transaction" within the meaning of Section 4975 of the
Code or Section 406 of ERISA; and
v. No fiduciary will incur liability for breach of fiduciary
duty or any other failure to act or comply in connection with the administration
or investment of the assets of any Plan.
C. None of ESA, or any Subsidiary or ESA ERISA Affiliate will
establish or maintain any retiree life or retiree health insurance plans which
are "welfare benefit plans" within the meaning of Section 3(1) of ERISA and
which provide for continuing benefits or coverage for any participant or any
beneficiary of a participant, except as may be required under COBRA and at the
sole expense of the participant or the participant's beneficiary.
9 FURTHER CONDITIONS PRECEDENT TO EACH LOAN; TERMINATION OF FACILITY
9.1 Lender's obligation to make any Loan is further conditioned upon ESA's
continued compliance with Sections 7.6A, 7.6D, 7.6E and 7.6F.
9.2 In the event that ESA or any Affiliates incur indebtedness from a
lender other than Lender secured by hotel properties (unless such indebtedness
was rejected by Lender in accordance with the terms of this Agreement, incurred
under a similar agreement dated
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before the date of this Agreement or was construction financing with a term of
less than one year) in the aggregate of more than $175,000,000 prior to Lender
advancing Loans in the amount of at least $100,000,000, then Lender shall have
the right to terminate any obligation to advance Loans under the Facility
provided in this Agreement.
10 TRANSFER OR ENCUMBRANCE
10.1 Definition of Transfer. The term "Transfer" shall include any
conveyance, assignment, sale, mortgaging, encumbrance, pledging, hypothecation,
granting of a security interest in, granting of options with respect to, or
other disposition of (directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, whether or not for consideration or of record) of
any legal or beneficial interest including, without limitation, an installment
sales agreement.
10.2 No Transfer. Except as permitted by Section 10.3, ESA and its
Subsidiaries, including but not limited to any and all Borrowers, shall not
Transfer:
A. any Hotel Property or any interest therein unless such Hotel
Property or interest therein is released from Lender's Mortgage in accordance
with the terms hereof;
B. any or all of the interests in any Borrower;
and shall not permit any Borrower to, (i) merge with any Person, or (ii)
consolidate with any Person without the prior written consent of Lender in any
such case, which consent Lender shall not unreasonably withhold or delay.
10.3 Permitted Assumption. Notwithstanding the foregoing, at any time
after the securitization of a Loan, ESA or a Borrower may, provided that the
Rating Agency reaffirms the rating of any securities issued in connection with
the Loan, and upon the approval of the trustee and servicer of any
securitization in which any of the Loans are included and further provided that
ESA or the relevant Borrower complies with any requirements imposed by a Rating
Agency, trustee or servicer, upon the payment of a transfer fee equal to one
percent (1%) of the outstanding principal balance of the Loan, transfer the
Hotel Property, in whole, but not in part, during the term of the Loan to an
entity (i) that is a Single Purpose Entity, and (ii) that is acceptable to
Lender, in its reasonable discretion, in all respects provided that such
transferee executes and delivers to Lender an assumption of the Loan and all of
the Loan Documents, together with all other documents reasonably requested by
Lender and pays all legal fees, recording charges and other transactional costs
incurred by Lender in connection with such transfer.
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11 ESTOPPEL CERTIFICATES
11.1 After request by Lender, any Borrower, within 15 days and at its
expense, will furnish Lender with a statement, duly acknowledged and certified,
setting forth (i) the amount of the original principal amount of the Note, and
the unpaid principal amount of the Note, (ii) the rate of interest of the Note,
(iii) the date payments of interest and/or principal were last paid, (iv) any
offsets or defenses to the payment of the Loans, and if any are alleged, the
nature thereof, (v) that the Note and this Agreement have not been modified or
if modified, giving particulars of such modification and (vi) that there has not
occurred and is then continuing no Default or Event of Default pursuant to the
Note or this Agreement or any event or circumstance that, with the giving of
notice or the passage of time, or both, would constitute a Default or Event of
Default hereunder, or if such Default, Event of Default, event or circumstance
exists, the nature thereof, the period of time it has existed, and the action
being taken to remedy such Default, Event of Default, event or circumstance.
11.2 Within 15 days after written request by ESA, Lender shall furnish to
ESA a written statement confirming the amount of the Loans, the maturity date of
the Note, the date to which interest has been paid and the dates of any notices
of Event of Default sent to ESA or any Borrower.
12 EVENTS OF DEFAULT
12.1 Events of Default. The Loans shall become immediately due at the
option of Lender upon any one or more of the following events (each, an "Event
of Default"):
A. Any principal (including, without limitation, mandatory
prepayments of principal) of, or interest on, any Note, any fee, any other
amount due hereunder or under the other Loan Documents or other of the
Obligations is not paid when the same becomes due and payable; or
B. ESA or any Borrower shall fail to perform or observe any
agreement or covenant contained in this Agreement or in any other Loan Document
(other than those specified in Section 12.1A, C, O, P, or Q, which if ESA or any
Borrower fails to observe shall be an Event of Default upon occurrence without
notice) if such failure under this clause shall remain unremedied for 30 days
after notice of such failure; or
C. Any Event of Default shall occur under any Collateral Document or
any Property Loan Agreement; or
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D. [RESERVED];
E. Any material representation or warranty made or deemed made by
any Loan Party in any Loan Document or by any Loan Party (or any of its
officers) in writing in connection with any Loan Document shall prove to have
been incorrect in any material respect when made or deemed made; or
F. Any Borrower shall cease to be a Single Purpose Entity; or
G. Any Loan Party fails to pay any principal of or premium or
interest on any Indebtedness of such Loan Party (excluding (i) Indebtedness
evidenced by the Notes, (ii) Indebtedness to trade creditors incurred in the
ordinary course of business and which failure to pay as aforesaid would not have
a Material Adverse Change and in the case of ESA only, Indebtedness in principal
amount of $10,000,000 or more) beyond the period of grace (not to exceed 30
days), if any, with respect thereto (whether the same becomes due and payable by
scheduled maturity, required prepayment, acceleration, demand or otherwise); or
any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall become or be declared to be
due and payable, or any Loan Party or any of its Subsidiaries shall be required
to repurchase or offer to repurchase such Indebtedness, prior to the stated
maturity thereof; or
H. Except in the case where the Loan to such Loan Party has been
repaid in full, any Loan Party shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against any Loan Party ESA Management,
Inc., ESA Development, Inc. or any successor thereto, or a Material Subsidiary
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a custodian, receiver, trustee or other similar
official for it or for any substantial part of its property and, in the case of
any such proceedings instituted against any Loan Party or any of its
Subsidiaries (but not instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of 60 days or any of the actions sought in
such proceedings shall occur; or any Loan Party or any of its Subsidiaries shall
take any corporate action to authorize any of the actions set forth above in
this subsection or
I. One or more judgments or orders for the payment of money in an
aggregate amount in excess of $250,000 to the extent not fully covered by
insurance shall be
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rendered against any Loan Party or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order, or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
J. An event shall occur with respect to any Plan, Pension Plan or
Multiemployer Plan and the duties and obligations of ESA, any Subsidiary or
ERISA Affiliate thereunder which, in the reasonable determination of Lender, is
reasonably likely to have a Material Adverse Change; or
K. Any material provision of any Collateral Document after delivery
thereof shall for any reason cease to be valid and binding on any Loan Party
thereto, or any Loan Party shall so state in writing; provided, however, that if
such provision was valid and binding at inception and ceased to be valid and
binding through no act or omission of any Loan Party, then the relevant Loan
Party shall have 14 days to cure such defect and if unable to do so, then the
relevant Loan Party may prepay the affected Loan in accordance with Article 13
hereof within 14 days thereafter and no Event of Default shall arise hereunder
upon such prepayment; or
L. Any Collateral Document after delivery thereof shall, for any
reason, cease to create a valid Lien on any of the Collateral purported to be
covered thereby or such Lien shall cease to be a perfected and first priority
Lien (except to the extent that the Lien of the Collateral Documents may be
subordinate to Liens arising by operation of law and not constituting an Event
of Default under the terms of the relevant Mortgage), or any Loan Party shall so
state in writing; or
M. There shall occur a Material Adverse Change or an event which is
reasonably likely to have a Material Adverse Change, except for matters governed
by Section 12.1K; or
N. Any Manager shall default in the observance or performance of any
material provision of a Management Agreement and such defaults, in the
aggregate, are reasonably likely to have a Material Adverse Change, provided,
however that if the Manager is a non-Affiliate, then the affected Loan Party
shall have the right to cure such defaults within a reasonable period of time,
not to exceed thirty days; or
O. The breach of any provision of Article 10; or
P. Either George D. Johnson, Jr. or H. Wayne Huzienga, or both,
cease to be members of the Board of Directors unless such failure is due to
their death or their adjudication as mentally incompetent or the current members
of the Board of Directors of
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ESA, as listed on Schedule 12.1P, shall at any time fail to constitute a
majority of the board of directors of ESA without the consent of Lender, in its
sole discretion. In the event that any Loan is securitized, then any Person
succeeding to the interest of Lender shall have the same right to grant its
consent to the foregoing; provided, however, that such consent may not be
unreasonably withheld or delayed; or
Q. If ESA or any of its Affiliates shall fail to observe or breach
the covenants contained in Section 8.5 or 8.6 of this Agreement.
12.2 General Remedies. Upon the occurrence and during the continuance of
any Event of Default, Lender may, in addition to any other rights or remedies
available to it hereunder, under the Collateral Documents, at law or in equity,
take such action, without notice or demand, as it reasonably deems advisable to
protect and enforce its rights against ESA and in and to the Hotel Property or
any one or more of them, including, but not limited to, the following actions,
each of which may be pursued singly, concurrently or otherwise, at such time and
in such order as Lender may determine, in its sole discretion, without impairing
or otherwise affecting any other rights and remedies of Lender hereunder, at law
or in equity:
A. declare all or any portion of the unpaid Obligations to be
immediately due and payable and the obligation of Lender to make Loans to be
terminated; provided, however, that upon the occurrence of any of the events
specified in Section 12.1H, the entire Debt will be immediately due and payable
and Lender's obligation to make Loans shall be terminated without notice or
demand or any other declaration of the amounts due and payable; or
B. pursue the remedies available under any and all of the Mortgages;
or
C. pursue any or all such other rights or remedies as Lender may
have under applicable law or in equity; provided, however, that the provisions
of this Section shall not be construed to extend or modify any of the notice
requirements or grace periods provided for hereunder or under any of the other
Loan Documents.
D. In the event that a Loan shall be prepaid as a consequence of the
occurrence of an Event of Default and the exercise of remedies by Lender, the
relevant Borrower shall be required to pay to Lender a Yield Maintenance Payment
with respect to such prepayments if (i) a Yield Maintenance Payment would
otherwise be due in connection with a permitted prepayment hereunder or (ii) if
a prepayment shall not have then been permitted under this Agreement.
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12.3 General Provisions Regarding Remedies.
A. Right to Terminate Proceedings. Lender may terminate or rescind
any proceeding or other action brought in connection with its exercise of the
remedies provided in Section 12.2 at any time before the conclusion thereof, as
determined in Lender's sole discretion and without prejudice to Lender.
B. No Waiver or Release. The failure of Lender to exercise any
right, remedy or option provided in the Loan Documents shall not be deemed a
waiver of such right, remedy or option or of any covenant or obligation secured
by the Loan Documents. No acceptance by Lender of any payment after the
occurrence of an Event of Default and no payment by Lender of any payment or
obligation for which ESA or any Borrower is liable hereunder shall be deemed to
waive or cure any Event of Default. No sale of all or any portion of the Hotel
Property, no forbearance on the part of Lender, and no extension of time for the
payment of the whole or any portion of the Loans or any other indulgence given
by Lender to ESA or any other Person, shall operate to release or in any manner
affect the interest of Lender in the Hotel Property or the liability of ESA to
pay the Loans. No waiver by Lender shall be effective unless it is in writing
and then only to the extent specifically stated.
C. No Impairment; No Releases. Except to the extent thereof, the
interests and rights of Lender under the Loan Documents shall not be impaired by
any indulgence, including (i) any renewal, extension or modification that Lender
may grant with respect to any of the Loans; (ii) any surrender, compromise,
release, renewal, extension, exchange or substitution which Lender may grant
with respect to the Hotel Property or any portion thereof; or (iii) any release
or indulgence granted to any maker, endorser, guarantor or surety of any of the
Loans.
13 PREPAYMENT
13.1 Fixed Rate Loans. No prepayment of any Fixed Rate Loans may be made
in whole or in part except: (i) from and after the date which is five years
after the relevant Fixed Rate Loan is made (the "Fixed Rate Lockout") or (ii)
notwithstanding any applicable Fixed Rate Lockout, from and after the date six
months before its Stated Maturity or (iii) in accordance with section 12.1K and
as otherwise specifically set forth in this Article.
13.2 Floating Rate Loans. No prepayment of any Floating Rate Loans may be
made in whole or in part except: (i) from and after the date which is one year
after the relevant Floating Rate Loan is made (the "Floating Rate Lockout"),
(ii) notwithstanding any Floating Rate Lockout, from and after the date six
months before its Stated Maturity or
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(iii) in accordance with Section 2.9 or 12.1K and as otherwise specifically set
forth in this Article.
13.3 Sub-Performing, Unseasoned Loans. Notwithstanding Sections 13.1 and
13.2, within nine months of the advancement of any Loan, if the Debt Service
Coverage for the relevant Hotel Property during the immediately preceding six
consecutive months is less than 1.25 and no Event of Default then exists, the
relevant Borrower may prepay such Loan, provided Borrower complies with Section
13.4A, informs Lender, in conjunction with ESA, of any other Loans that do not
have a Debt Service Coverage of 1.25 over the same period as Borrower and pays
to Lender a premium equal to 1% of the Loan. To the extent that more than one
Borrower fails to have a Debt Service Coverage of 1.25, Lender, in its sole
discretion, may select the Loan to be prepaid.
13.4 Conditions Precedent to Prepayment. A Borrower may prepay a Loan in
whole or, from time to time, but not in part, on any Payment Date subsequent to
the Fixed Rate Lockout or Floating Rate Lockout, as applicable, subject to the
satisfaction of the following conditions (a "Prepayment"):
A. Lender shall have received from the applicable Borrower, not less
than 30 days', nor more than 90 days', prior written notice specifying the date
proposed for such prepayment, the amount that is to be prepaid by Borrower; and
B. The aggregate average Debt Service Coverage (on the basis of the
12-month period immediately preceding the date upon which the relevant Borrower
notifies Lender of its intention to prepay) for the remaining Loans taken as a
whole after giving effect to the prepayment is or would be equal to or greater
than Debt Service Coverage without giving effect to the prepayment, and the
aggregate average Debt Service Coverage (on the basis of the 12-month period
immediately preceding the date upon which the relevant Borrower notifies Lender
of its intention to prepay) for all Loans taken as a whole (including the Loan
being prepaid) is no less than 1.55; and
C. The relevant Borrower shall have paid to Lender: (i) all
interest on the Loan being prepaid due through and including the relevant
Payment Date on which such prepayment is being made, (ii) the Fixed Rate
Prepayment Premium, if applicable, (iii) the Additional Required Principal
Payment and (iv) any and all other amounts due and owing pursuant to the terms
of the Note, this Agreement or the other Loan Documents relating to such Loan;
and
13.5 Additional Required Prepayment. In the event a Prepayment is made
pursuant to this Article 13, other than in accordance with Sections 13.1(ii),
13.1(iii), 13.2(ii), 13.2(iii) or 13.3, or there is an Involuntary Prepayment,
the relevant Borrower shall be required to
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pay to Lender on the date of such prepayment an additional principal payment
(the "Additional Required Prepayment") equal to 15% of the maximum principal
amount which shall have been outstanding at any time under the Loan which is
then being prepaid, which Additional Required Prepayment Lender shall apply to
any of the Loans then owing to Lender (whether or not then due and payable) in
such order as Lender may elect in its sole discretion.
13.6 Fixed Rate Prepayment Premium. For the purposes of this Article 13,
"Fixed Rate Prepayment Premium" shall mean, for a Loan prepaid between the first
and twelfth Payment Date after the Fixed Rate Lockout, one percent (1%) of the
Principal Amount; for a Loan prepaid between the thirteenth month and eighteenth
month after the Fixed Rate Lockout, one-half of one percent (.5%) of the
Principal Amount; and thereafter, zero. Notwithstanding the foregoing, if a
Fixed Rate Loan is prepaid in accordance with Section 13.1(ii), then the Fixed
Rate Prepayment Premium shall be zero.
13.7 Release of Lien for Prepaid Loan. Upon the prepayment in full of the
amounts due under the relevant Loan and otherwise in accordance with the terms
of this Article 13, Lender agrees to deliver to the relevant Borrower the
necessary and proper satisfaction, release and termination documentation with
respect to the relevant Note, Collateral Documents for such Hotel Property and,
upon such release, the relevant Borrower shall then have the right to amend its
certificate or articles of incorporation for the respective Borrower.
14 LENDER ASSIGNMENTS
14.1 Lender may sell, transfer, negotiate or assign to one or more other
Persons the Loan Documents and any interest in the Notes held by it and a
commensurate portion of its rights and obligations hereunder and under the other
Loan Documents from and after the date the Lender no longer has any obligation
to advance any Loans. The Lender also reserves the right at any time during the
term of the Loans, in its sole and absolute discretion, to effect a so-called
securitization of the Loans, with Lender as sole underwriter, in such a manner
and on such terms and conditions as the Lender shall deem to be appropriate in
its sole and absolute discretion and with such domestic or foreign banks,
insurance companies, pension funds, trusts or other institutional lenders or
governmental agencies or other persons, parties or investors (including, but not
limited to, guarantor trusts, owner trusts, special purpose corporations,
REMICs, real estate investment trusts or other similar or comparable investment
vehicles) as may be selected by the Lender in its sole and absolute discretion.
14.2 Lender may sell participations (including blind and undisclosed
participations and subparticipations) to one or more banks or other Persons in
or to all or a portion of its
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rights and obligations under the Loan Documents (including, without limitation,
all or a portion of its commitment to make the Loans, the Loans owing to it and
the Notes held by it). In the event of the sale of any participation by Lender,
(i) Lender's obligations under the Loan Documents (including, without
limitation, its commitment to make the Loans) shall remain unchanged, (ii)
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) Lender shall remain the holder of such
Notes and Obligations for all purposes of this Agreement, and (iv) ESA and
Borrowers shall continue to deal solely and directly with Lender in connection
with Lender's rights and obligations under this Agreement.
14.3 Each participant shall be entitled to the benefits of Section 2.7 as
if it were a Lender; provided, however, that anything herein to the contrary
notwithstanding, Borrower shall not, at any time, be obligated to pay to any
participant of any interest of Lender, under Section 2.7, any sum in excess of
the sum which Borrower would have been obligated to pay Lender in respect of
such interest had such assignment not been effected or had such participation
not been sold.
14.4 ESA and Borrowers shall cooperate with Lender, and any other party to
whom Lender may assign or sell participations (or negotiate for such assignment
or sale) in all or a portion of the commitment to make the Loans, the Loans
owing to it and an interest in the Notes. Such cooperation on the part of ESA
and the Borrowers shall include but shall not be limited to the execution and
delivery of (i) amendments, modifications and/or supplements to one or more Loan
Documents, in form and substance as may be required by Lender, and (ii) the
execution and delivery of one or more additional promissory notes, provided,
however, that such promissory notes, amendments, modifications and/or
supplements do not materially increase the obligations of ESA or Borrowers or
materially diminish the rights of ESA or Borrowers under the Loan Documents.
15 MISCELLANEOUS
15.1 Representations and Warranties of ESA and Lender. ESA and Lender each
represents and warrants to the other that neither ESA nor Lender has dealt with
any financial advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this Agreement.
Each party shall indemnify and hold harmless the other from and against any and
all claims, liabilities, costs and expenses of any kind in any way relating to
or arising from (i) a claim by any Person that such Person acted on behalf of
the indemnifying party in connection with the transactions contemplated herein
or (ii) any breach of the foregoing representation or any breach of Lender's
payment obligation as aforesaid. The provisions of this subsection shall
survive the repayment of the Loans.
51
<PAGE>
15.2 Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by ESA or any Borrower therefrom shall in
any event be effective unless the same shall be in writing and signed by Lender,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
15.3 Notices, Etc. Any notices, demand, statement, request or consent and
other communications provided for hereunder shall be in writing and delivered
personally or sent to the party to whom the notice, demand or request is being
made by Express Mail, Federal Express or other nationally recognized overnight
delivery service, as follows and shall be deemed given when personally delivered
or one Business Day after being timely deposited with Federal Express or such
other nationally recognized delivery service. If any notice date falls on a
non-Business day, then the notice shall be due on the next succeeding Business
Day.
If to ESA, at the address first written above,
with a copy to:
Johnson, Smith, Hibbard & Wildman Law Firm, L.L.P.
220 N. Church St.
Spartanburg, SC 29306
Attn: Donald B. Wildman, Esq.
and to:
Pedersen & Houpt, P.C.
161 North Clark St., Ste. 3100
Chicago, IL 60601-3224
Attn: Thomas J. Kelly, Esq.
If to Lender, at its address first written above, Attn: Marc J. Warren
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Ave.
New York, NY 10153
Attn: Managing Partner Real Estate Department (FW)
52
<PAGE>
Any such address may be changed, or additional addresses (not to exceed two)
added by notice given in the manner provided herein. Any notice or other
communication may be given by counsel for the party giving the same.
15.4 No Waiver; Remedies. No failure on the part of Lender to exercise,
and no delay in exercising, any right hereunder or under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
15.5 Costs; Expenses; Indemnities.
A. ESA shall pay or cause to be paid on demand (i) all reasonable
costs and expenses of Lender in connection with the preparation, execution,
delivery, modification and amendment of this Agreement, each of the other Loan
Documents and each of the other documents to be delivered hereunder and
thereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel, accountants, appraisers, consultants or industry experts
retained by Lender with respect thereto; but subject to certain limits of
aggregate amounts to be paid by ESA and/or the Borrowers as specified in
Schedule 15.5A and (ii) all costs and expenses of Lender (including, without
limitation, the fees and out-of-pocket expenses of counsel, retained by Lender)
in connection with the enforcement (whether through negotiation, legal
proceedings or otherwise) of this Agreement and the other Loan Documents. ESA's
obligations under this Section 15.5A with respect to a Loan that has been
securitized shall be terminated as of the date of such securitization.
B. ESA agrees to indemnify and hold harmless Lender and its
Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (each of the foregoing,
an "Indemnitee") from and against any and all claims, damages, liabilities,
obligations, losses, penalties, actions, judgments, suits, costs, disbursements
and expenses of any kind or nature (including, without limitation, fees and
disbursements of counsel to any such Indemnitee and experts, engineers and
consultants and the costs of investigation and feasibility studies) which may be
imposed on, incurred by or asserted against any such Indemnitee in connection
with or arising out of any investigation, litigation or proceeding, whether or
not any such Indemnitee is a party thereto, whether direct, indirect, or
consequential and whether based on any federal, state or local law or other
statutory regulation, securities or commercial law or regulation, or under
common law or in equity, or on contract, tort or otherwise, in any manner
relating to or arising out of or based upon or attributable to this Agreement,
any other Loan Document, any document delivered hereunder or thereunder, any
Obligation, or any act, event or transaction related or attendant to any thereof
arising out of or based upon anything relating to real property owned, leased or
operated by ESA or any of its Subsidiaries and the facilities or operations;
53
<PAGE>
provided, however, that ESA shall not have any obligation under this Section to
an Indemnitee with respect to any of the foregoing matters caused by or
resulting from the gross negligence or willful misconduct of that Indemnitee, as
determined by a court of competent jurisdiction in a final non-appealable
judgment or order, except that subsequent to a securitization of a Loan, ESA
shall not be liable under this Section 15.5B for any claim, damage, obligation,
liability, loss, penalty, action, judgment, suit, cost, disbursement or expenses
arising from any Obligation, liability, negligence or property of any Borrower
under a Loan that has been securitized.
C. ESA agrees that any indemnification or other protection provided
to any Indemnitee pursuant to this Agreement (including, without limitation,
pursuant to this Section) or any other Loan Document shall (i) survive payment
of the Obligations and (ii) inure to the benefit of any Person who was at any
time an Indemnitee under this Agreement or any other Loan Document.
D. The provisions of this Section shall survive any termination of
this Agreement. In addition, and without limitation, to any other provision of
this Agreement, ESA shall protect, indemnify and save harmless Lender and its
successors and assigns, and each of their agents, employees, officers and
directors, from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses, whether incurred within or outside the
judicial process), imposed upon or incurred by or asserted against Lender and
its assigns, or any of their agents, employees, officers or directors, by reason
of (a) ownership of this Agreement, any Hotel Property or any part thereof or
any interest therein or receipt of any Rents; (b) any accident, injury to or
death of any person or loss of or damage to property occurring in, on or about
any Hotel Property or any part thereof or on the adjoining sidewalks, curbs,
parking areas, streets or ways; (c) any use, nonuse or condition in, on or
about, or possession, alteration, repair, operation, maintenance or management
of, Hotel Property or any part thereof or on the adjoining sidewalks, curbs,
parking areas, streets or ways; (d) any failure on the part of ESA or any
Borrower to perform or comply with any of the terms of this Agreement; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of any Hotel Property or any part thereof; (f) any claim by
brokers, finders or similar Persons claiming to be entitled to a commission in
connection with any Lease or other transaction involving any Hotel Property or
any part thereof; (g) any Imposition (as defined in the Mortgages) including,
without limitation, any Imposition attributable to the execution, delivery,
filing, or recording of any Loan Document, Lease or memorandum thereof; (h) any
lien or claim arising on or against any Hotel Property or any part thereof under
any Legal Requirement or any liability asserted against Lender with respect
thereto; or (i) the claims of any lessee or any Person acting through or under
any lessee or otherwise arising under or as a consequence of any Lease, except
that subsequent to a securitization of a Loan, ESA shall not be liable under
this
54
<PAGE>
Section 15.5D for any liability, obligation, claim, damage, penalty, cause of
action, cost or expense arising from any Obligation, liability, negligence or
property of any Borrower under any Loan that has been securitized.
Notwithstanding the foregoing provisions of this Section to the contrary, ESA
shall have no obligation to indemnify Lender pursuant to this Section for
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses relative to the foregoing that result from Lender's, and its
successors' or assigns', willful misconduct or gross negligence. Any amounts
payable to Lender by reason of the application of this Section shall constitute
a part of the Loans secured by this Agreement and other Loan Documents and shall
become immediately due and payable and shall bear interest at the Default Rate
from the date loss or damage is sustained by Lender, as applicable, until paid.
15.6 Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender to or for the credit or
the account of ESA or any Borrower against any and all of the Obligations now or
hereafter existing whether or not Lender shall have made any demand under this
Agreement or any Note or any other Loan Document and although such Obligations
may be unmatured. Lender agrees promptly to notify ESA and relevant Borrower
after any such set-off and application made by Lender; provided, however, that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of Lender under this Section are in addition to the
other rights and remedies (including, without limitation, other rights of set-
off) which Lender may have.
15.7 Binding Effect. This Agreement shall become effective when it shall
have been executed by ESA and Lender and thereafter shall be binding upon and
inure to the benefit of ESA and Lender and their respective successors and
assigns, except that ESA shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of Lender.
15.8 Governing Law; Severability. This Agreement and the Notes and the
rights and obligations of the parties hereto and thereto shall be governed by,
and construed and interpreted in accordance with, the laws of the State of New
York. Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
55
<PAGE>
15.9 Submission to Jurisdiction; Service of Process.
A. Any legal action or proceeding with respect to this Agreement or
the Notes or any document related thereto may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and, by execution and delivery of this Agreement, ESA hereby
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties hereto
hereby irrevocably waive any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
B. ESA irrevocably consents to the service of process of any of the
aforesaid courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the borrower at its
address provided herein.
C. Nothing contained in this Section shall affect the right of
Lender or any holder of the Notes to serve process in any other manner permitted
by law or commence legal proceedings or otherwise proceed against ESA in any
other jurisdiction.
15.10 Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
15.11 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
15.12 Entire Agreement. This Agreement, together with all of the other
Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
15.13 Confidentiality. Lender agrees to keep information obtained by it
pursuant hereto and the other Loan Documents confidential in accordance with
Lender's customary practices and agrees that it will only use such information
in connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (i) to Lender's employees,
representatives and agents who are or are expected to be involved in the
evaluation of such information in connection with the transactions contemplated
by this Agreement and who are advised of the confidential nature of such
information, (ii) to the
56
<PAGE>
extent such information presently is or hereafter becomes available to Lender,
as the case may be, on a nonconfidential basis from a source other than ESA,
(iii) to the extent disclosure is required by law, regulation or judicial order
or requested or required by bank regulators or auditors, or (iv) to assignees or
participants or potential assignees or participants who agree to be bound by the
provisions of this sentence.
15.14 Waiver of Jury Trial. Each of the parties hereto waives any right
it may have to trial by jury in respect of any litigation based on, or arising
out of, under or in connection with this Agreement or any other Loan Document,
or any course of conduct, course of dealing, verbal or written statement or
action of any party hereto.
15.15 Waiver of Notice. ESA shall not be entitled to any notices of any
nature whatsoever from Lender except with respect to matters for which this
Agreement specifically and expressly provides for the giving of notice by Lender
to ESA and except with respect to matters for which ESA is not, pursuant to
applicable Legal Requirements, permitted to waive the giving of notice.
15.16 Actions and Proceedings. After an Event of Default, Lender may
appear in and defend any action or proceeding brought with respect to the Hotel
Property in its own name or, if required by Legal Requirements or, if in
Lender's reasonable judgment, it is necessary, in the name and on behalf of ESA
or any Borrower, which Lender believes will adversely affect the Hotel Property
or the Mortgages and to bring any action or proceedings, in its name or in the
name and on behalf of ESA or any Borrower, which Lender, in its discretion,
decides should be brought to protect its interest in the Hotel Property.
15.17 Usury Laws. This Agreement and the Notes are subject to the express
condition, and it is the expressed intent of the parties, that at no time shall
any Borrower be obligated or required to pay interest on the principal balance
due under the Notes at a rate which could subject the holder of the Notes to
either civil or criminal liability as a result of being in excess of the maximum
interest rate that such Borrower is permitted by law to contract or agree to
pay. If by the terms of this Agreement or the Notes, any Borrower is at any
time required or obligated to pay interest on the principal balance due under
the Notes at a rate in excess of such maximum rate, such rate of interest shall
be deemed to be immediately reduced to such maximum rate and the interest
payable shall be computed at such maximum rate and all prior interest payments
in excess of such maximum rate shall be applied and shall be deemed to have been
payments in reduction of the principal balance of the relevant Note. No
application to the principal balance of any Note pursuant to this Section shall
give rise to any requirement to pay any prepayment premium due hereunder, if
any, including, without limitation, Yield Maintenance Premium.
57
<PAGE>
15.18 Remedies of ESA. Under no circumstances shall Lender be liable for
any punitive, consequential or incidental damages suffered by, awarded to or
claimed by ESA, any Affiliate or third party. In the event that a claim or
adjudication is made that Lender has acted unreasonably or unreasonably delayed
acting in any case where by law or under this Agreement, it has an obligation to
act reasonably or promptly, Lender shall only be liable for ESA's actual
damages, if it is determined that Lender intentionally and in bad faith acted
unreasonably or unreasonably delayed acting. In all other cases, Lender shall
not be liable for any monetary damages, and ESA's remedies shall be limited to
injunctive relief or declaratory judgment.
15.19 Offsets, Counterclaims and Defenses. Any assignee of this Agreement
and the Notes shall take the same free and clear of all offsets, counterclaims
or defenses that are unrelated to the Notes or this Agreement that ESA or any
Borrower may otherwise have against any assignor of this Agreement and the Notes
and no such unrelated counterclaim or defense shall be interposed or asserted by
ESA or any Borrower in any action or proceeding brought by any such assignee
upon this Agreement or the Notes and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by ESA.
15.20 Waiver of Statute of Limitations. The pleadings of any statute of
limitations as a defense to any and all obligations secured by the Mortgages are
hereby waived to the full extent permitted by Legal Requirements.
15.21 Advances. This Agreement shall cover any and all advances made
pursuant to the Loan Documents, rearrangements and renewals of the Loans and all
extensions in the time of payment thereof, even though such advances, extensions
or renewals be evidenced by new promissory notes or other instruments hereafter
executed and irrespective of whether filed or recorded. Likewise, the execution
of this Agreement shall not impair or affect any other security that may be
given to secure the payment of the Loans, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Loans shall not diminish the force, effect or lien of the Mortgages and shall
not affect or impair the liability of ESA or any Borrower and shall not affect
or impair the liability of any maker, surety, or endorser for the payment of the
Loans.
15.22 Application of Default Rate Not a Waiver. Application of the
Default Rate shall not be deemed to constitute a waiver of any Default or Event
of Default or any rights or remedies of Lender under this Agreement, any other
Loan Document or applicable Legal Requirements, or a consent to any extension of
time for the payment or performance of any obligation with respect to which the
Default Rate may be invoked.
58
<PAGE>
15.23 No Joint Venture or Partnership. ESA and Lender intend that the
relationship created hereunder be solely that of mortgagor and mortgagee or
borrower and lender, as the case may be. Nothing herein is intended to create a
joint venture, partnership, tenancy-in-common, or joint tenancy relationship
between ESA and Lender nor to grant Lender any interest in the Hotel Property
other than that of mortgagee or lender.
15.24 Time of the Essence. Time shall be of the essence in the
performance of all obligations of ESA and any Borrower hereunder.
15.25 ESA's and Borrower's Obligations Absolute. Except as set forth to
the contrary in the Loan Documents, all sums payable by ESA or any Borrower
hereunder shall be paid without notice or demand, counterclaim, setoff,
deduction or defense and without abatement, suspension, deferment, diminution or
reduction, and the obligations and liabilities of ESA or any Borrower hereunder
shall in no way be released, discharged, or otherwise affected (except as
expressly provided herein) by reason of: (a) any damage to or destruction of or
any taking (by condemnation or lawful exercise of the power of eminent domain)
of the Hotel Property or any portion thereof; (b) any restriction or prevention
of or interference with any use of the Hotel Property or any portion thereof;
(c) any title defect or encumbrance or any eviction from the Realty or any
portion thereof by title paramount or otherwise; (d) any bankruptcy proceeding
relating to ESA or any Borrower, or any guarantor or indemnitor, or any action
taken with respect to this Agreement or any other Loan Document by any trustee
or receiver of ESA or any guarantor or indemnitor, or by any court, in any such
proceeding; (e) any claim that ESA or any Borrower has or might have against
Lender; (f) any default or failure on the part of Lender to perform or comply
with any of the terms hereof or of any other agreement with ESA or any Borrower;
or (g) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not ESA or Borrower shall have notice or knowledge of any
of the foregoing.
15.26 [RESERVED].
15.27 [RESERVED].
15.28 Securitization Opinions. In the event the Loan becomes the subject
of a securitization underwritten by Lender or any of its Affiliates, ESA shall,
within 15 Business Days after Lender's written request therefor, deliver at
ESA's sole cost and expense a 10(b)(5) opinion and a nonconsolidation opinion
with respect to ESA and every Borrower, each opinion to be in form and substance
and delivered by Pedersen & Houpt, P.C. or other counsel reasonably acceptable
to Lender and the Rating Agency, as may be reasonably required by Lender and/or
the Rating Agency in connection with such securitization. ESA's and Borrower's
failure to deliver the opinions required hereby within such fifteen (15)
Business Day period shall constitute an Event of Default hereunder.
59
<PAGE>
15.29 Cooperation with Rating Agencies and Potential Investors. ESA
covenants and agrees that in the event Lender decides to include the Loan as an
asset of a securitization, ESA shall (a) gather any environmental information
reasonably required by the Rating Agency and potential investors in connection
with such a securitization, (b) at Lender's request, meet with representatives
of the Rating Agency and potential investors to discuss the business and
operations of the Hotel Property and conduct site visits, if requested, (c) ESA
shall undertake all actions with respect to every Borrower (including structural
reorganization, if appropriate), and (d) cooperate with the reasonable requests
of the Rating Agency and potential investors in connection with all of the
foregoing. ESA also covenants and agrees that in the event Lender decides to
include the Loan or any interest thereon as an asset of a securitization, if and
to the extent requested by Lender, ESA shall take all actions (subject to the
receipt of any consents from Persons other than the Loan Parties, which consent,
ESA shall use best efforts to obtain) necessary to ensure that the cross
collateralization and cross default provisions of the Loan Documents are
modified in order to make them acceptable to Lender and the Rating Agency and to
provide that Hotel Properties included in the securitization are cross
collateralized and cross defaulted only with other Hotel Properties in such
securitization.
15.30 Securitization Financials. ESA covenants and agrees that, upon
Lender's written request therefor in connection with a securitization in which
the Loan is to be included as an asset, ESA shall promptly deliver audited
financial statements and related documentation prepared by an Independent
certified public accountant that satisfy securities laws and requirements for
use in a public registration statement (which may include up to three (3) years
(but no period prior to the date hereof) of historical audited financial
statements).
15.31 Securitization Underwriting. ESA covenants and agrees to offer to
Lender the right of first refusal to securitize any refinancing of the Floating
Rate Loans. Lender shall notify ESA within 6 Business Days of notice thereof,
of its intentions to exercise or reject such right of first refusal. Lender
agrees that ESA's obligations under this Section 15.31 shall be subject to
Lender's fees being competitive at the time of ESA's offer to it as determined
with reference to deals of similar size, complexity and other relevant factors.
15.32 Limitation of ESA Expenses. To the extent that ESA or its
Affiliates have agreed to pay costs and expenses in relation to the
securitization or participation of any Loan incurred after the date the Loan is
advanced, ESA and its Affiliates' maximum liability for such costs shall be
$1,500 per Loan so affected. Lender shall be separately responsible for costs
of securitization counsel, rating agencies, trustees, printers, prospectus
accountants and ESA shall be separately responsible for costs of rating agency
presentations (if any) and property tours.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EXTENDED STAY AMERICA, INC.
By:_____________________________________________________
Name:______________________________________________
Title:_____________________________________________
CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION
By:_____________________________________________________
Name:______________________________________________
Title:_____________________________________________
61
<PAGE>
Schedule 7.16
1) ESA is in the process of offering for sale to the public up to 8,000,000
shares of its common stock.
2) SUBSIDIARIES OF EXTENDED STAY AMERICA, INC.
AS OF 5/17/96
<TABLE>
<CAPTION>
TOTAL
COMPANY DATE INC AUTHORIZED ISSUED STATE INC
<S> <C> <C> <C> <C>
ESA DEVELOPMENT, INC. 19-Apr-95 60,000 50,000 DELAWARE
FORMERLY ESA MIDWEST, INC.
ESA MANAGEMENT, INC. 11-Jul-95 50,000 100 DELAWARE
ESA PROPERTIES, INC. 18-Jan-95 50,000 100 DELAWARE
ESA-NORCROSS INC. 26-Jan-96 1,000 100 GA
ESA 0100, INC. 08-Apr-96 1,000 100 SC
ESA 0115, INC. 08-Apr-96 1,000 100 SC
ESA 0140, INC. 11-Apr-96 1,000 100 VA
ESA 0145, INC. 29-Feb-96 1,000 100 AR
ESA 0175, INC. 18-Apr-96 1,000 100 VA
ESA 0180, INC. 08-Apr-96 1,000 100 SC
ESA 0280, INC. 15-Apr-96 1,000 100 NC
ESA 0295, INC. 23-Apr-96 1,000 100 KY
ESA 0305, INC. 22-Feb-96 1,000 100 TN
ESA 0325, INC. 19-Apr-96 1,000 100 KY
ESA 0370, INC. 15-Apr-96 1,000 100 NC
ESA 0480, INC. 18-Apr-96 1,000 100 VA
ESA 0501, INC. 26-Mar-96 1,000 100 NY
ESA 0510, INC. 25-Mar-96 1,000 100 IL
ESA 0525, INC. 14-Mar-96 1,000 100 IL
ESA 0530, INC. 23-Feb-96 1,000 100 IL
ESA 0555, INC. 19-Apr-96 1,000 100 OH
ESA 0565, INC. 06-Mar-96 1,000 100 OH
ESA 0675, INC. 17-Apr-96 1,000 100 MI
ESA 0680, INC. 17-Apr-96 1,000 100 MI
ESA 0765, INC. 28-Mar-96 1,000 100 NY
ESA 0992, INC. 22-Feb-96 1,000 100 GA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMPANY DATE INC AUTHORIZED ISSUED STATE INC
<S> <C> <C> <C> <C>
ESA 0993, INC. 22-Feb-96 1,000 100 GA
ESA 0995, INC. 02-May-96 1,000 100 KS
</TABLE>
2
<PAGE>
Schedule 12.1P
- --------------
Directors of Extended Stay America, Inc.
----------------------------------------
H. Wayne Huizenga
George D. Johnson, Jr.
Donald F. Flynn
Stewart H. Johnson
John J. Melk
Peer Pedersen
<PAGE>
Schedule 15.5 A. Caps on Fees and Expenses
-------------------------
The aggregate responsibility of ESA and its Affiliates for third-party
expenses will be capped at the following amounts for each Loan:
<TABLE>
<CAPTION>
Service Amount
------- ------
<S> <C>
Lender's Legal Fees $7,500 plus out-of-pocket expenses.
Engineering Fees and Market $7,100 plus out-of-pocket expenses.
Study Fees
Servicer Fees $1,500 plus out-of-pocket expenses.
</TABLE>
<PAGE>
EXHIBIT 1.1.A
- -------------
SUBJECT TO LOCAL COUNSEL COMMENTS
ASSIGNMENT OF LEASES & RENTS
FROM
[EXTENDED STAY AMERICA, INC.
SUBSIDIARY], AS ASSIGNOR
TO
CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION, AS ASSIGNEE
DATED: , 199___
PREPARED BY AND RECORD & RETURN TO:
WEIL, GOTSHAL & MANGES
767 FIFTH AVE.
NEW YORK, NY 10153
ATT: MANAGING PARTNER - REAL ESTATE (FW)
<PAGE>
ASSIGNMENT OF RENTS AND LEASES
------------------------------
This Assignment of Rents and Leases (this "Agreement") is executed as of
_______, 199_ by [ESA Subsidiary], a _______________________, whose address
for notice is ___________________________________________, Attention:___________
("Assignor"), to CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION, whose address for
notice is 55 East 52nd Street, New York, N.Y. 10055, Attn: Marc Warren, Esq.
("Assignee").
AGREEMENT:
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee agree as follows:
1. Absolute Assignment. Assignor unconditionally and absolutely assigns
to Assignee all of Assignor's right, title and interest in and to: (a) all
leases, subleases, occupancy agreements, licenses, usufructs, rental contracts
and other agreements now or hereafter existing relating to the use or occupancy
of the project located on the real property described in Exhibit A hereto (the
"Property"), together with all guarantees, modifications, extensions and
renewals of thereof (collectively, the "Leases"); and (b) all rents, issues,
profits, income and proceeds due or to become due from tenants, guests or other
users of the Property, including rentals and all other payments of any kind
under the Leases, together with all deposits (including security deposits) of
tenants thereunder (collectively, the "Rents"). This Agreement is an absolute
assignment to Assignee and not an assignment as security for the performance of
the obligations under the Loan Documents (defined below), or any other
indebtedness.
2. Rights of Assignee. Subject to the provisions of Section 6 below,
Assignee shall have the right, power and authority to: (a) notify any person
that the Leases have been assigned to Assignee and that all Rents are to be paid
directly to Assignee, whether or not Assignee has commenced or completed
foreclosure or taken possession of the Property; (b) settle, compromise,
release, extend the time of payment of, and make allowances, adjustments and
discounts of any Rents or other obligations under the Leases; (c) enforce
payment of Rents and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to Rents and Leases; (d)
enter upon, take possession of and operate the property regardless of the
presence of any manager; (e) lease all or any part of the Property; and/or (f)
perform any and all obligations of Assignor under the Leases or any other
agreement affecting the Property and exercise any and all
1
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rights of Assignor therein contained to the full extent of Assignor's rights and
obligations thereunder, with or without the bringing of any action or the
appointment of a receiver. At Assignee's request, Assignor shall deliver a copy
of this Agreement to each tenant under a Lease and to each manager and managing
agent or operator of the Property. Assignor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice or to consent by Assignor, to comply with all demands of Assignee
under this Agreement and to turn over to Assignee on demand all Rents which it
receives.
3. No Obligation. Notwithstanding Assignee's rights hereunder, Assignee
shall not be obligated to perform, and Assignee does not undertake to perform,
any obligation, duty or liability with respect to the Leases, Rents or Property
on account of this Agreement. Assignee shall have no responsibility on account
of this Agreement for control, care, maintenance or repair of the Property, for
any waste committed on the Property, for any dangerous or defective condition of
the Property, or for any negligence of the management upkeep, repair or control
of the Property.
4. Enforcement or Defense. Assignee shall have the right, but not the
obligation, to use and apply any Rents received hereunder in such order and such
manner as Assignee may determine for:
(a) Enforcement or Defense. The payment of costs and expenses of enforcing
or defending the terms of this Agreement or the rights of Assignee
hereunder, and collecting any Rents;
(b) Loan Payments. Interest, principal or other amounts payable pursuant
to (1) the Property Loan Agreement of even date between Assignee and
Assignor (the "Property Loan Agreement"); (2) the Promissory Note
[dated ____________, 199_/of even date herewith] in the stated
principal amount of $______, subject to increase as provided in the
Note executed by Assignor, bearing interest and being payable to the
order of Assignee (the "Note"); (3) the [Mortgage/Deed of Trust],
Security Agreement and Fixture Filing, of even date, executed by
Assignor for the benefit of Assignee and relating to the Property (the
"Mortgage"); (4) the obligations of Assignor or any Borrower under the
Credit Facility Agreement between CS First Boston Mortgage Capital
Corporation and Extended Stay America, Inc., dated as of May __, 1996
(the "ESA Loan Agreement"); and all other documents and instruments
evidencing, governing and securing the loan evidenced by
2
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the Note (the "Loan") and any and all modifications, amendments or
extensions thereof or replacements or substitutions therefor (the
Property Loan Agreement, the Note, the Mortgage, the ESA Loan
Agreement such other documents and instruments, and such
modifications, amendments, extensions, replacements, and substitutions
thereof being herein collectively called the "Loan Documents") but not
any obligation of ESA, ESA Management, Inc. or ESA Development, Inc.;
and
(c) Operating Expenses. Payment of costs and expenses of the operation and
maintenance of the property, including (1) rentals and other charges
payable by Assignor under any ground lease or other agreement
affecting the Property; (2) electricity, telephone, water and other
utility costs, taxes, assessments, water charges and sewer rents and
other utility and governmental charges levied, assessed or imposed
against the Property; (3) insurance premiums; (4) costs and expenses
with respect to any litigation affecting the Property, the Leases or
the Rents; (5) wages and salaries of employees, commissions of agents
and attorneys' fees and expenses; and (6) all other carrying costs,
fees, charges, reserves, and expenses whatsoever relating to the
Property.
After the payment of all such costs and expenses and after Assignee has
established such reserves as it, in its sole discretion, deems necessary for the
proper management of the Property, Assignee shall apply all remaining Rents
received by it to the reduction of the Loan.
5. No Waiver. The exercise or non-exercise by Assignee of the rights
granted in this Agreement or the collection and application of Rents by Assignee
or its agent shall not be a waiver of any default by Assignor under this
Agreement or any other Loan Document. No action or failure to act by Assignee
with respect to any obligations of Assignor under the Loan Documents, or any
security or guaranty given for the payment or performance thereof, shall in any
manner affect, impair or prejudice any of Assignee's rights and privileges under
this Agreement, or discharge, release or modify any of Assignor's duties or
obligations hereunder.
6. Revocable License. Notwithstanding that this Agreement is an absolute
assignment of the Rents and Leases and not merely the collateral assignment of,
or the grant of a lien or security interest in the Rents and Leases, Assignee
grants to Assignor a revocable license to collect and receive the Rents and to
retain, use and enjoy such Rents as such
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retention, use and enjoyment are governed by the Property Loan Agreement. Such
license may be revoked by Assignee upon the occurrence of any Event of Default
(as defined in the Property Loan Agreement or the ESA Loan Agreement). Assignor
shall apply any Rents which it receives to the payment of debt service on the
Note and other payments due under the Property Loan Agreement and the ESA Loan
Agreement, taxes, assessments, water charges, sewer rents and other governmental
charges levied, assessed or imposed against the Property, insurance premiums,
operation and maintenance charges relating to the Property, and other
obligations of lessor under the Leases before using such proceeds for any other
purpose.
7. Term. This Agreement shall continue in full force and effect until:
(a) all amounts due under the Loan Documents are paid in full, and (b) all other
obligations of Assignor under the Loan Documents are fully satisfied or when the
Mortgage is otherwise released.
8. Appointment. Assignor irrevocably appoints Assignee its true and
lawful attorney in fact, which appointment is coupled with an interest, to
execute any or all of the rights or powers described herein with the same force
and effect as if executed by Assignor, and Assignor ratifies and confirms any
and all acts done or omitted to be done by Assignee, its agents, servants,
employees or attorneys in, to or about the Property.
9. Remedies of Assignor. In the event that a claim or adjudication is
made that Assignee has acted unreasonably or unreasonably delayed acting in any
case where by law or under this Agreement it has an obligation to act reasonably
or promptly, Assignee shall not be liable for any punitive, consequential or
incidental damages.
10. Indemnification. Assignor shall indemnify, defend and hold harmless
Assignee from and against all liability, loss, damage, cost or expense which it
may incur under this Agreement or under any of the Leases, including any claim
against Assignee by reason of any alleged obligation, undertaking, action, or
inaction on its part to perform or discharge any terms, covenants or conditions
of the Leases or with respect to Rents, and including attorneys' fees and
expenses, but excluding any claim to the extent caused by Assignee's gross
negligence or willful misconduct. Any amount covered by this indemnity shall be
payable on demand, and shall bear interest from the date of demand until the
same is paid by Assignor to Assignee at a rate equal to the Default Rate (as
defined in the ESA Loan Agreement).
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<PAGE>
11. Modification. This Agreement may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of such change
is sought.
12. Successors and Assigns. This Agreement shall inure to the benefit of
Assignee and its successors and assigns and shall be binding on Assignor and its
successors and assigns.
13. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of _____.
14. Conflict. If any conflict or inconsistency exists between the absolute
assignment of the Rents and the Leases in this Agreement and the assignment of
the Rents and Leases as security in the Mortgage, the terms of this Agreement
shall control.
Executed as of the date first written above.
_______________________________________________________
a _____________________________________________________
By:
__________________________________________________
a ________________________________________________
By: ______________________________________________
a __________________________________________
5
<PAGE>
STATE OF ___________)
)
COUNTY OF __________)
This instrument was acknowledged before me on _, 1996_, by _______________,
__________ of _______________, a __________ and the _______________ of ________
__, a _______________, on behalf of said __________ and _______________.
____________________________________
Notary Public, State of _________
6
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EXHIBIT A
---------
[DESCRIPTION OF REAL PROPERTY]
------------------------------
7
<PAGE>
Exhibit 1.2
Subject To Local Counsel Comments
FIRST DEED OF TRUST AND SECURITY AGREEMENT
from
[EXTENDED STAY AMERICA, INC., SUBSIDIARY]
Grantor
to
______________________________
Trustee
for the use and benefit of
CS FIRST BOSTON MORTGAGE
CAPITAL CORPORATION
[THE MAXIMUM INDEBTEDNESS OR OBLIGATIONS SECURED
BY THIS INSTRUMENT IS $____________________.]
THE INDEBTEDNESS AND OBLIGATIONS SECURED BY
THIS INSTRUMENT MATURE NOT LATER THAN ________, ____.
Dated __________ ___, 19__
Prepared by, and record and return to:
Weil, Gotshal & Manges
767 Fifth Ave.
New York, NY 10153
Attn: Managing Partner - Real Estate (FW)
<PAGE>
FIRST DEED OF TRUST AND SECURITY AGREEMENT
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
1 DEFINITIONS AND ACCOUNTING TERMS....................................... 5
1.1 Defined Terms................................................... 5
1.2 Computation of Time Periods..................................... 15
1.3 Accounting Terms................................................ 15
1.4 Certain Terms................................................... 15
2 REPRESENTATIONS AND WARRANTIES......................................... 16
2.1 Lien Priority................................................... 16
2.2 Title........................................................... 16
2.3 Taxes and Impositions........................................... 16
2.4 Casualty; Flood Zone............................................ 17
2.5 Completion; Encroachment........................................ 17
2.6 Subdivision..................................................... 17
2.7 Use............................................................. 17
2.8 Licenses and Permits............................................ 17
2.9 Property Proceedings............................................ 18
2.10 Utilities....................................................... 18
2.11 Mechanics' Liens................................................ 18
2.12 Insurance....................................................... 18
2.13 Leases.......................................................... 19
2.14 Property Agreements............................................. 19
2.15 Personal Property............................................... 20
2.16 Leasing Brokerage and Management Fees........................... 20
2.17 Representations Generally....................................... 20
3 COVENANTS OF GRANTOR................................................... 21
3.1 Repayment of the Loan........................................... 21
3.2 Removal of Liens................................................ 21
3.3 Cost of Defending and Upholding this Deed of Trust Lien......... 22
3.4 Further Acts, Etc............................................... 22
3.5 Recording of Deed of Trust, Etc................................. 23
4 TRANSFER OR ENCUMBRANCE OF THE PROPERTY; ASSUMABILITY.................. 23
4.1 Definition of Transfer.......................................... 23
4.2 No Transfer..................................................... 23
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ARTICLE PAGE
- ------- ----
5 EVENTS OF DEFAULT...................................................... 24
5.1 Events of Default............................................... 24
5.2 Remedies........................................................ 26
5.3 Payment of Debt After Default................................... 31
5.4 Possession of the Property...................................... 32
5.5 Interest After Default.......................................... 32
5.6 Grantor's Actions After Default................................. 32
5.7 Control by Beneficiary After Default............................ 32
5.8 Right to Cure Defaults.......................................... 33
5.9 Recovery of Sums Required to Be Paid............................ 33
5.10 Marshalling and Other Matters................................... 34
5.11 Tax Reduction Proceedings....................................... 34
5.12 General Provisions Regarding Remedies........................... 34
6 INSURANCE AND CASUALTY RESTORATION..................................... 35
6.1 Maintenance of Insurance Policies............................... 35
6.2 Casualty Restoration............................................ 35
7 CONDEMNATION........................................................... 35
7.1 Notice of Condemnation.......................................... 35
7.2 Application of Condemnation Awards.............................. 36
8 SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE....................... 36
9 NO WAIVERS, ETC........................................................ 37
10 COMPLIANCE WITH REQUIREMENTS........................................... 37
10.1 Compliance with Legal Requirements.............................. 37
10.2 Compliance with Recorded Documents.............................. 38
11 ENVIRONMENTAL COMPLIANCE............................................... 38
11.1 Covenants, Representations and Warranties....................... 38
11.2 Environmental Indemnification................................... 41
12 WAIVERS BY GRANTOR...................................................... 43
13 FAILURE TO CONSENT...................................................... 43
14 SUBSTITUTION OR RESIGNATION OF TRUSTEE.................................. 44
15 CONVEYANCE BY TRUSTEE/DEFEASANCE........................................ 44
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<PAGE>
ARTICLE PAGE
- ------- ----
16 ENFORCEABILITY........................................................ 45
16.1 Inconsistency with the Loan Documents.......................... 45
17 MISCELLANEOUS......................................................... 45
17.1 Amendments, Etc................................................ 45
17.2 Notices, Etc................................................... 45
17.3 No Waiver; Remedies............................................ 46
17.4 Right of Set-off............................................... 46
17.5 Binding Effect................................................. 47
17.6 Severability................................................... 47
17.7 Submission to Jurisdiction; Service of Process................. 47
17.8 Section Titles................................................. 48
17.9 Execution in Counterparts...................................... 48
17.10 Entire Agreement............................................... 48
17.11 Confidentiality................................................ 48
17.12 Waiver of Jury Trial........................................... 48
17.13 Waiver of Notice............................................... 48
17.14 Actions and Proceedings........................................ 48
17.15 Usury Laws..................................................... 49
17.17 Offsets, Counterclaims and Defenses............................ 49
17.18 Waiver of Statute of Limitations............................... 50
17.19 Advances....................................................... 50
17.20 Application of Default Rate Not a Waiver....................... 50
17.21 No Joint Venture or Partnership................................ 50
17.22 Time of the Essence............................................ 50
17.23 Grantor's Obligations Absolute................................. 50
18 ADDITIONAL PROVISIONS................................................. 51
Exhibit A Legal Description
Exhibit B Additional Provisions
Schedule 2.2 Outstanding Options or Rights of First Refusal
INDEX OF DEFINED TERMS
Additional Mortgages......... 2
Affiliate.................... 6
Aggregate Debt............... 2
Applicable Rate.............. 6
Appraisal.................... 6
Award........................ 36
Beneficiary.................. 1
Buildings.................... 3
Business Day................. 6
Casualty..................... 35
CERCLA....................... 8
Closing Date................. 6
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Collateral................... 6
Condemnation................. 35
Contract..................... 6
Contractual Obligation....... 6
Debt......................... 2
Default...................... 6
Default Rate................. 6
Default Rate Interest........ 7
Definition of Transfer....... 23
Development Laws............. 7
Dollars...................... 7
Environmental Problem........ 7
Environmental Statute........ 7
EPA.......................... 40
ESA.......................... 1
ESA Loan Agreement........... 1
ESA Subsidiaries............. 1
Event of Default............. 24
Fiscal Year.................. 8
Fixtures..................... 4
Fraudulent Conveyance Laws... 2
GAAP......................... 8
Governmental Authority....... 8
Grantor...................... 1
Hazardous Material........... 8
Impositions.................. 9
Indebtedness................. 9
Independent.................. 10
Insurance Requirements....... 10
Land......................... 3
Leases....................... 4
Legal Requirement............ 10
Lien......................... 11
Loan......................... 1
Loan Documents............... 3
Loan Party................... 11
Material Adverse Change...... 11
Maturity Date................ 11
Net Proceeds................. 11
Note......................... 1
Obligations.................. 2
Other Subsidiary Notes....... 2
Payment Date................. 11
Permitted Encumbrances....... 16
Person....................... 12
Principal Amount............. 12
Principal Payments........... 12
Property..................... 3
Property Agreements.......... 12
Property Loan Agreement...... 1
Rating Agency................ 12
Real Estate.................. 4
Recognized Appraiser......... 12
Release...................... 12
Remedial Action.............. 12
Rents........................ 4
Requirement of Law........... 13
Responsible Officer.......... 13
Single Purpose Entity........ 13
Stock........................ 13
Stock Equivalents............ 13
Subsidiary................... 14
Taking....................... 14
Title Insurance Policy....... 14
Transfer..................... 23
Trustee...................... 1
Unscheduled Payments......... 14
Use Requirements............. 14
Yield Maintenance Premium.... 15
iv
<PAGE>
FIRST DEED OF TRUST AND SECURITY AGREEMENT
------------------------------------------
THIS FIRST DEED OF TRUST AND SECURITY AGREEMENT, made as of the ____
day of ________, 19__, among [Extended Stay America, Inc., subsidiary], a
__________________ corporation having an office at _________________________
("Grantor"), to _________________, having an address at ______________________
("Trustee") and CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION, a ______________
Corporation, having an address at 55 East 52nd Street, New York, NY 10055
("Beneficiary").
W I T N E S S E T H :
-------------------
WHEREAS, pursuant to a Credit Facility Agreement (as the same may be
amended, the "ESA Loan Agreement"), dated May __, 1996, between Beneficiary and
Extended Stay America, Inc. ("ESA"), Beneficiary has agreed to make loans to
various wholly-owned (directly and indirectly) subsidiaries of ESA (the "ESA
Subsidiaries") in a total aggregate amount not to exceed $300,000,000, including
a certain loan in the amount of $____________________ (the "Loan"), to Grantor,
which Loan is evidenced by that certain promissory note, dated the date hereof
(as the same may be amended, the "Note") given by Grantor, as maker, to
Beneficiary, as holder; and
WHEREAS, certain terms and conditions of the Loan are set forth in
that certain Property Loan Agreement (as the same may be amended, the "Property
Loan Agreement"), dated the date hereof, between Grantor and Beneficiary; and
WHEREAS, all things necessary to make this Deed of Trust the valid and
legally binding obligation of Grantor in accordance with its terms, for the uses
and purposes herein set forth, have been done and performed; and
WHEREAS, Grantor and Beneficiary intend these recitals to be a
material part of this Deed of Trust.
NOW THEREFORE, to secure:
(i) the payment of the principal amount of the Loan, prepayment premium
(if any) and interest in accordance with the terms of the Note and all
other obligations, liabilities or sums due or to become due from
Borrower under this Deed of Trust, the Note or any other Loan Document
executed in connection with the Loan, including, without limitation,
all future advances evidenced by
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amendments to the Note, interest and fees on said obligations,
liabilities or sums (said principal, premium, interest and other
sums, the "Debt"); and
(ii) the payment of the principal, prepayment premium (if any) and
interest on notes made by Affiliates of Grantor in connection with
the ESA Loan Agreement , including any future advances evidenced
thereby, (as the same may be amended, the "Other Subsidiary Notes",
the Debt and all amounts and obligations, liabilities and other sums
due or to become due under the Other Subsidiary Notes, collectively,
the "Aggregate Debt"); provided, however, the amount of Other
Subsidiary Notes secured hereby shall be limited to a maximum
aggregate amount equal to the largest sum that would not render
Grantor's obligations hereunder subject to avoidance as a fraudulent
conveyance under Section 548 of Title 11 of the United States Code or
any comparable state law fraudulent conveyance statutes
(collectively, the "Fraudulent Conveyance Laws"), in each case after
giving effect to all other liabilities of Grantor that are permitted
to be incurred in accordance with this Deed of Trust prior to an
Event of Default and are relevant under the Fraudulent Conveyance
Laws (excluding intercompany indebtedness and other intercompany
liabilities) and after giving effect to all assets of Grantor,
contingent or otherwise, including without limitation, all rights of
subrogation, contribution and similar or comparable rights. (This
proviso shall be construed with the goal of maximizing the amount of
indebtedness secured hereunder without rendering Grantor insolvent,
leaving it with unreasonably small capital or unable to pay its debts
as they become due (if and to the extent limited or prohibited by the
Fraudulent Conveyance Laws)); and
(iii) the performance of all of the terms, covenants, conditions,
agreements, obligations and liabilities of Grantor or any ESA
Subsidiary but not ESA, ESA Management, Inc. or ESA Development,
Inc., for the benefit of Beneficiary (collectively, the
"Obligations") under (i) this Deed of Trust, (ii) the ESA Loan
Agreement, (iii) the Property Loan Agreement, (iv) any deeds of trust
or mortgages in addition to this Deed of Trust now or hereafter made
by Grantor or any ESA Subsidiary for the benefit of Beneficiary to
secure the Aggregate Debt (such additional deeds of trust and
mortgages, as they may hereafter be amended, supplemented or modified
from time to time, collectively, the "Additional Mortgages"), (v) any
supplemental agreements, undertakings, instruments, documents or
other writings executed by Grantor as a condition to advances under
the Note or otherwise in connection with the ESA Loan Agreement, (vi)
all chattel mortgages, pledges, powers of attorney, consents,
assignments, notices, leases and financing statements heretofore, now
or hereafter executed by or on behalf of Grantor or any other Person
(hereinafter
2
<PAGE>
defined) and/or delivered to Beneficiary in connection with the Note
or the transactions contemplated thereby, and (vii) any extensions,
renewals, replacements or modifications of any of the foregoing (this
Deed of Trust, the ESA Loan Agreement, the Property Loan Agreement,
the Additional Mortgages and any other supplemental agreements,
undertakings, instruments, documents or other writings executed in
connection with any of the foregoing, together with (x) the foregoing
powers of attorney, consents, assignments, notices, leases and
financing statements, (y) any guarantees of the Aggregate Debt and the
Obligations and (z) any security agreements or assignments now or
hereafter made to secure the Aggregate Debt and the Obligations (all
of the foregoing documents, collectively, the "Loan Documents"). The
maximum amount secured by this Deed of Trust shall be limited to the
lesser of: (x) in a state without a mortgage recording tax, or in a
state where the maximum recording tax payable is met or exceeded by
clause (y), $300,000,000 or (y) $____________, which is agreed to be
250% of the Value of the Property on the date hereof; and
(iv) and in consideration of Ten Dollars ($10.00), in hand paid, the
receipt and legal sufficiency of which are hereby acknowledged,
Grantor does hereby mortgage, give, grant, bargain, sell, warrant,
alienate, remise, release, convey, assign, transfer, hypothecate,
deposit, pledge, grant a security interest, set over and confirm unto
Trustee, and to its successors and assigns in trust, forever, the
following described real and other property and all substitutions for
and all replacements, reversions and remainders of such property,
whether now owned or held or hereafter acquired by Grantor
(collectively, the "Property"):
All those plots, pieces or parcels of land more particularly described
in Exhibit A annexed hereto and made a part hereof together with the right,
title and interest of Grantor, if any, in and to the streets and in and to the
land lying in the bed of any streets, roads or avenues, open or proposed, public
or private, in front of, adjoining or abutting said land to the center line
thereof, the air space and development rights pertaining to said land and the
right to use such air space and development rights, all rights of way,
privileges, liberties, tenements, hereditaments and appurtenances belonging to,
or in any way appertaining to, said land, all easements now or hereafter
benefitting said land and all royalties and rights appertaining to the use and
enjoyment of said land, including, but without limiting the generality of the
foregoing, all alley, vault, drainage, mineral, water, oil, coal, gas, timber
and other similar rights (collectively, the "Land");
TOGETHER with the buildings and other improvements now or hereafter
erected on the Land (the buildings and other improvements, collectively, the
"Buildings");
3
<PAGE>
TOGETHER with all and singular the reversion or reversions, remainder
or remainders, rents, issues, profits and revenues of the Real Estate
(hereinafter defined) and all of the estate, right, title, interest, dower and
right of dower, curtesy and right of curtesy, property, possession, claim and
demand whatsoever, both in law and at equity, of Grantor of, in and to the Real
Estate and of, in and to every part and parcel thereof, with the appurtenances,
at any time belonging or in any way appertaining thereto;
TOGETHER with all of the fixtures, systems, machinery, apparatus,
equipment and fittings of every kind and nature whatsoever and all appurtenances
and additions thereto and substitutions or replacements thereof now owned or
hereafter acquired by Grantor and now or hereafter attached or affixed to, or
constituting a part of, the Real Estate or any portion thereof (collectively,
the "Fixtures," and together with the Buildings and the Land collectively, the
"Real Estate"), including, but without limiting the generality of the foregoing,
all heating, electrical, mechanical, lighting, lifting, plumbing, ventilating,
air conditioning and air-cooling fixtures, systems, machinery, apparatus and
equipment, refrigerating, incinerating and power fixtures, systems, machinery,
apparatus and equipment, loading and unloading fixtures, systems, machinery,
apparatus and equipment, escalators, elevators, boilers, communication systems,
switchboards, sprinkler systems and other fire prevention and extinguishing
fixtures, systems, machinery, apparatus and equipment, and all engines, motors,
dynamos, machinery, wiring, pipes, pumps, tanks, conduits and ducts constituting
a part of any of the foregoing, it being understood and agreed that all of the
Fixtures are appropriated to the use of the Real Estate and, for the purposes of
this Deed of Trust, shall be deemed conclusively to be Real Estate and conveyed
hereby;
TOGETHER with all drainage, mineral, water, oil, gas, timber and sewer
pipes, conduits and wires, and other facilities furnishing utility or other
services and other similar rights now or hereafter benefitting the Real Estate
or any portion thereof or appertaining thereto;
TOGETHER with Grantor's right, title and interest in, to and under all
leases, subleases, underlettings, concession agreements, licenses and other
occupancy agreements which now or hereafter may affect the Real Estate or any
portion thereof and under any and all guarantees, modifications, renewals and
extensions thereof (collectively, the "Leases"), and in and to any and all
deposits made or hereafter made as security under the Leases, subject to the
prior legal rights under the Leases of the lessees making such deposits,
together with any and all of the room charges, other fees and charges payable by
guests or users, benefits, revenues, income, rents, issues and profits due or to
become due or to which Grantor is now or hereafter may become entitled arising
out of the Leases or the Real Estate or any portion thereof (collectively, the
"Rents");
4
<PAGE>
TOGETHER with the Insurance Proceeds and the Condemnation Proceeds to
the extent of the entire amount of the Debt outstanding as of the date of
Beneficiary's receipt of any such Insurance Proceeds or Condemnation Proceeds,
notwithstanding that the entire amount of the Debt may not then be due and
payable, and also to the extent of reasonable attorneys' fees, costs and
disbursements incurred by Trustee in connection with the collection of any such
Insurance Proceeds or Condemnation Proceeds. Grantor hereby assigns to Trustee
and Beneficiary, and Beneficiary is hereby authorized to collect and receive,
all Insurance Proceeds and Condemnation Proceeds and to give proper receipts and
acquittances therefor and to apply the same toward the Debt as herein set forth
notwithstanding that the entire amount of the Debt may not then be due and
payable. Grantor hereby agrees to make, execute and deliver, from time to time,
upon demand, such further documents, instruments or assurances as may be
requested by Trustee or Beneficiary to confirm the assignment of the Insurance
Proceeds and the Condemnation Proceeds to Trustee, free and clear of any
interest of Grantor whatsoever therein and free and clear of any other liens,
claims or encumbrances of any kind or nature whatsoever;
TOGETHER with all right, title and interest of Grantor in and to all
extensions, improvements, betterments, renewals, substitutes and replacements
of, and all additions and appurtenances to, the Real Estate, and in each such
case, the foregoing shall be deemed a part of the Real Estate and shall become
subject to the lien of this Deed of Trust as fully and completely, and with the
same priority and effect, as though now owned by Grantor and specifically
described herein, without any further deed of trust, mortgage, conveyance,
assignment or other act by Grantor;
TOGETHER with all of Grantor's rights to further encumber the Property
for debt.
TO HAVE AND TO HOLD the Property, and the rights and privileges hereby
deeded or intended so to be unto Trustee and its successors and assigns for the
uses and purposes herein set forth, until the Debt is fully paid and the
Obligations are fully performed in accordance with the provisions set forth
herein and in the other Loan Documents.
Grantor, for itself and its successors and assigns, further
represents, warrants, covenants and agrees with Trustee and Beneficiary as
follows:
1 DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Deed of Trust, the following terms
have the following meanings (such meanings to be equally applicable to both the
singular and plural
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forms of the terms defined). All capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Property Loan Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
"Appraisal" means an appraisal using methodologies reasonably acceptable to
Beneficiary at the time such appraisal is or was made and performed by a
Recognized Appraiser.
"Applicable Rate" means, for any period, the rate per annum specified in
the Note.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City.
"Closing Date" means the date hereof.
"Collateral" means the Property and all other property and interests in
property and proceeds thereof now owned or hereafter acquired by any Loan Party
in or upon which a Lien is granted under any of the Collateral Documents, as
such term is defined in the ESA Loan Agreement.
"Contract" means any contract, agreement, undertaking, indenture, note,
bond, loan, instrument, lease, conditional sales contract, mortgage, deed of
trust, license, franchise, insurance policy, commitment or other arrangement or
agreement.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"Default" means any event that would constitute an Event of Default if all
requirements in connection therewith for the giving of notice, the lapse of
time, and the happening of any further condition, event or act, had been
satisfied.
"Default Rate" shall be a rate equal to four percent (4%) above the rate
otherwise applicable, subject to Section 17.15 hereof.
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"Default Rate Interest" means, to the extent the Default Rate becomes
applicable, interest in excess of the interest that would have accrued on (a)
the Loan and (b) to the extent permitted by law, any accrued but unpaid
interest, if the Default Rate was not applicable.
"Development Laws" means all applicable subdivision, zoning, environmental
protection, wetlands protection, or land use laws or ordinances, and any and all
applicable rules and regulations of any Governmental Authority promulgated
thereunder or related thereto.
"Dollars" and the sign "$" each mean the lawful money of the United States
of America.
"Environmental Problem" means any of the following:
(a) the presence of any Hazardous Material on, in, under, or above all
or any portion of the Property;
(b) the release of any Hazardous Material from or onto the Property;
(c) the violation of any Environmental Statute with respect to the
Property; or
(d) the failure to obtain or to abide by the terms or conditions of
any permit or approval required under any Environmental Statute with respect to
the Property.
A condition described above shall be an Environmental Problem regardless of
whether or not any Governmental Authority has taken any action in connection
with the condition and regardless of whether that condition was in existence on
or before the date hereof. Notwithstanding the foregoing, this definition of
Environmental Problem shall not include use and storage for use of heating oil,
ordinary cleaning fluids and pesticides and other substances customarily used in
the operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with Legal Requirements, the requirements hereof and the other Loan
Documents and does not give rise to liability under applicable Legal
Requirements or be the basis for a lien against the Property or any part
thereof.
"Environmental Statute" means any effective, applicable or relevant
federal, state or local statute, ordinance, rule or regulation, any judicial or
administrative order (whether or not on consent) or judgment applicable to
Grantor, including, without limitation, any judgment or settlement based on
common law theories, and any provisions or condition of any permit, license or
other authorization binding on Grantor relating to (a) the protection of
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the environment, the safety and health of persons (including employees) or the
public welfare from actual or potential exposure (or effects of exposure) to any
actual or potential release, discharge, disposal or emission (whether past or
present) of any Hazardous Materials or (b) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Materials, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
(S)9601 et seq., the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous
Waste Amendments of 1984, 42 U.S.C. (S)6901 et seq., the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. (S)1251 et
seq., the Toxic Substances Control Act of 1976, 15 U.S.C. (S)2601 et seq., the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. (S)1101 et
seq., the Clean Air Act of 1966, as amended, 42 U.S.C. (S)7401 et seq., the
National Environmental Policy Act of 1975, 42 U.S.C. (S)4321, the Rivers and
Harbours Act of 1899, 33 U.S.C. (S)401 et seq., the Endangered Species Act of
1973, as amended, 16 U.S.C. (S)1531 et seq., the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. (S)651 et seq., and the Safe Drinking Water
Act of 1974, as amended, 42 U.S.C. (S)300(f) et seq., and all rules, regulations
and guidance documents promulgated or published thereunder.
"Fiscal Year" means the twelve month period commencing on January 1 and
ending on December 31 during each year of the term of this Deed of Trust or such
other fiscal year of Grantor as Grantor may select from time to time with the
prior written reasonable consent of Beneficiary.
"GAAP" means generally accepted accounting principles in the United States
of America, as of the date of the applicable financial report, consistently
applied.
"Governmental Authority" means, with respect to any Person, any federal or
state government or other political subdivision thereof and any entity,
including any regulatory or administrative authority or court, exercising
executive, legislative, judicial, regulatory or administrative or quasi-
administrative functions of or pertaining to government, and any arbitration
board or tribunal in each case, having jurisdiction over such applicable Person
or such Person's property and any stock exchange on which shares of capital
stock of such Person are listed or admitted for trading.
"Hazardous Material" means any flammable, explosive or radioactive
material, hazardous material or waste, hazardous or toxic substance, pollutants
or related material, asbestos or any material containing asbestos, or any other
substance or material as defined in or regulated by any Environmental Statutes.
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"Impositions" means all taxes (including, without limitation, all ad
valorem, sales (including those imposed on lease rentals), use, single business,
gross receipts, value added, intangible transaction privilege, privilege or
license or similar taxes), assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of this Deed of Trust, ground rents, water, sewer or other rents
and charges, excises, levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), and all other governmental
charges, in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of the Property and/or any
rents, common area charges, reciprocal easement fees and other payments
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the term hereof may be assessed or imposed on or in
respect of or be a lien upon (a) Grantor (including, without limitation, all
franchise, single business or other taxes imposed on Grantor for the privilege
of doing business in the jurisdiction in which the Property is located) or
Beneficiary, (b) the Property or any part thereof or any rents, common area
charges, reciprocal easement fees and other payments therefrom or any estate,
right, title or interest therein, or (c) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Property, or any part thereof, or the leasing or use of the Property, or any
part thereof, or the acquisition or financing of the acquisition of the
Property, or any part thereof, by Grantor.
"Indebtedness" of any Person means:
(i) all indebtedness of such Person for borrowed money (including,
without limitation, reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured) or for the deferred purchase price of property or services,
(ii) all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments,
(iii) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property),
(iv) all capitalized lease obligations of such Person,
(v) all Contingent Obligations of such Person,
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(vi) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value any Stock or Stock Equivalents of such
Person, valued, in the case of redeemable preferred stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends,
(vii) all obligations of such Person under interest rate swap or
hedging contracts,
(viii) all Indebtedness referred to in clause (i), (ii), (iii), (iv),
(v), (vi) or (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
general intangibles) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness,
(ix) in the case of Grantor, the Obligations, and
(x) all liabilities of such Person that would be shown on a balance
sheet of such Person prepared in conformity with GAAP.
"Independent" means, when used with respect to any Person, a Person who (i)
is in fact independent, (ii) does not have any direct financial interest or any
material indirect financial interest in Grantor, or in any Affiliate of Grantor
or any constituent partner, shareholder, member or beneficiary of Grantor and
(iii) is not connected with Grantor or any Affiliate of Grantor or any
constituent partner, shareholder, member or beneficiary of Grantor as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions. Whenever it is herein provided that any
Independent Person's opinion or certificate shall be provided, such opinion or
certificate shall state that the Person executing the same has read this
definition and is Independent within the meaning hereof.
"Insurance Requirements" means all terms of any insurance policy required
by this Deed of Trust, all requirements of the issuer of any such policy, and
all regulations and then current standards applicable to or affecting the
Property or any use or condition thereof, which may, at any time, be recommended
by the Board of Fire Underwriters, if any, having jurisdiction over the
Property, or such other Person exercising similar functions.
"Legal Requirement" means as to any Person, the certificate of
incorporation and by-laws or other organization or governing documents of such
Person, and any law, treaty, rule or regulation (including, without limitation,
Environmental Statutes, Development Laws and Use Requirements) or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
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"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to secure
payment of any Indebtedness or other obligation, including, without limitation,
any conditional sale or other title retention agreement, the interest of a
lessor under a capitalized lease, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing, under the Uniform
Commercial Code or comparable law of any jurisdiction, of any financing
statement naming the owner of the asset to which such Lien relates as debtor
(excluding precautionary filings).
"Loan Party" means Grantor, ESA and each Affiliate of Grantor or ESA that
executes and delivers a Loan Document.
"Material Adverse Change" means a material adverse change in (a) the
condition (financial or otherwise), business, performance, prospects, operations
or properties of ESA and its Subsidiaries taken as one enterprise or ESA and the
Borrowers taken as one enterprise, (b) the legality, validity or enforceability
of any Loan Document, (c) the perfection or priority of the Liens granted
pursuant to the Collateral Documents, (d) the ability of Grantor to repay the
Obligations or of any Loan Party to perform its material obligations under any
Loan Document, or (e) the rights and remedies of Beneficiary under the Loan
Documents.
"Maturity Date," means the maturity date set forth in the Note or such
other date pursuant to which the Note becomes due and payable, whether at stated
maturity or by declaration of acceleration, or otherwise.
"Net Proceeds" means the excess of (i)(x) the purchase price (at
foreclosure or otherwise) actually received by Beneficiary with respect to the
Property as a result of the exercise by Beneficiary of its rights, powers,
privileges and other remedies after the occurrence of an Event of Default, or
(y) in the event that Beneficiary (or Beneficiary's nominee) is the purchaser at
foreclosure by credit bid, then the amount of such credit bid, in either case,
over (ii) all costs and expenses, including, without limitation, all attorneys'
fees (to the extent approved by the court in the case of a judiciary
foreclosure) and disbursements and any brokerage fees, if applicable, incurred
by Beneficiary in connection with the exercise of such remedies, including the
sale of such Property after a foreclosure against the Property.
"Payment Date" means, with respect to each month, the first calendar day in
such month, or if such day is not a Business Day, the next following Business
Day.
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"Person" means an individual, partnership, corporation (including, without
limitation, a business trust), joint stock company, trust, unincorporated
association, joint venture or other entity, or a Governmental Authority.
"Principal Amount" means the principal amount of the debt as such amount
may be increased or decreased from time to time pursuant to the terms of this
Deed of Trust, the Note or the other Loan Documents.
"Principal Payments" means all payments of principal made pursuant to the
terms of the Note.
"Property Agreements" means all agreements, grants of easements and/or
rights-of-way, reciprocal easement agreements, permits, declarations of
covenants, conditions and restrictions, disposition and development agreements,
planned unit development agreements, management or parking agreements, party
wall agreements or other instruments affecting the Property, but not including
any brokerage agreements, management agreements, service contracts, Leases or
the Loan Documents.
"Rating Agency" means any nationally recognized statistical agency selected
by Beneficiary including, without limitation, Duff & Phelps Rating Co., Fitch
Investors Services, Inc., Moody's Investors Services, Inc., and/or Standard and
Poors Corporation, collectively, and any successor to any of them; provided,
however, that at any time during which the Loan is an asset of a securitization,
"Rating Agency" means the rating agency or rating agencies that from time to
time rate the securities issued in connection with such securitization.
"Recognized Appraiser" means a qualified and MAI certified professional
appraiser as may be selected or approved by Beneficiary, having at least five
(5) years' prior experience in performing real estate appraisals in the
geographic area where the property being appraised is located and having a
recognized expertise in appraising properties operated as hotel or other lodging
facilities.
"Release" means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the indoor or outdoor environment or into or out of the
Real Estate.
"Remedial Action" means all actions including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment, (ii) prevent the Release or
threat of Release, or minimize the further Release, of any Hazardous Material or
other substance so it does not migrate or endanger or threaten
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to endanger public health or welfare or the indoor or outdoor environment, (iii)
perform pre-remedial studies and investigations or post-remedial monitoring and
care, or (iv) bring facilities on any property owned, leased or operated by
Grantor into compliance with all Environmental Laws and Environmental Permits.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and all federal, state and local laws, rules and regulations, including,
without limitation, federal, state or local securities, antitrust and licensing
laws, all food, health and safety laws, and all applicable trade laws and
requirements, including, without limitation, all disclosure requirements of
Environmental Statutes, ERISA and all orders, judgments, decrees or other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
"Responsible Officer" means, with respect to any Person, any of the
principal executive officers or general partners of such Person.
"Single Purpose Entity" means a Person, other than an individual, which is
formed or organized solely for the purpose of holding, directly, an undivided
100% ownership interest in a Hotel Property (unless Lender, in its sole
discretion consents to the Single Purpose Entity owning more than one Hotel
Property), does not engage in any business unrelated to the Hotel Property, does
not have any assets other than those related to its interest in the Hotel
Property or any indebtedness other than as permitted by this Deed of Trust or
the other Loan Documents, has its own separate books and records and has its own
accounts, in each case that are separate and apart from the books and records
and accounts of any other Person, holds itself out as being a Person separate
and apart from any other Person, and meets Beneficiary's reasonable requirements
(including organizational and structural requirements) to establish that, after
the guaranty of ESA as provided in the ESA Loan Agreement is terminated with
respect to the Loan pursuant to Section 8.9 of the ESA Loan Agreement and the
Indemnification obligations of ESA pursuant to Section 15.5 of the ESA Loan
Agreement are terminated, such Person would not be consolidated with ESA for
bankruptcy purposes.
"Stock" means shares of capital stock, beneficial or partnership interests,
participations or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or non-voting, and includes,
without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities convertible into or exchangeable
for Stock and all warrants, options or other rights to purchase or subscribe for
any stock, whether or not presently convertible, exchangeable or exercisable.
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"Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 50% or more of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors, managers, trustees or other controlling persons, is, at the time,
directly or indirectly, owned or controlled by such Person and/or one or more
Subsidiaries of such Person (irrespective of whether, at the time, Stock of any
other class or classes of such entity shall have or might have voting power by
reason of the happening of any contingency).
"Taking" means a condemnation or taking pursuant to the lawful exercise of
the power eminent domain.
"Title Insurance Policy" means a paid and effective commitment for title
insurance issued by a title company acceptable to Beneficiary, in such form and
amounts as are reasonably acceptable to Beneficiary, insuring that this Deed of
Trust is a valid, first priority Lien on the Property subject only to such
Permitted Encumbrances (except to the extent there is a material change in the
Permitted Encumbrance, in which case Beneficiary shall exercise its reasonable
discretion in determining if the previously permitted encumbrance shall remain a
Permitted Encumbrance) and such other exceptions to title as shall be acceptable
to Beneficiary in its reasonable discretion and containing such endorsements and
affirmative insurance as Beneficiary may reasonably require and as are
obtainable in the applicable jurisdiction (it being understood that Beneficiary
shall not require a zoning endorsement if it shall receive a zoning opinion or
letter from the relevant Governmental Authority providing similar assurances, in
form reasonably satisfactory to Beneficiary), and true copies of each document,
instrument or certificate required by the terms of each such policy, or required
to be, or have been, executed, filed, or recorded, in connection with this Deed
of Trust.
"Unscheduled Payments" means (i) all Loss Proceeds (as defined in the
Property Loan Agreement) that Grantor has elected or is required to apply to the
repayment of the Loan pursuant to this Deed of Trust, the Note or any other Loan
Documents, (ii) any funds representing a voluntary or involuntary principal
prepayment other than scheduled Principal Payments, (iii) any Net Proceeds and
(iv) any amounts paid from the Curtailment Reserve Sub-Account pursuant to the
Property Loan Agreement.
"Use Requirements" means any and all building codes, permits, certificates
of occupancy or compliance, laws, regulations, or ordinances (including, without
limitation, health, pollution, fire protection, medical and day-care facilities,
waste product and sewage disposal regulations), restrictions of record,
easements, reciprocal easements, declarations or other agreements affecting the
use of the Property or any part thereof.
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"Yield Maintenance Premium" means the premium that shall be the product of
(1) a fraction, the numerator of which is the positive excess, if any, of
(i) the present value of all future payments of principal and
interest on the Principal Amount, including the principal amount due at
maturity, to be made on the Note before the prepayment in question,
discounted at an interest rate per annum equal to the sum of (a) the
Treasury Constant Maturity Yield Index published during the second full
week preceding the date on which such premium is payable for instruments
having a maturity coterminous with the remaining term of the Note, and (b)
fifty (50) basis points, over
(ii) the Principal Amount immediately before such prepayment,
and the denominator of which is the Principal Amount immediately prior
to the prepayment, and
(2) the Principal Amount being prepaid; provided, however, that if there
is no Treasury Constant Maturity Yield Index for instruments having a maturity
coterminous with the remaining term of the Note, then the index referred to in
(1) above shall be equal to the weighted average yield to maturity of the
Treasury Constant Maturity Yield Indices with maturities next longer and shorter
than such remaining average life to maturity, calculated by averaging (and
rounding upward to the nearest whole multiple of 1/100 of 1% per annum, if the
average is not such a multiple) the yields of the relevant Treasury Constant
Maturity Yield Indices (rounded, if necessary, to the nearest 1/100 of 1% with
any figure of 1/200 of 1% or above rounded upward).
1.2 Computation of Time Periods. In this Deed of Trust, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding" and the word "through" means "to and including."
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4 Certain Terms.
A. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Deed of Trust as a whole, and not to any particular
Article,
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Section, subsection or clause in this Deed of Trust. References herein to an
Exhibit, Schedule, Article, Section, subsection or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Deed of Trust.
B. The term "Beneficiary" includes its successors and each assignee
of Beneficiary who becomes a party hereto pursuant to the Property Loan
Agreement.
2 REPRESENTATIONS AND WARRANTIES
To induce Beneficiary to enter into this Deed of Trust, Grantor represents,
warrants and covenants to Beneficiary as follows:
2.1 Lien Priority. This Deed of Trust is a valid and enforceable first
lien on the Property, free and clear of all encumbrances and liens having
priority over the lien of this Deed of Trust, except for the items set forth as
exceptions to or subordinate matters in the Title Insurance Policy insuring the
lien of this Deed of Trust, none of which, individually or in the aggregate,
materially interfere with the benefits of the security intended to be provided
hereby or materially affect the value or marketability of the Property (such
items, the "Permitted Encumbrances").
2.2 Title. Grantor owns the Property including the Real Estate and
subject only to the Permitted Encumbrances, Grantor has good, insurable and
marketable fee simple title to and has the right to mortgage, give, grant,
bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and hypothecate
the Property. Grantor will preserve its interest in and title to the Property
and will forever warrant and defend the same to Beneficiary against any and all
claims made by, through or under Grantor and will forever warrant and defend the
validity and priority of the lien and security interest created herein against
the claims of all Persons whomsoever claiming by, through or under Grantor. The
foregoing warranty of title shall survive the foreclosure of this Deed of Trust
and shall inure to the benefit of and be enforceable by Beneficiary in the event
Beneficiary acquires title to the Property pursuant to any foreclosure. Except
as disclosed on Schedule 2.2 attached hereto, as of the date hereof there are no
outstanding options or rights of first refusal to purchase the Property or
Grantor's ownership thereof.
2.3 Taxes and Impositions. All taxes and other Impositions and
governmental assessments due and owing in respect of, and affecting, the
Property have been paid. Grantor has paid all Impositions that constitute
special governmental assessments in full, except for those assessments that are
permitted by applicable Legal Requirements to be paid in installments, in which
case all installments that are due and payable have been paid in full. There
are no pending, or to Grantor's best knowledge, proposed special or other
assessments
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for public improvements or otherwise affecting the Property, nor are there any
contemplated improvements to the Property that may result in such special or
other assessments.
2.4 Casualty; Flood Zone. The Real Estate is in good repair and free and
clear of any damage, destruction or casualty (whether or not covered by
insurance) that would materially affect the value of the Property or the use for
which the Property was intended. No portion of any building or operating system
located on the Real Estate is located in an "area of special flood hazard," as
that term is defined in the regulations of the Federal Insurance Administration,
Department of Housing and Urban Development, under the National Flood Insurance
Act of 1968, as amended (24 CFR (S) 1909.1) or Grantor has obtained the flood
insurance required under the Property Loan Agreement. The Real Estate either
does not lie in a 100 year flood plain that has been identified by the Secretary
of Housing and Urban Development or any other Governmental Authority or, if it
does, Grantor has obtained the flood insurance required under Section 6.1.E.
2.5 Completion; Encroachment. All Buildings necessary for the efficient
use and operation of the Property that were included for purposes of determining
the appraised value of the Property in the Appraisal delivered pursuant to the
ESA Loan Agreement have, except as otherwise disclosed in writing to
Beneficiary, been completed and none of the Buildings lie outside the boundaries
and building restriction lines of the Real Estate. Except as set forth in the
Title Insurance Policy insuring the lien of this Deed of Trust, or the survey
delivered to Beneficiary and approved by Beneficiary, no improvements on
adjoining properties encroach upon the Real Estate.
2.6 Subdivision. The Real Estate is or will be taxed separately without
regard to any other real estate, and the Property constitutes a legally
subdivided lot under all applicable Legal Requirements (or, if not subdivided,
no subdivision or platting of the Property is required under applicable Legal
Requirements), and for all purposes may be mortgaged, conveyed or otherwise
dealt with as an independent parcel.
2.7 Use. The existence of all Buildings, the present use and operation
thereof and the access of the Property to all of the utilities and other items
referred to in Section 2.10 hereof are in compliance in all material respects
with all Leases, if any, affecting the Property and all applicable Legal
Requirements, including, without limitation, Environmental Statutes, Development
Laws and Use Requirements. Grantor has not received any notice from any
Governmental Authority alleging any uncured violation relating to the Property
of any applicable Legal Requirements.
2.8 Licenses and Permits. Grantor currently holds and will continue to
hold all certificates of occupancy, licenses, registrations, permits, consents,
franchises and approvals of any Governmental Authority or any other Person that
are material for the lawful
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occupancy and operation of the Real Estate or which are material to the
ownership or operation of the Property or the conduct of Grantor's business.
All such certificates of occupancy, licenses, registrations, permits, consents,
franchises and approvals are current and in full force and effect.
2.9 Property Proceedings. There are no actions, suits or proceedings
pending or, to the best of Grantor's knowledge, threatened, in any court or
before any Governmental Authority or arbitration board or tribunal (i) relating
to (A) the zoning of the Real Estate or any part thereof, (B) any certificates
of occupancy, licenses, registrations, permits, consents or approvals issued
with respect to the Property or any part thereof, (C) the condemnation of the
Property or any part thereof, or (D) the condemnation or relocation of any
roadways abutting the Real Estate required for access or the denial or
limitation of access to the Property or any part thereof from any point of
access to the Property, (ii) asserting that (A) any such zoning, certificates of
occupancy, licenses, registrations, permits, consents and/or approvals do not
permit the operation of any material portion of the Real Estate as presently
being conducted, (B) any material improvements located on the Property or any
part thereof cannot be located thereon or operated with their intended use or
(C) the operation of the Property or any part thereof is in violation in any
material respect of any Environmental Statutes, Development Laws or other Legal
Requirements or Leases or Property Agreements or (iii) that (A) might affect the
validity or priority of any Loan Document or (B) have a Material Adverse Change.
Grantor is not aware of any facts or circumstances that may give rise to any
actions, suits or proceedings described in the preceding sentence.
2.10 Utilities. The Real Estate has all necessary legal access to water,
gas and electrical supply, storm and sanitary sewerage facilities, other
required public utilities (with respect to each of the aforementioned items, by
means of either a direct connection to the source of such utilities or through
connections available on publicly dedicated roadways directly abutting the Real
Estate or through permanent insurable easements benefiting the Real Estate) fire
and police protection, parking, and means of direct access between the Real
Estate and public highways over recognized curb cuts (or such access to public
highways is through private roadways that may be used for ingress and egress
pursuant to permanent insurable easements).
2.11 Mechanics' Liens. The Real Estate is free and clear of any mechanics'
liens or liens in the nature thereof, and no rights are outstanding that under
law could give rise to any such liens, any of which liens are or may be prior
to, or equal with, the lien of this Deed of Trust, except those that are insured
against by the Title Insurance Policy.
2.12 Insurance. The Property is insured in accordance with the
requirements set forth in Article 6 hereof.
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2.13 Leases. Except as disclosed to and approved in writing by
Beneficiary on the date of this Deed of Trust, there are no Leases.
2.14 Property Agreements.
A. Grantor has delivered to Beneficiary true, correct and complete
copies of all Property Agreements.
B. Except for Permitted Encumbrances, no Property Agreement provides
any party with the right to obtain a lien or encumbrance upon the Property
superior to the lien of this Deed of Trust.
C. No default exists or, to the best knowledge of Grantor, with the
passing of time or the giving of notice or both would exist under any
Property Agreement that would, in the aggregate, have a Material Adverse
Change.
D. Grantor has not received or given any written communication which
alleges that a default exists or, with the giving of notice or the lapse of
time, or both, will exist under the provisions of any Property Agreement.
E. No condition exists whereby Grantor or any future owner of the
Property may be required to purchase any other parcel of land that is
subject to any Property Agreement or that gives any Person a right to
purchase, or right of first refusal with respect to, the Property except as
disclosed in advance in writing to Beneficiary and approved by Beneficiary
either at the time of presentation of any property as a Proposed Hotel in
accordance with the ESA Loan Agreement or, if subsequent to that date but
prior to the date hereof, as of the date hereof.
F. To the best knowledge of Grantor, no offset or any right of
offset exists respecting continued contributions to be made by any party to
any Property Agreement except as expressly set forth therein. Except as
previously disclosed to Beneficiary in writing, no material exclusions or
restrictions on the utilization, leasing or improvement of the Property
(including non-compete agreements) exists in any Property Agreement.
G. To the best knowledge of Grantor, all "pre-opening" requirements
contained in all Property Agreements (including, but not limited to, all
off-site and on-site construction requirements), if any, have been
fulfilled, and, to the best of Grantor's knowledge, no condition now exists
which would permit any party to any such Property Agreement to refuse to
honor its obligations thereunder.
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H. To the best knowledge of Grantor, all work, if any, to be
performed by Grantor or by the seller under the purchase agreement under
each of the Property Agreements has been substantially performed, all
contributions to be made by Grantor to any party to such Property
Agreements have been made, and all other conditions to such party's
obligations thereunder have been satisfied.
2.15 Personal Property. Grantor has delivered to Beneficiary a true,
correct and complete schedule of all personal property, if any, owned by Grantor
and located upon the Property or that is material to the use or operation of the
Property and Grantor represents that it has good and marketable title to all
such owned personal property, free and clear of any liens, except for liens
created under the Loan Documents and any other Permitted Indebtedness, as
defined in the Property Loan Agreement. Grantor represents and warrants to
Beneficiary that (i) there are no fixtures, machinery, apparatus, tools,
equipment or articles of personal property attached or appurtenant to, or
located on, or used in connection with the management, operation or maintenance
of the Property, except for the equipment leased by Grantor purchased by Grantor
under installment contracts owned by Grantor or by Manager for the management,
operation or maintenance of the Property in accordance with the Loan Documents;
(ii) the equipment and the leased equipment constitutes all of the fixtures,
machinery, apparatus, tools, equipment and articles of personal property
necessary to the proper operation and maintenance of the Property; and (iii) all
of the owned equipment is free and clear of all liens, except for the lien of
this Deed of Trust and the Permitted Encumbrances.
2.16 Leasing Brokerage and Management Fees. There are no brokerage fees or
commissions payable by Grantor with respect to the leasing of space or the
renting of rooms at the Property and there are no management fees payable by
Grantor with respect to the management of the Property, except as contemplated
by the Management Agreement.
2.17 Representations Generally. The representations and warranties
contained in this Deed of Trust, or the review and inquiry made on behalf of
Grantor therefor, have all been made by Persons having the requisite expertise
and knowledge to provide such representations and warranties. No statement of
fact made by or on behalf of Grantor in this Deed of Trust or in any
certificate, document or schedule furnished to Beneficiary pursuant hereto,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make statements contained therein or herein not misleading
(which may be to Grantor's best knowledge where so provided herein). There is
no fact presently known to Grantor that has not been disclosed to Beneficiary
that would constitute a Material Adverse Change.
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3 COVENANTS OF GRANTOR
3.1 Repayment of the Loan. Grantor shall repay the Debt at the time and
in the manner provided in the Note, the Loan Agreement and the other Loan
Documents, all in lawful money of the United States of America.
3.2 Removal of Liens.
A. Grantor shall, at its expense, maintain this Deed of Trust as a
first lien on the Property and shall keep the Property free and clear of all
liens of any kind and nature other than the Permitted Encumbrances. Grantor
shall, within 30 days following the filing thereof, promptly discharge of
record, by bond or otherwise, any such liens and, promptly upon request by
Beneficiary, shall deliver to Beneficiary evidence reasonably satisfactory to
Beneficiary of the discharge thereof (or in states in which such liens cannot be
removed of record by other than payment in full, insuring over such lien).
B. Without limitation to the provisions of Section 3.2.A hereof,
Grantor shall (i) pay, from time to time when the same shall become due, all
claims and demands of mechanics, materialmen, laborers and others that, if
unpaid, might result in, or permit the creation of, a lien on the Property or
any part thereof, or on the revenues, rents, issues, income or profits arising
therefrom, (ii) cause to be removed of record (by payment or posting of bond or
settlement or otherwise) any mechanics' or other lien on the Property, or any
part thereof, or on the revenues, rents, issues, income or profit arising
therefrom, and (iii) in general, do or cause to be done, without expense to
Beneficiary, everything reasonably necessary to preserve in full the lien of
this Deed of Trust. If Grantor fails to comply with the requirements of this
Section, then, upon 5 Business Days' prior notice to Grantor, Beneficiary may,
but shall not be obligated to, pay any such lien, and Grantor shall, within 5
Business Days after Beneficiary's demand therefor, reimburse Beneficiary for all
sums so expended, together with interest thereon at the Default Rate from the
date advanced, all of which shall be deemed part of the Loan. Nothing contained
herein shall be deemed a consent or request of Beneficiary, express or implied,
by inference or otherwise, to the performance of any alteration, repair or other
work by any contractor, subcontractor or laborer or the furnishing of any
materials by any materialmen in connection therewith.
C. Notwithstanding the foregoing, Grantor may contest any lien of
the type set forth in subparagraph 3.2.B.i or 3.2.B.ii provided that, following
prior notice to Beneficiary (i) Grantor is contesting the validity of such lien
with due diligence and in good faith and by appropriate proceedings, without
cost or expense to Beneficiary or any of its agents, employees, officers, or
directors, (ii) Grantor shall preclude the collection of, or other realization
upon, any contested amount from the Property or any interest in the Property,
(iii) neither the Property nor any part thereof nor interest therein, shall be
in any
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practical danger of being sold, forfeited or lost by reason of such contest by
Grantor, (iv) such contest by Grantor shall not affect the ownership, use or
occupancy of the Property, (v) such contest by Grantor shall not subject
Beneficiary or Grantor to the risk of civil or criminal liability (other than
the civil liability of Grantor for the amount of the bond in question), (vi)
Grantor has given Beneficiary prompt notice of the bonding (or the appropriate
method of removing such lien of record (or in states in which such liens cannot
be removed of record by other than payment in full, insuring over such lien) of
such lien by Grantor and, upon request by Beneficiary from time to time, notice
of the status of such contest by Grantor and/or confirmation of the continuing
satisfaction of the conditions set forth in clauses (i) through (vi) of this
sub-section, (vii) Grantor shall promptly pay the obligation secured by such
lien upon a final determination of Grantor's liability therefor, and (viii)
unless such lien shall have been bonded or removed of record or insured over, if
not bonded as noted above, Grantor shall deliver to Beneficiary cash, a bond or
other security acceptable to Beneficiary equal to 110% of the contested amount
pursuant to collateral arrangements reasonably satisfactory to Beneficiary.
3.3 Cost of Defending and Upholding this Deed of Trust Lien. If any
action or proceeding is commenced to which Beneficiary is made a party relating
to the Loan Documents and/or the Property or Beneficiary's interest therein or
in which it becomes necessary to defend or uphold the lien of this Deed of Trust
or any other Loan Document, Grantor shall, on demand, reimburse Beneficiary for
all expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred by Beneficiary in connection therewith, and such sum,
together with interest thereon at the Default Rate from and after such demand
until fully paid, shall constitute a part of the Debt.
3.4 Further Acts, Etc. Grantor will, at the cost of Grantor, and without
expense to Beneficiary, do, execute, acknowledge and deliver all and every such
further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Beneficiary shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Beneficiary the Property and rights mortgaged hereby, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged,
assigned and hypothecated, or which Grantor may be or may hereafter become bound
to convey or assign to Beneficiary, or for carrying out or facilitating the
performance of the terms of this Deed of Trust or for filing, registering or
recording this Deed of Trust and, on demand, will execute and deliver and hereby
authorizes Beneficiary to execute in the name of Grantor or without the
signature of Grantor to the extent Beneficiary may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments, to
evidence more effectively the lien hereof upon the Property. Grantor grants to
Beneficiary an irrevocable power of attorney coupled with an interest for the
purpose of protecting, perfecting, preserving and realizing upon the interests
granted pursuant to this Deed of Trust (after notice to Grantor, if practicable
under the circumstances) and to effect the intent
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hereof, all as fully and effectually as Grantor might or could do, provided that
Grantor's obligations hereunder shall not be materially increased or altered;
and Grantor hereby ratifies all that Beneficiary shall lawfully do or cause to
be done by virtue hereof consistent with the terms hereof.
3.5 Recording of Deed of Trust, Etc. Grantor forthwith upon the execution
and delivery of this Deed of Trust and thereafter, from time to time, will cause
this Deed of Trust, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Property and each instrument of
further assurance to be filed, registered or recorded in such manner and in such
places as may be required by any present or future law in order to publish
notice of and fully protect the lien or security interest hereof upon, and the
interest of Beneficiary in, the Property. Grantor will pay all filing,
registration or recording fees, and all expenses incident to the preparation,
execution and acknowledgment of this Deed of Trust, any security instrument with
respect to the Property and any instrument of further assurance, and all
federal, state, county and municipal, taxes, duties, imposts, assessments and
charges arising out of or in connection with the execution and delivery of this
Deed of Trust, any security instrument with respect to the Property or any
instrument of further assurance, except where prohibited by law to do so, in
which event Beneficiary may declare the Loan to be immediately due and payable.
Grantor shall hold harmless and indemnify Beneficiary, and its successors and
assigns, against any liability incurred as a result of the imposition of any tax
on the making and recording of this Deed of Trust or any other Loan Document.
4 TRANSFER OR ENCUMBRANCE OF THE PROPERTY; ASSUMABILITY
4.1 Definition of Transfer. The term "Transfer" shall include any
conveyance, assignment, sale, mortgaging, encumbrance, pledging, hypothecation,
granting of a security interest in, granting of options with respect to, or
other disposition of (directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, whether or not for consideration or of record)
any legal or beneficial interest including, without limitation, an installment
sales agreement; an agreement by Grantor leasing all or a substantial part of
the Property to one or more Persons pursuant to a single or related transaction
(excluding space leases to third party tenants entered in the normal course of
Grantor's business and in compliance with the terms of this Deed of Trust) or a
sale, assignment or other transfer of, or the grant of a security interest in,
Grantor's right, title and interest in and to any Leases or any Rent.
4.2 No Transfer. Except as provided in the Management Agreement and any
other guest lodging agreement approved in advance in writing by Beneficiary,
Grantor shall not Transfer:
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A. the Property or any interest therein unless such Property or
interest herein is released from this Deed of Trust in accordance with the terms
hereof;
B. any or all of the interests in Grantor;
and shall not, (i) merge with any Person, or (ii) consolidate with any Person
without the prior written consent of Beneficiary in any such case, which consent
Beneficiary may withhold in its sole and absolute discretion. Notwithstanding
the foregoing, Grantor may, provided that the Rating Agency reaffirms the rating
of any securities issued in connection with the Loan and upon the approval of
the trustee and servicer of any securitization in which the Loan is included and
further provided Grantor complies with any requirements imposed by a Rating
Agency, trustee or servicer, upon the payment of a transfer fee equal to one
percent (1%) of the outstanding principal balance of the Loan, Transfer the
Property, in whole, but not in part, or any interest in Grantor, during the term
of the Loan to an entity (i) that is a Single Purpose Entity, and (ii) that is
acceptable to Beneficiary, in its reasonable discretion, in all respects
provided that such transferee executes and delivers to Beneficiary an assumption
of the Loan and all of the Loan Documents, together with all other documents
reasonably requested by Beneficiary and pays all legal fees, recording charges
and other transactional costs incurred by Beneficiary in connection with such
transfer.
5 EVENTS OF DEFAULT
5.1 Events of Default. The Loan shall become immediately due at the
option of Beneficiary upon any one or more of the following events (each, an
"Event of Default"):
A. Grantor shall fail to pay any principal (including, without
limitation, mandatory prepayments of principal and any prepayment premium) or
interest on, the Note, any fee, any other amount due hereunder or under the
other Loan Documents or other of the Obligations when the same becomes due and
payable; or
B. Any material representation or warranty made or deemed made
hereunder or in connection with any Loan Document or by any Loan Party (or any
of its officers) in writing shall prove to have been incorrect in any material
respect when made or deemed made; or
C. Grantor shall fail to perform or observe any term, covenant or
agreement contained in this Deed of Trust or in any other Loan Document if such
failure under this clause shall remain unremedied for 30 days after the date on
which written notice thereof shall have been given to Grantor or the other
person entitled thereto by Beneficiary; or
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D. Any Loan Party or any of its Subsidiaries shall fail to pay any
principal or premium or interest on any Indebtedness of such Loan Party or
Subsidiary (excluding (i) Indebtedness evidenced by the Notes, (ii) Indebtedness
to trade creditors incurred in the ordinary course of business and which failure
to pay as aforesaid would not have a Material Adverse Change and in the case of
ESA only, Indebtedness in principal amount of $10,000,000 or more) beyond the
period of grace (not to exceed 30 days), if any, with respect thereto (whether
the same becomes due and payable by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Indebtedness,
if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall become or be declared to be due and payable, or any Loan Party or any of
its Subsidiaries shall be required to repurchase or offer to repurchase such
Indebtedness, prior to the stated maturity thereof; or
E. An Event of Default shall occur with respect to any loan to an
ESA Subsidiary or with respect to the ESA Loan Agreement or under any other Loan
Document; or
F. Grantor shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against any Loan Party or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a custodian, receiver, trustee or other similar
official for it or for any substantial part of its property and, in the case of
any such proceedings instituted against any Loan Party or any of its
Subsidiaries (but not instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of 60 days or any of the actions sought in
such proceedings shall occur; or any Loan Party or any of its Subsidiaries shall
take any corporate action to authorize any of the actions set forth above in
this subsection; or
G. One or more judgments or orders for the payment of money in an
aggregate amount in excess of $250,000 to the extent not fully covered by
insurance shall be rendered against Grantor and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order, or (ii) there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
H. An event shall occur with respect to any Plan, Pension Plan or
Multiemployer Plan and the duties and obligations of Grantor, or any ERISA
Affiliate
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thereunder, which in the reasonable determination of Beneficiary, is reasonably
likely to have a Material Adverse Change; or
I. Grantor shall have entered into any consent or settlement decree
or agreement or similar arrangement with a Governmental Authority or any
judgment, order, decree or similar action shall have been entered against
Grantor, in any case based on or arising from the violation of or pursuant to
any Environmental Law, or the generation, storage, transportation, treatment,
disposal or Release of any Hazardous Material and such judgment, order, decree
or similar action is reasonably likely to have a Material Adverse Change; or
J. Any material provision of this Deed of Trust or any Loan Document
after delivery thereof which is not controlled by Section 5.1K, shall for any
reason cease to be valid and binding on any Loan Party thereto, or any Loan
Party shall so state in writing; or
K. The Deed of Trust or any Loan Document after delivery thereof
shall, for any reason, cease to create a valid Lien on any of the collateral
purported to be covered thereby or such Lien shall cease to be a perfected and
first priority Lien, or any Loan Party shall so state in writing; provided;
however; that if such provision was valid and binding at inception and ceased to
be valid and binding through no act or omission of Grantor, then Grantor shall
have 14 days to attempt cure such defect and if unable to do so, then Grantor
shall prepay the Loan in accordance with Article 13 of the ESA Loan Agreement
within 14 days thereafter and no Event of Default shall arise hereunder upon
such prepayment; or
L. There shall occur a Material Adverse Change or an event which is
reasonably likely to have a Material Adverse Change; or
M. Manager shall default in the observance or performance of any
material provision of a Management Agreement and such defaults, in the
aggregate, are reasonably likely to have a Material Adverse Change; or
N. The breach of any part of Section 4.2 hereof.
5.2 Remedies.
A. Upon the occurrence and during the continuance of any Event of
Default, Beneficiary may, in addition to any other rights or remedies available
to it hereunder, under the other Collateral Documents, at law or in equity, take
such action, without notice or demand, as it reasonably deems advisable to
protect and enforce its rights against Grantor and in and to the Property or any
one or more of them, including, but not
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limited to, the following actions, each of which may be pursued singly,
concurrently or otherwise, at such time and in such order as Beneficiary may
determine, in its sole discretion, without impairing or otherwise affecting any
other rights and remedies of Beneficiary hereunder, at law or in equity:
i. declare all or any portion of the unpaid Aggregate Debt to
be immediately due and payable and the obligation of Beneficiary to make
any further advances of money to Grantor to be terminated; provided,
however, that upon the occurrence of any of the events specified in Section
5.1.F, the entire Aggregate Debt will be immediately due and payable and
Beneficiary's obligation to make further advances of money to Grantor shall
be immediately terminated without notice or demand or any other declaration
of the amounts due and payable; or
ii. bring an action to foreclose this Deed of Trust and without
applying for a receiver for the Rents, but subject to the rights of the
tenants under any Leases, enter into or upon the Property or any part
thereof, either personally or by its agents, nominees or attorneys, and
dispossess Grantor and its agents and servants therefrom, and thereupon
Beneficiary may (A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Property
and conduct the business thereat, (B) make alterations, additions,
renewals, replacements and improvements to or on the Property or any part
thereof, (C) exercise all rights and powers of Grantor with respect to the
Property or any part thereof, whether in the name of Grantor or otherwise,
including, without limitation, the right to make, cancel, enforce or modify
leases, obtain and evict tenants, and demand, sue for, collect and receive
all earnings, revenues, rents, issues, profits and other income of the
Property and every part thereof, and (D) apply the receipts from the
Property or any part hereof to the payment of the Aggregate Debt, after
deducting therefrom all expenses (including, without limitation, reasonable
attorneys' fees and disbursements) reasonably incurred in connection with
the aforesaid operations and all amounts necessary to pay the Impositions,
insurance and other charges in connection with the Property or any part
thereof, as well as just and reasonable compensation for the services of
Beneficiary's third-party agents; or
iii. have an appraisal or other valuation of the Property or any
part thereof performed by a Recognized Appraiser (and Grantor covenants and
agrees it shall cooperate in causing any such valuation or appraisal to be
performed) and any cost or expense incurred by Beneficiary in connection
therewith shall constitute a portion of the Debt and be secured by this
Deed of Trust and shall be immediately due and payable to Beneficiary with
interest, at the Default Rate, until the date of receipt by Beneficiary; or
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iv. sell the Property or institute proceedings for the complete
foreclosure of this Deed of Trust, or take such other action as may be
allowed pursuant to Legal Requirements, at law or in equity, for the
enforcement of this Deed of Trust in which case the Property or any part
thereof may be sold for cash or credit in one or more parcels; or
v. with or without entry, and to the extent permitted and
pursuant to the procedures provided by applicable Legal Requirements,
institute proceedings for the partial foreclosure of this Deed of Trust, or
take such other action as may be allowed pursuant to Legal Requirements, at
law or in equity, for the enforcement of this Deed of Trust for the portion
of the Debt or Aggregate Debt then due and payable, subject to the lien of
this Deed of Trust continuing unimpaired and without loss of priority so as
to secure the balance of the Loan not then due; or
vi. sell the Property or any part thereof and any or all
estate, claim, demand, right, title and interest of Grantor therein and
rights of redemption thereof, pursuant to power of sale or otherwise, at
one or more sales, in whole or in parcels, in any order or manner, at such
time and place, upon such terms and after such notice thereof as may be
required or permitted by law, at the discretion of Beneficiary, and in the
event of a sale, by foreclosure or otherwise, of less than all of the
Property, this Deed of Trust shall continue as a lien on the remaining
portion of the Property; or
vii. institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained in
the Loan Documents, or any of them; or
viii. recover judgment on the Note or any guaranty either
before, during or after (or in lieu of) any proceedings for the enforcement
of this Deed of Trust; or
ix. require, at Beneficiary's option, Grantor to pay monthly in
advance to Beneficiary, or any receiver appointed to collect the Rents, the
fair and reasonable rental value for the use and occupation of any portion
of the Property occupied by Grantor and may require Grantor to vacate and
surrender possession to Beneficiary of the Property or to such receiver and
Grantor may be evicted by summary proceedings or otherwise; or
x. without notice to Grantor (A) apply all or any portion of
the cash collateral in the Basic Carrying Costs Sub-Account (as defined in
the Property Loan Agreement), including any interest and/or earnings
therein, to carry out the
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obligations of Grantor under this Deed of Trust and the other Loan
Documents, to protect and preserve the Property and for any other purpose
permitted under this Deed of Trust and the other Loan Documents and/or (B)
have all or any portion of such cash collateral immediately paid to
Beneficiary to be applied against the Loan in the order and priority set
forth in the Note; or
xi. pursue any or all such other rights or remedies as
Beneficiary may have under applicable law or in equity including, all
rights and remedies of the beneficiary or mortgagee under the Additional
Mortgages; provided, however, that the provisions of this Section shall not
be construed to extend or modify any of the notice requirements or grace
periods provided for hereunder or under any of the other Loan Documents.
Grantor hereby waives, to the fullest extent permitted by Legal
Requirements, any defense Grantor might otherwise raise or have by the
failure to make any tenants parties defendant to a foreclosure proceeding
and to foreclose their rights in any proceeding instituted by Beneficiary.
B. Upon the occurrence and during the continuance of an Event of
Default Beneficiary shall have the power to sell the Property or any part
thereof at public auction, in such manner, at such time and place, upon such
terms and conditions, and upon such public notice as Beneficiary may deem best
for the interest of Beneficiary, or as may be required or permitted by
applicable Legal Requirements, consisting of advertisement in a newspaper of
general circulation in the jurisdiction and for such period as applicable law
may require and at such other times and by such other methods, if any, as may be
required by law to convey the Property in fee simple by Beneficiary's deed with
special warranty of title to and at the cost of the purchaser, who shall not be
liable to see to the application of the purchase money. The proceeds or avails
of any sale made under or by virtue of this Section, together with any other
sums that then may be held by Beneficiary under this Deed of Trust, whether
under the provisions of this Section or otherwise, shall be applied as follows:
First: To the payment of the third-party costs and expenses reasonably
incurred in connection with any such sale and to advances, fees and
expenses, including, without limitation, reasonable fees and expenses of
Beneficiary's legal counsel as applicable, and of any judicial proceedings
wherein the same may be made, and of all expenses, liabilities and advances
reasonably made or incurred by Beneficiary under this Deed of Trust,
together with interest as provided herein on all such advances made by
Beneficiary, and all Impositions, except any Impositions or other charges
subject to which the Property shall have been sold;
Second: To the payment of the whole amount then due, owing and unpaid
under the Note for principal and interest thereon, with interest on such
unpaid principal at the
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Default Rate from the date of the occurrence of the earliest Event of
Default that formed a basis for such sale until the same is paid;
Third: To the payment of any other portion of the Aggregate Debt required
to be paid by Grantor pursuant to any provision of this Deed of Trust, the
Note, or any of the other Loan Documents; and
Fourth: The surplus, if any, to Grantor unless otherwise required by Legal
Requirements.
Beneficiary and any receiver or custodian of the Property or any part thereof
shall be liable to account for only those rents, issues, proceeds and profits
actually received by it.
C. Beneficiary may adjourn from time to time any sale by it to be
made under or by virtue of this Deed of Trust by announcement at the time and
place appointed for such sale or for such adjourned sale or sales and, except as
otherwise provided by any applicable provision of Legal Requirements,
Beneficiary, without further notice or publication, may make such sale at the
time and place to which the same shall be so adjourned.
D. Upon the completion of any sale or sales made by Beneficiary
under or by virtue of this Section, Beneficiary, or any officer of any court
empowered to do so, shall execute and deliver to the accepted purchaser or
purchasers a good and sufficient instrument, or good and sufficient instruments,
granting, conveying, assigning and transferring all of the estate, right, title
and interest in and to the property and rights sold. Beneficiary is hereby
irrevocably appointed the true and lawful attorney-in-fact of Grantor (coupled
with an interest), in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the property and rights so sold and for
that purpose Beneficiary may execute all necessary instruments of conveyance,
assignment, transfer and delivery, and may substitute one or more persons with
like power, Grantor hereby ratifying and confirming all that its said attorney-
in-fact or such substitute or substitutes shall lawfully do by virtue hereof.
Nevertheless, Grantor, if so requested by Beneficiary, shall ratify and confirm
any such sale or sales by executing and delivering to Beneficiary, or to such
purchaser or purchasers all such instruments as may be advisable, in the sole
judgement of Beneficiary, for such purpose, and as may be designated in such
request. Any such sale or sales made under or by virtue of this Section,
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or a judgment or decree of foreclosure and sale, shall
operate to divest all the estate, right, title, interest, claim and demand
whatsoever, whether at law or in equity, of Grantor in and to the property and
rights so sold, and shall, to the fullest extent permitted under Legal
Requirements, be a perpetual bar, both at law and
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in equity against Grantor and against any and all Persons claiming or who may
claim the same, or any part thereof, from, through or under Grantor.
E. In the event of any sale made under or by virtue of this Section
(whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or a judgment or decree of foreclosure and sale), the
entire Aggregate Debt immediately thereupon shall, anything in the Loan
Documents to the contrary notwithstanding, become due and payable.
F. Upon any sale made under or by virtue of this Section (whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), Beneficiary may
bid for and acquire the Property or any part thereof and in lieu of paying cash
therefor may make settlement for the purchase price by crediting upon the Loan
the net sales price after deducting therefrom the expenses of the sale and the
reasonable costs of the action.
G. No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Property or any part thereof or upon any
other property of Grantor shall release the lien of this Deed of Trust upon the
Property or any part thereof, or any liens, rights, powers or remedies of
Beneficiary hereunder, but such liens, rights, powers and remedies of
Beneficiary shall continue unimpaired until all amounts due under the Note, this
Deed of Trust and the other Loan Documents are paid in full.
5.3 Payment of Debt After Default. If following the occurrence and during
the continuance of any Event of Default, Grantor shall tender payment of an
amount sufficient to satisfy the Aggregate Debt or any other debt secured hereby
including the other Subsidiary Notes, in whole or in part, at any time prior to
a foreclosure sale of the Property, and if at the time of such tender prepayment
of the principal balance of the Note is not permitted by the Note, Grantor
shall, in addition to the entire Aggregate Debt, and any other debt secured
hereby including the other Subsidiary Notes, also pay to Beneficiary a sum equal
to interest that would have accrued on the principal balance of the Note at the
Applicable Rate from the date of such tender to the earlier of (a) the Maturity
Date or (b) the first day of the period during which prepayment of the principal
balance of the Note would have been permitted together with a prepayment
consideration equal to the prepayment consideration which would have been
payable as of the first day of the period during which prepayment would have
been permitted. If at the time of such tender, prepayment of the principal
balance of the Note is permitted, such tender by Grantor shall be deemed to be a
voluntary prepayment of the principal balance of the Note, and Grantor shall, in
addition to the entire Aggregate Debt, also pay to Beneficiary the applicable
prepayment consideration specified in the Note and this Deed of Trust.
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5.4 Possession of the Property. Upon the occurrence and during the
continuance of any Event of Default hereunder and the acceleration of the Loan
or any portion thereof, Grantor, if an occupant of the Property or any part
thereof, upon demand of Beneficiary, shall immediately surrender possession of
the Property (or the portion thereof so occupied) to Beneficiary, and if Grantor
is permitted to remain in possession, the possession shall be as a month-to-
month tenant of Beneficiary and, on demand, Grantor shall pay to Beneficiary
monthly, in advance, a reasonable rental for the space so occupied and in
default thereof Grantor may be dispossessed. The covenants herein contained may
be enforced by a receiver of the Property or any part thereof. Nothing in this
Section shall be deemed to be a waiver of the provisions of this Deed of Trust
making the Transfer of the Property or any part thereof without Beneficiary's
prior written consent an Event of Default.
5.5 Interest After Default. If any amount due under the Note, this Deed
of Trust or any of the other Loan Documents is not paid within any applicable
notice and grace period after same is due, whether such date is the stated due
date, any accelerated due date or any other date or at any other time specified
under any of the terms hereof or thereof, then, in such event, Grantor shall
pay interest on the amount not so paid from and after the date on which such
amount first becomes due at the Default Rate; and such interest shall be due and
payable at such rate until the earlier of the cure of all Events of Default or
the payment of the entire amount due to Beneficiary, whether or not any action
shall have been taken or proceeding commenced to recover the same or to
foreclose this Deed of Trust. All unpaid and accrued interest shall be secured
by this Deed of Trust as part of the Loan. Nothing in this Section or in any
other provision of this Deed of Trust shall constitute an extension of the time
for payment of the Loan.
5.6 Grantor's Actions After Default. After the happening of any Event of
Default and immediately upon the commencement of any action, suit or other legal
proceedings by Beneficiary to obtain judgment on the Loan, or of any other
nature in aid of the enforcement of the Loan Documents, Grantor will (a) after
receipt of notice of the institution of any such action, waive the issuance and
service of process and enter its voluntary appearance in such action, suit or
proceeding, and (b) if required by Beneficiary, consent to the appointment of a
receiver or receivers of the Property or any part thereof and of all the
earnings, revenues, rents, issues, profits and income thereof.
5.7 Control by Beneficiary After Default. Notwithstanding the appointment
of any custodian, receiver, liquidator or trustee of Grantor, or of any of its
property, or of the Property or any part thereof, to the extent permitted by
Legal Requirements, after an Event of Default Beneficiary shall be entitled to
obtain possession and control of all property now and hereafter covered by this
Deed of Trust in accordance with the terms hereof.
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5.8 Right to Cure Defaults.
A. Upon the occurrence and during the continuation of any Event of
Default, Beneficiary or its agents may, but without any obligation to do so and
without notice to or demand on Grantor and without releasing Grantor from any
obligation hereunder, remedy such Event of Default in such manner and to such
extent as Beneficiary may deem necessary to protect the security hereof.
Beneficiary and its agents are authorized to enter upon the Property or any part
thereof for such purposes, or appear in, defend, or bring any action or
proceedings to protect Beneficiary's interest in the Property or any part
thereof or to foreclose this Deed of Trust or collect the Loan, and the cost and
expense thereof (including reasonable attorneys' fees to the extent permitted by
law), with interest as provided in this paragraph, shall constitute a portion of
the Loan and shall be immediately due and payable to Beneficiary upon demand.
All such costs and reasonable expenses incurred by Beneficiary or its agents in
remedying such Event of Default or in appearing in, defending, or bringing any
such action or proceeding shall bear interest at the Default Rate, for the
period from the date so demanded to the date of payment to Beneficiary. All
such costs and expenses incurred by Beneficiary or its agents together with
interest thereon calculated at the Default Rate shall be deemed to constitute a
portion of the Debt and be secured by the Deed of Trust.
B. If Beneficiary makes any payment or advance that Beneficiary is
authorized by this Deed of Trust to make in the place and stead of Grantor (i)
relating to the Impositions or tax liens asserted against the Property,
Beneficiary may do so according to any bill, statement or estimate procured from
the appropriate public office upon which Beneficiary has reasonably relied in
good faith without inquiry into the accuracy of the bill, statement or estimate
or into the validity of any of the Impositions or the tax liens or claims
thereof; (ii) relating to any apparent or threatened adverse title, lien, claim
of lien, encumbrance, claim or charge, Beneficiary will be the sole judge of the
legality or validity of same, provided Beneficiary has acted in good faith; or
(iii) relating to any other purpose authorized by this Deed of Trust but not
enumerated in this Section, Beneficiary may do so whenever, in its reasonable
judgment and discretion, the payment or advance seems necessary or desirable to
protect the Property and the full security interest intended to be created by
this Deed of Trust. In connection with any payment or advance made pursuant to
this Section, Beneficiary has the option and is authorized, but in no event
shall be obligated, to obtain a continuation report of title prepared by a title
insurance company. The payments and the advances made by Beneficiary pursuant
to this paragraph and the cost and expenses of said title report will be due and
payable by Grantor on demand, together with interest at the Default Rate, and
will be secured by this Deed of Trust.
5.9 Recovery of Sums Required to Be Paid. After an Event of Default,
Beneficiary shall have the right from time to time to take action to recover any
sum or sums
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that constitute a part of the Debt as the same become due and payable hereunder
(after the expiration of any grace period or the giving of any notice herein
provided, if any), without regard to whether or not the balance of the Loan
shall be due, and without prejudice to the right of Beneficiary thereafter to
bring an action of foreclosure, or any other action, for a default or defaults
by Grantor existing at the time such earlier action was commenced.
5.10 Marshalling and Other Matters. Grantor hereby waives, to the fullest
extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement, redemption (both equitable and statutory) and
homestead laws now or hereafter in force and all rights of marshalling in the
event of any sale hereunder of the Property or any part thereof or any interest
therein. Further, Grantor hereby expressly waives any and all rights of
redemption from sale under any order or decree of foreclosure of this Deed of
Trust on behalf of Grantor, whether equitable or statutory and on behalf of each
and every Person acquiring any interest in or title to the Property or any part
thereof subsequent to the date of this Deed of Trust and on behalf of all
Persons to the fullest extent permitted by applicable law.
5.11 Tax Reduction Proceedings. After an Event of Default, Grantor shall
be deemed to have appointed Beneficiary as its attorney-in-fact to seek a
reduction or reductions in the assessed valuation of the Property for real
property tax purposes or for any other purpose and to prosecute any action or
proceeding in connection therewith. This power, being coupled with an interest,
shall be irrevocable for so long as any part of the Aggregate Debt remains
unpaid and any Event of Default shall be continuing.
5.12 General Provisions Regarding Remedies.
A. Right to Terminate Proceedings. Beneficiary may terminate or
rescind any proceeding or other action brought in connection with its exercise
of the remedies provided in Section 5.2 at any time before the conclusion
thereof, as determined in Beneficiary's sole discretion and without prejudice to
Beneficiary.
B. No Waiver or Release. The failure of Beneficiary to exercise any
right, remedy or option provided in the Loan Documents shall not be deemed a
waiver of such right, remedy or option or of any covenant or obligation secured
by the Loan Documents. No acceptance by Beneficiary of any payment after the
occurrence of an Event of Default and no payment by Beneficiary of any payment
or obligation for which Grantor is liable hereunder shall be deemed to waive or
cure any Event of Default. No sale of all or any portion of the Property, no
forbearance on the part of Beneficiary, and no extension of time for the payment
of the whole or any portion of the Debt or the Aggregate Debt or any other
indulgence given by Beneficiary to Grantor or any other Person, shall operate to
release or in any manner affect the interest of Beneficiary in the Property or
the liability of
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Grantor to pay the Debt or the Aggregate Debt. No waiver by Beneficiary shall
be effective unless it is in writing and then only to the extent specifically
stated.
C. No Impairment; No Releases. The interests and rights of
Beneficiary under the Loan Documents shall not be impaired by any indulgence,
including (i) any renewal, extension or modification that Beneficiary may grant
with respect to the Debt or the Aggregate Debt; (ii) any surrender, compromise,
release, renewal, extension, exchange or substitution which Beneficiary may
grant with respect to the Property or any portion thereof; or (iii) any release
or indulgence granted to any maker, endorser, guarantor or surety of the Loan.
6 INSURANCE AND CASUALTY RESTORATION
6.1 Maintenance of Insurance Policies. Grantor, at its sole cost and
expense, for the mutual benefit of Grantor and Beneficiary, shall obtain and
maintain during the entire term of this Deed of Trust policies of insurance
against loss or damage by fire and lightning and against loss or damage by all
other risks and hazards as required and in accordance with the terms and
provisions of Article 6 of the Property Loan Agreement.
6.2 Casualty Restoration. If the Real Estate shall be damaged or
destroyed, in whole or in part, by fire or other casualty (a "Casualty"),
Grantor shall give prompt written notice thereof to Beneficiary. Following the
occurrence of a Casualty, Grantor, regardless of whether insurance proceeds are
available, shall promptly proceed to restore, repair, replace or rebuild the
Property to be of at least equal value and of substantially the same character
as existed prior to such damage or destruction, all to be effected in accordance
with any Requirements of Law.
7 CONDEMNATION
7.1 Notice of Condemnation. Grantor shall promptly give Beneficiary
written notice of the actual or threatened commencement of any condemnation or
eminent domain proceeding against the Real Estate or the Buildings or any part
thereof (a "Condemnation") and shall deliver to Beneficiary copies of any and
all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation, Grantor, regardless of whether an Award (as
hereinafter defined) is available, shall promptly proceed to restore, repair,
replace or rebuild the Real Estate to the extent practicable to be of at least
equal value and of substantially the same character as prior to such
Condemnation, all to be effected in accordance with applicable law.
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7.2 Application of Condemnation Awards. Beneficiary is hereby irrevocably
appointed as Grantor's attorney-in-fact, coupled with an interest, with
exclusive power to collect, receive and retain any award or payment ("Award")
for any taking accomplished through a Condemnation and to make any compromise or
settlement in connection with such Condemnation, subject to the provisions of
this Deed of Trust. Notwithstanding any taking in connection with a
Condemnation by any public or quasi-public authority (including, without
limitation, any transfer made in lieu of or in anticipation of such a
Condemnation), Grantor shall continue to pay the Debt at the time and in the
manner provided for in the Note, the Property Loan Agreement, this Deed of Trust
and the other Loan Documents and the Loan shall not be reduced unless and until
any Award shall have been actually received and applied by Beneficiary to
expenses of collecting the Award and to discharge of the Loan. Beneficiary
shall not be limited to the interest paid on the Award by the condemning
authority but shall be entitled to receive out of the Award interest at the rate
or rates provided in the Note. All amounts to be paid in connection with a
Condemnation shall be governed by the terms and provisions of the Property Loan
Agreement.
8 SECURITY AGREEMENT UNDER UNIFORM COMMERCIAL CODE
This Deed of Trust shall constitute a Security Agreement within the meaning of
the Uniform Commercial Code of the State in which the Property is located.
Notwithstanding the filing of a financing statement covering any of the Property
in the records normally pertaining to personal property, all of the Property,
for all purposes and in all proceedings, legal or equitable, shall be regarded,
at Beneficiary's option (to the extent permitted by law), as part of the Real
Estate whether or not any such item is physically attached to the Real Estate or
serial numbers are used for the better identification of certain items. The
mention in any such financing statement of any of the Property shall never be
construed in any way as derogating from or impairing this declaration and hereby
stated intention of Grantor, Trustee and Beneficiary that such mention in the
financing statement is hereby declared to be for the protection of Beneficiary
in the event any court shall at any time hold that notice of the priority of
this Deed of Trust, to be effective against any third party, including the
Federal government or any authority or agency thereof, must be filed in the
Uniform Commercial Code records. Pursuant to the provisions of the Uniform
Commercial Code, Grantor hereby authorizes Beneficiary without the signature of
Grantor to execute and file financing and continuation statements if Beneficiary
shall determine, in its sole discretion, that such financing or continuation
statements are necessary or advisable in order to preserve or perfect its
security interest in the Fixtures covered by this Deed of Trust and Grantor
shall pay to Beneficiary on demand, any expenses incurred by Beneficiary in
connection with the preparation, execution and filing of such statements that
may be filed by Beneficiary.
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9 NO WAIVERS, ETC.
A failure by Beneficiary to insist upon the strict performance by Grantor of any
of the terms and provisions of this Deed of Trust shall not be deemed to be a
waiver of any of the terms, covenants, conditions and provisions hereof and
Trustee and Beneficiary, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Grantor of any and all of
the terms, covenants, conditions and provisions of this Deed of Trust to be
performed by Grantor. Beneficiary may release, regardless of consideration and
without the necessity for any notice to or consent by the holder of any
subordinate lien on the Property, any part of the security held for payment of
the Debt or any portion thereof or for the performance of the Obligations
secured by this Deed of Trust without, as to the remainder of the security, in
any manner whatsoever, impairing or affecting the lien of this Deed of Trust or
the priority of the lien of this Deed of Trust over any subordinate lien.
Beneficiary may resort for the payment of the Aggregate Debt secured by this
Deed of Trust to any other security therefor held by Trustee or Beneficiary in
such order and manner as Beneficiary may elect.
10 COMPLIANCE WITH REQUIREMENTS
10.1 Compliance with Legal Requirements.
A. Grantor shall promptly comply with all present and future Legal
Requirements, foreseen and unforeseen, ordinary and extraordinary, whether
requiring structural or nonstructural repairs or alterations including, without
limitation, all zoning, subdivision, building, safety, land use and development
Legal Requirements, all Legal Requirements that may be applicable to the curbs
adjoining the Property or to the use or manner of use thereof, and all rent
control, rent stabilization and all other similar Legal Requirements relating to
rents charged and/or collected in connection with the Leases. Grantor
represents and warrants that, to the best of its knowledge after making due
inquiry, the Property is in compliance in all respects with all Legal
Requirements as of the date hereof, no notes or notices of violations of any
Legal Requirements have been entered or received by Grantor and that Grantor
reasonably believes there is no basis for the entering of such note or notices.
B. Grantor shall have the right to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Beneficiary, the validity or application of any Legal Requirement and to suspend
compliance therewith if permitted under applicable Legal Requirements, provided
(i) failure to comply therewith may not subject Beneficiary to any civil or
criminal liability; (ii) prior to and during such contest, Grantor shall furnish
to Beneficiary security reasonably satisfactory to Beneficiary, in its
discretion,
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against loss or injury by reason of such contest or non-compliance with such
Legal Requirement; (iii) no Event of Default shall exist during such proceedings
and such contest shall not otherwise violate any of the provisions of any of the
Loan Documents; (iv) such contest shall not (unless Grantor shall comply with
the provisions of clause (ii) of this Section) subject the Property to any lien
or encumbrance the enforcement of which is not suspended or otherwise affect the
priority of the lien of this Deed of Trust; (v) such contest shall not affect
the ownership, use or occupancy of the Property; (vi) the Property or any part
thereof or any interest therein shall not be in any practical danger of being
sold, forfeited or lost by reason of such contest by Grantor; (vii) Grantor
shall give Beneficiary prompt notice of the commencement of such proceedings
and, upon request by Beneficiary, notice of the status of such proceedings
and/or confirmation of the continuing satisfaction of the conditions set forth
in clauses (i)-(vi) of this Section; and (viii) upon a final determination of
such proceeding, Grantor shall take all steps necessary to comply with any
requirements arising therefrom.
C. Grantor shall at all times comply with all applicable Legal
Requirements with respect to the construction, use and maintenance of any vaults
adjacent to the Property. If by reason of the failure to pay taxes,
assessments, charges, permit fees, franchise taxes or levies of any kind or
nature, the continued use of the vaults adjacent to Property or any part thereof
is discontinued, Grantor nevertheless shall, with respect to any vaults that may
be necessary for the continued use of the Property, take such steps (including
the making of any payment) to insure the continued use of vaults or
replacements.
10.2 Compliance with Recorded Documents. Grantor shall promptly perform
and observe or cause to be performed and observed, all of the terms, covenants
and conditions of all Property Agreements and all things necessary to preserve
intact and unimpaired any and all appurtenances or other interests or rights
affecting the Property.
11 ENVIRONMENTAL COMPLIANCE
11.1 Covenants, Representations and Warranties.
A. Except as set forth in the Environmental Report (as defined in
the ESA Loan Agreement), Grantor has not, at any time, and, to Grantor's best
knowledge after due inquiry and investigation, no other Person has at any time,
handled, buried, stored, retained, refined, transported, processed,
manufactured, generated, produced, spilled, allowed to seep, leak, escape or
leach, or pumped, poured, emitted, emptied, discharged, injected, dumped,
transferred or otherwise disposed of Hazardous Materials on, to or from the Real
Estate or any other real property owned and/or occupied by Grantor, and Grantor
does not intend to and shall not use the Property or any part thereof or any
such other real property for the
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purpose of handling, burying, storing, retaining, refining, transporting,
processing, manufacturing, generating, producing, spilling, seeping, leaking,
escaping, leaching, pumping, pouring, emitting, emptying, discharging,
injecting, dumping, transferring or otherwise disposing of Hazardous Materials,
except for use and storage for use of heating oil and ordinary chemicals and
cleaning fluids and pesticides and other substances customarily used in the
operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or Environmental
Statutes or become the basis for a lien against the Property or any part
thereof.
B. Grantor knows of no seepage, leak, escape, leach, discharge,
injection, release, emission, spill, pumping, pouring, emptying or dumping of
Hazardous Materials into waters on, under or adjacent to the Property or any
part thereof or any other real property owned and/or occupied by Grantor, or
onto lands from which such Hazardous Materials might seep, flow or drain into
such waters, except as disclosed in the Environmental Report and has no reason
to believe that the Environmental Report contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which such
statements were made, not misleading in any material respect.
C. Grantor shall not permit any Hazardous Materials to be handled,
buried, stored, retained, refined, transported, processed, manufactured,
generated, produced, spilled, allowed to seep, leak, escape or leach, or to be
pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or
otherwise disposed of or dealt with on, under, to or from the Property or any
portion thereof at any time, except for use and storage for use of heating oil,
ordinary cleaning fluids and pesticides and other substances customarily used in
the operation of properties that are being used for the same purposes as the
Property is presently being used, provided such use and/or storage for use is in
compliance with the requirements hereof and the other Loan Documents and does
not give rise to liability under applicable Legal Requirements or become the
basis for a lien against the Property or any part thereof.
D. Grantor represents and warrants that no actions, suits, or
proceedings have been commenced, or are pending, or to the best knowledge of
Grantor, are threatened with respect to any Legal Requirement governing the use,
manufacture, storage, treatment, transportation, or processing of Hazardous
Materials with respect to the Property or any part thereof. Except as disclosed
in the Environmental Report, Grantor has received no notice of, and, except as
disclosed in the Environmental Report, after due inquiry, has no knowledge of
any fact, condition, occurrence or circumstance that with notice or passage of
time or both would give rise to a claim under or pursuant to any Environmental
Statute pertaining to
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Hazardous Materials on, in, under or originating from the Property or any part
thereof or any other real property owned or occupied by Grantor or arising out
of the conduct of Grantor, including, without limitation, pursuant to any
Environmental Statute.
E. [Reserved]
F. In the event that there shall be filed a lien against the
Property or any part thereof pursuant to any Environmental Statute pertaining to
Hazardous Materials, Grantor shall, within 90 days or, in the event that the
applicable Governmental Authority has commenced steps to cause the Real Estate
or any part thereof to be sold pursuant to the lien, within 30 days, from the
date that Grantor receives notice of such lien, either (i) pay the claim and
remove the lien from the Property, or (ii) furnish (A) a bond satisfactory to
Beneficiary in the amount of the claim out of which the lien arises, (B) a cash
deposit in the amount of the claim out of which the lien arises, or (C) other
security reasonably satisfactory to Beneficiary in an amount sufficient to
discharge the claim out of which the lien arises.
G. Grantor represents and warrants that (i) except as disclosed in
the Environmental Report, Grantor has no knowledge of any violation of any
Environmental Statute or any Environmental Problem in connection with the
Property, nor has Grantor been requested or required by any Governmental
Authority to perform any remedial activity or other responsive action in
connection with any Environmental Problem and (ii) neither the Property nor any
other property owned by Grantor is included or, to Grantor's best knowledge,
after due inquiry and investigation, proposed for inclusion on the National
Priorities List issued pursuant to CERCLA by the United States Environmental
Protection Agency (the "EPA") or on the inventory of other potential "Problem"
sites issued by the EPA and has not otherwise been identified by the EPA as a
potential CERCLA site or included or, to Grantor's knowledge, after due inquiry
and investigation, proposed for inclusion on any list or inventory issued
pursuant to any other Environmental Statute, if any, or issued by any other
Governmental Authority. Grantor covenants that Grantor will comply with all
Environmental Statutes and any other federal, state or local environmental
statute, regulation or common law affecting or imposed upon Grantor or the
Property.
H. Grantor represents and warrants that, to Grantor's knowledge, all
paint and painted surfaces existing within the interior or on the exterior of
the Property do not contain lead or are maintained in a condition that prevents
exposure of young children to lead-based paint, as of the date hereof. To
Grantor's knowledge, there have been no claims for adverse health effects from
exposure on the Property to lead-based paint or requests for the investigation,
assessment or removal of lead-based paint at the Property.
I. Grantor represents and warrants that, to Grantor's knowledge,
except in accordance with all applicable Environmental Statutes or as disclosed
in the Environmental
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Report, (i) no underground treatment or storage tanks or pumps or water, gas, or
oil wells are or have been located at the Property, (ii) no PCBs or
transformers, capacitors, ballasts or other equipment that contain dielectric
fluid containing PCBs are located about the Property, (iii) no insulating
material containing urea formaldehyde is located about the Property and (iv) no
asbestos-containing material is located about the Property.
J. Except with respect to the presence of de minimis amounts of
Hazardous Materials in compliance with Legal Requirements, Grantor covenants
that it shall notify Beneficiary in writing within 5 days of any circumstance or
event that would constitute a change in the representation and warranties
contained in Sections 11.1.A through 11.1.I, including, without limitation, any
request for information or any inspection of the Property or any part thereof by
any Governmental Authority with respect to any Hazardous Materials or any other
Environmental Problem and provide Beneficiary with copies of such request and
any response to any such request or inspection.
K. Grantor covenants that it shall where required by appropriate
governmental authority, in compliance with applicable Legal Requirements,
conduct and complete all investigations, studies, sampling and testing (and
promptly shall provide Beneficiary with copies of any such studies and the
results of any such test) and all remedial, removal and other actions necessary
to clean up and remove all Hazardous Materials (except as permitted by Section
11.1.C), notifying Beneficiary of same in writing within 5 Business Days, in,
on, over, under, from or affecting the Property or any part thereof in
accordance with all such Legal Requirements applicable to the Property or any
part thereof to the reasonable satisfaction of Beneficiary.
L. Following the occurrence and during the continuation of an Event
of Default hereunder, and without regard to whether Beneficiary shall have taken
possession of the Property or a receiver has been requested or appointed or any
other right or remedy of Beneficiary has or may be exercised hereunder,
Beneficiary shall have the right (but not the obligation), upon 5 days prior
notice to Grantor, to conduct such investigations, studies, sampling and/or
testing of the Property or any part thereof as Beneficiary may, in its
reasonable discretion, determine to conduct, relative to Hazardous Materials.
All reasonable costs and expenses incurred in connection therewith including,
without limitation, consultants' fees and disbursements and laboratory fees,
shall constitute a part of the Loans and shall, upon demand by Beneficiary, be
immediately due and payable and shall bear interest at the Default Rate from the
date so demanded by Beneficiary until reimbursed.
11.2 Environmental Indemnification. Grantor shall defend, indemnify and
hold harmless Beneficiary, and its successors and assigns, and its employees,
agents, officers and directors from and against any claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses of whatever kind or
nature, known or unknown, contingent or
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otherwise, whether incurred or imposed within or outside the judicial process,
including, without limitation, reasonable attorneys' and consultants' fees and
disbursements and investigations and laboratory fees arising out of, or in any
way related to any Environmental Problem occurring or existing (or for which
contributing causes occurred or existed) prior to the date Beneficiary has taken
over possession or management control of the Property, including, without
limitation:
A. the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threat of release of any Hazardous Materials in,
on, over, under, from or affecting the Property or any part thereof whether or
not disclosed by the Environmental Report relative to the Property;
B. any personal injury (including wrongful death, disease or other
health condition related to or caused by, in whole or in part, any Hazardous
Materials) or property damage (real or personal) arising out of or related to
any Hazardous Materials in, on, over, under, from or affecting the Property or
any part thereof whether or not disclosed by the Environmental Report relative
to the Property;
C. any action, suit or proceeding brought or threatened, settlement
reached, or order of any Governmental Authority relating to such Hazardous
Material whether or not disclosed by the Environmental Report relative to the
Property; and/or
D. any violation of the provisions, covenants, representations or
warranties of Section 11.1 hereof or of any Legal Requirement that is based on
or in any way related to any Hazardous Materials in, on, over, under, from or
affecting the Property or any part thereof including, without limitation, the
cost of any work performed and materials furnished in order to comply therewith
whether or not disclosed by the Environmental Report relative to the Property.
Notwithstanding the foregoing provisions of this Section to the contrary,
Grantor shall have no obligation to indemnify Beneficiary for liabilities,
claims, damages, penalties, causes of action, costs and expenses relative to the
foregoing that result directly from Beneficiary's willful misconduct or gross
negligence. Any amounts payable to Beneficiary by reason of the application of
this Section shall be secured by this Deed of Trust and shall, upon demand by
Beneficiary, become immediately due and payable and shall bear interest at the
Default Rate from the date so demanded by Beneficiary until paid.
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12 WAIVERS BY GRANTOR
12.1 Grantor hereby waives all errors and imperfections in any proceedings
instituted by Trustee or Beneficiary under this Deed of Trust, the ESA Loan
Agreement, the Property Loan Agreement or any other Loan Document and all
benefit of any present or future statute of limitations or any other present or
future statute, law, stay, moratorium, appraisal or valuation law, regulation or
judicial decision which, nor shall Grantor at any time insist upon or plead, or
in any manner whatsoever, claim or take any benefit or advantage of any such
statute, law, stay, moratorium, regulation or judicial decision which (i)
provides for the valuation or appraisal of the Property prior to any sale or
sales thereof which may be made pursuant to any provisions herein or pursuant to
any decree, judgment or order of any court of competent jurisdiction, (ii)
exempts any of the Property or any other property, real or personal, or any part
of the proceeds arising from any sale thereof from attachment, levy or sale
under execution, (iii) provides for any stay of execution, moratorium,
marshalling of assets, exemption from civil process, redemption or extension of
time for payment, (iv) requires Trustee or Beneficiary to institute proceedings
prior to any sale of the Property or prior to exercising any other remedy
afforded Trustee or Beneficiary hereunder in the event of a Default, (v) affects
any of the terms, covenants, conditions or provisions of this Deed of Trust, or
(vi) conflicts with or may affect, in a manner which may be adverse to Trustee
or Beneficiary, any provision, covenant, condition or term of this Deed of
Trust, the ESA Loan Agreement or any other Loan Document, nor shall Grantor at
any time after any sale or sales of the Property pursuant to any provision
herein claim or exercise any right under any present or future statute, law,
stay, moratorium, regulation or judicial decision to redeem the Property or the
portion thereof so sold.
12.2 Grantor hereby waives the right, if any, to require any sale to be
made in parcels, or the right, if any, to select parcels to be sold, and there
shall be no requirement for marshalling of assets.
13 FAILURE TO CONSENT
If Grantor shall seek the approval by, or the consent of, either Beneficiary or
Trustee hereunder or under any other Loan Document, and either Beneficiary or
Trustee shall fail to refuse to give such consent or approval, Grantor shall not
be entitled to any damages for any withholding or delay of such consent by
either Beneficiary or Trustee, it being intended that Grantor's sole remedy
shall be to bring an action for an injunction or specific performance, which
remedy of an injunction or specific performance shall be available only in those
cases in which either Beneficiary or Trustee has expressly agreed hereunder or
under any other Loan Document not to unreasonably withhold or delay its consent
or approval.
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14 SUBSTITUTION OR RESIGNATION OF TRUSTEE
14.1 Beneficiary may, without notice or cause and in Beneficiary's sole
discretion, substitute a successor or successors to any Trustee named herein or
acting hereunder to execute this Deed of Trust or may fill a vacancy in the
position of Trustee hereunder. Upon such appointment, and without conveyance to
the successor Trustee, the latter shall be vested with all title, powers and
duties conferred upon any Trustee herein named or acting hereunder. Each such
appointment and substitution shall be made by written instrument executed and
acknowledged by Beneficiary, containing reference to this Deed of Trust and its
place of record, which, when recorded in the office in which this Deed of Trust
is recorded, shall be conclusive proof of the proper appointment of such
successor Trustee.
14.2 Trustee may resign by written instrument executed by Trustee,
containing reference to this Deed of Trust and its place of record, which, when
recorded in the office in which this Deed of Trust is recorded, and when
delivered to Beneficiary in accordance with Section 17.2 hereof, shall be
conclusive proof of the resignation of Trustee. Upon such resignation,
Beneficiary may appoint a successor Trustee in accordance with Paragraph 14.1
hereof.
15 CONVEYANCE BY TRUSTEE/DEFEASANCE
Upon receipt by Trustee of written notice from Beneficiary that the Debt shall
have been fully paid pursuant to the terms hereof and the other Loan Documents
and the Obligations fully performed in accordance with the provisions hereof and
the other Loan Documents or when a release is required under the ESA Loan
Agreement, Trustee shall reconvey the Property, without warranty, to Grantor or
such person or persons lawfully entitled thereto.
Any act which Trustee or Beneficiary is permitted to perform under this Deed of
Trust, the ESA Loan Agreement, the Property Loan Agreement or any other Loan
Document may be performed at any time and from time to time by Trustee or
Beneficiary or by any person or entity designated by Trustee or Beneficiary, as
the case may be. Any lease of the Property permitted under this Deed of Trust
shall be made subject to the Deed of Trust, the ESA Loan Agreement, the Property
Loan Agreement and any other Loan Document. Each appointment of Beneficiary as
attorney-in-fact for Grantor under this Deed of Trust, the ESA Loan Agreement,
the Property Loan Agreement or any other Loan Document shall be irrevocable and
coupled with an interest. Beneficiary shall have the right to refuse to grant
its consent, approval or acceptance or to indicate its satisfaction whenever
such consent, approval, acceptance or satisfaction shall be required under any
of the Loan Documents.
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16 ENFORCEABILITY
This Deed of Trust shall be governed by, and construed in accordance with, the
laws of the State in which the Property is located without regard to principles
of conflicts of laws, except that the laws of the State of New York (without
regard to principles of conflicts of laws) shall govern the resolution of issues
arising under the ESA Loan Agreement to the extent that such resolution is
necessary to the interpretation of this Deed of Trust. Whenever possible, each
provision of this Deed of Trust shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Deed of
Trust shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remaining provisions of this Deed of Trust.
16.1 Inconsistency with the Loan Documents. If there shall be any
inconsistencies between the terms, covenants, conditions and provisions set
forth in this Deed of Trust and the terms, covenants, conditions and provisions
set forth in the ESA Loan Agreement and/or the Property Loan Agreement, then,
unless this Deed of Trust expressly provides otherwise, the terms, covenants,
conditions and provisions of the ESA Loan Agreement shall prevail over the
Property Loan Agreement and this Deed of Trust and if the ESA Loan Agreement
does not control, then the conditions and provisions of the Property Loan
Agreement shall prevail over this Deed of Trust.
17 MISCELLANEOUS
17.1 Amendments, Etc. No amendment or waiver of any provision of this Deed
of Trust nor consent to any departure by Grantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Beneficiary, and
then any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
17.2 Notices, Etc. Any notices, demand, statement, request or consent and
other communications provided for hereunder shall be in writing and delivered
personally or sent to the party to whom the notice, demand or request is being
made by Federal Express or other nationally recognized overnight delivery
service, as follows and shall be deemed given when personally delivered or one
Business Day after being timely deposited with Federal Express or such other
nationally recognized delivery service. If any notice date falls on a non-
Business Day, then the notice shall be due on the next succeeding Business Day.
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If to Grantor, at the address first written above,
with a copy to:
Johnson, Smith, Hibbard & Wildman Law Firm LLP
220 N. Church St.
Spartanburg, SC 29306
Attn: Donald B. Wildman, Esq.
and to:
Pedersen & Houpt, P.C.
161 North Clark St., Ste. 3100
Chicago, IL 60601-3224
Attn: Thomas J. Kelly, Esq.
If to Beneficiary, at 55 East 52nd Street, New York, NY 10055, Attn: Marc J.
Warren,
with a copy to:
Weil Gotshal & Manges LLP
767 Fifth Ave.
New York, NY 10153
Attn: Managing Partner - Real Estate (FW)
Any such address may be changed, or additional address (not to exceed two) added
by notice given in the manner provided herein. Any notice or other
communication may be given by counsel for the party giving the same.
17.3 No Waiver; Remedies. No failure on the part of Beneficiary to
exercise, and no delay in exercising, any right hereunder or under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
17.4 Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, Beneficiary is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Beneficiary to or for the
credit or the account of Grantor against any and all of the Obligations now or
hereafter existing whether or not Beneficiary shall have made any
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demand under this Deed of Trust or any Note or any other Loan Document and
although such Obligations may be unmatured. Beneficiary agrees promptly to
notify Grantor after any such set-off and application made by Beneficiary;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of Beneficiary under this
Section are in addition to the other rights and remedies (including, without
limitation, other rights of set-off) which Beneficiary may have.
17.5 Binding Effect. This Deed of Trust shall become effective when it
shall have been executed by Grantor and Beneficiary and thereafter shall be
binding upon and inure to the benefit of Grantor and Beneficiary and their
respective successors and assigns, except that Grantor shall not have the right
to assign its rights hereunder or any interest herein without the prior written
consent of Beneficiary.
17.6 Severability. Wherever possible, each provision of this Deed of Trust
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Deed of Trust.
17.7 Submission to Jurisdiction; Service of Process.
A. Any legal action or proceeding with respect to this Deed of Trust
or the Note or any document related thereto may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and, by execution and delivery of this Deed of Trust, Grantor
hereby accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties hereto
hereby irrevocably waive any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
B. Grantor irrevocably consents to the service of process of any of
the aforesaid courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Grantor at its
address provided herein.
C. Nothing contained in this Section shall affect the right of
Beneficiary or any holder of the Note to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against
Grantor in any other jurisdiction.
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17.8 Section Titles. The Section titles contained in this Deed of Trust
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
17.9 Execution in Counterparts. This Deed of Trust may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
17.10 Entire Agreement. This Deed of Trust, together with all of the
other Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
17.11 Confidentiality. Beneficiary agrees to keep information obtained by
it pursuant hereto and the other Loan Document confidential in accordance with
Beneficiary's customary practices and agrees that it will only use such
information in connection with the transactions contemplated by this Deed of
Trust and not disclose any of such information other than (i) to Beneficiary's
employees, representatives and agents who are or are expected to be involved in
the evaluation of such information in connection with the transactions
contemplated by this Deed of Trust and who are advised of the confidential
nature of such information, (ii) to the extent such information presently is or
hereafter becomes available to Beneficiary, as the case may be, on a non-
confidential basis from a source other than Grantor, (iii) to the extent
disclosure is required by law, regulation or judicial order or requested or
required by bank regulators or auditors, or (iv) to assignees or participants or
potential assignees or participants who agree to be bound by the provisions of
this sentence.
17.12 Waiver of Jury Trial. Each of the parties hereto waives any right
it may have to trial by jury in respect of any litigation based on, or arising
out of, under or in connection with this Deed of Trust or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or action of any party hereto.
17.13 Waiver of Notice. Grantor shall not be entitled to any notices of
any nature whatsoever from Beneficiary except with respect to matters for which
this Deed of Trust specifically and expressly provides for the giving of notice
by Beneficiary to Grantor and except with respect to matters for which Grantor
is not, pursuant to applicable Legal Requirements, permitted to waive the giving
of notice.
17.14 Actions and Proceedings. After an Event of Default, Beneficiary may
appear in and defend any action or proceeding brought with respect to the
Property in its own name or, if required by Legal Requirements or, if in
Beneficiary's reasonable judgment, it is
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necessary, in the name and on behalf of Grantor, which Beneficiary believes will
adversely affect the Property or this Deed of Trust and to bring any action or
proceedings, in its name or in the name and on behalf of Grantor, which
Beneficiary, in its discretion, decides should be brought to protect its
interest in the Property.
17.15 Usury Laws. This Deed of Trust and the Note are subject to the
express condition, and it is the expressed intent of the parties, that at no
time shall Grantor be obligated or required to pay interest on the principal
balance due under the Note at a rate which could subject the holder of the Note
to either civil or criminal liability as a result of being in excess of the
maximum interest rate that Grantor is permitted by law to contract or agree to
pay. If by the terms of this Deed of Trust or the Note, Grantor is at any time
required or obligated to pay interest on the principal balance due under the
Note at a rate in excess of such maximum rate, such rate of interest shall be
deemed to be immediately reduced to such maximum rate and the interest payable
shall be computed at such maximum rate and all prior interest payments in excess
of such maximum rate shall be applied and shall be deemed to have been payments
in reduction of the principal balance of the Note. No application to the
principal balance of the Note pursuant to this Section shall give rise to any
requirement to pay any prepayment premium due hereunder, if any, including,
without limitation, Yield Maintenance Premium.
17.16 Remedies of Grantor. Under no circumstances shall Beneficiary be
liable for any punitive, consequential or incidental damages suffered by,
awarded to or claimed by Grantor, any Affiliate or third party. In the event
that a claim or adjudication is made that Beneficiary has acted unreasonably or
unreasonably delayed acting in any case where by law or under this Deed of
Trust, it has an obligation to act reasonably or promptly, Beneficiary shall
only be liable for Grantor's actual damages, if it is determined that
Beneficiary intentionally and in bad faith acted unreasonably or unreasonably
delayed acting. In all other cases, Beneficiary shall not be liable for any
monetary damages, and Grantor's remedies shall be limited to injunctive relief
or declaratory judgment.
17.17 Offsets, Counterclaims and Defenses. Any assignee of this Deed of
Trust and the Note shall take the same free and clear of all offsets,
counterclaims or defenses that are unrelated to the Note or this Deed of Trust
that Grantor may otherwise have against any assignor of this Deed of Trust and
the Note and no such unrelated counterclaim or defense shall be interposed or
asserted by Grantor in any action or proceeding brought by any such assignee
upon this Deed of Trust or the Note and any such right to interpose or assert
any such unrelated offset, counterclaim or defense in any such action or
proceeding is hereby expressly waived by Grantor.
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17.18 Waiver of Statute of Limitations. The pleadings of any statute of
limitations as a defense to any and all obligations secured by this Deed of
Trust are hereby waived to the full extent permitted by Legal Requirements.
17.19 Advances. This Deed of Trust shall cover any and all advances made
pursuant to the Loan Documents, rearrangements and renewals of the Loan and all
extensions in the time of payment thereof, even though such advances, extensions
or renewals be evidenced by new promissory notes or other instruments hereafter
executed and irrespective of whether filed or recorded. Likewise, the execution
of this Deed of Trust shall not impair or affect any other security that may be
given to secure the payment of the Loan, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Loan shall not diminish the force, effect or lien of this Deed of Trust and
shall not affect or impair the liability of Grantor and shall not affect or
impair the liability of any maker, surety, or endorser for the payment of the
Loan.
17.20 Application of Default Rate Not a Waiver. Application of the
Default Rate shall not be deemed to constitute a waiver of any Default or Event
of Default or any rights or remedies of Beneficiary under this Deed of Trust,
any other Loan Document or applicable Legal Requirements, or a consent to any
extension of time for the payment or performance of any obligation with respect
to which the Default Rate may be invoked.
17.21 No Joint Venture or Partnership. Grantor and Beneficiary intend
that the relationship created hereunder be solely that of mortgagor and
mortgagee or Grantor and lender, as the case may be. Nothing herein is intended
to create a joint venture, partnership, tenancy-in-common, or joint tenancy
relationship between Grantor and Beneficiary nor to grant Beneficiary any
interest in the Property other than that of mortgagee or lender.
17.22 Time of the Essence. Time shall be of the essence in the
performance of all obligations of Grantor hereunder.
17.23 Grantor's Obligations Absolute. Except as set forth to the contrary
in the Loan Documents, all sums payable by Grantor hereunder shall be paid
without notice or demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Grantor hereunder shall in no way be released, discharged, or
otherwise affected (except as expressly provided herein) by reason of: (a) any
damage to or destruction of or any Taking of the Property or any portion
thereof; (b) any restriction or prevention of or interference with any use of
the Property or any portion thereof; (c) any title defect or encumbrance or any
eviction from the Real Estate or any portion thereof by title paramount or
otherwise; (d) any bankruptcy proceeding relating to Grantor, any general
partner of any Grantor, or any guarantor or
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indemnitor, or any action taken with respect to this Deed of Trust or any other
Loan Document by any trustee or receiver of Grantor or any such general partner,
guarantor or indemnitor, or by any court, in any such proceeding; (e) any claim
that Grantor has or might have against Beneficiary; (f) any default or failure
on the part of Beneficiary to perform or comply with any of the terms hereof or
of any other agreement with Grantor; or (g) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Grantor shall
have notice or knowledge of any of the foregoing.
18 ADDITIONAL PROVISIONS
Exhibit B annexed hereto and made a part hereof contains additional provisions
that are necessary or appropriate under the laws of the State in which the
Property is located.
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IN WITNESS WHEREOF, Grantor has caused this Deed of Trust to be duly
executed and acknowledged under seal the day and year first above written.
(Corporate Seal) Grantor: _________________________________________
Signed, Sealed and By: ______________________________________________
Delivered in our Presence: Name: ______________________________________
Title: _____________________________________
_______________________
Attest: __________________________________________
_______________________
[Add appropriate acknowledgment for the State]
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Exhibit 1.3
FORM OF FIXED RATE
PROMISSORY NOTE
---------------
____________ 199_
New York, New York
FOR VALUE RECEIVED, the undersigned ___________________ a
_________________ corporation, (the "Borrower") hereby unconditionally promises
to pay to the order of CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION, a
__________ corporation having an address at 55 East 52nd Street, New York, NY
10055 (together with its successors and assigns, the "Lender"), without any
counterclaim, setoff or deduction whatsoever, at 55 East 52nd Street, New York,
New York 10055 or at such other place as may be designated from time to time in
writing by the holder of this Note, in lawful money of the United States of
America and in immediately available funds (i) the principal sum of
________________________ ($______) DOLLARS (the "Loan Amount") or so much of
such principal sum as may be outstanding, which principal sum shall be payable
in monthly principal payments as and when required in the Loan Agreement with a
final payment of the then unpaid principal balance on _______________________
199_ (the "Maturity Date"); together with interest on the unpaid principal
balance from time to time computed from the date hereof until paid in full at
the interest rate of ______ % per annum (the "Fixed Rate") to be computed on the
basis of a 360-day year consisting of twelve (12) thirty (30) day months, which
interest shall be payable in arrears at such times as are hereinafter set forth;
provided, that if not sooner paid, all interest accrued and unpaid computed at
the aforesaid rate, plus all other sums due and payable hereunder, if any, shall
be due and payable on the Maturity Date.
This Note is issued pursuant to that certain Credit Facility Agreement
dated as of May 17, 1996, between Extended Stay of America, Inc. ("ESA") and
Lender (the "Loan Agreement") and is secured by that certain [First Deed of
Trust and Security Agreement] dated as of the date hereof (as the same may be
amended, modified or supplemented, the "Mortgage") from Borrower to Lender and
the other Loan Documents. All capitalized terms, unless otherwise defined
herein, shall have the meanings ascribed to them in the Loan Agreement.
1. PAYMENTS AND LOAN TERMS.
A. Interest and Amortization Payments. On the first Payment Date,
all accrued interest on the unpaid principal amount of the Loan Amount computed
at the Fixed Rate shall be due and payable. Commencing on the second Payment
Date, and on each payment date thereafter until this Note is paid in full on the
Maturity Date or otherwise, an amount equal to $ ____ (the "Monthly Debt Service
Payment") shall be due and payable, which amount includes a payment of principal
in an amount equal to that which is required to fully amortize the Loan based
upon a level (15) year amortization schedule,
<PAGE>
together with a monthly payment of interest on the Loan Amount, which Monthly
Debt Service Payment shall be due and payable as aforesaid, irrespective of
whether or not voluntary or involuntary prepayments of principal have been made.
2. APPLICATION OF PAYMENTS.
A. Each and every payment (a "Payment") made by Borrower to Lender
in accordance with the terms of this Note and/or the terms of any one or more of
the other Loan Documents and all other proceeds received by Lender with respect
to the principal sum outstanding and all interest accrued thereon shall be
applied, except as otherwise provided in the Loan Agreement, as follows: (x)
first, to all interest (other than Default Rate Interest) that shall be due and
payable with respect to the principal sum outstanding under this Note pursuant
to the terms hereof as of the date the Payment is received (including any
interest shortfalls and interest thereon to the extent permitted by applicable
law), (y) second, to all Late Charges (as hereinafter defined), Yield
Maintenance Premium, Default Rate Interest or other premiums and, (z) third,
other sums payable hereunder or under the other Loan Documents owing by
Borrowers (other than those sums included in clauses (x) and (y) of this
Section) in such order and priority as determined by Lender in its sole
discretion, taking into account the respective date of such Payments.
B. To the extent that Borrower makes a Payment or Lender receives
any Payment or proceeds for Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the obligations of Borrower hereunder intended to be satisfied shall be
revived and continue as if such Payment or proceeds had not been received by
Lender.
3. PREPAYMENTS. The principal sum of this Note may not be prepaid, in whole
or in part, except as set forth in Article 13 of the Loan Agreement.
4. DEFAULTS
A. Events of Default. This Note is executed pursuant to the Loan
Agreement and is secured by, among other things, the Mortgage each of which
specifies various Events of Default, upon the happening of which all or portions
of the sums owing under this Note may be declared immediately due and payable as
more specifically provided
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therein. Each Event of Default under the Mortgage, the Loan Agreement, or any
one or more of the other Loan Documents shall be an "Event of Default"
hereunder.
B. Remedies. In addition to any Late Charges which may be due under
this Note, if an Event of Default shall occur hereunder or under the Mortgage,
the Loan Agreement or under any other Loan Document, interest on the principal
outstanding under this Note and, to the extent permitted by applicable law, all
accrued but unpaid interest on the principal indebtedness shall, commencing on
the date of the occurrence of such Event of Default, at the option of Lender,
immediately and without notice to Borrower, accrue interest at the Default Rate
until such Event of Default is cured. The foregoing provision shall not be
construed as a waiver by Lender of its right to pursue any other remedies
available to it under the Mortgage, the Loan Agreement or any other instrument
evidencing or securing the Loan, nor shall it be construed to limit in any way
the application of the Default Rate. If there is more than one Borrower under
this Note, then the undersigned parties shall each be jointly and severally
liable to pay the entire principal indebtedness, all interest accrued thereto
and all other sums becoming due hereunder or under the other Loan Documents.
C. Late Charge. If all or any portion of the indebtedness,
whether of principal, interest, additional interest or other sum (if any)
payable under this Note is not paid within ten (10) days after the date on which
it is due, the Borrower shall pay to the Lender on demand an amount equal to 4%
of such unpaid portion as a late payment charge. It is hereby expressly agreed
that such late charge is to compensate the Lender for costs incurred in
connection with the administration of such default, and does not constitute a
penalty.
5. MISCELLANEOUS
A. Further Assurances. Borrower shall execute and acknowledge (or cause
to be executed and acknowledged) and deliver to Lender all documents, and take
all actions reasonably required by Lender from time to time to confirm the
rights created or now or hereafter intended to be created under this Note and
the other Loan Documents to protect and further the validity, priority and
enforceability of this Note and the other Loan Documents, to subject to the Loan
Documents any property of Borrower intended by the terms of any one or more of
the Loan Documents to be encumbered by the Loan Documents, or otherwise carry
out the purposes of the Loan Documents and the transactions contemplated
thereunder; provided, however, that no such further actions, assurances and
confirmations shall increase Borrower's obligations under this Note.
B. Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver (a "Modification") of any provision
of this Note, the
3
<PAGE>
Mortgage or any one or more of the other Loan Documents, nor consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in a writing signed by the party against whom enforcement is sought,
and then such waiver or consent shall be effective only in the specific
instance, and for the purpose given. Except as otherwise expressly provided
herein or in the Property Loan Agreement, no notice to, or demand on, Borrower
shall entitle Borrower to any other or future notice or demand in the same,
similar or other circumstances. Lender does not hereby agree to, nor does
Lender hereby commit itself to, enter into any Modification. However, in the
event Lender does ever agree to a Modification, such Modification shall only be
upon the terms and conditions set forth in the Modification.
C. Costs of Collection. Borrower agrees to pay all costs and expenses of
collection incurred by Lender, in addition to principal, interest and late or
delinquency charges (including, without limitation, reasonable attorneys' fees
and disbursements) and including all costs and expenses incurred in connection
with the pursuit by Lender of any of its rights or remedies referred to in
Section 4 hereof or its rights or remedies referred to in any of the Loan
Documents or the protection of or realization of collateral or in connection
with any of Lender's collection efforts, whether or not suit on this Note, on
any of the other Loan Documents or any foreclosure proceeding is filed, and all
such costs and expenses shall be payable on demand, together with interest at
the Default Rate thereon, and also shall be secured by the Mortgage and all
other collateral at any time held by Lender as security for Borrower's
obligations to Lender.
D. Usury Laws. This Note is subject to the express condition, and it is
the expressed intent of the Lender and Borrower, that at no time shall the
Borrower be obligated or required to pay interest on the principal balance due
under this Note at a rate which could subject the holder of this Note to either
civil or criminal liability as a result of being in excess of the maximum
interest rate that borrowers are permitted by law to contract or agree to pay.
If by the terms of this Note, Borrowers are at any time required or obligated to
pay interest on the principal balance due under this Note at a rate in excess of
such maximum rate, such rate of interest shall be deemed to be immediately
reduced to such maximum rate and the interest payable shall be computed at such
maximum rate and all prior interest payments in excess of such maximum rate
shall be applied and shall be deemed to have been payments in reduction of the
principal balance of this Note.
E. Waivers. Borrower hereby expressly and unconditionally waives
presentment, demand, protest, notice of protest or notice of any kind,
including, without limitation, any notice of intention to accelerate and notice
of acceleration, except as expressly provided herein, and in connection with any
suit, action or proceeding brought by Lender on this Note, any and every right
it may have to (a) a trial by jury, (b) interpose any counterclaim therein
(other than a counterclaim that can only be asserted in the suit, action or
proceeding brought
4
<PAGE>
by Lender on this Note and cannot be maintained in a separate action) and (c)
have the same consolidated with any other or separate suit, action or
proceeding.
F. Governing Law. This Note and the obligations arising hereunder shall
be governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts made and performed in such State and any applicable
law of the United States of America.
G. Headings. The section headings in this Note are included herein for
convenience of reference only and shall not constitute a part of this Note for
any other purpose.
H. Severability. Wherever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
IN WITNESS WHEREOF, this Note has been duly executed by the Borrower the
day and year first written above.
[EXTENDED STAY AMERICA, INC. SUBSIDIARY],
Borrower
By:__________________________________________________
Name: __________________________________________
Title: _________________________________________
5
<PAGE>
EXAMPLE FOR SECTION 2.5(B)
<TABLE>
<CAPTION>
FLOATING FIXED
-------- -----
ASSUMPTIONS
- -----------
<S> <C> <C>
NOI $850,000 $850,000
Minimum DSC Ratio 1.40X 1.40X
Index (Libor/7 yr. T's) 5.451% 6.500%
Spread +3.000% +3.850%
------- -------
Interest Rate 8.451% 10.350%
LOAN SIZING
- -----------
Amortization Period/1/ 25 years 25 years
Calculated Loan Constant 9.623% 11.202%
Actual Loan Constant 11.500%/2/ /3/ 11.500%/3/
Calculated Loan Amount $5,279,503 $5,279,503
PAYMENT CALCULATIONS
- --------------------
Actual Amortization 20 years 15 years
Relevant Interest Rate 9.899% 10.350%
To Calculate Principal
Payments
Monthly Payment Actual interest based on $57,869.58
then-current monthly rates
plus principal payment per
the attached Exhibit.
</TABLE>
- ----------------
/1/ Assumes each is a Developed Property (20 years for an Acquired Property).
/2/ Minimum constant for Floating Rate Loans.
/3/ Minimum constant to be used in sizing all Loans.
<PAGE>
Loan Amortization
Extended Stay
Amount 5,279,503
Amortization 20
Loan Constant 11.50%
Assumed Interest 9.8989% 11.50%
<TABLE>
<CAPTION>
Beginning
Balance Payment Interest Principal Ending Balance
<S> <C> <C> <C> <C> <C>
Month 1 5,279,503 50,595 43,551 7,044 5,272,459
Month 2 5,272,459 50,595 43,493 7,102 5,265,357
Month 3 5,265,357 50,595 43,434 7,161 5,256,196
Month 4 5,256,196 50,595 43,375 7,220 5,250,976
Month 5 5,250,976 50,595 43,316 7,279 5,243,696
Month 6 5,243,696 50,595 43,256 7,340 5,236,357
Month 7 5,236,357 50,595 43,195 7,400 5,228,967
Month 8 5,228,967 50,595 43,134 7,461 5,221,496
Month 9 5,221,496 50,595 43,073 7,523 5,213,973
Month 10 5,213,973 50,595 43,011 7,565 5,206,388
Month 11 5,206,388 50,595 42,946 7,647 5,196,741
Month 12 5,196,741 50,595 42,885 7,710 5,191,031
Month 13 5,191,031 50,595 42,821 7,774 5,183,257
Month 14 5,183,257 50,595 42,757 7,838 5,175,419
Month 15 5,175,419 50,595 42,692 7,903 5,167,516
Month 16 5,167,516 50,595 42,627 7,968 5,159,548
Month 17 5,159,548 50,595 42,562 8,034 5,151,514
Month 18 5,151,514 50,595 42,495 8,100 5,143,414
Month 19 5,143,414 50,595 42,428 8,167 5,135,248
Month 20 5,135,248 50,595 42,361 8,234 5,127,013
Month 21 5,127,013 50,595 42,293 8,302 5,118,711
Month 22 5,118,711 50,595 42,225 8,371 5,110,341
Month 23 5,110,341 50,595 42,156 8,440 5,101,901
Month 24 5,101,901 50,595 42,086 8,509 5,093,382
Month 25 5,093,382 50,595 42,016 8,579 5,084,813
Month 26 5,064,813 50,595 41,945 8,650 5,078,163
Month 27 5,078,163 50,595 41,874 8,722 5,067,441
Month 28 5,067,441 50,595 41,802 8,793 5,058,646
Month 29 5,058,646 50,595 41,729 8,856 5,049,782
Month 30 5,049,782 50,595 41,655 8,930 5,040,842
Month 31 5,040,842 50,595 41,582 9,013 5,031,830
Month 32 5,031,830 50,595 41,508 9,067 5,022,742
Month 33 5,022,742 50,595 41,433 9,162 5,013,580
Month 34 5,013,580 50,595 41,357 9,238 5,004,342
Month 35 5,004,342 50,595 41,281 9,314 4,995,028
Month 36 4,995,028 50,595 41,204 9,391 4,985,638
Month 37 4,985,638 50,595 41,127 9,468 4,976,169
Month 38 4,976,169 50,595 41,049 9,546 4,968,623
Month 39 4,968,623 50,595 40,970 9,625 4,956,998
Month 40 4,956,998 50,595 40,891 9,705 4,947,293
Month 41 4,947,293 50,595 40,811 9,785 4,937,508
Month 42 4,937,508 50,595 40,730 9,865 4,927,643
Month 43 4,927,643 50,595 40,649 9,947 4,917,697
Month 44 4,917,697 50,595 40,567 10,029 4,907,668
Month 45 4,907,668 50,595 40,484 10,111 4,897,567
Month 46 4,897,567 50,595 40,400 10,195 4,887,382
Month 47 4,887,382 50,595 40,316 10,279 4,877,083
Month 48 4,877,083 50,595 40,231 10,364 4,866,719
Month 49 4,866,719 50,595 40,146 10,449 4,856,270
Month 50 4,856,270 50,595 40,060 10,535 4,845,734
Month 51 4,845,734 50,595 39,973 10,622 4,835,112
Month 52 4,835,112 50,595 39,885 10,710 4,824,402
Month 53 4,824,402 50,595 39,797 10,798 4,813,604
Month 54 4,813,604 50,595 39,708 10,867 4,802,716
Month 55 4,802,716 50,595 39,618 10,977 4,791,739
Month 56 4,791,739 50,595 39,527 11,068 4,780,671
Month 57 4,780,671 50,595 38,435 11,150 4,769,512
Month 58 4,769,512 50,595 39,344 11,251 4,758,261
Month 59 4,758,261 50,595 39,251 11,344 4,746,917
Month 60 4,746,917 50,595 39,158 11,437 4,735,480
Month 61 4,735,480 50,595 39,063 11,532 4,723,948
Month 62 4,723,948 50,595 38,968 11,627 4,712,321
Month 63 4,712,321 50,595 38,872 11,723 4,700,598
Month 64 4,700,598 50,595 38,775 11,820 4,686,778
Month 65 4,686,778 50,595 38,678 11,917 4,676,861
Month 66 4,676,861 50,595 38,580 12,015 4,664,846
Month 67 4,664,846 50,595 38,481 12,115 4,652,731
Month 68 4,652,731 50,595 38,381 12,214 4,640,517
Month 69 4,640,517 50,595 38,280 12,315 4,628,202
Month 70 4,628,202 50,595 38,178 12,417 4,615,785
Month 71 4,615,785 50,595 38,076 12,519 4,603,266
Month 72 4,603,266 50,595 37,973 12,622 4,590,643
Month 73 4,590,643 50,595 37,869 12,727 4,577,917
Month 74 4,577,917 50,595 37,764 12,832 4,565,085
</TABLE>
Page 1
<PAGE>
[S] [C] [C] [C] [C] [C]
Month 75 4,565,085 50,595 37,658 12,937 4,552,148
Month 76 4,552,148 50,595 37,551 13,044 4,539,104
Month 77 4,538,104 50,595 37,443 13,152 4,525,962
Month 78 4,525,952 50,595 37,335 13,280 4,512,691
Month 79 4,512,691 50,595 37,226 13,370 4,498,322
Month 80 4,498,322 50,595 37,115 13,480 4,485,842
Month 81 4,485,842 50,595 37,004 13,591 4,472,251
Month 82 4,472,251 50,595 36,892 13,703 4,458,548
Month 83 4,458,548 50,595 36,779 13,816 4,444,731
Month 84 4,444,731 50,595 36,665 13,930 4,430,801
Month 85 4,430,801 50,595 36,550 14,045 4,416,756
Month 86 4,416,756 50,595 36,434 14,161 4,402,595
Month 87 4,402,595 50,595 36,317 14,278 4,388,317
Month 88 4,388,317 50,595 36,200 14,395 4,373,921
Month 89 4,373,921 50,595 36,081 14,514 4,358,407
Month 90 4,358,407 50,595 35,961 14,634 4,344,773
Month 91 4,344,773 50,595 35,840 14,755 4,330,018
Month 92 4,330,018 50,595 35,719 14,877 4,315,142
Month 93 4,315,142 50,595 35,596 14,999 4,300,142
Month 94 4,300,142 50,595 35,472 15,123 4,285,019
Month 95 4,285,019 50,595 35,348 15,248 4,269,772
Month 96 4,269,772 50,595 35,222 15,374 4,254,398
Month 97 4,254,398 50,595 35,095 15,500 4,236,896
Month 98 4,238,896 50,595 34,967 15,628 4,223,270
Month 99 4,223,270 50,595 34,838 15,757 4,207,512
Month 100 4,207,512 50,595 34,708 15,887 4,191,625
Month 101 4,191,625 50,595 34,577 16,018 4,175,607
Month 102 4,175,607 50,595 34,445 16,150 4,159,457
Month 103 4,150,457 50,595 34,312 16,284 4,143,173
Month 104 4,143,173 50,595 34,177 16,418 4,126,756
Month 105 4,126,758 50,595 34,042 16,553 4,110,202
Month 106 4,110,202 50,595 33,905 16,680 4,083,512
Month 107 4,083,512 50,595 33,786 16,827 4,076,685
Month 108 4,076,685 50,595 33,629 16,966 4,059,719
Month 109 4,059,719 50,595 33,489 17,106 4,042,612
Month 110 4,042,612 50,595 33,348 17,247 4,025,365
Month 111 4,025,365 50,595 33,206 17,390 4,007,975
Month 112 4,007,975 50,595 33,062 17,533 3,990,442
Month 113 3,990,442 50,595 32,918 17,678 3,972,765
Month 114 3,972,765 50,595 32,772 17,824 3,954,941
Month 115 3,954,941 50,595 32,625 17,971 3,936,970
Month 116 3,936,970 50,595 32,476 18,119 3,918,852
Month 117 3,918,852 50,595 32,327 18,268 3,900,583
Month 118 3,900,583 50,595 32,176 18,419 3,862,164
Month 119 3,862,104 50,595 32,024 18,571 3,863,503
Month 120 3,863,583 50,595 31,871 18,724 3,844,869
Month 121 3,844,889 50,595 31,717 18,879 3,825,991
Month 122 3,825,991 50,595 31,561 19,034 3,806,957
Month 123 3,806,957 50,595 31,404 19,191 3,787,785
Month 124 3,787,785 50,595 31,246 19,350 3,768,416
Month 125 3,768,415 50,595 31,086 19,508 3,748,906
Month 126 3,748,906 50,595 30,925 19,670 3,729,236
Month 127 3,729,236 50,595 30,763 19,832 3,708,404
Month 128 3,708,404 50,595 30,599 19,996 3,688,408
Month 129 3,688,408 50,595 30,434 20,161 3,669,247
Month 130 3,669,247 50,595 30,288 20,327 3,648,919
Month 131 3,648,919 50,595 30,100 20,495 3,628,424
Month 132 3,628,424 50,595 29,931 20,664 3,607,780
Month 133 3,607,780 50,595 29,761 20,836 3,586,926
Month 134 3,586,926 50,595 29,589 21,006 3,585,920
Month 135 3,565,920 50,595 29,416 21,180 3,544,740
Month 136 3,544,740 50,595 29,241 21,354 3,523,385
Month 137 3,523,385 50,595 29,065 21,531 3,501,855
Month 138 3,501,855 50,595 28,887 21,708 3,480,147
Month 139 3,480,147 50,595 28,708 21,867 3,458,270
Month 140 3,458,270 50,595 28,527 22,068 3,436,192
Month 141 3,436,192 50,595 28,345 22,250 3,413,942
Month 142 3,413,942 50,595 28,162 22,433 3,391,508
Month 143 3,391,504 50,595 27,977 22,618 3,358,890
Month 144 3,368,890 50,595 27,790 22,806 3,346,086
Month 145 3,346,086 50,595 27,602 22,993 3,323,092
Month 146 3,323,092 50,595 27,412 23,183 3,299,910
Month 147 3,299,910 50,595 27,221 23,374 3,276,536
Month 148 3,276,536 50,595 27,028 23,567 3,252,969
Month 149 3,252,969 50,595 26,834 23,761 3,229,208
Month 150 3,229,208 50,595 26,636 23,957 3,205,250
Month 151 3,205,250 50,595 26,440 24,155 3,181,096
Month 152 3,181,096 50,595 26,241 24,354 3,156,741
Month 153 3,156,741 50,595 26,040 24,555 3,132,186
Month 154 3,132,186 50,595 25,838 24,758 3,107,429
Month 155 3,107,429 50,595 25,633 24,962 3,082,467
Month 156 3,062,467 50,595 25,426 25,168 3,057,299
Month 157 3,057,299 50,595 25,220 25,375 3,031,924
Month 158 3,031,924 50,595 25,011 25,585 3,006,340
Month 159 3,008,340 50,595 24,800 25,795 2,980,544
Page 2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Month 160 2,980,544 50,595 24,587 26,008 2,954,535
Month 161 2,954,536 50,595 24,372 26,223 2,928,312
Month 162 2,928,312 50,595 24,156 26,439 2,901,873
Month 163 2,901,873 50,595 23,938 26,657 2,875,216
Month 164 2,875,216 50,595 23,718 26,877 2,848,338
Month 165 2,848,338 50,595 23,496 27,099 2,821,239
Month 166 2,821,239 50,595 23,273 27,323 2,793,917
Month 167 2,793,917 50,595 23,047 27,548 2,766,369
Month 168 2,766,369 50,595 22,820 27,775 2,738,593
Month 169 2,738,593 50,595 22,591 28,004 2,710,589
Month 170 2,710,589 50,595 22,360 28,235 2,682,354
Month 171 2,682,354 50,595 22,127 28,468 2,653,886
Month 172 2,653,886 50,595 21,892 28,703 2,625,182
Month 173 2,625,182 50,595 21,655 28,940 2,596,243
Month 174 2,596,243 50,595 21,417 29,179 2,567,064
Month 175 2,567,064 50,595 21,176 29,419 2,537,645
Month 176 2,537,645 50,595 20,933 29,662 2,507,963
Month 177 2,507,963 50,595 20,689 29,907 2,478,076
Month 178 2,478,076 50,595 20,442 30,153 2,447,923
Month 179 2,447,923 50,595 20,193 30,402 2,417,521
Month 180 2,417,521 50,595 19,942 30,653 2,386,868
Month 181 2,386,868 50,595 19,689 30,906 2,365,962
Month 182 2,365,962 50,595 19,435 31,161 2,324,801
Month 183 2,324,801 50,595 19,177 31,416 2,293,383
Month 184 2,293,383 50,595 18,918 31,677 2,261,707
Month 185 2,261,707 50,595 18,657 31,938 2,229,768
Month 186 2,229,768 50,595 18,394 32,202 2,197,567
Month 187 2,197,567 50,595 18,128 32,467 2,165,099
Month 188 2,165,099 50,595 17,860 32,735 2,132,364
Month 189 2,132,364 50,595 17,590 33,005 2,099,359
Month 190 2,099,359 50,595 17,318 33,277 2,066,062
Month 191 2,066,062 50,595 17,043 33,552 2,032,530
Month 192 2,032,530 50,595 16,767 33,828 1,998,701
Month 193 1,998,701 50,595 16,487 34,108 1,954,593
Month 194 1,954,593 50,595 16,206 34,389 1,930,204
Month 195 1,930,204 50,595 15,922 34,673 1,895,531
Month 196 1,895,531 50,595 15,636 34,959 1,860,572
Month 197 1,860,572 50,595 15,348 35,247 1,825,325
Month 198 1,825,325 50,595 15,057 35,538 1,789,787
Month 199 1,789,787 50,595 14,764 35,831 1,753,956
Month 200 1,753,956 50,595 14,469 36,127 1,717,829
Month 201 1,717,829 50,595 14,171 36,425 1,681,405
Month 202 1,681,405 50,595 13,870 36,725 1,644,679
Month 203 1,644,679 50,595 13,567 37,028 1,607,651
Month 204 1,607,651 50,595 13,362 37,334 1,570,318
Month 205 1,570,318 50,595 12,954 37,642 1,532,676
Month 206 1,532,676 50,595 12,643 37,952 1,494,724
Month 207 1,494,724 50,595 12,330 38,265 1,456,459
Month 208 1,456,459 50,595 12,014 38,581 1,417,878
Month 209 1,417,878 50,595 11,696 38,899 1,378,979
Month 210 1,378,979 50,595 11,375 39,220 1,339,759
Month 211 1,339,759 50,595 11,052 39,543 1,300,216
Month 212 1,300,216 50,595 10,726 39,870 1,260,345
Month 213 1,260,345 50,595 10,397 40,199 1,220,148
Month 214 1,220,148 50,595 10,065 40,530 1,179,618
Month 215 1,179,618 50,595 9,731 40,864 1,136,753
Month 216 1,136,753 50,595 9,394 41,202 1,097,551
Month 217 1,097,551 50,595 9,054 41,541 1,056,010
Month 218 1,056,010 50,595 8,711 41,884 1,014,126
Month 219 1,014,126 50,595 8,366 42,230 971,896
Month 220 971,896 50,595 8,017 42,578 929,318
Month 221 929,318 50,595 7,666 42,929 886,389
Month 222 886,389 50,595 7,312 43,283 843,106
Month 223 843,106 50,595 6,955 43,640 799,485
Month 224 799,465 50,595 6,595 44,000 755,465
Month 225 755,485 50,595 6,232 44,363 711,102
Month 226 711,102 50,595 5,866 44,729 666,372
Month 227 666,372 50,595 5,497 45,098 621,274
Month 228 621,274 50,595 5,125 45,470 575,804
Month 229 575,804 50,595 4,750 45,845 529,958
Month 230 529,958 50,595 4,372 46,224 483,735
Month 231 483,735 50,595 3,990 46,605 437,130
Month 232 437,130 50,595 3,606 46,989 390,141
Month 233 390,141 50,595 3,218 47,377 342,764
Month 234 342,764 50,595 2,827 47,768 294,996
Month 235 294,996 50,595 2,433 48,162 246,834
Month 236 246,834 50,595 2,036 48,559 196,275
Month 237 196,275 50,595 1,636 48,960 149,316
Month 238 149,316 50,595 1,232 49,364 99,952
Month 239 99,952 50,595 825 49,771 50,181
Month 240 50,181 50,595 414 50,181 (0)
</TABLE>
Page 3
<PAGE>
Exhibit 3.2B
Subject to Local Counsel Comments
Note: Refinancing Obligations of Borrower only apply to Fixed Rate Loans
PROPERTY LOAN AGREEMENT
Between
[EXTENDED STAY AMERICA, INC. SUBSIDIARY]
"Borrower"
--------
and
----------------------
"Lender"
------
Dated as of _____________ ___, 199__
<PAGE>
1 DEFINITIONS AND ACCOUNTING TERMS............................... 2
1.1 Defined Terms........................................... 2
1.2 Computation of Time Periods............................. 11
1.3 Accounting Terms........................................ 12
1.4 Certain Terms........................................... 12
2 AGREEMENT SUBJECT TO ESA LOAN AGREEMENT........................ 12
3 [RESERVED]..................................................... 12
4 REPRESENTATIONS AND WARRANTIES................................. 12
4.1 Organization and Authority.............................. 13
4.2 Power................................................... 13
4.3 Authorization of Borrowing.............................. 13
4.4 Interest Rate........................................... 14
4.5 Other Agreements........................................ 14
4.6 Maintenance of Existence................................ 14
4.7 No Defaults............................................. 15
4.8 Governmental Consents and Approvals..................... 16
4.9 Investment Company Act Status........................... 16
4.10 Compliance with Law..................................... 16
4.11 Financial Information................................... 16
4.12 Federal Reserve Regulations............................. 16
4.13 Pending Litigation...................................... 17
4.14 Solvency; No Bankruptcy................................. 17
4.15 Not Foreign Person...................................... 17
4.16 Ownership of Borrower; Subsidiaries..................... 17
4.17 ERISA................................................... 18
4.18 Management Agreement.................................... 18
5 COVENANTS OF BORROWER.......................................... 19
5.1 Continuing Nature of Representations.................... 19
5.2 [RESERVED].............................................. 19
5.3 Use and Maintenance of the Property..................... 19
5.4 Financial Reports....................................... 21
5.5 Reporting Requirements.................................. 23
5.6 Refinancing............................................. 25
5.7 Appraisals and other Valuations......................... 25
i
<PAGE>
5.8 Other Indebtedness....................................... 25
5.9 Investments.............................................. 26
5.10 Independence Covenants................................... 26
5.11 Modification of Material Agreements...................... 27
5.12 Tax Filings.............................................. 27
5.13 Further Acts, etc........................................ 27
5.14 Recording of Mortgage, etc............................... 28
6 INSURANCE AND CASUALTY RESTORATION.............................. 28
6.1 Insurance Coverage....................................... 28
6.2 Manager's Fidelity Insurance............................. 30
6.3 Policy Terms............................................. 30
6.4 Assignment of Policies................................... 31
6.5 Casualty Restoration..................................... 33
6.6 Compliance with Insurance Requirements................... 37
6.7 Default During Restoration............................... 38
6.8 Application of Proceeds to Debt Reduction................ 39
7 IMPOSITIONS..................................................... 39
7.2 Deduction from Value..................................... 40
7.3 No Joint Assessment...................................... 40
7.4 Right to Contest......................................... 40
7.5 No Credits on Account of the Loan........................ 41
8 CONDEMNATION.................................................... 42
9 CENTRAL CASH MANAGEMENT......................................... 44
9.1 Cash Flow................................................ 44
9.2 Establishment of Sub-Accounts............................ 45
9.3 Permitted Investments of Central Account Funds........... 46
9.4 Monthly Funding of Sub-Accounts.......................... 47
9.5 Payment of Basic Carrying Costs.......................... 49
9.6 Debt Service Payment Sub-Account......................... 49
9.7 Recurring FF&E Sub-Account............................... 50
9.8 Operations and Maintenance Expense Sub-Account........... 50
9.9 Curtailment Reserve Sub-Account.......................... 51
9.10 Loss Proceeds............................................ 52
10 PROPERTY MANAGEMENT............................................. 53
ii
<PAGE>
11 EVENTS OF DEFAULT.............................................. 54
11.1 Events of Default....................................... 54
11.2 Remedies................................................ 54
11.3 General Provisions Regarding Remedies................... 54
12 [RESERVED]..................................................... 55
13 [RESERVED]..................................................... 55
14 ESTOPPEL CERTIFICATES.......................................... 55
15 LENDER ASSIGNMENTS............................................. 56
16 MISCELLANEOUS.................................................. 57
16.1 Representations and Warranties of Borrower and Lender... 57
16.2 Costs; Expenses; Indemnities............................ 57
16.3 [RESERVED].............................................. 59
16.4 [RESERVED].............................................. 59
16.5 Securitization Opinions................................. 59
16.6 Cooperation with Rating Agencies........................ 60
16.7 Securitization Financials............................... 60
16.8 Amendments, Etc......................................... 60
16.9 Notices, Etc............................................ 60
16.10 No Waiver; Remedies..................................... 61
16.11 Right of Set-off........................................ 62
16.12 Binding Effect.......................................... 62
16.13 Severability............................................ 62
16.14 Submission to Jurisdiction; Service of Process.......... 62
16.15 Section Titles.......................................... 63
16.16 Execution in Counterparts............................... 63
16.17 Entire Agreement........................................ 63
16.18 Confidentiality......................................... 63
16.19 Waiver of Jury Trial.................................... 63
16.20 Waiver of Notice........................................ 64
16.21 Actions and Proceedings................................. 64
16.22 Usury Laws.............................................. 64
16.23 Remedies of Borrower.................................... 64
16.25 Waiver of Statute of Limitations........................ 65
16.26 Advances................................................ 65
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<PAGE>
16.27 Application of Default Rate Not a Waiver................ 65
16.28 No Joint Venture or Partnership......................... 65
16.29 Time of the Essence. 65
16.30 Borrower's Obligations Absolute......................... 66
16.31 Recourse 66
17 ADDITIONAL PROVISIONS.......................................... 66
Exhibit A Legal Description
Exhibit B Additional Provisions
Exhibit 5.4 Form of Cash Flow Statement
Index of Defined Terms
----------------------
ACH..................................... 45
Affiliate Loans......................... 1
Approved Manager Standard............... 2
Architect............................... 34
Bank.................................... 2
Basic Carrying Costs.................... 2
Basic Carrying Costs Monthly
Installment............................ 2
Basic Carrying Costs Sub-Account........ 2
Borrower................................ 1
Business Day............................ 2
Cash Flow Available for Debt
Service................................ 3
Central Account......................... 3
Claim................................... 11
Closing Date............................ 3
Code.................................... 3
Collection Account...................... 3
Condemnation Proceeds................... 52
Contingent Obligation................... 3
Current Month........................... 47
Curtailment Reserve Sub-Account......... 4
Debt Service............................ 4
Debt Service Payment Sub-Account........ 4
Default Rate............................ 4
Eligible Account........................ 4
Engineer................................ 34
ERISA................................... 4
ERISA Affiliate......................... 5
ESA..................................... 1
ESA Loan Agreement...................... 1
ESA Subsidiaries........................ 1
Event of Default........................ 54
Excess Rent............................. 48
Fiscal Year............................. 5
GAAP.................................... 5
Governmental Authority.................. 5
Indemnitee.............................. 58
Independent Director.................... 26
Initial FF&E Recurring Installments..... 10
Institutional Lender.................... 5
Insurance Proceeds...................... 52
Insurance Requirements.................. 6
IRS..................................... 6
Legal Requirement....................... 6
Lender.................................. 1
Limitation on Costs..................... 66
Loan.................................... 1
Loan Amount............................. 1
Loss Proceeds........................... 53
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Management Agreement.................... 6
Manager................................. 6
Manager Certification................... 23
Manager Control Notice.................. 53
Material Adverse Change................. 6
Mortgage................................ 1
Multiemployer Plan...................... 6
Net Operating Income.................... 7
Note.................................... 1
Notice Date............................. 48
O&M Operative Period.................... 7
Operations and Maintenance
Expense Monthly
Installment........................... 7
Operations and Maintenance
Expense Sub-Account................... 7
PBGC.................................... 10
Pension Plan............................ 8
Permitted Indebtedness.................. 25
Permitted Investments................... 8
Plan.................................... 10
Property................................ 1
Recurring FF&E Expenditures............. 10
Recurring FF&E Monthly Amount........... 10
Recurring FF&E Sub-Account.............. 10
Refinance Notification Date............. 25
Refinancing Commitment.................. 10
Rent Account............................ 10
Required Debt Service Payment........... 10
Retention Amount........................ 36
Security Deposit Account................ 45
Single Purpose Entity................... 11
Solvent................................. 11
Sub-Account............................. 46
Sub-Accounts............................ 46
Substantial Casualty.................... 33
Substantial Taking...................... 42
Void Commitment Date.................... 11
Work.................................... 33
v
<PAGE>
PROPERTY LOAN AGREEMENT
THIS PROPERTY LOAN AGREEMENT, made as of the __ day of ________, 199_, by
and between CS FIRST BOSTON MORTGAGE CAPITAL CORPORATION, a _________ Delaware
corporation having an address at 55 East 52nd Street, New York, NY 10055
("Lender") and by [Extended Stay America, Inc., subsidiary], a
__________________ corporation having an office at _________________
("Borrower").
W I T N E S S E T H :
-------------------
WHEREAS, pursuant to a Credit Facility Agreement (the "ESA Loan Agreement")
dated as of May 17, 1996 between Lender and Extended Stay America, Inc. ("ESA"),
Lender has agreed to make loans (the "Affiliate Loans") to various Subsidiaries
of ESA (the "ESA Subsidiaries") in a total aggregate amount (when added to the
Loan) not to exceed $300,000,000;
WHEREAS, pursuant to the ESA Loan Agreement, Lender has authorized a loan
(the "Loan") to Borrower, which Loan is evidenced by that certain promissory
note, dated the date hereof (the "Note") given by Borrower, as maker, to Lender,
as holder and secured by a first mortgage in favor of Lender (the "Mortgage"),
in the property described on Exhibit A annexed hereto ( the "Property") as
security for Borrower's obligations to Lender from time to time pursuant to the
Note, the Mortgage and the other Loan Documents (hereinafter defined);
WHEREAS, Borrower and Lender intend these recitals to be a material part of
this Agreement; and
WHEREAS, all things necessary to make this Agreement the valid and legally
binding obligation of Borrower in accordance with its terms, for the uses and
purposes herein set forth, have been done and performed.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1
<PAGE>
1 DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following terms have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Approved Manager Standard" means the standard of business operations,
practices and procedures customarily employed by entities having a senior
executive with at least seven (7) years' experience in the management of motels
or residence hotels, it being agreed that ESA Management, Inc. satisfies the
Approved Manager Standard on the date hereof.
"Bank" means Citibank, N.A., or any successor bank hereafter selected by
Lender.
"Basic Carrying Costs" means the sum of the following costs associated with
the Property: (a) Impositions and (b) insurance premiums.
"Basic Carrying Costs Monthly Installment" means Lender's reasonable
estimate of one twelfth (1/12th) of the annual amount for Basic Carrying Costs.
"Basic Carrying Costs Monthly Installment" shall also include, if reasonably
required by Lender, a sum of money that, together with such monthly
installments, would be sufficient to make the payment of each such Basic
Carrying Cost at least thirty (30) days prior to the date initially due. Should
such Basic Carrying Costs not be ascertainable at the time any monthly deposit
is required to be made, the Basic Carrying Costs Monthly Installment shall be
determined by Lender in its reasonable discretion on the basis of the aggregate
Basic Carrying Costs for the prior Fiscal Year or month or the prior payment
period for such cost. As soon as the Basic Carrying Costs are fixed for the
then current fiscal year, month or period, the next ensuing Basic Carrying Costs
Monthly Installment shall be adjusted to reflect any deficiency or surplus in
prior monthly payments. If at any time during the term of the Loan, Lender, in
its reasonable discretion, determines that there will be insufficient funds in
the Basic Carrying Costs Sub-Account to make payments when they become due and
payable, Lender shall have the right to adjust the Basic Carrying Costs Monthly
Installment such that there will be sufficient funds to make such payments.
"Basic Carrying Costs Sub-Account" means the Sub-Account of the Central
Account established pursuant to Section 9.2 hereof and maintained pursuant to
Section 9.4 hereof.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City or in the jurisdiction where the Property
is located.
2
<PAGE>
"Cash Flow Available for Debt Service" shall mean Net Operating Income for
the Hotel Property less the annual (or portion thereof) Recurring FF & E Monthly
Amount.
"Central Account" means an Eligible Account, maintained at the Bank, in the
name of Lender or its successors or assigns as may be designated by Lender.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended and as it may be
further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto.
"Collection Account" means an account designated by Lender, which shall be
an Eligible Account, to which payments of the Loan are transferred.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness or Contractual Obligation of another Person, if the purpose or
intent of such Person in incurring the Contingent Obligation is to provide
assurance to the obligee of such Indebtedness or Contractual Obligation that
such Indebtedness or Contractual Obligation will be paid or discharged, or that
any agreement relating thereto will be complied with, or that any holder of such
Indebtedness or Contractual Obligation will be protected (in whole or in part)
against loss in respect thereof. Contingent Obligations of a Person include,
without limitation,
(a) the direct or indirect guarantee, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of an obligation
of another Person, and
(b) any liability of such Person for an obligation of another Person
through any agreement (contingent or otherwise) to (i) purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of a loan,
advance, stock purchase, capital contribution or otherwise), (ii) maintain the
solvency or any balance sheet item, level of income or financial condition of
another Person, (iii) purchase, sell or lease (as lessor or lessee) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such obligation or to assure the holder of such obligation
against loss, or (iv) supply funds to or in any other manner invest in such
other Person (including, without limitation, to pay for property or services
irrespective of whether such property is received or such services are
rendered), if in the case of any agreement described under subclause (i), (ii),
(iii) or (iv) of
3
<PAGE>
this sentence the primary purpose or intent thereof is as described in the
preceding sentence.
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"Curtailment Reserve Sub-Account" means the Sub-Account established
pursuant to Section 9.2 hereof and maintained pursuant to Section 9.9 hereof for
the purpose of holding certain Excess Rent.
"Debt Service" means for any period, the amount of interest and principal
payments due and payable in accordance with the relevant Note during an
applicable period.
"Debt Service Payment Sub-Account" means the Sub-Account of the Central
Account established and maintained pursuant to Section 9.2 hereof and maintained
pursuant to Section 9.6 hereof for the purposes of making Required Debt Service
Payments.
"Default Rate" shall be a rate equal to four percent (4%) above the rate
otherwise applicable, subject to Section 16.22 hereof.
"Eligible Account" means a segregated account held by and at the Bank or an
account that is either: (a) maintained with a depository institution or trust
company the long-term unsecured debt obligations of which (or, in the case of a
depository institution or trust company that is the principal subsidiary of a
holding company, the long-term unsecured debt obligations of such holding
company) have been rated by the Rating Agencies in one of their two highest
rating categories or the short-term commercial paper of which is rated by the
Rating Agencies in their highest rating category at the time of any deposit
therein; (b) an account or accounts maintained with a federal or state chartered
depository institution or trust company with trust powers acting in its
fiduciary capacity provided that any such state chartered institution or trust
company shall be subject to regulations regarding fiduciary funds on deposit
substantially similar to federal regulation 12 CFR (S) 910(b); or (c) such other
account maintained at a bank or institution having aggregate deposits in an
amount not less than $100,000,000 and otherwise acceptable to Lender. The title
of each Eligible Account shall indicate that funds held therein are held in
trust for the uses and purposes set forth herein.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or any
successor legislation thereto), as amended from time to time and any regulations
issued pursuant thereto, as may be amended from time to time.
4
<PAGE>
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control or treated as a single employer with any Loan Party within
the meaning of Section 414 (b), (c), (m) or (o) of the Code.
"Fiscal Year" means the twelve month period commencing on January 1 and
ending on December 31 during each year of the term of this Agreement, or such
other fiscal year of Borrower as Borrower may select from time to time with the
prior written reasonable consent of Lender.
"GAAP" means generally accepted accounting principles in the United States
of America, as of the date of the applicable financial report, consistently
applied.
"Governmental Authority" means, with respect to any Person, any federal or
state government or other political subdivision thereof and any entity,
including any regulatory or administrative authority or court, exercising
executive, legislative, judicial, regulatory or administrative or quasi-
administrative functions of or pertaining to government, and any arbitration
board or tribunal in each case, having jurisdiction over such applicable Person
or such Person's property and any stock exchange on which shares of capital
stock of such Person are listed or admitted for trading.
"Institutional Lender" means any of the following Persons: (a) a bank,
savings and loan association, savings institution, trust company or national
banking association, acting for its own account or as agent or in a fiduciary
capacity, (b) a charitable foundation, (c) an insurance company or pension
and/or annuity company, (d) a fraternal benefit society, (e) a pension,
retirement or profit sharing trust or fund within the meaning of Title I of
ERISA or for which any bank, trust company, national banking association or
investment adviser registered under the Investment Advisers Act of 1940, as
amended, is acting as trustee or agent, (f) an investment company or business
development company, as defined in the Investment Company Act of 1940, as
amended, (g) a small business investment company licensed under the Small
Business Investment Act of 1958, as amended, (h) a broker or dealer registered
under the Securities and Exchange Act of 1934, or an investment adviser
registered under the Investment Adviser Act of 1940, as amended, (i) a
government, a public employees' pension or retirement system, or any other
government agency supervising the investment of public funds, (j) a mortgage
conduit that is in the business of originating loans for securitization in the
capital markets, or (k) another entity all of the equity owners of which are
Institutional Lenders; provided that each of said Persons shall have net assets
equal to or greater than $500,000,000, be in the business of making commercial
mortgage loans, secured by properties of like type, size and value as the
Property and have a long term credit rating that is not less than investment
grade.
5
<PAGE>
"Insurance Requirements" means all terms of any insurance policy required
by this Agreement, all requirements of the issuer of any such policy, and all
regulations and then current standards applicable to or affecting the Property
or any use or condition thereof, which may, at any time, be recommended by the
Board of Fire Underwriters, if any, having jurisdiction over the Property, or
such other Person exercising similar functions.
"IRS" means the Internal Revenue Service, or any successor thereto.
"Legal Requirement" means as to any Person, the certificate of
incorporation and by-laws or other organization or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Management Agreement" means an agreement relating to the operation and/or
management of a Hotel Property between the appropriate Borrower and Manager,
substantially in a form as shall be approved by Lender, which approval shall not
be unreasonably withheld or delayed.
"Manager" means ESA Management, Inc., a wholly owned subsidiary of ESA, or
such other manager meeting the Approved Manager Standard as shall be approved by
Lender (which approval shall not be unreasonably withheld or delayed), as
manager under the Management Agreement.
"Material Adverse Change" means a material adverse change in (a) the
condition (financial or otherwise), business, performance, prospects, operations
or properties of any ESA and its Subsidiaries taken as one enterprise or ESA and
the Borrowers taken as one enterprise, (b) the legality, validity or
enforceability of any Loan Document, (c) the perfection or priority of the Liens
granted pursuant to the Mortgage or any other Loan Document, (d) the ability of
Borrower (or if then guaranteed by ESA, then the ability of ESA and such
Borrower) to repay the Obligations or of any Loan Party to perform its material
obligations under any Loan Document, or (f) the rights and remedies of Lender
under the Loan Documents.
"Multiemployer Plan" means, as of any applicable date, a multiemployer
plan, as defined in Section 4001(a)(3) of ERISA, and to which any Loan Party,
any of its Subsidiaries or any ERISA Affiliate is making, is obligated to make,
or within the six-year period ending at such date, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
6
<PAGE>
"Net Operating Income" means in each Fiscal Year or portion thereof during
the term hereof, Operating Income less Operating Expenses. Operating Income
means, in each Fiscal Year or portion thereof during the term hereof, all
revenue derived by a Borrower arising from the Hotel Property including, without
limitation, Rent, and all other income (including laundry, vending, and other
service income).
Operating Expenses means, in each Fiscal Year or portion thereof during the term
hereof, all expenses directly attributable to the operation, repair and
maintenance of the Hotel Property including, without limitation, Impositions (as
defined in the Mortgage), insurance premiums, management fees, satellite and
cable television and telephone expenses, payments to third party suppliers,
general and administrative and marketing expenses, utilities, housekeeping
expenses, employee taxes and benefits. Operating Expenses shall also include
reserves for Contingent Obligations (but shall exclude any payments made from
such reserves). Operating Expenses shall not include interest, principal and
premium, if any, due under the Notes or otherwise in connection with the Loans,
income taxes, extraordinary capital improvements costs, or any non-cash charge
or expense such as depreciation.
"O&M Operative Period" means (i) if Borrower fails to provide Lender with a
Refinancing Commitment on or prior to the Refinance Notification Date, the
period commencing on the Refinance Notification Date and ending on the date the
Loan has been paid in full and (ii) if Borrower provides Lender with a
Refinancing Commitment on or prior to the Refinance Notification Date and the
Void Commitment Date occurs, the period commencing on the Void Commitment Date
and ending on the date the Loan has been paid in full; provided, however, that
if Borrower provides Lender with a Refinancing Commitment on or before the
Refinance Notification Date and the Void Commitment Date does not occur, there
shall be no O&M Operative Period hereunder. In the event that the Loan is not a
Fixed Rate Loan, then "O&M Operative Period" shall have no meaning.
"Operations and Maintenance Expense Monthly Installment" means with respect
to each Current Month in which funds are required to be allocated or distributed
pursuant to the terms of Section 9.4.D, or if an Event of Default has occurred
and be continuing, the lesser of (a) all amounts remaining in the Central
Account after the distributions made pursuant to clauses (A) through (E) of
Section 9.4 or (b), an amount equal to 1/12 of the product of (i) 1.05 and (ii)
the actual Operating Expenses (exclusive of Impositions and insurance premiums)
for the immediately preceding calendar year.
"Operations and Maintenance Expense Sub-Account" means the Sub-Account of
the Central Account established pursuant to Section 9.2 hereof and maintained
pursuant to
7
<PAGE>
Section 9.8 hereof relating to the payment of Operating Expenses (exclusive of
Impositions and insurance premiums).
"Pension Plan" means a plan, other than a Multiemployer Plan, which is
covered by Title IV of ERISA or Code Section 412 and which any Loan Party, any
of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Permitted Investments" means any one or more of the following obligations
or securities acquired at a purchase price of not greater than par, including
those issued by Lender, its successors or assigns, or any of their respective
Affiliates:
. direct obligations of, or obligations fully guaranteed as to payment of
principal and interest by, (a) the United States or any agency or
instrumentality thereof provided such obligations are backed by the full
faith and credit of the United States of America, or (b) FHLMC, FNMA, the
Federal Farm Credit System or the Federal Home Loan Banks provided such
obligations at the time of purchase or contractual commitment for purchase
are qualified by the Rating Agencies as a Permitted Investment hereunder as
evidenced in writing;
. fully FDIC-insured demand and time deposits in or certificates of deposit
of, or bankers' acceptances issued by, any bank or trust company, savings
and loan association or savings bank, provided that the commercial paper
and long-term unsecured debt obligations of such depository institution or
trust company have the highest rating available for such securities by the
Rating Agencies, or such lower rating as is consented to in writing by
Lender;
. repurchase obligations with respect to any security described in clause (a)
above entered into with a depository institution or trust company (acting
as principal) described in clause (b) above;
. general obligations of or obligations guaranteed by any State of the United
States or the District of Columbia receiving the highest long-term
unsecured debt rating available for such securities by the Rating Agencies,
or such lower rating as is consented to in writing by Lender;
. securities bearing interest or sold at a discount that are issued by any
corporation incorporated under the laws of the United States of America or
any state thereof or the District of Columbia and is rated by the Rating
Agencies in their highest long-
8
<PAGE>
term unsecured rating categories at the time of such investment or
contractual commitment providing for such investment; provided, however,
that securities issued by any such corporation will not be Permitted
Investments to the extent that investment therein will cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the Central Account to exceed 20% of the amount held in
such account;
. commercial or finance company paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand or
on a specified date not more than one year after the date of issuance
thereof) that is rated by the Rating Agencies in their highest short-term
unsecured debt rating available at the time of such investment or
contractual commitment providing for such investment, and is issued by a
corporation the outstanding senior long-term debt obligations of which are
then rated by the Rating Agencies in their highest short-term and long-term
unsecured debt ratings, or such lower rating as is consented to in writing
by Lender;
. guaranteed reinvestment agreements acceptable to the Rating Agencies issued
by any bank, insurance company or other corporation rated in the highest
long-term unsecured rating levels available to such issuers by the Rating
Agencies throughout the duration of such agreements, or such lower rating
as is consented to in writing by Lender;
. units of taxable money market funds, which funds are regulated investment
companies, seek to maintain a constant net asset value per share and invest
solely in obligations backed by the full faith and credit of the United
States, which funds have been designated in writing by the Rating Agencies
as Permitted Investments with respect to this definition;
. the direct costs of acquisition of Realty and the Construction Costs of the
Real Estate; and
. any other demand, money market or time deposit, or any other obligation,
security or investment, that may be consented to in writing by Lender;
provided, however, that no instrument or security shall be a Permitted
Investment if (y) such instrument or security evidences a right to receive only
interest payments or (z) the right to receive principal and interest payments
derived from the underlying investment provides a yield to maturity in excess of
120% of the yield to maturity at par of such underlying investment.
9
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA,
which any Loan Party or any of its Subsidiaries maintains, contributes to or has
an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Recurring FF&E Expenditures" means expenditures with respect to furniture,
fixtures and equipment actually incurred from time to time.
"Recurring FF&E Monthly Amount" means with respect to the Property the
amount per month equal to the greater of:
(a) 5% of Operating Income for the Property for the previous month,
and
(b) $20.83 per rentable unit of the Property (the "Initial FF&E
Recurring Installments") until the first (1st) anniversary of the date hereof
and an amount per month in each subsequent Loan Year or portion thereof
occurring prior to the Maturity Date equal to the product of (i) the Initial
FF&E Recurring Installments and (ii) a fraction, the numerator of which is the
CPI for the month of August of the calendar year immediately preceding the year
with respect to which the determination is being made and the denominator of
which is the CPI for the month of July 1995, but in no event shall the Recurring
FF&E Monthly Amount as calculated above be decreased in any year below $20.83.
"Recurring FF&E Sub-Account" means the Sub-Account of the Central Account
established pursuant to Section 9.2 hereof and maintained pursuant to Section
9.7 hereof relating to the payment of expenditures.
"Refinancing Commitment" means a written commitment for the refinancing of
a Fixed Rate Loan, as defined in the ESA Loan Agreement, from an Institutional
Lender.
"Rent Account" means an Eligible Account maintained at the Bank or another
bank reasonably acceptable to Lender in the name of Lender or such other name as
may be acceptable to Lender, and over which Rent Account Borrower shall be
granted signing and withdrawal privileges until revoked by Lender.
"Required Debt Service Payment" means, as of any Payment Date, the amount
of interest and principal then due and payable pursuant to the Note, together
with any other sums due thereunder, including, without limitation, any
prepayments required to be made or
10
<PAGE>
for which notice has been given under this Agreement, Default Rate Interest and
premium, if any, made in accordance therewith.
"Single Purpose Entity" means a Person, other than an individual, which is
formed or organized solely for the purpose of holding, directly, an undivided
100% ownership interest in a Hotel Property (unless Lender, in its sole
discretion, consents to the Single Purpose Entity owning more than one Hotel
Property), does not engage in any business unrelated to the Hotel Property, does
not have any assets other than those related to its interest in the Hotel
Property or any indebtedness other than as permitted by this Agreement or the
other Loan Documents, has its own separate books and records and has its own
accounts, in each case that are separate and apart from the books and records
and accounts of any other Person, holds itself out as being a Person separate
and apart from any other Person, and meets Lender's reasonable requirements
(including organizational and structural requirements) to establish that, after
the guaranty of ESA as provided in the ESA Loan Agreement is terminated with
respect to the Loan pursuant to Section 8.9 of the ESA Loan Agreement and ESA's
obligations in Section 15.5 of the ESA Loan Agreement are terminated, such
Person would not be consolidated with ESA for bankruptcy purposes.
"Solvent" means, as to any Person, that (a) the sum of the assets of such
Person, at a fair valuation, exceeds its liabilities, including contingent
liabilities, (b) such Person has sufficient capital with which to conduct its
business as presently conducted and as proposed to be conducted and (c) such
Person has not incurred debts, and does not intend to incur debts, beyond its
ability to pay such debts as they mature. For purposes of this definition,
"debt" means any liability on a claim, and "claim" means (a) a right to payment,
whether or not such right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured, or (b) a right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured. With respect to any
such contingent liabilities, such liabilities shall be computed in accordance
with GAAP at the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Void Commitment Date" means the date, if any, upon which the Refinancing
Commitment lapses, terminates or is otherwise withdrawn.
1.2 Computation of Time Periods. In this Agreement, in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from
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and including" and the words "to" and "until" each mean "to but excluding" and
the word "through" means "to and including."
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.
1.4 Certain Terms.
A. The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole, and not to any particular
Article, Section, subsection or clause in this Agreement. References herein to
an Exhibit, Schedule, Article, Section, subsection or clause refer to the
appropriate Exhibit or Schedule to, or Article, Section, subsection or clause in
this Agreement. Capitalized terms not defined herein are defined in the ESA
Loan Agreement or the Mortgage.
B. The term "Lender" includes its successors and each assignee of
Lender who becomes a party hereto pursuant to Article 16.
2 AGREEMENT SUBJECT TO ESA LOAN AGREEMENT
This Agreement is made subject to the ESA Loan Agreement and should be read
in conjunction with the same. To the extent that there is a conflict of terms
among these two agreements, the ESA Loan Agreement should govern.
3 [RESERVED]
4 REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, Borrower represents, warrants and
covenants to Lender as follows:
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4.1 Organization and Authority. Borrower (i) is a corporation, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) has all requisite power and authority and
all necessary licenses and permits to own and operate the Property and to carry
on its business as now conducted and as presently proposed to be conducted and
(iii) is duly qualified, authorized to do business and in good standing in the
jurisdiction where the Property is located and in each other jurisdiction where
the conduct of its business or the nature of its activities makes such
qualification necessary.
4.2 Power. Borrower has full power and authority to own its property and
assets and to carry on its business and operations as now being conducted and as
presently contemplated, to execute, deliver and perform, as applicable, this
Agreement and the other Loan Documents to which it is a party, to make the
borrowings hereunder, to execute and deliver the Note and to grant to Lender the
Mortgage as a first, prior, perfected and continuing lien on and security
interest in the Property, subject only to the Permitted Encumbrances (as defined
in the ESA Loan Agreement).
4.3 Authorization of Borrowing. The execution, delivery and performance
of this Agreement and the other Loan Documents to which it is a party, the
making of the borrowings thereunder, the execution and delivery of the Note, the
granting of the liens on the Property pursuant to the Loan Documents to which it
is a party and the consummation of the Loan have been duly authorized by
Borrower by all requisite action (including, without limitation, approvals of
shareholders) and will constitute the legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with their terms, except as
enforcement may be stayed or limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in proceedings at law or in equity) and
will not (i) violate any provision of its articles of incorporation or by-laws,
as applicable, or, to its knowledge, any law, judgment, order, rule or
regulation of any court, arbitration panel or other Governmental Authority,
domestic or foreign, or other Person affecting or binding upon Borrower or the
Property, or (ii) violate any provision of any indenture, agreement, mortgage,
contract or other instrument to which Borrower is a party or by which any of its
property, assets or revenues are bound, or be in conflict with, result in an
acceleration of any obligation or a breach of or constitute (with notice or
lapse of time or both) a default or require any payment or prepayment under, any
such indenture, agreement, mortgage, contract or other instrument, or (iii)
result in the creation or imposition of any lien, except those in favor of
Lender as provided in the Loan Documents to which it is a party.
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4.4 Interest Rate. The rate of interest paid under the Note and the
method and manner of the calculation thereof do not violate any usury or other
law or applicable Legal Requirement.
4.5 Other Agreements. Borrower is not a party to nor is otherwise bound
by any agreement or instrument that is reasonably likely to have a Material
Adverse Change. Borrower is not in violation of its corporate organizational
documents or other restriction or any agreement or instrument by which it is
bound, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or Governmental Authority, or any Legal Requirement, in each
case, applicable to Borrower or the Property, except for such violations that
would not, individually or in the aggregate, have a Material Adverse Change.
4.6 Maintenance of Existence.
A. Borrower at all times since formation has been duly formed and
existing. As of the date hereof, Borrower has been duly formed and is validly
existing as a Single Purpose Entity and shall preserve and keep in full force
and effect its existence as a Single Purpose Entity.
B. Borrower at all times since formation has complied, and will
continue to comply, with the provisions of its articles of incorporation and by-
laws and the laws of its jurisdiction of formation relating to corporations.
Borrower will not, nor will Borrower permit any constituent party of Borrower
to, amend, modify or otherwise change the articles of incorporation and bylaws
or other organizational documents of Borrower or such constituent party without
the prior written consent of Lender.
C. All statutory requirements regarding the existence of Borrower
have been observed at all times since its formation and will continue to be
observed.
D. Borrower has at all times accurately maintained, and will
continue to accurately maintain, financial statements, accounting records and
other corporate documents separate from those of any other Person. Borrower has
not at any time since formation commingled, and will not commingle, its assets
with those of any other Person. Borrower has at all times since its formation
accurately maintained, and will continue to accurately maintain, its own bank
accounts, payroll and separate books of account.
E. Borrower has at all times paid, and will continue to pay, its own
liabilities from its own separate assets.
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F. Borrower has at all times identified itself, and will continue to
identify itself, in all dealings with the public, under its own name and as a
separate and distinct entity. Borrower has not at any time identified itself,
and will not identify itself, as being a division of any other Person, provided
that the foregoing shall not apply with respect to the naming of the Property.
G. Borrower has been at all times, and will continue to be,
adequately capitalized in light of the nature of its business.
H. Any borrowings made by Borrower in connection with this Agreement
do not and will not render Borrower insolvent; Borrower is not contemplating
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of its property,
and Borrower has no knowledge of any Person contemplating the filing of any such
petition against it.
I. Borrower (a) does not own and will not own without the consent of
Lender any encumbered asset other than the Property (other than assets
encumbered pursuant to Permitted Indebtedness which is secured solely by the
relevant asset other than the Property pursuant to which the Person to whom the
indebtedness is owing has delivered to Borrower an undertaking that it will not
institute against, or join any other person in instituting against Borrower any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other proceeding under any federal or state bankruptcy or similar law, until
one year and one day after the Loan is paid in full, or look to any other
property or assets of Borrower in respect of such obligations and that such
obligations shall not constitute a claim against Borrower in the event that the
encumbered asset is insufficient to pay in full such obligations), (b) is not
engaged and will not engage in any business other than the ownership, management
and operation of the Property, (c) will not enter into any contract or agreement
with any Affiliate of Borrower except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arm's-length basis with third parties other than an Affiliate, (d) has not
incurred and will not incur any indebtedness, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than the Loan or any
Permitted Indebtedness, and (e) has not made and will not make any loans or
advances to any third party (including any Affiliate) (other than de minimis
advances to customers, employees and suppliers which do not exceed $35,000).
4.7 No Defaults. No Default or Event of Default has occurred and is
continuing or would occur as a result of the consummation of the transactions
contemplated by the Loan Documents. Borrower is not in default in the payment
or performance of any of its Contractual Obligations in any respect.
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4.8 Governmental Consents and Approvals. Borrower has obtained or made
all necessary (i) consents, approvals and authorizations, and registrations and
filings of or with all Governmental Authorities and (ii) consents, approvals,
waivers and notifications of partners, stockholders, creditors, lessors and
other nongovernmental Persons, in each case, which are required to be obtained
or made by Borrower in connection with the execution and delivery of, and the
performance by Borrower of its obligations under, the Loan Documents.
4.9 Investment Company Act Status. Borrower is not an "investment
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
4.10 Compliance with Law. Borrower is in compliance in all material
respects with all Legal Requirements to which it or the Property is subject,
including, without limitation, all Environmental Statutes, the Occupational
Safety and Health Act of 1970, the Americans with Disabilities Act and ERISA.
4.11 Financial Information. All financial data that has been delivered by
Borrower to Lender (i) is complete and correct in all material respects, (ii)
accurately represents the financial condition of the Persons covered thereby as
of the date on which the same shall have been furnished, and (iii) has been
prepared in accordance with GAAP (or such other accounting basis as is
reasonably acceptable to Lender) throughout the periods covered. As of the date
hereof, Borrower has no contingent liability, liability for taxes or other
unusual or forward commitment not reflected in such financial statements
delivered to Lender, except for guaranties of Permitted Indebtedness disclosed
to Lender; since the date of the last financial statements delivered by Borrower
to Lender except as otherwise disclosed in such financial statements or notes
thereto, there has been no change in the assets, liabilities or financial
position of Borrower or in the results of operations of Borrower that would have
a Material Adverse Change. Borrower has not incurred any obligation or
liability, contingent or otherwise not reflected in such financial statements
that would have a Material Adverse Change.
4.12 Federal Reserve Regulations. No part of the proceeds of the Loan will
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System or for any other purpose that would be inconsistent with such
Regulations G, T, U or X or any other Regulations of such Board of Governors, or
for any purposes prohibited by Legal Requirements or by the terms and conditions
of the Loan Documents.
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4.13 Pending Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of Borrower, threatened against or affecting
Borrower or the Property in any court or before any Governmental Authority that
if adversely determined either individually or collectively have or are
reasonably likely to have a Material Adverse Change. Borrower is not in default
with respect to any order of any court or Governmental Authority and the
execution and delivery of, and the performance by Borrower of its obligations
under, each of the Loan Documents will not cause or result in any such default.
4.14 Solvency; No Bankruptcy. Borrower (i) is and has at all times been
Solvent and will remain Solvent immediately upon the consummation of the
transactions contemplated by the Loan Documents and (ii) is free from
bankruptcy, reorganization or arrangement proceedings or a general assignment
for the benefit of creditors.
4.15 Not Foreign Person. Borrower is not a "foreign person" within the
meaning of (S) 1445(f)(3) of the Code.
4.16 Ownership of Borrower; Subsidiaries.
A. As of the date hereof, the authorized capital stock of Borrower
consists of a single class of ___________ common shares of beneficial interest,
$0.01 par value per share, of which _________ shares are issued and outstanding,
and no preferred shares of beneficial interest. There are no Stock Equivalents
of Borrower. No Stock of Borrower is subject to any outstanding option,
warrant, right of conversion or purchase or any similar right. All of the
outstanding capital stock of Borrower is now validly issued, fully paid and non-
assessable. No authorized but unissued shares, no treasury shares and, to the
best knowledge of Borrower, no other outstanding shares of capital stock of
Borrower are subject to any option, warrant, right of conversion or purchase or
any similar right. There are no agreements or understandings with respect to
the voting, sale or transfer of any shares of capital stock of Borrower, or to
the best knowledge of Borrower, any agreement restricting the transfer or
hypothecation of any such shares. Borrower has no subsidiaries.
B. Borrower does not own or hold, directly or indirectly, any
capital stock or equity security of, or any equity interest in, any Person
including any Subsidiaries.
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4.17 ERISA.
A. There is not and there has not been any withdrawal from a
Multiemployer Plan or, to the best knowledge of Borrower, any Reorganization or
Liquidation of a Multiemployer Plan as defined in Title IV of ERISA.
B. Each Plan and Pension Plan and any related trust intended to
qualify under Code Section 401 or 501 has been determined by the IRS to be so
qualified (or an application therefor has been timely made) and to the best
knowledge of Borrower nothing has occurred which would cause the loss of such
qualification, and each Plan or Pension Plan has been and is operated and
administered in accordance with the terms and conditions governing those plans,
all applicable laws and statutes, including without limitation, ERISA and the
Code and regulations thereunder.
C. No obligation exists and no event has occurred, and to the best
knowledge of Borrower, no obligation is likely to arise and no event is likely
to occur with respect to any Plan, Pension Plan or Multiemployer Plan affecting
Borrower, any Subsidiary or ERISA Affiliate which either alone is, or in the
aggregate are, reasonably likely to adversely affect Borrower's ability to
comply with its duties and obligations under this Agreement or which would have
a Material Adverse Change.
4.18 Management Agreement. The Management Agreement is in full force and
effect and is a legally valid and binding obligation of Borrower and the other
parties thereto, subject to such exceptions which are not reasonably likely to
result in, in the aggregate, a Material Adverse Change. The Management
Agreement is not mortgaged, pledged or otherwise encumbered and Borrower has not
encumbered any of its rights thereunder including, without limitation, its right
to obtain rental, interest or other payments under the Management Agreement,
other than by way of such mortgages, pledges or encumbrances in favor of Lender.
All rent and other sums and charges payable by any Manager are current, no
notice of default or termination under any such Management Agreement is
outstanding, to the knowledge of Borrower no termination event or condition or
uncured default on the part of Manager exists under any Management Agreement,
and to the knowledge of Borrower no event of default has occurred which, with
the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition or uncured default on the part of
Borrower, subject to such exceptions that are not reasonably likely to result
in, in the aggregate, a Material Adverse Change.
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5 COVENANTS OF BORROWER
5.1 Continuing Nature of Representations. Borrower shall do or take all
actions necessary to cause all of the representations and warranties contained
in Sections 4.1, 4.6, 4.8, 4.9, 4.10, 4.12, 4.14, 4.15 and 4.17 to be and remain
accurate at all times throughout the term of the Loan.
5.2 [RESERVED].
5.3 Use and Maintenance of the Property.
A. Borrower will use, or cause to be used, the Property as an
extended-stay guest lodging facility in accordance with the use as is permitted
pursuant to applicable Legal Requirements including, without limitation, under
the certificate of occupancy applicable to the Property, and as required by the
Loan Documents. Borrower shall not suffer or permit the Property or any portion
thereof to be used by the public, any tenant, or any Person not subject to a
Lease, in a manner as is reasonably likely to impair Borrower's title to the
Property, or in such manner as may give rise to a claim or claims of adverse
usage or adverse possession by the public, or of implied dedication of the
Property or any part thereof.
B. Borrower shall not (i) desert or abandon the Property; (ii)
consent to or seek any lowering of the zoning classification, or greater zoning
restriction affecting the Property; or (iii) take any steps whatsoever to
convert the Property, or any portion thereof, to a condominium or cooperative
form of ownership.
C. Borrower shall, at its expense, (i) take good care of the
Property including grounds generally, and utility systems and sidewalks, roads,
alleys, and curbs therein, and shall keep the same in good, safe and insurable
condition and in compliance with all applicable Legal Requirements, (ii)
promptly make all repairs to the Property, above grade and below grade, interior
and exterior, structural and nonstructural, ordinary and extraordinary,
unforeseen and foreseen, and maintain the Property in a manner appropriate for
the facility and (iii) not commit or suffer to be committed any waste of the
Property or do or suffer to be done anything that will increase the risk of fire
or other hazard to the Property or impair the value thereof. All repairs made
by Borrower shall be made with first-class materials, in a good and workmanlike
manner, shall be equal or better in quality and class to the original work and
shall comply with all applicable Legal Requirements and Insurance Requirements.
Borrower shall permit Lender and its agents, at all reasonable times and without
prior notice, to enter upon the Property for the purpose of inspecting and
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appraising the Property or any portion thereof. To the extent any of the above
obligations are obligations of tenants under Leases or other Persons under
Property Agreements, Borrower may fulfill its obligations hereunder by causing
such tenants or other Persons, as the case may be, to perform their obligations
thereunder. As used herein, the terms "repair" and "repairs" shall be deemed to
include all necessary replacements.
D. Borrower shall not demolish, remove, construct, or, except as
otherwise expressly provided herein, restore, or alter the Property or any
portion thereof in a manner that could foreseeably diminish the value of the
Property; nor consent to or permit any such demolition, removal, construction,
restoration, addition or alteration that would diminish the value of the
Property without Lender's prior written consent in each instance, which consent
shall not be unreasonably withheld or delayed.
E. All rights, title and interest of Borrower in and to all
extensions, improvements, betterment, renewals, and appurtenances to the
Property hereafter acquired by, or released to, Borrower or constructed,
assembled or placed by Borrower in the Property (except for leased equipment),
and all changes and substitutions of the security constituted thereby, shall be
and, in each such case, without any further mortgage, conveyance, assignment or
other act by Lender or Borrower, shall become subject to the lien and security
interest of the Mortgage as fully and completely, and with the same effect, as
though now owned by Borrower and specifically described in the Mortgage.
Notwithstanding the foregoing, at any and all times Borrower shall execute and
deliver to Lender any documents Lender may reasonably deem necessary or
appropriate for the purpose of specifically subjecting the same to the lien and
security interest of the Mortgage.
F. Borrower shall not by any act or omission permit any building or
other improvement located on any property which is not subject to the lien of
the Mortgage to rely upon the Real Estate or any portion thereof or any interest
therein to fulfill any Legal Requirement, other than pursuant to a Permitted
Encumbrance, and Borrower hereby assigns to Lender any and all rights to give
consent for all or any portion of the Real Estate or any interest therein to be
so used. The Real Estate is zoned as one or more lots separate and apart from
all other premises and Borrower shall not, by any act or omission, impair the
integrity of the Real Estate as such lot or lots or initiate or join in any
zoning change, private easement or any other modification of the zoning
regulating the Real Estate. Borrower shall not (i) impose any restrictive
covenants or encumbrances upon the Real Estate, execute or file any subdivision
plot affecting the Real Estate or consent to the annexation of the Real Estate
to any municipality or (ii) permit or suffer the Real Estate to be used by the
public or any Person in such manner as might make possible a claim of adverse
usage or possession or
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of any implied deduction or easement. Any act or omission by Borrower which
would result in a violation of any of the provisions of this Article shall be
null and void.
G. Notwithstanding the provisions of the Mortgage to the contrary,
Borrower shall have the right, at any time and from time to time, to remove and
dispose of equipment which may have become obsolete or unfit for use or which is
no longer useful in the management, operation or maintenance of the Property.
Borrower shall promptly replace any such equipment so disposed of or removed
with other equipment of equal or greater value and utility, free of any security
interest or superior title, liens or claims; except that, if by reason of
technological or other developments, replacement of the equipment so removed or
disposed of is not necessary or desirable for the proper management, operation
or maintenance of the Property, Borrower shall not be required to replace the
same. All such replacements or additional equipment shall be deemed to
constitute Fixtures and shall be covered by the security interest granted in
connection herewith.
5.4 Financial Reports.
A. Borrower will keep and maintain or will cause to be kept and
maintained on a fiscal year basis, in accordance with the accounting basis used
for Borrower's tax returns (or such other accounting basis reasonably acceptable
to Lender) consistently applied, proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of the Property or in connection with
any services, equipment or furnishings provided in connection with the operation
thereof, whether such income or expense may be realized by Borrower or by any
other Person whatsoever affiliated with Borrower, ESA or any subsidiary of ESA,
excepting lessees unrelated to and unaffiliated with Borrower who have leased
from Borrower portions of the Property for the purpose of occupying the same.
Lender shall have the right from time to time at all times during normal
business hours upon reasonable notice to examine such books, records and
accounts at the office of Borrower or other person maintaining such books,
records and accounts and to make such copies or extracts thereof as Lender shall
desire. After the occurrence of an Event of Default, Borrower shall pay any
costs and expenses incurred by Lender to examine Borrower's accounting records
with respect to the Property, as Lender shall determine to be necessary or
appropriate in the protection of Lender's interest.
B. Borrower will furnish Lender annually, within 90 days following
the end of each Fiscal Year of Borrower, with a complete copy of Borrower's
financial statement audited by an Independent certified public accountant that
is reasonably acceptable to Lender in accordance with GAAP (or such other
accounting basis reasonably acceptable to Lender)
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consistently applied covering the operation of the Property for such Fiscal Year
and containing a statement of revenues and expenses (including Net Operating
Income as defined herein), a statement of assets and liabilities and a statement
of Borrower's equity. Together with Borrower's annual financial statements,
Borrower shall furnish to Lender an Officer's Certificate certifying as of the
date thereof:
i that the annual financial statements accurately represent the
results of operation and financial condition of Borrower and the Property
all in accordance with GAAP consistently applied, and
ii whether there exists an event or circumstance that
constitutes, or that upon notice or lapse of time or both would constitute,
a Default under the Note or any other Loan Document executed and delivered
by Borrower, and if such event or circumstance exists, the nature thereof,
the period of time it has existed and the action then being taken to remedy
such event or circumstance.
C. Borrower will furnish Lender monthly, within 15 business days
following the end of each month, with a true, complete and correct:
i cash flow statement with respect to the Property in the form
attached hereto as Exhibit 5.4 and made a part hereof, showing (i) all cash
receipts of any kind whatsoever and all cash payments and disbursements,
and (ii) year-to-date summaries of such cash receipts, payments and
disbursements together with a certification of Manager stating that such
cash flow statement is true, complete and correct, and
ii in the event there are any Leases to commercial tenants, (x)
a rent roll thereof for the Property, including a list of which tenants are
in default under their respective Leases, dated as of the date of Lender's
request, identifying each tenant, the monthly rent and additional rent, if
any, payable by such tenant, the expiration date of such tenant's Lease,
the security deposit, if any, held by Borrower under the Lease, the space
covered by the Lease, and the arrearages for such tenant, if any and (y) an
Officer's Certificate, dated as of the date of the delivery of such rent
roll and security deposit schedule, certifying that same are true, correct
and complete in all material respects as of its date.
D. A schedule of Lease security deposits, if any, showing any
activity in the Security Deposit Account for such month, together with a
certification of Manager as to
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the balance in such Security Deposit Account and that such Lease security
deposits are being held in accordance with all Legal Requirements.
E. Borrower will furnish Lender monthly, within 30 days following
the end of each month, with a certification of Manager stating that all
Operating Expenses with respect to the Property that had accrued as of the last
day of the month preceding the delivery of the cash flow statement referred to
in clause (C) above have been fully paid or otherwise reserved or provided for
by Manager (any such certification or any certification furnished by Manager
pursuant to clause (C) above, a "Manager Certification").
F. Borrower shall furnish to Lender, within 30 days after Lender's
request therefor, with such further detailed information with respect to the
operation of the Property and the financial affairs of Borrower as may be
reasonably requested by Lender.
G. Borrower will furnish Lender annually, within 90 days after the
end of each Fiscal Year, with a report setting forth (i) the average occupancy
rate of the Property during such Fiscal Year, (ii) the capital repairs,
replacements and improvements performed at the Property during such Fiscal Year
and the aggregate Recurring FF&E Expenditures made in connection therewith, and
(iii) the balance contained in each of the Sub-Accounts as of the end of such
Fiscal Year (which balance Lender shall provide upon Borrower's written request
therefor).
5.5 Reporting Requirements. Borrower shall furnish to Lender, all at
Borrower's sole cost and expense:
A. as soon as available and in any event within 30 days prior to the
end of each Fiscal Year, an annual budget of Borrower for the succeeding Fiscal
Year, displaying on a quarterly basis anticipated balance sheets, forecasted
capital expenditures, working capital requirements, rent revenues, contributions
to any Recurring FF&E Reserves Sub-Account, interest income, net income, cash
flow and sales, all on a consolidated basis;
B. promptly and in any event within 30 days after Borrower or any
ERISA Affiliate knows or has reason to know that (i) any event has occurred, or
is reasonably likely to occur with respect to any Plan, Pension Plan or
Multiemployer Plan or the duties or obligations of Borrower, any Subsidiary or
ERISA Affiliate thereunder and which is reasonably likely to have or cause a
Material Adverse Change, (ii) a withdrawal has occurred or is reasonably likely
to occur with respect to any Multiemployer Plan by ESA or any ESA ERISA
Affiliate or, to the best knowledge of ESA or any of its Subsidiaries, any
Multiemployer Plan is in Reorganization or Liquidation as defined in Title IV of
ERISA, a
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written statement of the chief financial officer or other appropriate officer of
Borrower describing such event and the action, if any, which Borrower and its
ERISA Affiliates propose to take with respect thereto and a copy of any notice
filed by or with the PBGC or the IRS pertaining thereto;
C. promptly and in any event within 10 days after receipt thereof, a
copy of any adverse notice, determination letter, ruling or opinion Borrower or
any ERISA Affiliate receives from the PBGC, the United States Department of
Labor or the IRS with respect to any Plan, other than those which, in the
aggregate, do not have any reasonable likelihood of resulting in a Material
Adverse Change;
D. promptly after the commencement thereof, notice of all actions,
suits and proceedings before any domestic or foreign Governmental Authority or
arbitrator, affecting Borrower, except those which in the aggregate, if
adversely determined, would have no Material Adverse Change;
E. promptly and in any event within 5 Business Days after Borrower
becomes aware of the existence of (i) any Default or Event of Default, (ii) any
breach or non-performance of, or any default under the Management Agreement, or
any Contractual Obligation which is material to the business, prospects,
operations or financial condition of Borrower, or (iii) any Material Adverse
Change or any event, development or other circumstance which has reasonable
likelihood of causing or resulting in a Material Adverse Change, telephonic or
telecopied notice in reasonable detail specifying the nature of such Default,
Event of Default, breach, non-performance, default, event, development or
circumstance, including, without limitation, the anticipated effect thereof,
which notice (if by telephone) shall be promptly confirmed in writing within 5
days;
F. promptly after the sending or filing thereof, copies of all
reports which Borrower sends to its security holders generally, and copies of
all reports and registration statements which Borrower files with the Securities
and Exchange Commission or any national securities exchange or the National
Association of Securities Dealers, Inc.;
G. upon the request of Lender copies of all federal, state and local
tax returns and reports filed by Borrower in respect of taxes measured by income
(excluding sales, use and like taxes);
H. written notice within 5 days of Borrower learning of any proposed
acquisition of stock, assets or real property, or any proposed leasing of
property by Borrower, unless such action is not reasonably likely to have a
Material Adverse Change;
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I. promptly, such additional information respecting the condition of
Borrower or the status or condition of any real property owned or leased by
Borrower, or the operation thereof which Borrower is entitled to or can
otherwise reasonably obtain, as Lender from time to time reasonably request; and
J. such other information respecting the business, properties,
condition, financial or otherwise, or operations of Borrower as Lender may from
time to time reasonably request.
5.6 Refinancing. If and only if the Loan is a Fixed Rate Loan, as that
term is defined in the ESA Loan Agreement, Borrower shall deliver to Lender a
Refinancing Commitment on or before the date that is six (6) months prior to the
Maturity Date for a Fixed Rate Loan (the "Refinance Notification Date").
5.7 Appraisals and other Valuations. From time to time during the term of
this Agreement, Lender may, in its sole discretion, order an Appraisal of the
Properties. Any such Appraisal shall be at Lender's cost, except if an Event of
Default has occurred, in which case it shall be at Borrower's cost.
5.8 Other Indebtedness.
A. Borrower shall not create, incur or suffer to exist, any
Indebtedness, or incur, assume, endorse, be or become liable for, or guarantee,
directly or indirectly, or permit or suffer to exist, any Contingent Obligation,
except the following ("Permitted Indebtedness"):
i Indebtedness and Contingent Obligations in respect of the
Obligations or evidenced by a Loan Document or required in connection with
the Loan;
ii current liabilities in respect of taxes, assessments and
governmental charges or levies incurred, or claims for labor, materials,
inventory, services, supplies and rentals incurred, or for goods or
services purchased, in the ordinary course of business consistent with the
past practice of Borrower or as permitted under the ESA Loan Agreement; or
iii subordinate debt that is not secured by the Property and
that is subject to stand-still subordination agreements acceptable to
Lender and otherwise acceptable to Lender in its sole discretion; loans
secured only by a right to
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distributions, income or profit, and not by any partnership interest in
Borrower; loans in the nature of conditional sales or installment sales
with respect to equipment or fixtures, only.
B. Borrower shall not cancel any claim or Indebtedness owed to it
except for adequate consideration and in the ordinary course of business.
5.9 Investments. Borrower shall not, directly or indirectly, make or
maintain any loan or advance to any Person (other than de minimis advances to
customers, employees and suppliers which do not exceed $35,000) or own, purchase
or otherwise acquire any Stock, Stock Equivalents, other equity interest,
obligations or other securities of, or all or substantially all of the assets
of, any Person or all or substantially all of the assets constituting the
business of a division, branch or other unit operation of any Person, or enter
into any joint venture or partnership with, or make or maintain, any capital
contribution to, or otherwise invest in, any Person.
5.10 Independence Covenants.
A. Borrower shall at all times cause there to be at least one duly
appointed member of the board of directors (an "Independent Director") of
Borrower reasonably satisfactory to Lender who shall not have been at the time
of such individual's initial appointment, and may not have been at any time
during the preceding five years, and shall not be at any time while serving as a
director either (i) a shareholder of, or an officer, director, partner or
employee of, Borrower or any of its shareholders, partners, subsidiaries or
Affiliates, (ii) a customer of, or supplier to, Borrower or any of its
shareholders, partners, subsidiaries or Affiliates, (iii) a person or other
entity controlling or under common control with any such shareholder, officer,
director, partner, employee, supplier or customer, or (iv) a member of the
immediate family of any such shareholder, officer, director, partner, employee,
supplier or customer. As used herein, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policy of a person or entity, whether through ownership of voting
securities, by contract or otherwise.
B. Borrower shall not cause or permit the board of directors of
Borrower to take any action which, under the terms of any articles of
incorporation, bylaws or any voting trust agreement with respect to any common
stock, requires a vote of the board of directors of Borrower unless at the time
of such action there shall be at least one member who is an Independent
Director.
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5.11 Modification of Material Agreements. Borrower shall not alter, amend,
modify, rescind, terminate, supplement or waive any of its respective rights
under, or fail to comply in all material respects with, any of its material
obligations arising under any Management Agreement; provided, however, that,
with respect to any such failure to comply with any such obligations, Borrower
shall not be deemed in default of this Section if all such failures in the
aggregate would have no Material Adverse Change; and provided, further, that in
the event of any material breach or event of default by a Person other than
Borrower, Borrower shall promptly notify Lender of any such breach or event of
default and take all such action as may be reasonably necessary in order to
endeavor to avoid having such breach or event of default have a Material Adverse
Change.
5.12 Tax Filings. Borrower has filed all federal, state and local tax
returns required to be filed and has paid or made adequate provision for the
payment of all federal, state and local taxes, charges and assessments payable
by Borrower. Borrower believes that its respective tax returns properly
reflect the income and taxes of Borrower for the periods covered thereby,
subject only to reasonable adjustments required by the Internal Revenue Service
or other applicable tax authority upon audit.
5.13 Further Acts, etc. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Lender the Property and rights mortgaged hereby, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged,
assigned and hypothecated, or which Borrower may be or may hereafter become
bound to convey or assign to Lender, or for carrying out or facilitating the
performance of the terms of this Agreement or any other Loan Document or for
filing, registering or recording the Mortgage and, on demand, will execute and
deliver and hereby authorizes Lender to execute in the name of Borrower or
without the signature of Borrower to the extent Lender may lawfully do so, one
or more financing statements, chattel mortgages or comparable security
instruments, to evidence more effectively the lien hereof upon the Property.
Borrower grants to Lender an irrevocable power of attorney coupled with an
interest for the purpose of protecting, perfecting, preserving and realizing
upon the interests granted pursuant to this Agreement or the Mortgage (after
notice to Borrower, if practicable under the circumstances) and to effect the
intent hereof, all as fully and effectually as Borrower might or could do,
provided that Borrower's obligations hereunder shall not be materially increased
or altered; and Borrower hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue hereof consistent with the terms hereof.
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5.14 Recording of Mortgage, etc. Borrower forthwith upon the execution and
delivery of the Mortgage and thereafter, from time to time, will cause the
Mortgage and any security instrument creating a lien or security interest or
evidencing the lien hereof upon the Property and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully protect the lien or security interest hereof upon, and the interest of
Lender in, the Property. Borrower will pay all filing, registration or
recording fees, and all expenses incident to the preparation, execution and
acknowledgment of the Mortgage, any security instrument with respect to the
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of the Mortgage, any security
instrument with respect to the Property or any instrument of further assurance,
except where prohibited by law to do so, in which event Lender may declare the
Loan to be immediately due and payable. Borrower shall hold harmless and
indemnify Lender, and its successors and assigns, against any liability incurred
as a result of the imposition of any tax on the making and recording of the
Mortgage or any other Loan Document.
6 INSURANCE AND CASUALTY RESTORATION
6.1 Insurance Coverage. Borrower shall, at its expense, maintain the
following insurance coverages with respect to the Property during the term of
this Agreement:
A. Insurance against loss or damage by fire, casualty and other
hazards included in an "all-risk" extended coverage endorsement or its
equivalent, with such endorsements as Lender may from time to time reasonably
require and that are customarily required by Institutional Lenders of similar
properties similarly situated, covering the Property in an amount not less than
the greater of (A) 100% of the insurable replacement value of the Property
(exclusive of the footings and foundations) and (B) such other amount as is
necessary to prevent any reduction in such policy by reason of and to prevent
Borrower, Lender or any other insured thereunder from being deemed to be a co-
insured. Not less frequently than once every three years, Borrower, at its
option, shall either (A) have the cost approach to valuation in the Appraisal
updated or obtain a new appraisal of the Property, (B) have a valuation of the
Property made by or for its insurance carrier conducted by an Appraiser
experienced in valuing properties of similar type to that of the Property that
are in the geographical area in which the Property is located or (C) provide
such other evidence as will, in Lender's reasonable judgment, enable Lender to
determine whether there shall have been an increase in the insurable value of
the Property and Borrower shall deliver such updated Appraisal, new appraisal,
insurance valuation or other evidence acceptable to
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Lender, as the case may be, and, if such updated Appraisal, new appraisal,
insurance valuation, or other evidence acceptable to Lender reflects an increase
in the insurable value of the Property, the amount of insurance required
hereunder shall be increased accordingly and Borrower shall deliver evidence
satisfactory to Lender that such policy has been so increased.
B. Comprehensive general liability insurance against claims for
personal and bodily injury and/or death to one or more persons or property
damage, occurring on, in or about the Property (including the adjoining streets,
sidewalks and passageways therein) in such amounts as Lender may from time to
time reasonably require (but in no event shall Lender's requirements increase
more frequently than once during each twelve (12) month period) and that are
customarily required by Institutional Beneficiaries for similar properties
similarly situated, but not less than $10,000,000.
C. Business interruption insurance with loss payable to Lender,
covering all risks required to be covered by the insurance provided for in
Section 6.1.A and in such amounts and to such standards as may be required by a
Rating Agency sufficient to maintain the desired rating from a Rating Agency in
connection with a securitization. The amount of such insurance shall be
determined upon the execution of this Agreement, and not more frequently than
once each calendar year thereafter based on Borrower's reasonable estimate for
the next succeeding twelve (12) months. In the event the Property shall be
damaged or destroyed, Borrower shall and hereby does assign to Lender all
payment of claims under the policies of such insurance, and all amounts payable
thereunder, and all net amounts, shall be collected by Lender under such
policies and shall be applied in accordance with this Agreement; provided,
however, that nothing herein contained shall be deemed to relieve Borrower of
its obligations to timely pay all amounts due under the Loan Documents, except
to the extent such amounts are actually paid out of the proceeds of such
insurance.
D. Insurance against loss or damages from (i) leakage of sprinkler
systems and (ii) explosion of steam boilers, air conditioning equipment,
pressure vessels or similar apparatus now or hereafter installed at the
Property, in such amounts as Lender may from time to time reasonably require and
that are then customarily required by Institutional Beneficiaries of similar
properties similarly situated.
E. Flood insurance in an amount equal to the full insurable value of
the Property or the maximum amount available, whichever is less, if any building
or operating system on the Property is located in an area designated by the
Secretary of Housing and Urban Development as being "an area of special flood
hazard" under the National Flood
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Insurance Program (i.e., having a one percent or greater chance of flooding),
and if flood insurance is available under the National Flood Insurance Act.
F. Worker's compensation insurance or other similar insurance that
may be required by Governmental Authorities or Legal Requirements.
G. Such other insurance as may from time to time reasonably be
required by Lender and that is then customarily required by Institutional
Lenders for similar properties similarly situated, against other insurable
hazards, including, but not limited to, malicious mischief, vandalism, windstorm
or earthquake, which at the time are commonly insured against and generally
available in the case of properties similarly situated, due regard to be given
to the size and type of the Land, Building and Fixtures and their location,
construction and use.
6.2 Manager's Fidelity Insurance. If requested by Lender, Borrower shall
cause any Manager of the Property to maintain fidelity insurance in an amount
equal to or greater than the Operating Income of the Property for the one (1)
month period immediately preceding the date on which the premium for such
insurance is due and payable or such lesser amount as Lender shall approve.
6.3 Policy Terms.
A. All insurance required by this Article shall be in the form
(other than with respect to sub-sections 6.1.E and 6.1.F above when insurance in
those two sub-sections is placed with a governmental agency or instrumentality
on such agency's forms) and amount and with deductibles as, from time to time,
shall be reasonably acceptable to Lender, under valid and enforceable policies
issued by financially responsible insurers authorized to do business in the
State, with a general policyholder's service rating of not less than "A2" or "A"
and a financial rating of not less than "IX" as rated in the most currently
available Best's Insurance Reports (or the equivalent, if such rating system
shall hereafter be altered or replaced) and shall have a claims paying ability
rating of not less than "A2" or "A" from a Rating Agency or, if not rated by a
Rating Agency, then a claims paying ability rating of "A2" or "A" from at least
two nationally recognized statistical rating agencies. Lender hereby
acknowledges that Borrower shall be entitled to satisfy its obligations under
this Article by procuring a blanket or umbrella policy with Affiliates of
Borrower. Originals or certified copies of all insurance policies shall be
delivered to and held by Lender. All such policies (except policies for
worker's compensation) shall name Lender as an additional named insured, shall
(except for liability) provide for loss payable to Lender and shall contain (or
have attached): (i) standard "non-contributory mortgagee" endorsement or its
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equivalent relating, inter alia, to recovery by Lender notwithstanding the
negligent or willful acts or omissions of Borrower; (ii) a waiver of subrogation
endorsement as to Lender; (iii) an endorsement indicating that neither Lender
nor Borrower shall be or be deemed to be a co-insurer with respect to any
casualty risk insured by such policies and shall provide for a deductible per
loss of an amount not more than that which is customarily maintained by owners
of similar properties similarly situated; and (iv) a provision that such
policies shall not be canceled or amended, including, without limitation, any
amendment reducing the scope or limits of coverage, without the insurer's
endeavoring to provide at least 30 days prior written notice to Lender in each
instance. Not less than 30 days prior to the expiration dates of the insurance
policies obtained pursuant to this Agreement, originals or certified copies of
renewals of such policies (or certificates evidencing such renewals) bearing
notations evidencing the payment of premiums or accompanied by other reasonable
evidence of such payment (which premiums shall not be paid by Borrower through
or by any financing arrangement that would entitle an insurer to terminate a
policy) shall be delivered by Borrower to Lender. Borrower shall not carry
separate insurance, concurrent in kind or form or contributing in the event of
loss, with any insurance required under this Article.
B. If Borrower fails to maintain and deliver to Lender the original
policies or certificates of insurance required by this Agreement, or if there
are insufficient funds in the Basic Carrying Costs Sub-Account to pay the
premiums for same, Lender may, at its option, procure such insurance, and
Borrower shall pay, or as the case may be, reimburse Lender for, all premiums
thereon promptly, upon demand by Lender, with interest thereon at the Default
Rate from the date paid by Lender to the date of repayment and such sum shall
constitute a part of the Loan.
C. Borrower shall notify Lender of the renewal premium of each
insurance policy and Lender may pay such amount on behalf of Borrower from the
Basic Carrying Costs Sub-Account. With respect to insurance policies that
require periodic payments (i.e., monthly or quarterly) of premiums, Lender may
pay such amounts 15 days (or such lesser number of days as Lender shall
determine) prior to the respective due dates of such installments.
6.4 Assignment of Policies.
A. Borrower hereby assigns to Lender the proceeds of all insurance
(other than liability insurance) obtained pursuant to this Agreement, all of
which proceeds shall be payable to Lender as collateral and further security for
the payment of the Loan and the performance of Borrower's obligations hereunder
and under the other Loan Documents, and Borrower hereby authorizes and directs
the issuer of any such insurance to make payment of
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such proceeds directly to Lender. Except as otherwise expressly provided in
Section 6.5 or elsewhere in this Article, Lender shall have the option, in its
discretion, and without regard to the adequacy of its security, to apply all or
any part of the proceeds it may receive pursuant to this Article in such manner
as Lender may elect to any one or more of the following: (i) the payment of the
Loan, whether or not then due, in any proportion or priority as Lender, in its
discretion, may elect, (ii) the repair or restoration of the Property, (iii) the
cure of any Default or Event of Default or (iv) the reimbursement of the costs
and expenses of Lender incurred pursuant to the terms hereof in connection with
the recovery of the proceeds. Nothing herein contained shall be deemed to
excuse Borrower from repairing or maintaining the Property as provided in this
Agreement or restoring all damage or destruction to the Property, regardless of
the sufficiency of the proceeds, and the application or release by Lender of any
proceeds shall not cure or waive any Default or Event of Default or notice of
Default.
B. In the event of the foreclosure of this Agreement or any other
transfer of title or assignment of all or any part of the Property in
extinguishment, in whole or in part, of the Loan, all right, title and interest
of Borrower in and to all policies of insurance required by this Agreement shall
inure to the benefit of the successor in interest to Borrower or the purchaser
of the Property. If, prior to the receipt by Lender of any proceeds, the
Property or any portion thereof shall have been sold on foreclosure of the Deed
of Trust or by deed in lieu thereof or otherwise, or any claim under such
insurance policy arising during the term of this Agreement is not paid until
after the extinguishment of the Loan, and Lender shall not have received the
entire amount of the Loan outstanding at the time of such extinguishment,
whether or not a deficiency judgment on the Deed of Trust shall have been sought
or recovered or denied, then, the proceeds of any such insurance to the extent
of the amount of the Loan not so received, together with interest on the
deficiency at the Default Rate, shall be paid to and be the property of Lender,
and the reasonable attorney's fees, costs and disbursements incurred by Lender
in connection with the collection of the proceeds that, provided there shall not
exist an Event of Default, shall be paid to Lender and Borrower hereby assigns,
transfers and sets over to Lender all of Borrower's right, title and interest in
and to such proceeds. Notwithstanding any provisions of this Agreement to the
contrary, Lender shall not be deemed to be a trustee or other fiduciary with
respect to its receipt of any such proceeds, that may be commingled with any
other monies of Lender; provided, however, that Lender shall use such proceeds
for the purposes and in the manner permitted by this Agreement. Any proceeds
deposited with Lender shall be held by Lender in an interest-bearing account,
but Lender makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue on such deposit and shall have no liability
in connection therewith. Interest accrued, if any, on the proceeds shall be
deemed to constitute a part of the proceeds for purposes of this Agreement. The
provisions of this Section shall
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survive the termination of the Deed of Trust by foreclosure, deed in lieu
thereof or otherwise as a consequence of the exercise of the rights and remedies
of Lender hereunder after a Default.
6.5 Casualty Restoration.
A. In the event of any damage to or destruction of the Property,
Borrower shall give prompt written notice to Lender (which notice shall set
forth Borrower's good faith estimate of the cost of repairing or restoring such
damage or destruction, or if Borrower cannot reasonably estimate the anticipated
cost of restoration, Borrower shall nonetheless give Lender prompt notice of the
occurrence of such damage or destruction, and will diligently proceed to obtain
estimates to enable Borrower to quantify the anticipated cost and time required
for such restoration, whereupon Borrower shall promptly notify Lender of such
good faith estimate) and, provided that restoration does not violate any Legal
Requirements, Borrower shall promptly commence and diligently prosecute to
completion the repair, restoration or rebuilding of the Property so damaged or
destroyed to a condition such that the Property shall be at least equal in value
to that immediately prior to the damage to the extent practicable, in full
compliance with all Legal Requirements and the provisions of all Leases (if
any), and in accordance with Section 6.5.B below (such repair, restoration or
rebuilding of the Property collectively, the "Work").
i Borrower shall not adjust, compromise or settle any claim for
insurance proceeds without the prior written consent of Lender, which shall
not be unreasonably withheld or delayed; provided, however, that, except
during the continuance of an Event of Default, Lender's consent shall not
be required with respect to the adjustment, compromising or settlement of
any claim for insurance proceeds in an amount less than $100,000.
ii So long as no monetary Event of Default shall have occurred
and be continuing hereunder, then Lender shall apply any insurance proceeds
that it may receive towards the Work in accordance with the applicable
sections of this Article and any applicable Lease then in effect.
Notwithstanding the foregoing, except to the extent that restoration is
required pursuant to the terms of Leases then in effect, if (A) Lender is
not reasonably satisfied that the Debt Service Coverage, after substantial
completion of the Work, will be at least equal to the Required Debt Service
Coverage or (B) more than seventy-five percent (75%) of the reasonably
estimated aggregate insurable value of the Property is damaged or destroyed
(collectively, a "Substantial Casualty"), Lender shall have the option, in
its sole discretion to apply any insurance proceeds it may receive pursuant
to this Agreement
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(less any cost to Lender of recovering and paying out such proceeds
incurred pursuant to the terms hereof and not otherwise reimbursed to
Lender, including, without limitation, reasonable attorneys' fees and
expenses) to the payment of the Loan, without any prepayment fee or charge
of any kind, including, without limitation, Yield Maintenance Premium, or
to allow such proceeds to be used for the Work pursuant to the terms and
subject to the conditions of the applicable sections of this Article.
iii In the event that Lender elects or is obligated hereunder to
allow insurance proceeds to be used for the Work, any excess proceeds
remaining after completion of such Work shall be applied to the payment of
the Loan without any prepayment fee or charge of any kind, including,
without limitation, Yield Maintenance Premium.
B. If any condemnation award, in accordance with Section 8.3, or any
insurance proceeds, in accordance with Section 6.5.A, are to be applied to the
repair, restoration or rebuilding of the Property, then such proceeds shall be
deposited into the Central Account (hereinafter defined), held by Lender, and
shall be paid out from time to time to Borrower as the Work progresses (less any
cost to Lender of recovering and paying out such proceeds, including, without
limitation, reasonable attorneys' fees and costs allocable to inspecting the
Work and the plans and specifications therefor but without duplication of
expenditures between Borrower or Lender) subject to Section 9.10 and to all of
the following conditions:
i An architect or engineer selected by Borrower and reasonably
acceptable to Lender (an "Architect" or "Engineer"), or a Person otherwise
reasonably acceptable to Lender, shall have delivered to Lender a
certificate estimating the cost of completing the Work, and, if the amount
set forth therein is more than the sum of the amount of insurance proceeds
then being held by Lender in connection with a casualty and amounts agreed
to be paid as part of a final settlement under the insurance policy upon or
before completion of the Work, Borrower shall have delivered to Lender (A)
cash collateral in an amount equal to such excess, (B) an unconditional,
irrevocable, clean sight draft letter of credit, in form, substance and
issued by a bank reasonably acceptable to Lender, in the amount of such
excess and draws on such letter of credit shall be made by Lender to make
payments pursuant to this Article following exhaustion of the insurance
proceeds therefor or (C) a completion bond in form, substance and issued by
a surety company reasonably acceptable to Lender.
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ii If the cost of the Work is reasonably estimated by an
Architect or Engineer in a certification reasonably acceptable to Lender to
be equal to or to exceed ten percent (10%) of the Loan, such Work shall be
performed under the supervision of an Architect or Engineer, it being
understood that the plans and specifications with respect thereto shall
provide for Work so that, upon completion thereof, the Property shall be at
least equal in replacement value and general utility to the Property prior
to the damage or destruction.
iii Each request for payment shall be made on not less than 10
days' prior notice to Lender and shall be accompanied by a certificate of
an Architect or Engineer, or, if the Work is not required to be supervised
by an Architect or Engineer, by a certificate of an officer of Borrower,
stating (A) that payment is for Work completed in compliance with the plans
and specifications, if required under clause (ii) above, (B) that the sum
requested is required to reimburse Borrower for payments by Borrower to
date, or is due to the contractor, subcontractors, materialmen, laborers,
engineers, architects or other Persons rendering services or materials for
the Work (giving a brief description of such services and materials), and
that when added to all sums previously paid out by Lender does not exceed
the value of the Work done to the date of such certificate, (C) if the sum
requested is to cover payment relating to repair and restoration of
personal property required or relating to the Property, that title to the
personal property items covered by the request for payment is vested in
Borrower (unless Borrower leases such personal property or is purchasing
such personal property on an installment sale basis), and (D) that the
insurance proceeds and other amounts deposited by Borrower and held by
Lender after such payment is more than the estimated remaining cost to
complete such Work; provided, however, that if such certificate is given by
an Architect or Engineer, such Architect or Engineer shall certify as to
clause (A) above, and such officer shall certify as to the remaining
clauses above and provided further that Lender shall not be obligated to
disburse such funds if Lender determines, in Lender's reasonable
discretion, that Borrower shall not be in compliance with Section
6.5.B.viii hereof. Additionally, each request for payment shall contain a
statement signed by Borrower stating that the requested payment is for Work
satisfactorily done to date.
iv Each request for payment shall be accompanied by waivers of
liens (which may be subject to payment), in customary form and substance,
covering that part of the Work for which payment or reimbursement is being
requested and, if required by Lender, a search prepared by a title company
or licensed abstractor, or by other evidence satisfactory to Lender that
there has not been filed with respect to the Property any mechanic's or
other lien or instrument for retention of title relating
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to any part of the Work not discharged of record. Additionally, as to any
personal property covered by the request for payment, Lender shall be
furnished with evidence of having incurred a payment obligation therefor
and such further evidence reasonably satisfactory to assure Lender that UCC
filings therefor provide a valid first lien on the personal property.
v Lender shall have the right to inspect the Work at all
reasonable times upon reasonable prior notice and may condition any
disbursement of proceeds upon satisfactory compliance by Borrower with the
provisions hereof. Neither the approval by Lender of any required plans
and specifications for the Work nor the inspection by Lender of the Work
shall make Lender responsible for the preparation of such plans and
specifications, or the compliance of such plans and specifications of the
Work, with any applicable law, regulation, ordinance, covenant or
agreement.
vi Proceeds shall not be disbursed more frequently than once
every 30 days.
vii Until such time as the Work has been substantially
completed, Lender shall be entitled to retain up to ten percent (10%) of
the cost of the Work (the "Retention Amount") to Borrower. Upon
substantial completion of the Work, Borrower shall send notice thereof to
Lender and, subject to the conditions of Section 6.5.B.i-iv, Lender shall
disburse one-half of the Retention Amount to Borrower; provided, however,
that the remaining one-half of the Retention Amount shall be disbursed to
Borrower when Lender shall have received copies of any and all final
certificates of occupancy or their equivalent or other certificates,
licenses and permits required for the ownership, occupancy and operation of
the Property in accordance with all Legal Requirements. Borrower covenants
to diligently seek to obtain any such certificates, licenses and permits.
viii Upon failure on the part of Borrower promptly (after
adjustment of proceeds, if applicable) to commence the Work or to proceed
diligently and continuously to completion of the Work, which failure shall
continue after notice for 30 days, Lender may apply any such insurance or
condemnation proceeds it then or thereafter holds to the payment of the
Loan in accordance with the provisions of the Note; provided, however, that
Lender may apply at any time all or any portion of the insurance proceeds
it then holds to the extent necessary to cure any Event of Default under
this Agreement, the Note or any other Loan Document.
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C. If Borrower (i) within 120 days after the occurrence of any damage
to the Property or any portion thereof (or such shorter period as may be
required under any Lease) shall fail to submit to Lender for approval plans and
specifications (if required pursuant to Section 6.5.B.ii hereof) for the Work
(approved by the Architect and by all Governmental Authorities whose approval is
required), (ii) after any such plans and specifications are approved by all
Governmental Authorities, the Architect and Lender, shall fail to promptly
commence such Work or (iii) shall fail to diligently prosecute such Work to
completion, then, in addition to all other rights available hereunder, at law or
in equity, Lender, or any receiver of the Property or any portion thereof, upon
15 days prior notice to Borrower (except in the event of emergency in which case
no notice shall be required), may (but shall have no obligation to) perform or
cause to be performed such Work, and may take such other steps as it reasonably
deems advisable. Borrower hereby waives any claim, other than for gross
negligence or willful misconduct, against Lender and any receiver arising out of
any act or omission of Lender or to such receiver pursuant hereto, and Lender
may apply all or any portion of the proceeds of insurance (without the need to
fulfill any other requirements of this Section) to reimburse Lender and such
receiver, for all costs not reimbursed to Lender or such receiver upon demand
together with interest thereon at the Default Rate from the date such amounts
are advanced until the same are paid to Lender or the receiver.
D. Except with respect to de minimis proceeds of up to $20,000 paid
prior to the occurrence of any Event of Default hereunder, Borrower hereby
irrevocably appoints Lender as its attorney-in-fact, coupled with an interest,
to collect and receive any insurance proceeds paid with respect to any portion
of the Property or the insurance policies required to be maintained hereunder,
and to endorse any checks, drafts or other instruments representing any
insurance proceeds whether payable by reason of loss thereunder or otherwise.
6.6 Compliance with Insurance Requirements. Borrower promptly shall
comply with, and shall cause the Property to comply with, all Insurance
Requirements, even if such compliance requires structural changes or
improvements or would result in interference with the use or enjoyment of the
Property or any portion thereof provided Borrower shall have a right to contest
in good faith and with diligence such Insurance Requirements provided (a) no
Default or Event of Default shall exist during such contest and such contest
shall not subject the Property or any portion thereof to any lien or affect the
priority of the lien of the Deed of Trust/Mortgage, (b) failure to comply with
such Insurance Requirements will not subject Lender or any of its agents,
employees, officers or directors to any civil or criminal liability, (c) such
contest will not cause any reduction in insurance coverage, (d) such contest
shall not affect the ownership, use or occupancy of the Property, (e) the
Property or any part thereof
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or any interest therein shall not be in any practical danger of being sold,
forfeited or lost by reason of such contest by Borrower, (f) Borrower has given
Lender prompt notice of such contest and, upon request by Lender from time to
time, notice of the status of such contest by Borrower and/or information of the
continuing satisfaction of the conditions set forth in clauses (a) through (e)
of this Section; (g) upon a final determination of such contest, Borrower shall
promptly comply with the requirements thereof, and (h) prior to and during such
contest, Borrower shall furnish to Lender security satisfactory to Lender, in
its reasonable discretion, against loss or injury by reason of such contest or
the non-compliance with such Insurance Requirement (and if such security is
cash, Lender shall deposit the same in an interest-bearing account and interest
accrued thereon, if any, shall be deemed to constitute a part of such security
for purposes of this Agreement, but Lender (i) makes no representation or
warranty as to the rate or amount of interest, if any, which may accrue thereon
and shall have no liability in connection therewith and (ii) shall not be deemed
to be a trustee or fiduciary with respect to its receipt of any such security
and any such security may be commingled with other monies of Lender). If
Borrower shall use the Property or any portion thereof in any manner that could
permit the insurer to cancel any insurance required to be provided hereunder,
Borrower immediately shall obtain a substitute policy that shall satisfy the
requirements of this Agreement and that shall be effective on or prior to the
date on which any such other insurance policy shall be canceled. Borrower shall
not by any action or omission invalidate any insurance policy required to be
carried hereunder unless such policy is replaced as aforesaid, or materially
increase the premiums on any such policy above the normal premium charged for
such policy. Borrower shall cooperate with Lender in obtaining for Lender the
benefits of any insurance proceeds lawfully or equitably payable to Lender in
connection with the transaction contemplated hereby.
6.7 Default During Restoration. Notwithstanding anything to the contrary
contained in this Agreement including, without limitation, the provisions of
this Article, if, at the time of any casualty affecting the Property or any part
thereof, or at any time during any Work, or at any time that Lender is holding
or is entitled to receive any proceeds of any insurance pursuant to this
Agreement, a monetary Event of Default exists and is continuing, Lender shall
then have no obligation to make such proceeds available for Work and Lender
shall have the right and option, to be exercised in its sole and absolute
discretion and election, with respect to the proceeds of any such insurance,
either to retain and apply such proceeds in reimbursement for the actual costs,
fees and expenses incurred by Lender in accordance with the terms hereof in
connection with the adjustment of the loss and any balance toward payment of the
Loan in such priority and proportions as Lender, in its sole discretion, shall
deem proper, or towards the Work, upon such terms and conditions as Lender shall
determine, or to cure such Event of Default, or to any one or more of the
foregoing as Lender, in its sole and absolute discretion, may determine. If
Lender shall
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receive and retain such insurance proceeds, the lien of the Deed of Trust shall
be reduced only by the amount thereof received, after reimbursement to Lender of
expenses of collection, and actually applied by Lender in reduction of the
principal sum payable under the Note in accordance with the Note.
6.8 Application of Proceeds to Debt Reduction. No damage to the Property,
or any part thereof, by fire or other casualty whatsoever, whether such damage
be partial or total, shall relieve Borrower from its liability to pay in full
the Loan and to perform its obligations under this Agreement and the other Loan
Documents except to the extent any rent (business interruption) insurance is
paid to Lender and applied to the Loan. If any insurance proceeds are applied
to reduce the Loan, Lender shall apply the same in accordance with the
provisions of the Note.
7 IMPOSITIONS
7.1 Payment of Impositions, Utilities and Taxes, etc.
A. Borrower shall pay or cause to be paid all Impositions on or
prior to the date upon which any fine, penalty, interest or cost for nonpayment
is imposed, and furnish to Lender, upon request, receipted bills of the
appropriate taxing authority or other documentation reasonably satisfactory to
Lender evidencing the payment thereof. If Borrower shall fail to pay any
Imposition in accordance with this Section and is not contesting or causing a
contesting of such Imposition in accordance with Section 7.4 hereof, or if there
are insufficient funds in the Basic Carrying Costs Sub-Account to pay any
Imposition, Lender shall have the right, but shall not be obligated, to pay that
Imposition, and Borrower shall repay to Lender, on demand, any amount paid by
Lender, with interest thereon at the Default Rate from the date of the advance
thereof to the date of repayment, and such amount shall constitute a portion of
the Loan secured by the Mortgage.
B. Borrower shall, prior to the date upon which any fine, penalty,
interest or cost for nonpayment is imposed, pay or cause to be paid all charges
for electricity, power, gas, water and other services and utilities in
connection with the Property, and shall, upon request, deliver to Lender
receipts or other documentation reasonably satisfactory to Lender evidencing
payment thereof. If Borrower shall fail to pay any amount required to be paid
by Borrower pursuant to this Section and is not contesting such charges in
accordance with Section 7.4 hereof, Lender shall have the right, but shall not
be obligated, to pay that amount, and Borrower will repay to Lender, on demand,
any amount paid by Lender with
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interest thereon at the Default Rate from the date of the advance thereof to the
date of repayment, and such amount shall constitute a portion of the Loan
secured by the Mortgage.
C. Borrower shall pay all taxes, charges, filing, registration and
recording fees, excises and levies imposed upon Lender by reason of or in
connection with its ownership of any Loan Document or any other instrument
related thereto, or resulting from the execution, delivery and recording of, or
the lien created by, or the obligation evidenced by, any of them, other than
income, franchise and other similar taxes imposed on Lender and shall pay all
corporate stamp taxes, if any, and other taxes, required to be paid on the Loan
Documents. If Borrower shall fail to make any such payment within 10 days after
written notice thereof from Lender, Lender shall have the right, but shall not
be obligated, to pay the amount due, and Borrower shall reimburse Lender
therefor, on demand, with interest thereon at the Default Rate from the date of
the advance thereof to the date of repayment, and such amount shall constitute a
portion of the Loan secured by the Mortgage.
7.2 Deduction from Value. In the event of the passage after the date of
this Agreement of any Legal Requirement deducting from the value of the Property
for the purpose of taxation, any lien thereon or changing in any way the Legal
Requirements now in force for the taxation of this Agreement and/or the Loan for
federal, state or local purposes, or the manner of the operation of any such
taxes so as to adversely affect the interest of Lender, or impose any tax or
other charge on any Loan Document, then Borrower will pay such tax, with
interest and penalties thereon, if any, within the statutory period. In the
event the payment of such tax or interest and penalties by Borrower would be
unlawful, or taxable to Lender or unenforceable or provide the basis for a
defense of usury, then in any such event, Lender shall have the option, by
written notice of not less than 90 days, to declare the Loan immediately due and
payable, with no prepayment penalty, including without limitation, Yield
Maintenance Premium.
7.3 No Joint Assessment. Borrower shall not consent to or initiate the
joint assessment of the Real Estate (a) with any other real property
constituting a separate tax lot and Borrower represents and covenants that after
the Real Estate has become a separate tax lot it shall remain a separate tax lot
and (b) with any portion of the Property that may be deemed to constitute
personal property, or any other procedure whereby the lien of any taxes that may
be levied against such personal property shall be assessed or levied or charged
to the Property as a single lien.
7.4 Right to Contest. Borrower shall have the right, after prior notice
to Lender, at its sole expense, to contest by appropriate legal proceedings
diligently conducted in good faith, without cost or expense to Lender or any of
its agents, employees, officers or
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directors, the validity, amount or application of any Imposition or any charge
described in Section 7.1, provided that (a) no Default or Event of Default shall
exist during such proceedings and such contest shall not (unless Borrower shall
comply with clause (d) of this Section) subject the Property or any portion
thereof to any lien or affect the priority of the lien of the Mortgage, (b)
failure to pay such Imposition or charge will not subject Lender or any of its
agents, employees, officers or directors to any civil or criminal liability, (c)
the contest suspends enforcement of the Imposition (unless Borrower first pays
the Imposition or charge), (d) prior to and during such contest, Borrower shall
furnish to Lender security satisfactory to Lender, in its reasonable discretion,
against loss or injury by reason of such contest or the non-payment of such
Imposition or charge (and if such security is cash, Lender may deposit the same
in an interest-bearing account and interest accrued thereon, if any, shall be
deemed to constitute a part of such security for purposes of this Agreement, but
Lender (i) makes no representation or warranty as to the rate or amount of
interest, if any, which may accrue thereon and shall have no liability in
connection therewith and (ii) shall not be deemed to be a trustee or fiduciary
with respect to its receipt of any such security and any such security may be
commingled with other monies of Lender), (e) such contest shall not affect the
ownership, use or occupancy of the Property, (f) the Property or any part
thereof or any interest therein shall not be in any danger of being sold,
forfeited or lost by reason of such contest by Borrower, (g) Borrower has given
Lender notice of the commencement of such contest and upon request by Lender,
from time to time, notice of the status of such contest by Borrower and/or
confirmation of the continuing satisfaction of clauses (a) through (f) of this
Section, and (h) upon a final determination of such contest, Borrower shall
promptly comply with the requirements thereof. Upon completion of any contest,
Borrower shall immediately pay the amount due, if any, and deliver to Lender
proof of the completion of the contest and payment of the amount due, if any,
following which, Lender shall return the security, if any, deposited with Lender
pursuant to clause (d) of this Section. Borrower shall not pay any Imposition
in installments unless permitted by applicable Legal Requirements, and shall,
upon the request of Lender, deliver copies of all notices relating to any
Imposition or other charge covered by this Article to Lender.
7.5 No Credits on Account of the Loan. Borrower will not claim or demand
or be entitled to any credit or credits on account of the Loan for any part of
the Impositions assessed against the Property or any part thereof and no
deduction shall otherwise be made or claimed from the taxable value of the
Property, or any part thereof, by reason of this Agreement or the Loan. In the
event such claim, credit or deduction shall be required by Legal Requirements
and Borrower shall not pay such claim, credit or deduction, Lender shall have
the option, by written notice of not less than 90 days, to declare the Loan
immediately due and payable.
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8 CONDEMNATION
8.1 Borrower shall notify Lender promptly of the commencement or threat of
any Taking of the Property or any portion thereof. Lender is hereby irrevocably
appointed as Borrower's attorney-in-fact, coupled with an interest, with
exclusive power to collect, receive and retain the proceeds of any such Taking
and to make any compromise or settlement in connection with such proceedings
(subject to Borrower's reasonable approval, except after the occurrence of an
Event of Default, in which event Borrower's approval shall not be required),
subject to the provisions of this Agreement; provided, however, that Borrower
may participate in any such proceedings and shall be authorized and entitled to
compromise or settle any such proceedings with respect to Condemnation Proceeds
in an amount less than five percent (5%) of the outstanding principal sum of the
Loan. Borrower shall execute and deliver to Lender any and all instruments
reasonably required in connection with any such proceeding promptly after
request therefor by Lender. Except as set forth above, Borrower shall not
adjust, compromise, settle or enter into any agreement with respect to such
proceedings without the prior consent of Lender. All proceeds of any Taking, or
purchase in lieu thereof, of the Property or any portion thereof are hereby
assigned to and shall be paid to Lender. With respect to Condemnation Proceeds
in an amount in excess of five percent (5%) of the outstanding principal sum of
the Loan, Borrower hereby authorizes Lender to compromise, settle, collect and
receive such Condemnation Proceeds, and to give proper receipts and acquittance
therefor. Except as otherwise provided herein, Lender shall apply such
Condemnation Proceeds (less any cost to Lender of recovering and paying out such
proceeds, including, without limitation, reasonable attorneys' fees and costs
allocable to inspecting any repair, restoration or rebuilding work and the plans
and specifications therefor) toward the reduction of the Loan. If the proceeds
are used to reduce the Loan, they shall be applied in accordance with the
provisions of the Note without any prepayment fee or charge of any kind,
including, without limitation, Yield Maintenance Premium. Borrower shall
promptly execute and deliver all instruments requested by Lender for the purpose
of confirming the assignment of the Condemnation Proceeds to Lender.
8.2 "Substantial Taking" shall mean a Taking of such portion of the
Property that would leave a remaining balance of the Property that would not
under then current economic conditions, applicable zoning laws, building
regulations and other applicable Legal Requirements, permit the restoration of
the Property so as to constitute a complete, rentable facility of the same sort
as existed prior to the Taking, having adequate ingress and egress to the
Property, capable of producing a projected Net Operating Income (calculated in
accordance with the next sentence) yielding a projected Debt Service Coverage
(with a reduction of the Debt by an amount equal to the projected amount of the
Condemnation Proceeds in the determination of projected Debt Service Coverage)
therefrom for the next
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three years of at least 1.25. The average Net Operating Income produced by the
Property during the three (3) year period immediately preceding such Taking, as
adjusted for the portion remaining after a Taking, shall be deemed to constitute
the projected Net Operating Income.
8.3 In the case of a Substantial Taking, if (i) a monetary Event of
Default shall have occurred and be continuing or (ii) subject to any contrary
provision in any Lease, an Event of Default shall have occurred and be
continuing, Lender shall have the option, in its sole discretion, to apply the
Condemnation Proceeds after payment of all necessary and proper expenses
incurred in the collection of such award, in reduction of the Loan but without
any prepayment fee or charge of any kind, including, without limitation, Yield
Maintenance Premium, or to allow such Condemnation Proceeds to be used for the
Work pursuant to the terms and subject to the conditions of the applicable
sections of this Article. In all other instances, the Condemnation Proceeds
will be used for the Work pursuant to the terms and subject to the conditions of
the applicable sections of this Article. If subsequent to payment of the Loan
in full, Lender shall receive payment of any subsequent Condemnation Proceeds,
then such Condemnation Proceeds shall be paid to Borrower. Borrower agrees to
execute any and all documents that may be reasonably required in order to
facilitate collection by Lender of such awards.
8.4 In the event of a Taking that is less than a Substantial Taking,
Borrower at its sole cost and expense (whether or not the award shall have been
received or shall be sufficient for restoration), shall proceed diligently to
restore, or cause the restoration of, the remaining Building not so taken, to
maintain a complete, rentable, self-contained and fully operational facility of
the same sort as existed prior to the Taking in as good a condition as existed
prior to the Taking. In the event of such a Taking, Lender shall receive the
Condemnation Proceeds and shall pay over the same:
A. first, to Borrower to the extent of any portion of the award as
may be necessary to pay the reasonable cost of restoration (including soft
costs) of the Building remaining including costs of the collection,
compromise or settlement (including, without limitation, reasonable
attorney fees), and
B. second, to Lender in reduction of the Loan without any prepayment
fee or charge of any kind, including, without limitation, Yield Maintenance
Premium.
If one or more Takings in the aggregate create a Substantial Taking, then, in
such event, the above sections of this Article applicable to Substantial Takings
shall apply.
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8.5 In the event Lender is obligated to or elects to make Condemnation
Proceeds available for the restoration or rebuilding of the Property, such
proceeds shall be disbursed in the manner and subject to the conditions set
forth in Section 6.5 hereof as though such proceeds were Insurance Proceeds.
Borrower shall promptly execute and deliver all instruments requested by Lender
for the purpose of confirming the assignment of the Condemnation Proceeds to
Lender. Application of all or any part of the Condemnation Proceeds shall also
be made in accordance with the provisions of Section 6.5 hereof as though such
proceeds were Insurance Proceeds. No application of the Condemnation Proceeds
or payment in lieu thereof to the reduction of the Loan shall have the effect of
releasing the lien of the Mortgage (except as to the portion taken) until the
remainder of the Loan has been paid in full except to the extent the Property is
taken by the condemning authority. In the case of any Taking, Lender, as a
first priority out of any award, shall be entitled to reimbursement for all
costs of collection, compromise or settlement, (including, without limitation,
reasonable attorneys' fees and costs allocable to inspecting any repair,
restoration or rebuilding work and the plans and specifications therefor)
incurred in connection with any award. All awards deposited with Lender
pursuant to this Article, until expended or applied as provided herein, shall
constitute additional security for the payment of the Loan and the payment and
performance of Borrower's obligations under the Loan Documents. All awards so
deposited with Lender shall be held by Lender in the Loss Proceeds Account, but
Lender makes no representation or warranty as to the rate or amount of interest,
if any, which may accrue on any such deposit and shall have no liability in
connection therewith. For purposes hereof, any reference to the Condemnation
Proceeds shall be deemed to include interest, if any, which has accrued thereon.
9 CENTRAL CASH MANAGEMENT
9.1 Cash Flow. Borrower acknowledges and agrees that the Operating Income
derived from the Property and Loss Proceeds shall be utilized, to the extent
required, to:
A. fund the Basic Carrying Costs Sub-Account,
B. pay all amounts to become due and payable under the Note by
funding the Debt Service Payment Sub-Account,
C. fund the Recurring FF&E Sub-Account,
D. fund the Operations and Maintenance Expense Sub-Account to the
extent required pursuant to Section 9.4.D hereof, and
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E. fund the Curtailment Reserve Sub-Account to the extent required
pursuant to Section 9.4.E hereof.
Borrower shall cause Manager to collect, and shall deliver to Manager, all of
the Operating Income and deposit such funds (other than security deposits from
tenants under valid Leases, which shall be held by Manager, as agent for
Borrower, in accordance with applicable law and in a segregated bank account
(the "Security Deposit Account") at Citibank, N.A. or such other commercial or
savings bank or banks as may be reasonably satisfactory to Lender within one (1)
Business Day after receipt thereof in the Rent Account established for the Loan
(it being understood that Operating Income may be deposited daily into a local
account in the name of Borrower, provided that all funds in such account are
automatically swept daily and deposited into the Rent Account pursuant to an
irrevocable written instruction of Borrower). Provided that (x) no Event of
Default has occurred and is continuing, and (y) if applicable, Borrower has
provided Lender with a Refinancing Commitment on or before the Refinance
Notification Date, Borrower may withdraw, or cause Manager to withdraw, funds on
deposit in the Rent Account. Borrower shall cause Manager to give to the bank
in which the Rent Account is located an irrevocable written instruction that all
funds deposited in such account shall be automatically transferred through
automated clearing house funds ("ACH") or by Federal wire to the Central Account
on the Business Day immediately preceding each Notice Date, up to an amount
equal to that which is required to be allocated to each of the Sub-Accounts
pursuant to Section 9.4 hereof. Such irrevocable notice shall also provide
that, in the event that such bank receives a written notification from Lender
that the conditions set forth in clauses (x)-(y) of this Section have not been
met, (i) Borrower and Manager may not withdraw any funds on deposit in the Rent
Account, (ii) Lender shall have the sole right to withdraw funds on deposit in
the Rent Account and (iii) all funds deposited in the Rent Account shall be
automatically transferred through ACH or by Federal wire to the Central Account
on a daily basis. Lender may elect to change the financial institution in which
the Central Account shall be maintained; however, Lender shall give Borrower and
the bank in which the Rent Account is located not fewer than 5 Business Days'
prior notice of such change. Neither Borrower nor Manager shall change the bank
holding the Rent Account without the prior written reasonable consent of Lender.
All reasonable fees and charges of the bank(s) in which the Rent Account and the
Central Account is located shall be paid by Borrower.
9.2 Establishment of Sub-Accounts. Lender has established the Central
Account and the Rent Account in the name of Lender. The Central Account shall
be under the sole dominion and control of Lender. Except as otherwise provided
in this Section or Section 9.1 hereof, the Rent Account shall be under the sole
dominion and control of Lender. Borrower understands that Lender or Lender's
agent or servicer shall withdraw funds from the Rent
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Account, and deposit into and withdraw funds from the Central Account, all in
accordance with the terms and conditions of Section 9.1. Borrower shall have no
right of withdrawal in respect of the Rent Account or the Central Account except
as specifically provided herein. Each transfer of funds to be made hereunder
shall be made only to the extent that funds are on deposit in the Rent Account,
the Central Account or the affected Sub-Account, and Lender shall have no
responsibility to make additional funds available in the event that funds on
deposit are insufficient. The Central Account shall consist of the aggregate
funds of the Basic Carrying Costs Sub-Account, the Debt Service Payment Sub-
Account, the Recurring FF&E Sub-Account, the Operations and Maintenance Expense
Sub-Account (to the extent applicable) and the Curtailment Reserve Sub-Account
(to the extent applicable), each of which accounts shall be Eligible Accounts
(each a "Sub-Account" and collectively, the "Sub-Accounts") to which certain
funds shall be allocated and from which disbursements shall be made pursuant to
the terms of this Agreement.
9.3 Permitted Investments of Central Account Funds.
A. Upon the written request of Borrower, Lender shall direct the
Bank to invest and reinvest any balance in the Central Account from time to time
in Permitted Investments as instructed by Borrower (which instruction may be
made no more than one time per month), provided that (a) if Borrower fails to so
instruct Lender, or upon the occurrence of a Default or Event of Default, Lender
may direct the Bank to invest and reinvest such balance in Permitted Investments
as Lender shall determine in its sole discretion, (b) the maturities of the
Permitted Investments on deposit in the Central Account shall, to the extent
such dates are ascertainable, be selected and coordinated to become due not
later than the day before any disbursements from the applicable Sub-Accounts
must be made, (c) all such Permitted Investments shall be held in the name and
be under the sole dominion and control of Lender, and (d) no Permitted
Investment shall be made unless Lender shall retain a perfected first priority
lien in such Permitted Investment securing the Debt and all filings and other
actions necessary to ensure the validity, perfection, and priority of such lien
have been taken. It is the intention of the parties hereto that the entire
amounts deposited in the Central Account (or as much thereof as Lender may
reasonably arrange to invest) shall at all times be invested in Permitted
Investments, and that the Central Account shall be a so-called "zero balance"
account. All funds in the Central Account that are invested in a Permitted
Investment are deemed to be held in the Central Account for all purposes of this
Agreement and the other Loan Documents. Lender shall not have any liability for
any loss in investments of funds in the Central Account that are invested in
Permitted Investments whether Borrower or Lender selected such Permitted
Investment in accordance herewith and no such loss shall affect Borrower's
obligation to fund, or liability for funding, the Central Account and each Sub-
Account, as the case may be. Borrower agrees that Borrower shall include all
such earnings
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on the Central Account as income of Borrower (and, if Borrower is a partnership
or other pass-through entity, the partners, members or beneficiaries of
Borrower, as the case may be) for federal and applicable state and local tax
purposes.
B. All interest paid or other earnings on the Permitted Investments
of funds deposited into the Central Account made hereunder shall be deposited
into the Central Account and shall be allocated to the Sub-Account that
contained the funds with respect to which such interest was paid or other
earnings earned. All such interest and earnings, once so allocated, shall be
treated as Operating Income allocated to such Sub-Account except that, provided
no Event of Default has occurred hereunder, on a quarterly basis, Borrower shall
have the option to transfer the interest earned and allocated to the Basic
Carrying Costs Sub-Account and the Recurring FF&E Sub-Account to the Rent
Account. All interest paid or other earnings on the Permitted Investments of
funds deposited into the Rent Account (i.e., those funds not transferred to the
Central Account) made hereunder shall be deposited into the Rent Account and
shall be treated as Operating Income deposited into such account as of the day
such interest and earnings are deposited therein.
9.4 Monthly Funding of Sub-Accounts. On each Payment Date during the term
of the Loan, commencing on the first Payment Date after the month in which the
Loan is initially funded (each, a "Current Month"), Lender shall allocate all
funds transferred or deposited into the relevant Central Account among the Sub-
Accounts as follows and in the following priority:
A. first, to the Basic Carrying Costs Sub-Account, until an amount
equal to the Basic Carrying Costs Monthly Installment for such Current
Month has been allocated to the Basic Carrying Costs Sub-Account;
B. second, except as otherwise provided in this Section, to the Debt
Service Payment Sub-Account, until an amount equal to the Required Debt
Service Payment for such Payment Date has been allocated to the Debt
Service Payment Sub-Account;
C. third, to the Recurring FF&E Sub-Account, until an amount equal to
the sum of (x) an amount equal to the Recurring FF&E Monthly Amount for
such month plus (y) the amount, if any, deducted therefrom during any
preceding month to pay any amounts due pursuant to clauses (A) or (B)
above, to the extent not previously reimbursed to such Sub-Account, has
been allocated to the Recurring FF&E Sub-Account;
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D. fourth, during an O&M Operative Period, if applicable, or after the
occurrence of and during the continuance of an Event of Default, to the
Operations and Maintenance Expense Sub-Account, until an amount equal to
the amount, if any, deducted therefrom during any preceding month to pay
any amounts due pursuant to clauses (A) or (B) or (C) above, to the extent
not previously reimbursed to such Sub-Account and then until an amount
equal to the Operations and Maintenance Expense Monthly Installment has
been allocated to such Sub-Account;
E. fifth, with respect to any Current Month for which funds are to be
allocated to the Curtailment Reserve Sub-Account pursuant to Section 9.9
hereof, all Excess Rent shall be allocated to the Curtailment Reserve Sub-
Account. As used herein, "Excess Rent" means the amounts available in the
Rent Account in any Current Month after the allocations under clauses (A)
through (D) above have been made.
After the occurrence, and during the continuance, of an Event of Default, no
funds held in the various Rent Accounts, and no funds held in the various
Central Accounts, shall be distributed to, or withdrawn by, Borrower, and Lender
shall have the right to apply all or any portion of the funds held in any of
such accounts to the Loan in Lender's sole discretion.
In the event that sufficient funds to fund all of the Sub-Accounts pursuant
to this Section for the Payment Date in any Current Month are not on deposit in
the Central Account on the Business Day immediately preceding the Payment Date
(the "Notice Date") for the then Current Month, Lender shall deliver to
Borrower, via telecopy, on or before 4:00 P.M. New York time on the Notice Date
a notice stating that sufficient funds have not theretofore been deposited into
the Central Account for allocation to the various Sub-Accounts pursuant to this
Section. If any such notice is delivered, Borrower shall be obligated to
deposit immediately available United States funds (in addition to Operating
Income) into the relevant Central Account, prior to such Payment Date, in the
amount of such deficiency, and failure to make such deposit shall be an Event of
Default hereunder. If, on any Payment Date, the aggregate balance in the
Central Account (excluding funds allocated to any Sub-Account other than funds
allocated to the Debt Service Payment Sub-Account or the Basic Carrying Costs
Sub-Account) is insufficient to make the payment of the Basic Carrying Costs
Monthly Installment and the Required Debt Service Payment required to be made
pursuant to clauses (A) and (B) of this Section, then an Event of Default shall
exist hereunder.
In the event that Lender elects to apply the proceeds of any Sub-Account to
pay any Required Debt Service Payment or to fund any Basic Carrying Costs,
Borrower shall, upon
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demand, repay to Lender the amount of the funds so applied to replenish such
Sub-Account up to the amount contained therein immediately prior to such
application (i.e., including interest earned on the balance prior to
withdrawal), and if Borrower shall fail to repay such amounts within 5 days
after such application, an Event of Default shall exist hereunder, which Event
of Default shall not be cured unless and until Borrower repays such amount or
all Sub-Accounts have been fully funded from Operating Income for the then
applicable Current Month and all prior months. Lender may, at its sole option,
replenish such Sub-Account(s) out of available Operating Income in subsequent
months that Borrower would have otherwise been entitled to receive.
9.5 Payment of Basic Carrying Costs. Borrower shall pay all Basic
Carrying Costs with respect to Borrower, the Property and any Operating Income
derived therefrom or with respect thereto. At least 5 Business Days prior to
the due date of any Basic Carrying Costs, and not more frequently than once each
month, Borrower may notify Lender in writing and request that Lender pay such
Basic Carrying Costs on behalf of Borrower on or prior to the due date thereof,
and, provided that no Event of Default has occurred and that there are
sufficient funds available in the Basic Carrying Costs Sub-Account, Lender shall
make such payments out of the Basic Carrying Costs Sub-Account before same shall
be delinquent. Together with each such request, Borrower shall furnish Lender
with bills and all other documents necessary, as reasonably determined by
Lender, for the payment of the Basic Carrying Costs that are the subject of such
request. Borrower's obligation to pay (or cause Lender to pay) Basic Carrying
Costs pursuant to this Agreement shall include, to the extent permitted by
applicable law, Impositions resulting from future changes in law that impose
upon Lender an obligation to pay any property taxes or other Impositions or that
otherwise adversely affect Lender's interests.
Provided that no Event of Default shall have occurred, all funds
deposited into the Basic Carrying Costs Sub-Account shall be held by Lender
pursuant to the provisions of this Agreement and shall be applied in payment of
Basic Carrying Costs in accordance with the terms hereof. Should an Event of
Default occur, the proceeds on deposit in the Basic Carrying Costs Sub-Account
may be applied by Lender in payment of any Basic Carrying Costs for all or any
portion of the Property or may be applied to the payment of the Loan or any
other charges affecting all or any portion of the Property as Lender in its sole
discretion may determine; provided, however, that no such application shall be
deemed to have been made by operation of law or otherwise until actually made by
Lender as herein provided.
9.6 Debt Service Payment Sub-Account. On each Payment Date during the
term of the Loan, Lender shall transfer to the Collection Account to reduce the
Loan in accordance with the terms of the Note, from the Debt Service Payment
Sub-Account, an
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amount equal to the sum of (a) the Required Debt Service Payment for such
Payment Date and (b) any amounts deposited into the Central Account that are
either (i) Loss Proceeds that Lender has the right to and has elected to apply
to reduce the Loan in accordance with the terms of this Article or (ii) excess
Loss Proceeds remaining after the completion of any restoration required
hereunder. Borrower shall have no right whatsoever to direct the investment of
the proceeds of the Collection Account.
9.7 Recurring FF&E Sub-Account.
A. Borrower shall pay all Recurring FF&E Expenditures with respect
to Borrower and the Property (without regard to the amount of money then
available in the Recurring FF&E Sub-Account); provided that (i) Lender has
received written notice from Borrower at least 5 Business Days prior to the due
date of any payment relating to Recurring FF&E Expenditures and not more
frequently than once each month, (ii) no Event of Default has occurred, (iii)
there are sufficient funds available in the Recurring FF&E Sub-Account, (iv)
with respect to any Recurring FF&E Expenditure in excess of $50,000, Lender has
given its prior written consent (not to be unreasonably withheld) to the
improvement subject to payment, and (v) Borrower shall have theretofore
furnished Lender with lien waivers (if appropriate), copies of bills, invoices
and other reasonable documentation as may be required by Lender to establish
that the Recurring FF&E Expenditures that are the subject of such request
represent amounts due for new and first class furniture, fixtures or equipment
for installation or use at the Property such Recurring FF&E Expenditures shall
be reimbursed out of the Recurring FF&E Sub-Account.
B. Should an Event of Default occur, the proceeds on deposit in the
Recurring FF&E Sub-Account may be applied by Lender in payment of any Recurring
FF&E Expenditures for all or any portion of the Property or may be applied to
the payment of the Loan or any other charges affecting all or any portion of the
Property, as Lender in its sole discretion may determine; provided, however,
that no such application shall be deemed to have been made by operation of law
or otherwise until actually made by Lender as herein provided.
9.8 Operations and Maintenance Expense Sub-Account. All funds allocated
to the Operation and Maintenance Expense Sub-Account shall be held by Lender
pursuant to the provisions of this Agreement. Any sums held in the Operation
and Maintenance Expense Sub-Account shall be disbursed to Borrower within 5
Business Days of receipt by Lender from Borrower of (a) a written request for
such disbursement that shall indicate the Operating Expenses (exclusive of
Impositions) for which the required disbursement is to pay and (b) an Officer's
Certificate stating that no Operating Expenses with respect to the
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Property are more than 60 days past due; provided, however, in the event that
Borrower legitimately disputes any invoice for an Operating Expense, and (i) no
Event of Default has occurred and is continuing hereunder, (ii) Borrower shall
have set aside adequate reserves for the payment of such disputed sums together
with all interest and late fees thereon, (iii) Borrower has complied with all
the requirements of this Agreement relating thereto, and (iv) the contesting of
such sums shall not constitute a default under any other instrument, agreement,
or document to which Borrower is a party, then Borrower may, after certifying to
Lender as to items (i) through (iv) hereof, contest such invoice. Together with
each such request, Borrower shall furnish Lender with bills and all other
documents necessary for the payment of the Operating Expenses that are the
subject of such request. Borrower may request a disbursement from the Operation
and Maintenance Expense Sub-Account no more than one (1) time per calendar
month. Should an Event of Default occur and be continuing, the proceeds on
deposit in the Operation and Maintenance Expense Sub-Account may be applied by
Lender in payment of any Operating Expenses for the Property or may be applied
to the payment of the Loan or other charges affecting all or any portion of the
Property as Lender, in its sole discretion, may determine; provided, however,
that no such application shall be deemed to have been made by operation of law
or otherwise until actually made by Lender as herein provided. All sums, if
any, remaining in the Operation and Maintenance Expense Sub-Account after the
payment of all Operating Expenses for the then Current Month shall be deposited
into the Curtailment Reserve Sub-Account, as set forth in Section 9.4 hereof, if
applicable.
9.9 Curtailment Reserve Sub-Account. In the event that: (x) if and only
if the Loan is a Fixed Rate Loan, as defined in the ESA Loan Agreement, Borrower
shall fail to provide Lender with a Refinancing Commitment on or before the
Refinance Notification Date or if the Void Commitment Date occurs, then
commencing on the next Payment Date following the Refinance Notification Date or
Void Commitment Date, and on each and every Payment Date thereafter until the
date on which all Debt has been paid in full, or (y) an Event of Default occurs,
Lender shall allocate all Excess Rent to the Curtailment Reserve Sub-Account in
accordance with Section 9.4.E until such time as the Loan has been paid in full
or the Event of Default no longer exists. On each Payment Date during any
period for which funds have been allocated to the Curtailment Reserve Sub-
Account pursuant to Section 9.4.E hereof, Lender shall transfer to the
Collection Account an amount equal to the lesser of (a) the amount available in
the Curtailment Reserve Sub-Account, and (b) the total Debt then outstanding
under the Note and the other Loan Documents.
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9.10 Loss Proceeds. In the event of a casualty to the Property, unless
Lender elects to or is required to, pursuant to the terms hereof, make all of
the proceeds received under the insurance policy required to be maintained by
Borrower ("Insurance Proceeds") available to Borrower for restoration, Lender
and Borrower shall cause all such Insurance Proceeds to be paid by the insurer
directly to the Central Account, whereupon Lender shall, after deducting
Lender's and, to the extent available, Borrower's costs of recovering and paying
out such Insurance Proceeds, including without limitation, reasonable attorneys'
fees, apply same to reduce the Loan in accordance with the terms of the Note;
provided, however, that if Lender elects to make the Insurance Proceeds
available for restoration, all Insurance Proceeds in respect of business
interruption coverage shall be maintained in the Central Account, to be applied
by Lender in the same manner as Operating Income received from Manager with
respect to the operation of the Property; provided, further, however, that in
the event that the Insurance Proceeds of such business interruption insurance
policy are paid in a lump sum in advance, Lender shall hold such Insurance
Proceeds in a segregated interest-bearing escrow account, which shall be an
Eligible Account, shall estimate, in Lender's reasonable discretion based upon a
certification of an Engineer or Architect, the number of months required for
Borrower to restore the damage caused by the casualty, shall divide the
aggregate business interruption Insurance Proceeds by such number of months, and
shall disburse from such escrow account into the Central Account each month
during the performance of such restoration such monthly installment of said
Insurance Proceeds. In the event that Insurance Proceeds are to be applied
toward restoration, Lender shall hold such funds in a segregated bank account at
the Bank, which shall be an Eligible Account, and shall disburse same in
accordance with the provisions of Section 6.5. Unless Lender elects to, or is
required to make all of the proceeds in respect of any Taking (any such
proceeds, "Condemnation Proceeds") available to Borrower for restoration, Lender
and Borrower shall cause all such Condemnation Proceeds to be paid to the
Central Account, whereupon Lender shall, after deducting Lender's costs of
recovering and paying out such Condemnation Proceeds, including without
limitation, reasonable attorneys' fees, apply same, by transferring such amounts
to the Collection Account, to reduce the Loan in accordance with the terms of
the Note; provided, however, that any Condemnation Proceeds received in
connection with a temporary Taking shall be maintained in the Central Account,
to be applied by Lender in the same manner as Operating Income received from
Manager with respect to the operation of the Property; provided, further,
however, that in the event that the Condemnation Proceeds of any such temporary
Taking are paid in a lump sum in advance, Lender shall hold such Condemnation
Proceeds in a segregated interest-bearing escrow account, which shall be an
Eligible Account, shall estimate, in Lender's reasonable discretion, the number
of months that the Property shall be affected by such temporary Taking, shall
divide the aggregate Condemnation Proceeds in connection with such temporary
Taking by such number of months, and shall disburse from such escrow account
into the Central Ac-
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count each month during the pendency of such temporary Taking such monthly
installment of said Condemnation Proceeds. In the event that Condemnation
Proceeds are to be applied toward restoration, Lender shall hold such funds in a
segregated bank account at the Bank, which shall be an Eligible Account, and
shall disburse same in accordance with the provisions of Section 6.5. If any
Insurance Proceeds or Condemnation Proceeds (collectively, "Loss Proceeds") are
received by Borrower, such Loss Proceeds shall be received in trust for Lender,
shall be segregated from other funds of Borrower, and shall be forthwith paid
into the Central Account, or paid to Lender to hold in a segregated account, in
each case to be applied or disbursed in accordance with the foregoing. Any Loss
Proceeds made available to Borrower for restoration in accordance herewith, to
the extent not used by Borrower in connection with, or to the extent they exceed
the cost of, such restoration, shall be deposited into the Central Account,
whereupon Lender shall apply the same to reduce the Loan in accordance with the
terms of the Note.
10 PROPERTY MANAGEMENT
10.1 The Property will be managed at all times by Manager pursuant to the
Management Agreement, it being understood that the Management Agreement
submitted to Lender prior to the date hereof is acceptable to Lender.
10.2 After Borrower has knowledge of a fifty percent (50%) or more change
in control of the ownership of Manager, Borrower will promptly give Lender
notice thereof (a "Manager Control Notice").
10.3 Lender may terminate the Management Agreement at any time: (a) for
cause (including, but not limited to, Manager's gross negligence, willful
misconduct or fraud) in which case Borrower shall appoint a substitute Manager
meeting the Approved Manager Standard, subject to Lender's approval, in Lender's
sole discretion, (b) following either (w) the occurrence of an Event of Default,
(x) the receipt of a Manager Control Notice, or (y) the failure of Borrower to
make any Required Debt Service Payment on the due date therefor; and in event of
any of the foregoing events described in subclauses (x) through (y), Lender may,
in its sole discretion, appoint a reputable Independent property manager
selected by Lender, in its sole discretion, to manage the Property.
10.4 Borrower may from time to time appoint a successor Manager to manage
the Property with Lender's prior written consent, which consent shall not be
unreasonably withheld or delayed, provided that, any such successor manager
shall have a senior executive who shall satisfy the Approved Manager Standard
and shall be reasonably acceptable to
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Lender. Borrower shall require Manager (or any successor managers) to maintain
at all times during the term of the Loan worker's compensation insurance as
required by Governmental Authorities.
11 EVENTS OF DEFAULT
11.1 Events of Default. The Loan shall become immediately due at the
option of Lender upon any Event of Default under the Mortgage.
11.2 Remedies. Upon the occurrence and during the continuance of any Event
of Default, Lender may, in addition to any other rights or remedies available to
it hereunder, under the Collateral Documents, at law or in equity, take such
action, without notice or demand, as it reasonably deems advisable to protect
and enforce its rights against ESA and in and to the Hotel Property or any one
or more of them, including, but not limited to, the following actions, each of
which may be pursued singly, concurrently or otherwise, at such time and in such
order as Lender may determine, in its sole discretion, without impairing or
otherwise affecting any other rights and remedies of Lender hereunder, at law or
in equity:
A. declare all or any portion of the unpaid Obligations to be
immediately due and payable and the obligation of Lender to make Loan to be
terminated; provided, however, that upon the occurrence of an Event of Default,
the entire Debt will be immediately due and payable without notice or demand or
any other declaration of the amounts due and payable;
B. pursue the remedies available under the Mortgage; or
C. pursue any or all such other rights or remedies as Lender may
have under applicable law or in equity; provided, however, that the provisions
of this Section shall not be construed to extend or modify any of the notice
requirements or grace periods provided for hereunder or under any of the other
Loan Documents.
11.3 General Provisions Regarding Remedies.
A. Right to Terminate Proceedings. Lender may terminate or rescind
any proceeding or other action brought in connection with its exercise of the
remedies provided in Section 11.2 at any time before the conclusion thereof, as
determined in Lender's sole discretion and without prejudice to Lender.
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B. No Waiver or Release. The failure of Lender to exercise any
right, remedy or option provided in the Loan Documents shall not be deemed a
waiver of such right, remedy or option or of any covenant or obligation secured
by the Loan Documents. No acceptance by Lender of any payment after the
occurrence of an Event of Default and no payment by Lender of any payment or
obligation for which ESA or any Borrower is liable hereunder shall be deemed to
waive or cure any Event of Default. No sale of all or any portion of the Hotel
Property, no forbearance on the part of Lender, and no extension of time for the
payment of the whole or any portion of the Loan or any other indulgence given by
Lender to ESA or any other Person, shall operate to release or in any manner
affect the interest of Lender in the Hotel Property or the liability of ESA to
pay the Loan. No waiver by Lender shall be effective unless it is in writing
and then only to the extent specifically stated.
C. No Impairment; No Releases. Except to the extent thereof, the
interests and rights of Lender under the Loan Documents shall not be impaired by
any indulgence, including (i) any renewal, extension or modification that Lender
may grant with respect to any of the Loan; (ii) any surrender, compromise,
release, renewal, extension, exchange or substitution which Lender may grant
with respect to the Hotel Property or any portion thereof; or (iii) any release
or indulgence granted to any maker, endorser, guarantor or surety of any of the
Loan.
12 [RESERVED]
13 [RESERVED]
14 ESTOPPEL CERTIFICATES
14.1 After request by Lender, Borrower, within 15 days and at its expense,
will furnish Lender with a statement, duly acknowledged and certified, setting
forth (i) the amount of the original principal amount of the Note, and the
unpaid principal amount of the Note, (ii) the rate of interest of the Note,
(iii) the date payments of interest and/or principal were last paid, (iv) any
offsets or defenses to the payment of the Loan, and if any are alleged, the
nature thereof, (v) that the Note and this Agreement have not been modified or
if modified, giving particulars of such modification and (vi) that there has not
occurred and is then continuing no Default or Event of Default pursuant to the
Note or this Agreement or any event or circumstance that, with the giving of
notice or the passage of time, or both,
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would constitute a Default or Event of Default hereunder, or if such Default,
Event of Default, event or circumstance exists, the nature thereof, the period
of time it has existed, and the action being taken to remedy such Default, Event
of Default, event or circumstance.
14.2 Within 15 days after written request by Borrower, Lender shall furnish
to Borrower a written statement confirming the amount of the Loan, the maturity
date of the Note, the date to which interest has been paid and the dates on
which any notices of Events of Default were sent to Borrower.
15 LENDER ASSIGNMENTS
15.1 Lender may sell, transfer, negotiate or assign to one or more other
Persons the Loan Documents and any interest in the Note held by it and a
commensurate portion of its rights and obligations hereunder and under the other
Loan Documents from and after the date the Lender no longer has any obligation
to advance any Loans. The Lender also reserves the right at any time during the
term of the Loans, in its sole and absolute discretion, to effect a so-called
securitization of the Loans in such a manner and on such terms and conditions as
the Lender shall deem to be appropriate in its sole and absolute discretion and
with such domestic or foreign banks, insurance companies, pension funds, trusts
or other institutional lenders or governmental agencies or other persons,
parties or investors (including, but not limited to, guarantor trusts, owner
trusts, special purpose corporations, REMICs, real estate investment trusts or
other similar or comparable investment vehicles) as may be selected by the
Lender in its sole and absolute discretion.
15.2 Lender may sell participations (including blind or undisclosed
participations and subparticipations) to one or more banks or other Persons in
or to all or a portion of its rights and obligations under the Loan Documents
(including, without limitation, all or a portion of its commitment to make the
Loan, the Loan owing to it and the Note held by it). In the event of the sale
of any participation by Lender, (i) Lender's obligations under the Loan
Documents shall remain unchanged, (ii) Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) Lender
shall remain the holder of such Note and Obligations for all purposes of this
Agreement, and (iv) Borrower shall continue to deal solely and directly with
Lender in connection with Lender's rights and obligations under this Agreement.
15.3 Each participant shall be entitled to the benefits of Section 2.7 of
the ESA Loan Agreement as if it were a Lender; provided, however, that anything
herein to the contrary notwithstanding, Borrower shall not, at any time, be
obligated to pay to any
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participant of any interest of Lender, under Section 2.7 of the ESA Loan
Agreement, any sum in excess of the sum which Borrower would have been obligated
to pay Lender in respect of such interest had such assignment not been effected
or had such participation not been sold.
15.4 Borrower shall cooperate with Lender and any other party to whom
Lender may assign or sell participations (or negotiate for such assignment or
sale) in all or a portion of this Agreement owing to it and an interest in the
Note, with costs to be borne in accordance with the terms of the ESA Loan
Agreement. Such cooperation of the part of Borrower shall include but shall not
be limited to the execution and delivery of (i) amendments, modifications and/or
supplements to one or more Loan Documents, in form and substance as may be
required by Lender, and (ii) the execution and delivery of one or more
additional promissory notes; provided however, that such promissory notes,
amendments, modifications and/or supplements do not materially increase the
obligations of Borrower or materially diminish the rights of Borrower under the
Loan Documents.
16 MISCELLANEOUS
16.1 Representations and Warranties of Borrower and Lender. Borrower and
Lender each represents and warrants to the other that neither Borrower nor
Lender has dealt with any financial advisors, brokers, underwriters, placement
agents, agents or finders in connection with the transactions contemplated by
this Agreement. Each party shall indemnify and hold harmless the other from and
against any and all claims, liabilities, costs and expenses of any kind in any
way relating to or arising from (i) a claim by any Person that such Person acted
on behalf of the indemnifying party in connection with the transactions
contemplated herein or (ii) any breach of the foregoing representation or any
breach of Lender's payment obligation as aforesaid. The provisions of this
subsection shall survive the repayment of the Loan.
16.2 Costs; Expenses; Indemnities.
A. Borrower shall pay on demand (i) all reasonable costs and
expenses of Lender in connection with the preparation, execution, delivery,
modification and amendment of this Agreement, each of the other Loan Documents
and each of the other documents to be delivered hereunder and thereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel, accountants, appraisers, consultants or industry experts retained by
Lender with respect thereto and (ii) all costs and expenses of Lender
(including, without limitation, the fees and out-of-pocket expenses of counsel,
retained by Lender) in
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connection with the enforcement (whether through negotiation, legal proceedings
or otherwise) of this Agreement and the other Loan Documents.
B. Borrower agrees to indemnify and hold harmless Lender and its
Affiliates, and the directors, officers, employees, agents, attorneys,
consultants and advisors of or to any of the foregoing (each of the foregoing,
an "Indemnitee") from and against any and all claims, damages, liabilities,
obligations, losses, penalties, actions, judgments, suits, costs, disbursements
and expenses of any kind or nature (including, without limitation, fees and
disbursements of counsel to any such Indemnitee and experts, engineers and
consultants and the costs of investigation and feasibility studies) which may be
imposed on, incurred by or asserted against any such Indemnitee in connection
with or arising out of any investigation, litigation or proceeding, whether or
not any such Indemnitee is a party thereto, whether direct, indirect, or
consequential and whether based on any federal, state or local law or other
statutory regulation, securities or commercial law or regulation, or under
common law or in equity, or on contract, tort or otherwise, in any manner
relating to or arising out of or based upon or attributable to this Agreement,
any other Loan Document, any document delivered hereunder or thereunder, any
Obligation, or any act, event or transaction related or attendant thereto
arising out of or based upon anything relating to real property owned, leased or
operated by Borrower and the facilities or operations; provided, however, that
Borrower shall not have any obligation under this Section to an Indemnitee with
respect to any of the foregoing matters caused by or resulting from the gross
negligence or willful misconduct of that Indemnitee, as determined by a court of
competent jurisdiction in a final non-appealable judgment or order.
C. Borrower agrees that any indemnification or other protection
provided to any Indemnitee pursuant to this Agreement (including, without
limitation, pursuant to this Section) or any other Loan Document shall (i)
survive payment of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.
D. The provisions of this Section shall survive any termination of
this Agreement.
In addition, and without limitation to any other provision of this Agreement,
Borrower shall protect, indemnify and save harmless Lender and its successors
and assigns, and each of their agents, employees, officers and directors, from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expense (including, without limitation, reasonable attorneys'
fees and expenses, whether incurred within or outside the judicial process),
imposed upon or incurred by or asserted against Lender and its assigns, or
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any of their agents, employees, officers or directors, by reason of (a)
ownership of this Agreement, the Property or any part thereof or any interest
therein or receipt of any Operating Income; (b) any accident, injury to or death
of any person or loss of or damage to property occurring in, on or about the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (c) any use, nonuse or condition in, on or about, or
possession, alteration, repair, operation, maintenance or management of, the
Property or any part thereof or on the adjoining sidewalks, curbs, parking
areas, streets or ways; (d) any failure on the part of Borrower to perform or
comply with any of the terms of this Agreement; (e) performance of any labor or
services or the furnishing of any materials or other property in respect of the
Property or any part thereof; (f) any claim by brokers, finders or similar
Persons claiming to be entitled to a commission in connection with any Lease or
other transaction involving the Property or any part thereof; (g) any Imposition
including, without limitation, any Imposition attributable to the execution,
delivery, filing, or recording of any Loan Document, Lease or memorandum
thereof; (h) any lien or claim arising on or against the Property or any part
thereof under any Legal Requirement or any liability asserted against Lender
with respect thereto; or (i) the claims of any lessee or any Person acting
through or under any lessee or otherwise arising under or as a consequence of
any Lease. Notwithstanding the foregoing provisions of this Section to the
contrary, Borrower shall have no obligation to indemnify Lender pursuant to this
Section for liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses relative to the foregoing that result from Lender's,
and its successors' or assigns', willful misconduct or gross negligence. Any
amounts payable to Lender by reason of the application of this Section shall
constitute a part of the Loan secured by this Agreement and other Loan Documents
and shall become immediately due and payable and shall bear interest at the
Default Rate from the date loss or damage is sustained by Lender, as applicable,
until paid.
16.3 [RESERVED].
16.4 [RESERVED]
16.5 Securitization Opinions. In the event the Loan becomes the subject of
a securitization underwritten by Lender or any of its Affiliates, Borrower
shall, within 15 Business Days after Lender's written request therefor, deliver
a 10(b)(5) opinion and a nonconsolidation opinion with respect to Borrower, each
opinion to be in form and substance and delivered by counsel reasonably
acceptable to Lender and the Rating Agency, as may be reasonably required by
Lender and/or the Rating Agency in connection with such securitization.
Borrower shall undertake all actions (including structural reorganization, if
appropriate) necessary to enable its counsel to issue the opinion. Borrower's
failure to
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deliver the opinions required hereby within such fifteen (15) Business Day
period shall constitute an Event of Default hereunder.
16.6 Cooperation with Rating Agencies. Borrower covenants and agrees that
in the event Lender decides to include the Loan as an asset of a securitization,
Borrower shall (a) gather any environmental information reasonably required by
the Rating Agency in connection with such a securitization, (b) at Lender's
request, meet with representatives of the Rating Agency to discuss the business
and operations of the Property, and (c) cooperate with the reasonable requests
of the Rating Agency in connection with all of the foregoing.
16.7 Securitization Financials. Borrower covenants and agrees that, upon
Lender's written request therefor in connection with a securitization in which
the Loan is to be included as an asset, Borrower shall promptly deliver audited
financial statements and related documentation prepared by an Independent
certified public accountant that satisfy securities laws and requirements for
use in a public registration statement (which may include up to three (3) years
(but no period prior to the date hereof) of historical audited financial
statements).
16.8 Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Borrower therefrom shall in any event
be effective unless the same shall be in writing and signed by Lender, and then
any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
16.9 Notices, Etc. Any notices, demand, statement, request or consent and
other communications provided for hereunder shall be in writing and delivered
personally or sent to the party to whom the notice, demand or request is being
made by Federal Express or other nationally recognized overnight delivery
service, as follows and shall be deemed given when personally delivered or one
Business Day after being timely deposited with Federal Express or such other
nationally recognized delivery service. If any notice date falls on a non-
Business Day, then the notice shall be due on the next succeeding Business Day.
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If to Borrower, at the address first written above,
with a copy to:
Johnson, Smith, Hibbard & Wildman Law Firm, L.L.P.
220 N. Church St.
Spartanburg, SC 29306
Attn: Donald B. Wildman, Esq.
and to:
Pedersen & Houpt, P.C.
161 North Clark St., Ste. 3100
Chicago, IL 60601-3224
Attn: Thomas J. Kelly, Esq.
If to Lender, at its address first written above, Attn: Marc J. Warren
with a copy to:
and to:
Weil Gotshal & Manges
767 Fifth Ave.
New York, NY 10153
Attn: Managing Partner Real Estate Department (FW)
Any such address may be changed, or additional addresses (not to exceed three)
added by notice given in the manner provided herein. Any notice or other
communication may be given by counsel for the party giving the same.
16.10 No Waiver; Remedies. No failure on the part of Lender to exercise,
and no delay in exercising, any right hereunder or under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other
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or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
16.11 Right of Set-off. Upon the occurrence and during the continuance of
any Event of Default, Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender to or for the credit or
the account of Borrower against any and all of the Obligations now or hereafter
existing whether or not Lender shall have made any demand under this Agreement
or any Note or any other Loan Document and although such Obligations may be
unmatured. Lender agrees promptly to notify Borrower after any such set-off and
application made by Lender; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of Lender under this Section are in addition to the other rights and
remedies (including, without limitation, other rights of set-off) which Lender
may have.
16.12 Binding Effect. This Agreement shall become effective when it shall
have been executed by Borrower and Lender and thereafter shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors
and assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of Lender.
16.13 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
16.14 Submission to Jurisdiction; Service of Process.
A. Any legal action or proceeding with respect to this Agreement or
the Note or any document related thereto may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and, by execution and delivery of this Agreement, Borrower hereby
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The parties hereto
hereby irrevocably waive any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which any of them may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions.
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B. Borrower irrevocably consents to the service of process of any of
the aforesaid courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to Borrower at its
address provided herein.
C. Nothing contained in this Section shall affect the right of
Lender or any holder of the Note to serve process in any other manner permitted
by law or commence legal proceedings or otherwise proceed against Borrower in
any other jurisdiction.
16.15 Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
16.16 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
16.17 Entire Agreement. This Agreement, together with all of the other
Loan Documents and all certificates and documents delivered hereunder or
thereunder embody the entire agreement of the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof.
16.18 Confidentiality. Lender agrees to keep information obtained by it
pursuant hereto and the other Loan Documents confidential in accordance with
Lender's customary practices and agrees that it will only use such information
in connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (i) to Lender's employees,
representatives and agents who are or are expected to be involved in the
evaluation of such information in connection with the transactions contemplated
by this Agreement and who are advised of the confidential nature of such
information, (ii) to the extent such information presently is or hereafter
becomes available to Lender, as the case may be, on a non-confidential basis
from a source other than Borrower, (iii) to the extent disclosure is required by
law, regulation or judicial order or requested or required by bank regulators or
auditors, or (iv) to assignees or participants or potential assignees or
participants who agree to be bound by the provisions of this sentence.
16.19 Waiver of Jury Trial. Each of the parties hereto waives any right
it may have to trial by jury in respect of any litigation based on, or arising
out of, under or in connection with this Agreement or any other Loan Document,
or any course of conduct, course of dealing, verbal or written statement or
action of any party hereto.
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16.20 Waiver of Notice. Borrower shall not be entitled to any notices of
any nature whatsoever from Lender except with respect to matters for which this
Agreement specifically and expressly provides for the giving of notice by Lender
to Borrower and except with respect to matters for which Borrower is not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice.
16.21 Actions and Proceedings. After an Event of Default, Lender may
appear in and defend any action or proceeding brought with respect to the
Property in its own name or, if required by Legal Requirements or, if in
Lender's reasonable judgment, it is necessary, in the name and on behalf of
Borrower, which Lender believes will adversely affect the Property or this
Agreement and may bring any action or proceedings, in its name or in the name
and on behalf of Borrower, which Lender, in its discretion, decides should be
brought to protect its interest in the Property.
16.22 Usury Laws. This Agreement and the Note are subject to the express
condition, and it is the expressed intent of the parties, that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
under the Note at a rate which could subject the holder of the Note to either
civil or criminal liability as a result of being in excess of the maximum
interest rate that Borrower is permitted by law to contract or agree to pay. If
by the terms of this Agreement or the Note, Borrower is at any time required or
obligated to pay interest on the principal balance due under the Note at a rate
in excess of such maximum rate, such rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note. No application to the principal
balance of the Note pursuant to this Section shall give rise to any requirement
to pay any prepayment premium due hereunder, if any, including, without
limitation, Yield Maintenance Premium.
16.23 Remedies of Borrower. Under no circumstances shall Lender be liable
for any punitive, consequential or incidental damages suffered by, awarded to or
claimed by Borrower, any Affiliate or third party. In the event that a claim or
adjudication is made that Lender has acted unreasonably or unreasonably delayed
acting in any case where by law or under this Agreement, it has an obligation to
act reasonably or promptly, Lender shall only be liable for Borrower's actual
damages, if it is determined that Lender intentionally and in bad faith acted
unreasonably or unreasonably delayed acting. In all other cases, Lender shall
not be liable for any monetary damages, and Borrower's remedies shall be limited
to injunctive relief or declaratory judgment.
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16.24 Offsets, Counterclaims and Defenses. Any assignee of this Agreement
and the Note shall take the same free and clear of all offsets, counterclaims or
defenses that are unrelated to the Note or this Agreement that Borrower may
otherwise have against any assignor of this Agreement and the Note and no such
unrelated counterclaim or defense shall be interposed or asserted by Borrower in
any action or proceeding brought by any such assignee upon this Agreement or the
Note and any such right to interpose or assert any such unrelated offset,
counterclaim or defense in any such action or proceeding is hereby expressly
waived by Borrower.
16.25 Waiver of Statute of Limitations. The pleadings of any statute of
limitations as a defense to any and all obligations secured by this Agreement
are hereby waived to the full extent permitted by Legal Requirements.
16.26 Advances. This Agreement shall cover any and all advances made
pursuant to the Loan Documents, rearrangements and renewals of the Loan and all
extensions in the time of payment thereof, even though such advances, extensions
or renewals be evidenced by new promissory notes or other instruments hereafter
executed and irrespective of whether filed or recorded. Likewise, the execution
of this Agreement shall not impair or affect any other security that may be
given to secure the payment of the Loan, and all such additional security shall
be considered as cumulative. The taking of additional security, execution of
partial releases of the security, or any extension of time of payment of the
Loan shall not diminish the force, effect or lien of the Mortgage and shall not
affect or impair the liability of Borrower and shall not affect or impair the
liability of any maker, surety, or endorser for the payment of the Loan.
16.27 Application of Default Rate Not a Waiver. Application of the
Default Rate shall not be deemed to constitute a waiver of any Default or Event
of Default or any rights or remedies of Lender under this Agreement, any other
Loan Document or applicable Legal Requirements, or a consent to any extension of
time for the payment or performance of any obligation with respect to which the
Default Rate may be invoked.
16.28 No Joint Venture or Partnership. Borrower and Lender intend that
the relationship created hereunder be solely that of mortgagor and mortgagee or
borrower and lender, as the case may be. Nothing herein is intended to create a
joint venture, partnership, tenancy-in-common, or joint tenancy relationship
between Borrower and Lender nor to grant Lender any interest in the Property
other than that of mortgagee or lender.
16.29 Time of the Essence. Time shall be of the essence in the
performance of all obligations of Borrower hereunder.
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16.30 Borrower's Obligations Absolute. Except as set forth to the
contrary in the Loan Documents, all sums payable by Borrower hereunder shall be
paid without notice or demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Borrower hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any Taking of the Property or
any portion thereof; (b) any restriction or prevention of or interference with
any use of the Property or any portion thereof; (c) any title defect or
encumbrance or any eviction from the Real Estate or any portion thereof by title
paramount or otherwise; (d) any bankruptcy proceeding relating to Borrower or
any guarantor or indemnitor, or any action taken with respect to this Agreement,
the Mortgage or any other Loan Document by any trustee or receiver of Borrower
or any such guarantor or indemnitor, or by any court, in any such proceeding;
(e) any claim that Borrower has or might have against Lender; (f) any default or
failure on the part of Lender to perform or comply with any of the terms hereof
or of any other agreement with Borrower; or (g) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Borrower shall
have notice or knowledge of any of the foregoing.
16.31 Recourse. The Loan shall be fully recourse to Borrower.
16.32 Limitation on Costs. Notwithstanding the foregoing Borrower's
obligation to pay certain expenses and costs under this Agreement are subject to
limitations set forth in Sections 15.5A and 15.32 of the ESA Loan Agreement.
17 ADDITIONAL PROVISIONS
Exhibit B annexed hereto and made a part hereof contains additional provisions
that are necessary or appropriate under the laws of the State in which the
Property is located.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
[ESA Borrower]
By:________________________________________________
Name:_________________________________________
Title:________________________________________
CS FIRST BOSTON
MORTGAGE CAPITAL CORPORATION
By:________________________________________________
Name:_________________________________________
Title:________________________________________
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Exhibit 7.6H
- ------------
STANDSTILL AND SUBORDINATION AGREEMENT
This STANDSTILL AND SUBORDINATION AGREEMENT, made as of _____________,
199__, by and between CS First Boston Mortgage Capital Corporation, a Delaware
corporation (the "Senior Lender") and Extended Stay America, Inc. (the
"Subordinate Lender"), a Delaware corporation.
W I T N E S S E S T H:
---------------------
WHEREAS, Senior Lender and Subordinate Lender entered into that
certain Credit Facility Agreement dated as of May __, 1996, pursuant to which
Senior Lender agreed to lend up to $300,000,000 to various subsidiaries of
Subordinate Lender;
WHEREAS, Senior Lender has made [or is about to make] a loan to [ESA
Sub] ("Borrower") in the principal amount of up to $_____________ evidenced by
a Note in like amount (the "Senior Note"), which is to be governed by a Property
Loan Agreement;
WHEREAS, the Senior Note and other indebtedness of the Borrower or
Affiliates of the Borrower, in accordance with the Credit Facility Agreement and
the Property Loan Agreement, are to be secured by a Mortgage on the Property as
that term is defined in the Mortgage (the "Mortgaged Property") and other
security Documents, (the Mortgage and other security documents, the "Senior
Security Documents") (the Credit Facility Agreement, the Senior Note, the
Property Loan Agreement, the Senior Security Documents, collectively the "Senior
Loan Documents");
WHEREAS, Subordinate Lender desires to make loans to Borrower in
amounts not to exceed $100,000, each loan to be evidenced by an unsecured note
in like amounts (the "Subordinate Notes");
WHEREAS, Subordinate Lender has agreed not to make such loans without
the permission of Senior Lender and without executing this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the Subordinate Lender and the
Senior Lender hereby agree as follows:
<PAGE>
1. The indebtedness, obligations, or liabilities of the Borrower to
the Subordinate Lender, under and pursuant to the Subordinate Notes and any
extensions, refundings or renewals of such indebtedness, obligations or
liabilities, whether contingent or absolute, including, without limitation, any
future advances whether obligatory or not (all such indebtedness, obligations or
liabilities being referred to herein as "Subordinated Indebtedness") shall at
all times be: (i) in an amount less than $100,000, (ii) wholly unsecured and
(iii) wholly subordinate and junior in right of payment and otherwise to any and
all indebtedness, obligations or liabilities of the Borrower now or hereafter
owed to the Senior Lender under the Senior Loan Documents or otherwise,
including without limitation any protective advances, future advances whether
obligatory or not and to any extensions, substitutions, modifications,
amendments and consolidations thereof, as permitted herein (all such
indebtedness, obligations or liabilities being referred to herein as "Senior
Indebtedness"). The Subordinate Lender does hereby subordinate to the Senior
Indebtedness all of its right, title and interest, if any, in and to all
insurance proceeds or condemnation awards arising from or related to the
Mortgaged Property subject to the liens of the Senior Lender and the Subordinate
Lender agrees that the amount of such proceeds and awards shall be applied
pursuant to the terms and provisions of the Senior Security Documents.
2. The Subordinate Lender agrees that so long as any sum shall
remain outstanding on the Senior Indebtedness or any other amounts secured by
the Senior Security Documents are unpaid (as such may be amended, modified or
extended, as permitted herein):
(a) The Subordinate Indebtedness shall remain an unsecured
obligation of the Borrower;
(b) The Subordinate Lender shall not accept any payment of
principal or prepayment of interest under the Subordinate Documents or any
rents, issues or profits from the Property if the Borrower is in Default,
declared or otherwise, under any or all of the Senior Loan Documents;
(c) Except as permitted by clause (b), the Subordinate Lender
will not ask, demand, sue for, take or receive, directly or indirectly, by
set-off, redemption or in any manner whatsoever, any payment of any kind on
account of the Subordinate Loan, until the Senior Indebtedness is
indefeasibly paid in full. Furthermore, the Subordinate Lender shall not
(i) send notices of default and/or acceleration, (ii) commence any action
on the Subordinate Indebtedness, (iii) petition for the appointment of a
receiver, (iv) take title to the Premises or a security interest therein;
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(d) The Subordinate Lender shall take not any action which will
affect the lien and priority of the Senior Security Documents;
(e) The Subordinate Lender shall not take an assignment of rents
and leases from the Borrower;
(f) The Subordinate Lender shall not acquire, by subrogation or
otherwise, any lien, estate, right or other interest in the Mortgaged
Property which is or may be prior in right to the Senior Security
Documents;
(g) The Subordinate Lender hereby waives any and all rights it
may acquire by subrogation or otherwise to the lien and security interest
of the Senior Security Documents;
(h) The Subordinate Lender will not challenge the validity or
priority of the lien of the Senior Security Documents or take any other
action which adversely affects the interests of the Senior Lender;
(i) The Subordinate Lender shall not commence any Bankruptcy
Proceeding against the Borrower;
(j) The Subordinate Lender shall not attempt to consolidate a
bankruptcy of the Borrower with that of any other entity;
(k) The Subordinate Lender agrees that 10 days before the Senior
Indebtedness is to be included as an asset in a securitization, the
indebtedness evidenced by the Subordinate Notes will terminate without
further action by the Subordinate Lender or Borrower regardless of whether
or not the indebtedness has been paid in part or in full. In connection
with the securitization of the Senior Note and loan, Senior Lender will
endeavor to give notice of such securitization to Subordinate Lender 20
days prior to such securitization, but in no event will the failure of
Senior Lender to give such notice in any way affect Subordinate Lender's
obligations hereunder; and
(l) The Subordinate Lender will not modify in any way the
Subordinate Notes without the consent of the Senior Lender, which consent
shall not be unreasonably withheld or delayed.
3. If the Subordinate Lender, in violation of the provisions set
forth herein, shall commence, prosecute or participate in any suit, action or
proceeding, against Borrower,
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the Senior Lender or any other party, then the Senior Lender, or any trustee for
their benefit, may intervene and interpose such defense or plea in its own name
or in the name of the party against which the action is being taken, and may, in
any event, have standing to restrain the actions of the Subordinate Lender in
its own name or in the name of the Senior Lender in the same suit, action or
proceeding or in an independent suit, action or proceeding.
4. In the event of any proceedings to liquidate, dissolve or wind up
the Borrower, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization, or other similar proceedings relative
to the Borrower or its property (collectively, a "Bankruptcy Proceeding"), the
Senior Indebtedness shall first be paid in full before any payment is made upon
the Subordinate Indebtedness; and in any such event any payment or distribution
of any kind or character, whether in cash, property or securities, which shall
be made upon or in respect of the Subordinate Indebtedness or any collateral for
the Senior Indebtedness in or as a result of any such proceeding shall be paid
over to the Senior Lender, until the Senior Indebtedness has been paid in full.
5. The Senior Lender or its nominee in its reasonable discretion
shall have the right to accept or reject any plan proposed in any Bankruptcy
Proceeding and to take any other action which a party filing a claim is entitled
to take in order to effectuate the subordination contained herein. In such
cases, whether in administration, bankruptcy or otherwise, any party authorized
to pay such claim shall pay to the holder of the Senior Indebtedness the amount
payable on such claim and, to the full extent necessary for the purposes of this
Section, the Subordinate Lender shall assign to the holders of the Senior
Indebtedness all of the Subordinate Lender's rights to any such payments or
distributions to which the Subordinate Lender would otherwise be entitled;
provided, however, that the obligations of the Borrower and the Subordinate
Lender shall not be satisfied except to the extent that the holders of the
Senior Indebtedness receive cash by reason of any such payment or distribution.
If the holders of the Senior Indebtedness receive anything in a Bankruptcy
Proceeding other than cash, the same shall be held as collateral for amounts due
under the Senior Security Documents.
6. If notwithstanding the provisions of this agreement, the
Subordinate Lender shall receive any payment of principal or interest on
Subordinated Indebtedness which the Subordinate Lender is not entitled to
receive pursuant to the terms hereof, whether or not the Subordinate Lender has
knowledge that it is not entitled to receive such payment, the Subordinate
Lender shall promptly account for such payment and upon the Senior Lender's
demand pay over such payment for application to the Senior Indebtedness. No
payment or any distribution received by the Subordinate Lender in respect of
Subordinated Indebtedness shall
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entitle the Subordinate Lender to any right, whether by virtue of subrogation or
otherwise, in and to any Senior Indebtedness.
7. The Subordinate Lender further covenants, agrees and undertakes
that:
(a) if the Senior Lender or its agents exercises any right or
takes any remedial action pursuant to the terms and provisions of the
Mortgage, or any of the other Senior Documents, the Subordinate Lender
expressly waives any claims it may have against Senior Lender in connection
with such act by the Senior Lender, or its agents;
(b) the Subordinate Lender shall not exercise any right or take
any action which could terminate or in any way adversely affect the lien or
security interests or the availability of the Mortgaged Property (including
without limitation all rents, revenues, issues, profits and proceeds of the
Mortgaged Property) to pay and satisfy the Senior Indebtedness under the
Senior Documents.
8. The Subordinate Lender hereby consents and agrees that, without
the necessity of any reservation of rights against any of such persons, and
without notice to or further assent by any of such persons: (i) any demand for
payment of the Senior Indebtedness made by the holder(s) thereof may be
rescinded in whole or in part by such holder(s), and the Senior Indebtedness, or
the liability of Borrower or of any other party upon or for any part thereof, or
any collateral security or guaranty therefor or right of offset with respect
thereto, or any obligation or liability of Borrower or of any other party under
the Senior Documents, may, from time to time, in whole or in part, by
accelerated, compromised, waived, surrendered or released by any or all the
holder(s) of the Senior Indebtedness, and (ii) any of the Senior Documents, and
any other document or instrument evidencing or governing the terms of any of the
Senior Indebtedness and any collateral security documents or guaranties or other
documents in connection with any thereof may be waived or terminated, in whole
or in part, and remedies thereunder may be exercised in whole or in part or not
at all, all as the Senior Lender may deem advisable from time to time, and any
collateral security at any time held by the holder or holders of any Senior
Indebtedness for the payment of any of the Senior Indebtedness may be sold,
exchanged, waived, surrendered or released, in each case all without notice to
or further assent by Subordinated Lender, and all without impairing, abiding,
releasing or affecting the subordination provided for herein, notwithstanding
any such acceleration, compromise, termination, sale, exchange, waiver,
surrender or release. The Subordinate Lender waives any and all notice of the
creation or accrual of any of the Senior Indebtedness and notice of or proof of
reliance by the holder(s) of the Senior Indebtedness upon the provisions hereof.
The Subordinate Lender agrees with the Senior Lender to enter
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<PAGE>
into a subordination agreement on the same terms and conditions as this
Agreement with any purchaser or refinancer of the Senior Indebtedness. The
Senior Lender shall conclusively be deemed to have acted in reliance upon the
provisions hereof. The Subordinate Lender acknowledges and agrees that the
holder(s) of the Senior Indebtedness have relied upon the subordination provided
for herein in consenting to the Subordinate Documents. The Subordinate Lender
waives notice of or proof of reliance on the provisions hereof and protest and
demand for payment.
9. The Subordinate Lender and Senior Lender each hereby agree that
no failure to exercise, and no delay in exercising, on the part of any holder of
the Senior Indebtedness or Subordinate Indebtedness of any right, power or
privilege in any agreement relating to any of the Senior Indebtedness or
Subordinate Indebtedness, or any right, power or privilege under the terms
hereof shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege in any agreement relating to any of
the Senior Indebtedness or Subordinate Indebtedness or under the terms hereof
preclude any other further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies provided herein and in any
agreement relating to any of the Senior Indebtedness or Subordinate Indebtedness
and all other agreements, instruments and documents referred to in any of the
foregoing are cumulative and shall not be exclusive of any rights or remedies
provided by law.
10. The Subordinate Lender hereby agrees to execute and deliver such
further documents as Senior Lender may reasonably request in order fully to
effect the purposes hereof.
11. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
12. This Subordination Agreement is made for the sole benefit of
Senior Lender and Subordinate Lender and neither the Borrower nor any other
person or persons shall have any benefits, rights or remedies under or by reason
of this Agreement.
13. This Agreement may not be changed or amended except by a writing
signed by each of the parties hereto.
14. This Agreement constitutes the entire understanding of the
parties hereto with respect to the transactions contemplated hereby and all
prior undertakings with respect thereto, whether written or oral, shall be of no
force and effect.
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IN WITNESS WHEREOF the Senior Lender and the Subordinate Lender have
duly executed this Agreement as of the day and year above written.
SUBORDINATE LENDER:
EXTENDED STAY AMERICA, INC.
By:_______________________________________
Its:___________________________________
SENIOR LENDER:
CS FIRST BOSTON MORTGAGE CAPITAL
CORPORATION
By:_______________________________________
Its:___________________________________
7
