<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997 Commission File Number 1-11903
AMERICAN GENERAL HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Maryland 75-2648842
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5605 MacArthur Blvd., Suite 1200, Irving, Texas 75038
(Address of Registrant's Principal Executive Office) (Zip Code)
(972) 550-6800
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (ii) has been subject to such
filing requirements for the past 90 days.
X Yes No
--------- ----------
The number of shares of Common Stock, $.01 par value of American
General Hospitality Corporation, outstanding on August 12, 1997, was 14,770,110.
1 of 34
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
This Quarterly Report on Form 10-Q contains historical information and forward-
looking statements. Statements looking forward in time are included in this
Form 10-Q pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. They involve known and unknown risks and
uncertainties that may cause the Company's actual results in future periods to
be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Company's filings with the Securities
and Exchange Commission during the past 12 months.
INDEX
PAGE
PART I. Financial Information
Item 1 Financial Statements
AMERICAN GENERAL HOSPITALITY CORPORATION
Consolidated Balance Sheets - June 30, 1997 (unaudited)
and December 31, 1996............................................. 3
Consolidated Statements of Operations for the Six and
Three Months Ended June 30, 1997 (unaudited)...................... 4
Consolidated Statement of Shareholders' Equity for the Six
Months Ended June 30, 1997 (unaudited)............................ 5
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1997 (unaudited)......................................... 6
Notes to Consolidated Financial Statements......................... 7
Pro Forma Consolidated Balance Sheet - June 30, 1997 (unaudited)... 14
Pro Forma Consolidated Statement of Operations for the
Six Months Ended June 30, 1997 (unaudited)........................ 15
AGH LEASING, L.P. (the "Lessee")
Balance Sheet - June 30, 1997 (unaudited) and December 31, 1996... 16
Statements of Operations for the Six and Three Months Ended
June 30, 1997 (unaudited)......................................... 17
Statement of Partners' Deficit for the Six Months Ended
June 30, 1997 (unaudited)......................................... 18
Statement of Cash Flows for the Six Months Ended June 30,
1997 (unaudited).................................................. 19
Notes to Financial Statements...................................... 20
Pro Forma Statement of Operations for the Six Months Ended
June 30, 1997 (unaudited)......................................... 23
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 24
PART II Other Information
Item 4 Submission of Matters to a Vote of Security Holders............ 32
Item 6 Exhibits and Reports on Form 8-K............................... 33
SIGNATURE 34
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30,1997
(unaudited) December 31, 1996
------------ -----------------
<S> <C> <C>
ASSETS
Investment in hotel properties
Land and land improvements.................................... $ 45,079,113 $ 17,287,136
Buildings and improvements.................................... 433,736,126 195,294,012
Furniture, fixtures and equipment............................. 31,156,267 11,505,892
Construction in progress...................................... 30,141,716 10,861,976
------------ ------------
540,113,222 234,949,016
Less: accumulated depreciation............................... (9,009,363) (4,188,198)
------------ ------------
Net investment in hotel properties............................ 531,103,859 230,760,818
Cash and cash equivalents..................................... 3,487,475 3,888,281
Restricted cash............................................... 429,092 544,541
Participating Lease receivable - AGH Leasing, L.P............. 6,757,344 3,982,424
Deferred expenses, net........................................ 4,650,570 2,986,946
Other assets.................................................. 694,959 664,661
Note receivable - Lessee...................................... 274,833 287,684
------------ ------------
Total assets............................................. $547,398,132 $243,115,355
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt.......................................................... $ 36,527,194 $ 19,122,398
Debt, Line of Credit.......................................... 170,701,000 57,500,000
Distributions payable......................................... 6,796,616 4,150,729
Accounts payable, trade, accrued expenses and other
liabilities................................................ 10,068,022 5,756,097
Minority interest in Operating Partnership.................... 41,577,062 29,125,020
------------ ------------
Total liabilities........................................ 265,669,894 115,654,244
------------ ------------
Commitments and Contingencies (Note 5)
Shareholders' equity:
Common stock $0.01 par value per share, 100,000,000
shares authorized, 14,657,141 and 8,288,841 shares issued
and outstanding at June 30, 1997 and December 31, 1996,
respectively............................................... 146,571 82,888
Additional paid-in capital.................................... 284,424,931 128,746,013
Unearned officers' compensation............................... (806,146) (850,521)
Distributions in excess of accumulated earnings............... (2,037,118) (517,269)
------------ ------------
Total shareholders' equity............................... 281,728,238 127,461,111
------------ ------------
Total liabilities and shareholders' equity $547,398,132 $243,115,355
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six and Three Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues
Participating Lease revenue........................... $22,832,233 $13,323,868
Interest income....................................... 682,644 287,931
----------- -----------
Total revenue....................................... 23,514,877 13,611,799
----------- -----------
Expenses
Depreciation.......................................... 4,825,333 2,893,943
Amortization of deferred loan costs................... 370,732 196,774
Amortization of franchise fees........................ 40,765 22,539
Amortization of other deferred expenses............... 10,732 5,702
Real estate and personal property taxes and property
insurance........................................... 2,618,218 1,368,101
General and administrative............................ 968,466 466,075
Ground lease expense.................................. 602,099 287,637
Amortization of unearned officers' compensation....... 44,375 22,188
Interest expense...................................... 1,995,176 1,053,176
----------- -----------
Total expenses...................................... 11,475,896 6,316,135
----------- -----------
Income before minority interest.......................... 12,038,981 7,295,664
Minority interest........................................ 1,567,225 840,531
----------- -----------
Net income applicable to common stockholders............. $10,471,756 $ 6,455,133
=========== ===========
Net income per common share.............................. $ 0.79 $ 0.44
=========== ===========
Weighted average number of shares of Common Stock
outstanding........................................... 13,267,420 14,657,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Unearned Distributions
------------------- Paid-In Officers' in Excess of
Shares Dollars Capital Compensation Earnings Total
--------- -------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996............................ 8,288,841 $ 82,888 $128,746,013 $(850,521) $ (517,269) $127,461,111
Issuance of common shares,
net of offering expenses
and allocation to minority
interest ($7,332,705)........... 6,368,300 63,683 154,332,763 154,396,446
Distributions declared
March 13, 1997 ($0.4075
per share)...................... (5,972,785) (5,972,785)
Distributions declared
June 15, 1997
($0.4075 per share)........... (6,018,820) (6,018,820)
Allocation of minority
interest from the
issuance of OP Units............ 1,346,155 1,346,155
Amortization of unearned
officers' compensation.......... 44,375 44,375
Net income....................... 10,471,756 10,471,756
---------- -------- ------------ --------- ----------- ------------
Balance at June 30, 1997......... 14,657,141 $146,571 $284,424,931 $(806,146) $(2,037,118) $281,728,238
========== ======== ============ ========= =========== ============
</TABLE>
5
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash flow from operating activities:
Net income............................................................. $ 10,471,756
Adjustments to reconcile net income to net cash provided by operating
activities, net of effects of acquisitions:
Depreciation......................................................... 4,825,333
Amortization......................................................... 466,604
Minority interest.................................................... 1,567,225
Changes in assets and liabilities:
Restricted cash...................................................... 115,449
Participating Lease receivable....................................... (2,774,920)
Organization costs and franchise agreements.......................... (248,355)
Other assets......................................................... (30,298)
Accounts payable, trade, accrued expenses and other liabilities...... 4,311,925
-------------
Net cash flow provided by operating activities.................... 18,704,719
-------------
Cash flow from investing activities:
Purchase of hotel properties........................................... (255,505,959)
Improvements and additions to hotel properties......................... (25,483,914)
Payments received from Loan to Lessee.................................. 12,851
-------------
Net cash flow used in investing activities........................ (280,977,022)
-------------
Cash flow from financing activities:
Proceeds from borrowings............................................... 189,200,000
Net proceeds from public offering...................................... 161,729,151
Principal payments on borrowings....................................... (76,323,614)
Distributions paid - common stockholders............................... (9,350,488)
Distributions paid - OP Unit holders................................... (1,546,052)
Payments for deferred loan costs....................................... (1,837,500)
-------------
Net cash flow provided by financing activities.................... 261,871,497
-------------
Net change in cash and cash equivalents..................................... (400,806)
Cash and cash equivalents as of December 31, 1996........................... 3,888,281
-------------
Cash and cash equivalents as of June 30, 1997 $ 3,487,475
=============
</TABLE>
Supplemental disclosures of noncash investing activities:
On February 28, 1997 the Company assumed $8,218,755 of mortgage
indebtedness with the acquisition of the Radisson Hotel Arlington Heights.
On March 18, 1997 the Company assumed $9,510,654 of mortgage indebtedness
with the acquisition of the DoubleTree Guest Suites Hotel.
Supplemental disclosures of noncash financing activities:
On June 27, 1997, the Company issued 266,301 Class B units of limited
partnership interest in American General Hospitality Operating Partnership, L.P.
("OP Units") as part of the purchase of the Hilton Hotel Cocoa Beach. At the
time of issuance, the OP Units were valued at $24.20 per unit. On July 16, 1997
these OP Units automatically converted into standard OP Units.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
American General Hospitality Corporation (the "Company") was incorporated
and formed on April 12, 1996 as a Maryland corporation qualifying as a real
estate investment trust ("REIT"). The Company commenced operations and completed
an Initial Public Offering (the "IPO") of 7,500,000 shares of its Common Stock
on July 31, 1996. An additional 575,000 shares of Common Stock were issued by
the Company on August 28, 1996 upon exercise of the underwriters' over-allotment
option. The offering price of all shares sold in the IPO was $17.75 per share,
resulting in net proceeds of approximately $129.3 million after deducting IPO
expenses.
The Company contributed all of the net proceeds of the IPO to AGH GP, Inc.
(the "General Partner") and AGH LP, Inc. (the "Limited Partner"), which in turn,
contributed such proceeds to American General Hospitality Operating Partnership,
L.P. (the "Operating Partnership") in exchange for an approximate 81.3%
aggregate equity interest in the Operating Partnership. The General Partner, a
wholly owned subsidiary of the Company, owns a 1.0% interest in the Operating
Partnership. The Limited Partner, also a wholly owned subsidiary of the
Company, owns an approximate 80.3% limited partnership interest in the Operating
Partnership.
In connection with the IPO, the Company acquired equity interests in 13
hotels (the "Initial Hotels"). Four of the Initial Hotels (the "AGH Predecessor
Hotels") were acquired primarily from limited partnerships controlled by the
shareholders of American General Hospitality, Inc. ("AGHI") and principals of
the Lessee and certain of their respective affiliates (the "Primary
Contributors"). The remaining nine Initial Hotels (the "AGH Acquisition
Hotels") were acquired primarily from parties unaffiliated with the Primary
Contributors. In addition, the Company acquired interests in five of the
Initial Hotels from the AGHI Employee Retirement Savings Plan (the "Retirement
Plan") in exchange for 137,008 shares of restricted common stock.
Also on July 31, 1996 the Operating Partnership acquired directly or
indirectly the remaining equity interests in each of the Initial Hotels for an
aggregate of 1,896,996 units of limited partnership interest in the Operating
Partnership ("OP Units") (560,178 OP Units to the Primary Contributors and
1,336,818 OP Units to parties unaffiliated with the Primary Contributors) and
approximately $91.0 million in cash to parties unaffiliated with the Primary
Contributors.
On February 7, 1997 the Company completed a follow-on primary offering (the
"1997 Public Offering") of 5,800,000 shares of its Common Stock. An additional
568,300 shares of Common Stock were issued by the Company on March 7, 1997 upon
exercise of the underwriters' over-allotment option. The offering price of all
shares sold in the 1997 Public Offering was $27.25 per share, resulting in net
proceeds of approximately $161.7 million after deducting offering expenses. All
of the net proceeds were contributed to AGH GP, Inc. and AGH LP, Inc., which in
turn contributed such proceeds to the Operating Partnership in exchange for an
88.5% aggregate equity interest in the Operating Partnership.
Subsequent to the IPO, the Company has acquired the following hotels:
ACQUISITION DATE HOTEL ACQUISITION PRICE
- ----------------- ----- -----------------
October 22, 1996 490-room Days Inn in Lake Buena Vista,
Florida ("Days Inn Lake Buena Vista") $33.2 million
November 21, 1996 204-room Holiday Inn Resort in Monterey,
California ("Holiday Inn Resort Monterey") $15.8 million
January 8, 1997 152-room Hilton Hotel in Durham, North
Carolina ("Hilton Hotel Durham") $12.4 million
7
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ACQUISITION DATE HOTEL ACQUISITION PRICE
- ----------------- ----- -----------------
February 28, 1997 201-room Radisson Hotel in Arlington $11.8 million
Heights, Illinois
("Radisson Hotel Arlington Heights")
March 17, 1997 219-room Wyndham Garden Hotel in $17.3 million
Marietta, Georgia
("Wyndham Garden Hotel Marietta")
March 17, 1997 200-room Sheraton in Key Largo, Florida $26.3 million
("Sheraton Key Largo")
March 17, 1997 155-room DoubleTree Guest Suites in $16.3 million
Atlanta, Georgia
("DoubleTree Guest Suites Atlanta")
April 1, 1997 249-room Holiday Inn in Phoenix, $16.0 million
Arizona ("Holiday Inn
Corporate Center Phoenix")
April 18, 1997 226-room Hilton Hotel in Grand Rapids, $16.9 million
Michigan ("Hilton Airport Hotel
Grand Rapids")
June 20, 1997 215-room Holiday Inn Select Bucks $21.5 million
County in Trevose, Pennsylvania
("Holiday Inn Select Bucks County")
June 25, 1997 742-room Radisson Twin Towers Hotel $78.6 million
in Orlando, Florida
("Radisson Twin Towers Orlando")
June 25, 1997 302-room Marriott West Loop in Houston, $38.6 million
Texas ("Marriott Houston West Loop Hotel")
and connecting 256,000 sq. ft. office
building ("Houston Office Building")
June 27, 1997 296-room Hilton Hotel in Cocoa Beach, $22.2 million
Florida ("Hilton Hotel Cocoa Beach")
At June 30, 1997, the Company owned 26 hotels in 16 states consisting of
the Initial Hotels and the hotels listed above (collectively the "Hotels"). The
Company owned an aggregate 87.1% of the Operating Partnership at June 30, 1997.
The Company currently leases 25 of the Hotels to AGH Leasing, L.P. ("AGH
Leasing") and one hotel, the Radisson Twin Towers Orlando, to Twin Towers
Leasing, L.P. ("Twin Towers Leasing") (together with AGH Leasing, the "Lessee")
pursuant to 12-year operating leases providing for the payment of participating
rent based on the revenues of the Hotels (the "Participating Leases"). AGH
Leasing is owned in part by certain executive officers of the Company and AGH
Leasing is the 51% sole general partner of Twin Towers Leasing.
In addition, the Lessee has engaged American General Hospitality, Inc.
("AGHI") to manage 25 of the Hotels pursuant to separate management agreements
(the "Management Agreements"). The remaining Hotel, the Wyndham Garden Hotel
Marietta, is managed by Wyndham Hotel Corporation.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company, the Lessee and the AGH Predecessor Hotels included in the Company's
Form 10-K for the fiscal year ended December 31, 1996 (the "10-K"). The notes
to the financial statements included herein highlight significant changes to the
notes included in the 10-K and present interim disclosures required by the SEC.
The accompanying financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All adjustments are of a normal and recurring nature.
2. NET INCOME PER COMMON SHARE
8
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Income per common share for third quarter ended June 30, 1997 is
computed based on the weighted average number of shares of common stock
outstanding. The impact of common stock equivalents to earnings per share is
immaterial.
In February 1997, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share ("EPS").
SFAS 128 requires basic EPS to be computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period and diluted EPS to reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement of all prior period EPS data presented. Earlier application is not
permitted. The impact of the implementation of SFAS 128 on the Company's
consolidated financial statements is expected to be immaterial.
3. DISTRIBUTIONS PAYABLE
On June 15, 1997, the Company declared a distribution of $0.4075 per share
for the second quarter payable on July 30, 1997 to stockholders of record on
July 15, 1997.
4. DEBT OBLIGATIONS
Mortgage debt outstanding at December 31, 1996 remained outstanding for the
second quarter of 1997. The following debt was assumed in connection with the
Radisson Hotel Arlington Heights and the DoubleTree Guest Suites Atlanta
acquisitions.
<TABLE>
<CAPTION>
Balance
June 30, 1997
---------------
<S> <C>
One year first mortgage note payable in monthly installments of interest only at a fixed
rate of 7.5%; maturing on February 28, 1998 at which time a balloon payment of
$8,218,755 will be due and payable; collateralized by the Radisson Hotel Arlington
Heights................................................................................. $8,218,755
First mortgage note payable in monthly installments at a fixed rate of 9.75%; maturing on
July 1, 2002 at which time a balloon payment of approximately $8,200,000 will be due
and payable; collateralized by the DoubleTree Guest Suites Atlanta...................... $9,462,799
</TABLE>
Substantially all of the borrowings under the Line of Credit were
repaid in February, 1997, with a portion of the proceeds from the 1997 Public
Offering. Borrowings have been made subsequently to fund property acquisitions
and capital improvements and renovations at the Hotels.
5. COMMITMENTS AND CONTINGENCIES
The Company increased its Line of Credit (the "Line of Credit") from $150
million to $300 million on July 24, 1997. The Line of Credit matures on July
31, 1999. At June 30, 1997, there was $170,701,000 outstanding on the Line of
Credit. The Line of Credit is with a consortium of banks led by Societe
Generale, Southwest Agency and Bank One, Texas, N.A. The Line of Credit is
collateralized by, among other things, first mortgage liens on all of the
Hotels, other than the Holiday Inn Select Dallas DFW Airport South, the
Courtyard by Marriott Meadowlands, the Radisson Hotel Arlington Heights and the
DoubleTree Guest Suites Atlanta, which hotels collateralize other indebtedness.
Borrowings under the Line of Credit bear interest at 30-day, 60-day or 90-day
LIBOR (the "London Interbank Offered Rate") plus 1.75% per annum, 7.44% at June
30, 1997, payable monthly in arrears or one-half percent in excess of the prime
rate, at the option of the Company.
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements which expire
from 1998 to 2013. Franchise costs are based upon varying percentages of gross
9
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
room revenue ranging from 1.0% to 5.0%. These fees are paid by the Lessee. No
franchise costs were incurred for the Hotel Maison de Ville.
Twenty-five of the hotels are managed by AGHI on behalf of the Lessee. The
Lessee pays AGHI a base management fee of 1.5% of total revenue and an incentive
fee of up to 2.0% of total revenue. The incentive fee, if applicable, is equal
to 0.025% of annual total revenue for each 0.1% increase in annual total revenue
over the total revenues for the preceding twelve month period up to the maximum
incentive fee. The remaining hotel, the Wyndham Garden Hotel Marietta, is
managed by Wyndham Hotel Corporation under a similar agreement.
Each hotel, except the Hotel Maison de Ville, is required to remit varying
percentages of gross room revenues ranging from 1.0% to 5.0% to the various
franchisors for sales and advertising expenses incurred to promote the hotel at
the national level. Additional sales and advertising costs are incurred at the
local property level. These fees are paid by the Lessee.
The Company entered into an agreement for a license and an association
membership with one of the sellers of the Days Inn Lake Buena Vista which the
Company immediately assigned to the Lessee. Commencing January 1998, in
connection with the license and the association membership, the Lessee is
required to pay recurring association fees including a base monthly fee equal to
1.0% of the prior month's gross room revenues generated at the hotel, and an
additional fee of 0.5% to 1.0% of gross monthly revenues if the trailing twelve
month's gross room revenues at the hotel exceed a threshold of approximately $13
million, (subject to increase based on the percentage increase in the CPI). In
addition, the Lessee is obligated to pay a recurring royalty for the African
royal safari theme equal to an amount which ranges from 10% to 25% of net
operating income in excess of $6 million (subject to adjustment if the Operating
Partnership invests more than $40 million in the hotel). The Lessee is also
obligated to pay a marketing assistance fee equal to .25% of gross room
revenues. The marketing and association fees are not expected to exceed 2.25%
of gross room revenues for any twelve-month period. The association membership
agreement terminates in October 2008; the Lessee is obligated to pay liquidated
damages if the agreement is terminated earlier.
Participating Leases
The Lessee has future lease commitments to the Company under the
Participating Leases which expire from July 2008 to June 2009. Minimum future
rental income (i.e., base rents) under these noncancellable Participating Leases
at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Remainder of 1997.... $ 24,435,104
1998................. 50,908,816
1999................. 52,691,684
2000................. 54,534,872
2001 and thereafter.. 450,118,688
------------
Total...... $632,689,164
============
</TABLE>
At June 30, 1997, the Lessee owed the Company $6,757,344 for such base and
Participating Lease rent which was paid by the Lessee in July, 1997.
Under the Participating Leases, the Company is obligated to pay the costs
of real estate and personal property taxes, property insurance and maintaining
underground utilities and structural elements of the Initial Hotels.
Additionally, the Company is required to establish annual minimum reserves equal
to 4.0% of total revenue for each of the Hotels which will be utilized by the
Lessee for the replacement and refurbishment of furniture, fixtures & equipment
("FF&E") and other capital expenditures to enhance the competitive position of
the Hotels. At June 30, 1997, actual capital expenditures were greater than the
amount required to be reserved.
10
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Ground Leases
Four of the Hotels are subject to ground leases with third parties with
respect to the land underlying each such hotel and the Sheraton Key Largo has a
ground lease related to the bay bottom area fronting the property. The ground
leases are triple net leases which require the tenant to pay all expenses of
owning and operating the hotel, including real estate taxes and structural
maintenance and repair.
The Courtyard by Marriott Meadowlands is subject to a ground lease with
respect to approximately 0.37 acres. The ground lease terminates in March 2036,
with two ten-year options to renew. The lease requires a fixed rent payment
equal to $150,000 per year, subject to a 25.0% increase every five years
thereafter beginning in 2001 and a percentage rent payment equal to 3.0% of
gross room revenues.
The Wyndham Albuquerque Airport Hotel is subject to a ground lease with
respect to approximately 10 acres. The ground lease terminates in December 2013,
with two five-year options to renew. The lease requires a fixed rent payment
equal to $19,180 per year subject to annual consumer price index adjustment and
a percentage rent payment equal to 5.0% of gross room revenues, 3.0% of gross
receipts from the sale of alcoholic beverages, 2.0% of gross receipts from the
sale of food and non-alcoholic beverages and 1.0% of gross receipts from the
sale of other merchandise or services. The lease also provides the landlord with
the right, subject to certain conditions, to require the Company, at its
expense, to construction 100 additional hotel rooms if the occupancy rate at the
hotel is 85.0% or more for 24 consecutive months and to approve any significant
renovations scheduled at the hotel. The occupancy rate at the Wyndham
Albuquerque Airport Hotel for the twelve months ended June 30, 1997 was 74.1%.
The Hilton Hotel Toledo is subject to a ground lease with respect to
approximately 8.8 acres. The ground lease terminates in June 2026, with four
successive renewal options, each for a ten-year term. The lease requires annual
rent payments equal to $25,000, increasing to $50,000 or $75,000 if annual gross
room revenues exceed $3.5 million or $4.5 million, respectively.
The Wyndham Airport Hotel San Jose is subject to a ground sublease with
respect to approximately 5.3 acres, which in turn is subject to a ground lease
covering a larger tract of land. The sublease terminates in 2022, with one 30-
year option to renew. The sublease requires the greater of a fixed minimum
annual rent of $75,945 (increasing to an annual minimum rent of $100,000 if the
option is exercised) or, in the aggregate, 4.0% of gross room revenues, 2.0% of
gross food receipts, and 3.0% of gross bar and miscellaneous operations
receipts. The sublease also provides the sublessor with the right to approve any
significant renovations scheduled at the hotel.
The Sheraton Key Largo is subject to a ground lease with respect to 42,500
square feet of off-shore bay bottom land in the Florida Bay on which a
commercial marina is operated pursuant to a lease from the Board of Trustees of
the Internal Improvement Trust Fund of the State of Florida, as Lessor. The
lease terminates in May 2021 and requires an annual lease fee of approximately
$3,100.
11
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Minimum future rental payments for the ground leases to be paid by Company
at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Remainder of 1997..... $ 135,063
1998.................. 270,125
1999.................. 270,125
2000.................. 270,125
2001 and thereafter... 7,970,130
----------
Total..... $8,915,568
==========
</TABLE>
6. AGH PREDECESSOR HOTELS INFORMATION
Pursuant to SEC regulations which require the presentation of corresponding
periods of the preceding year's quarter financial information, the following
information represents condensed combined balance sheet information as of June
30, 1996 and condensed combined statements of operations for the six and three
months ended June 30, 1996 and cash flows information for the six months ended
June 30, 1996 of AGH Predecessor Hotels which is considered to be the
predecessor of the Company.
<TABLE>
<CAPTION>
AGH PREDECESSOR HOTELS
Balance Sheet Information: JUNE 30, 1996
--------------
<S> <C>
Investments in hotel properties, net $22,811,252
Cash and cash equivalents........... 1,222,879
Total assets........................ 25,690,122
Debt................................ 20,142,499
Total liabilities................... 21,124,573
Total equity........................ 4,565,549
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
Statements of Operations Information: JUNE 30, 1996 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Room revenue........................ $5,770,451 $ 3,145,837
Other revenue....................... 1,407,300 724,519
---------- -----------
Total revenue..................... 7,177,751 3,870,356
Hotel operating expenses............ 4,817,866 2,564,210
Depreciation and amortization....... 552,917 247,984
Interest expense.................... 943,540 486,394
Other expenses...................... 367,586 204,532
---------- -----------
Net income......................... $ 495,842 $ 367,236
========== ===========
</TABLE>
12
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
Statement of Cash Flows Information: JUNE 30, 1996
-------------
<S> <C>
Net cash provided by operating activities........... $ 368,701
Net cash used in investing activities............... $ (913,509)
Net cash provided by financing activities........... $ 910,079
</TABLE>
7. SUBSEQUENT EVENTS
On July 14, 1997, as part of the terms of the strategic alliance between
Wyndham Hotel Corporation ("Wyndham") and the Company, Wyndham purchased 112,969
shares of restricted common stock (the "Wyndham Shares") at a negotiated price
of $22.13 per share. The shares were purchased in connection with the
conversion of the LeBaron Airport Hotel to the Wyndham Airport Hotel San Jose.
8. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma consolidated balance sheet as of June 30,
1997 and the unaudited pro forma consolidated statement of operations for the
six months ended June 30, 1997 are presented as if the acquisition of the 26
Hotels owned as of June 30, 1997, the IPO, the 1997 Public Offering, the two
increases to the Line of Credit and the Wyndham Shares had occurred on January
1, 1997 and all of the Hotels had been leased to the Lessee pursuant to the
Participating Leases. Such pro forma information is based in part upon the
Statement of Operations of the Lessee included elsewhere in this Quarterly
Report on Form 10-Q. Such information should be read in conjunction with the
financial statements listed in the Index on page 2.
In management's opinion, all adjustments necessary to reflect the effects
of the transactions previously described have been made. The pro forma
information does not purport to present what actual results of operations would
have been if the acquisitions and the consummation of the IPO had occurred on
such date or to project results for any future period.
13
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
COMPANY WYNDHAM PRO FORMA
HISTORICAL SHARES BALANCE SHEET
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Investment in hotel properties, net......... $531,103,859 $531,103,859
Cash and cash equivalents................... 3,487,475 $2,500,004 5,987,479
Restricted cash............................. 429,092 429,092
Accounts receivable, net.................... 6,757,344 6,757,344
Deferred expenses, net...................... 4,650,570 4,650,570
Other assets................................ 694,959 694,959
Notes receivable - Lessee................... 274,833 274,833
------------ ---------- ------------
Total assets........................... $547,398,132 $2,500,004 $549,898,136
============ ========== ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Debt........................................ $ 36,527,194 $ 36,527,194
Debt, Line of Credit........................ 170,701,000 170,701,000
Distributions payable....................... 6,796,616 6,796,616
Accounts payable, trade, accrued
expenses and other liabilities............ 10,068,022 10,068,022
Minority interest in Operating Partnership.. 41,577,062 60,856 41,637,918
------------ ---------- ------------
Total liabilities...................... 265,669,894 $ 60,856 265,730,750
------------ ---------- ------------
SHAREHOLDERS' EQUITY:
Common Stock................................ 146,571 1,130 147,701
Additional paid-in capital.................. 284,424,931 2,438,018 286,862,949
Unearned officers' compensation............. (806,146) (806,146)
Earnings in excess of distributions......... (2,037,118) (2,037,118)
------------ ---------- ------------
Total shareholders' equity............. 281,728,238 2,439,148 284,167,386
------------ ---------- ------------
Total liabilities and shareholders'
equity............................... $547,398,132 $2,500,004 $549,898,136
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
AMERICAN GENERAL HOSPITALITY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
HISTORICAL
SIX MONTHS
ENDED PRO FORMA COMBINED
JUNE 30, 1997 ADJUSTMENTS PRO FORMA
------------- ------------ -----------
Revenues
<S> <C> <C> <C>
Participating lease revenue........ $22,832,233 $13,549,661 $36,381,894
Office building rental income...... 1,134,582 1,134,582
Interest income.................... 682,644 682,644
----------- ----------- -----------
Total revenue............... 23,514,877 14,684,243 38,199,120
----------- ----------- -----------
Expenses
Depreciation....................... 4,825,333 3,681,663 8,506,996
Amortization....................... 422,229 14,855 437,084
Real estate and personal property
taxes and property insurance..... 2,618,218 1,270,047 3,888,265
Office building operating expense.. 658,611 658,611
General and administrative......... 968,466 968,466
Ground lease expense............... 602,099 602,099
Amortization on unearned
officers' compensation........... 44,375 44,375
Interest expense................... 1,995,176 6,262,848 8,258,024
----------- ----------- -----------
Total expenses.............. 11,475,896 11,888,024 23,363,920
----------- ----------- -----------
Income before minority interest....... 12,038,981 2,796,219 14,835,200
Minority interest..................... 1,567,225 1,895,938
----------- -----------
Net income applicable to common
shareholders....................... $10,471,756 $12,939,262
=========== ===========
Per common share information:
Net income per common share........... $ 0.79 $ 0.88
=========== ===========
Weighted average number of shares
of Common Stock outstanding........ 13,267,420 14,770,110
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED BALANCE SHEET
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, 1997 December 31,
(unaudited) 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments in hotel properties, at cost
Furniture, fixtures and equipment......................................... $ 320,000 $ 315,000
Less accumulated depreciation............................................. (57,750) (26,250)
----------- -----------
Net investment in hotel properties............................................. 262,250 288,750
Cash and cash equivalents...................................................... 8,214,516 5,673,232
Accounts receivable, net of allowance for doubtful accounts of $19,341......... 5,601,381 2,822,936
Inventories.................................................................... 893,716 448,234
Prepaid expenses............................................................... 1,075,331 553,400
Deferred expenses.............................................................. 179,902 194,287
Other assets................................................................... 277,867 47,985
----------- -----------
Total assets......................................................... $16,504,963 $10,028,824
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable, trade........................................................ $ 1,971,764 $ 1,054,902
Participating Lease payable, American General Hospitality Operating
Partnership, L.P.............................................................. 6,757,344 3,979,242
Note payable to American General Hospitality Operating Partnership, L.P........ 274,833 287,684
Accrued expenses and other liabilities......................................... 6,961,508 4,198,035
Deferred income................................................................ 1,350,002 730,000
----------- -----------
Total liabilities.................................................... 17,315,451 10,249,863
----------- -----------
Commitments and contingencies (Notes 1 and 2)
Partners' capital.............................................................. 500,000 500,000
Accumulated deficit............................................................ (1,310,488) (721,039)
----------- -----------
Total partners' deficit.............................................. (810,488) (221,039)
----------- -----------
Total liabilities and partners' deficit.............................. $16,504,963 $10,028,824
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six and Three Months Ended March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Revenue
Room revenue........................... $48,520,357 $29,054,389
Food and beverage revenue.............. 12,890,419 7,693,175
Other revenue.......................... 3,009,742 1,703,889
----------- -----------
Total revenue..................... 64,420,518 38,451,453
----------- -----------
Expenses
Property operating costs and expenses.. 12,989,007 7,648,715
Food and beverage costs and expenses... 10,344,888 6,105,576
General and administrative............. 5,983,471 3,508,183
Advertising and promotion.............. 4,498,429 2,677,840
Repairs and maintenance................ 2,519,364 1,487,271
Utilities.............................. 2,699,700 1,551,809
Management fees........................ 1,305,473 1,222,619
Franchise costs........................ 1,692,510 1,016,362
Depreciation........................... 31,500 15,750
Amortization........................... 20,301 10,249
Interest expense....................... 14,063 6,871
Other expense.......................... 79,028 58,282
Participating Lease expenses........... 22,832,233 13,323,868
----------- -----------
Total expenses.................... 65,009,967 38,633,395
----------- -----------
Net loss.......................... $ (589,449) $ (181,942)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
For the Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1996................. $(221,039)
Net loss..................................... (589,449)
---------
Balance at June 30, 1997..................... $(810,488)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Cash flow from operating activities:
<S> <C>
Net loss.................................................................................... $ (589,449)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................. 31,500
Amortization............................................................................. 20,301
Changes in assets and liabilities:
Accounts receivable.................................................................... (2,778,445)
Inventories............................................................................ (445,482)
Prepaid expenses....................................................................... (521,931)
Deferred expenses...................................................................... (5,916)
Other assets........................................................................... (229,882)
Accounts payable, trade................................................................ 916,862
Participating Lease payable, American General Hospitality Operating Partnership, L.P... 2,778,102
Accrued expenses and other liabilities................................................. 2,763,473
Deferred income........................................................................ 620,002
-----------
Net cash provided by operating activities:............................................. 2,559,135
Cash flow from investing activities:
Improvements and additions to hotel properties.............................................. (5,000)
-----------
Cash flows from financing activities:
Principal payments on borrowings............................................................ (12,851)
-----------
Net change in cash and cash equivalents.......................................................... 2,541,284
Cash and cash equivalents at beginning of period................................................. 5,673,232
-----------
Cash and cash equivalents at end of period....................................................... $ 8,214,516
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................................................... $ 14,063
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
AGH Leasing, L.P. ("AGH Leasing"), is a Delaware limited partnership which
was formed on May 29, 1996 and commenced operations on July 31, 1996. AGH
Leasing is owned in part by certain executive officers of American General
Hospitality Corporation (the "Company") and American General Hospitality, Inc.
("AGHI"). AGH Leasing leases 25 of the 26 hotels (the "Hotels") owned by
American General Hospitality Operating Partnership, L.P. (the "Operating
Partnership") at June 30, 1997 pursuant to operating leases ("Participating
Leases") which provide for rent based on the revenues of the Hotels.
Twin Towers Leasing, L.P. ("Twin Towers Leasing") (together with AGH
Leasing, the "Lessee") leases the remaining Hotel, the Radisson Twin Towers
Orlando, pursuant to a Participating Lease which is substantially similar in
form to the other Participating Leases. Twin Towers Leasing is a Florida
limited partnership which was formed on June 1, 1997 and commenced operations on
June 25, 1997. AGH Leasing is the 51% sole general partner of Twin Towers
Leasing. The remaining 49% is owned by Regent Carolina Corporation ("Regent"),
an affiliate of the selling entity. Based on the partnership agreement, Regent
is allocated 100% of any losses generated by Twin Towers Leasing up to their
capital contribution of $3 million. The operations of Twin Towers Leasing are
consolidated with the operations of AGH Leasing for financial statement
purposes.
The consolidated financial statements of the Lessee include the results of
operations of the hotels leased from the Operating Partnership due to the
Lessee's control over the operations of the hotels during the 12 year term of
the Participating Leases. The Lessee has complete discretion in establishing
room rates and all rates for hotel goods and services. Likewise, all operating
expenses of the hotels are under the control of the Lessee. The Lessee has the
right to manage or to enter into management contracts with other parties to
manage the hotels. If the Lessee elects to enter into management contracts with
parties other than American General Hospitality, Inc., the Lessee must obtain
the prior written consent of the Operating Partnership, which consent may not be
unreasonably withheld. The Lessee has entered into management agreements
pursuant to which twenty-five of the Hotels are managed by AGHI and the
remaining Hotel is managed by Wyndham Hotel Corporation.
The Lessee's results of operations are seasonal. The aggregate room
revenues in the second and third quarters of each fiscal year may be higher than
room revenues in the first quarter and fourth quarter of each fiscal year.
Consequently, the Lessee may have net income in some quarters and may have net
losses in other quarters of the same year.
Upon consummation of the Company's Initial Public Offering (the "IPO"), the
partners of AGH Leasing capitalized AGH Leasing with $500,000 cash and pledged
275,000 units of limited partnership interest in the Operating Partnership ("OP
Units") to the Company to collateralize the Lessee's obligations under the
Participating Leases. Twin Towers Leasing was capitalized with $3 million by
the 49% limited partner upon commencement of operations.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC") and
should be read in conjunction with the financial statements and notes thereto of
the Company, the Lessee and the AGH Predecessor Hotels included in the Company's
Form 10-K for the fiscal year ended December 31, 1996 (the "10-K"). The notes
to the financial statements included herein highlight significant changes to the
notes included in the 10-K and present interim disclosures required by the SEC.
The accompanying financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All adjustments are of a normal and recurring nature.
2. COMMITMENTS AND CONTINGENCIES
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements which expire
from 1998 to 2013. Franchise costs are based upon varying percentages of gross
room revenue ranging from 1.0% to 5.0%. These fees are paid by the Lessee. No
franchise costs were incurred for the Hotel Maison de Ville.
20
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Twenty-five of the Hotels are managed by AGHI on behalf of the Lessee. The
Lessee pays AGHI a base management fee of 1.5% of total revenue and an incentive
fee of up to 2.0% of total revenue. The incentive fee, if applicable, is equal
to 0.025% of annual total revenue for each 0.1% increase in annual total revenue
over the total revenues for the preceding twelve month period up to the maximum
incentive fee.
The remaining Hotel, the Wyndham Garden Hotel Marietta, is managed by
Wyndham Hotel Corporation ("Wyndham") on behalf of the Lessee. The Lessee pays
Wyndham a base management fee equal to 1.5% of gross revenues at the Hotel plus
an incentive management fee of up to 1.5% of gross revenues. The incentive fee,
if applicable, will be earned if gross revenues exceed certain year over year
thresholds.
Each hotel, except the Hotel Maison de Ville, is required to remit varying
percentages of gross room revenue ranging from 1.0% to 5.0% to the various
franchisors for sales and advertising expenses incurred to promote the hotel at
the national level. Additional sales and advertising costs are incurred at the
local property level. These fees are paid by the Lessee.
The Company entered into an agreement for a license and an association
membership from one of the sellers of the Days Inn Lake Buena Vista which the
Company immediately assigned to the Lessee. Commencing January 1998, in
connection with the license and the association membership, the Lessee is
required to pay recurring association fees including a base monthly fee equal to
1.0% of the prior month's gross room revenues generated at the hotel, and an
additional fee of 0.5% to 1.0% of gross monthly revenues if the trailing twelve
month's gross room revenues at the hotel exceed a threshold of approximately $13
million, (subject to increase based on the percentage increase in the Consumer
Price Index ("CPI")). In addition, the Lessee is obligated to pay a recurring
royalty for the African royal safari theme equal to an amount which ranges from
10% to 25% of net operating income in excess of $6 million (subject to
adjustment if the Operating Partnership invests more than $40 million in the
hotel). The Lessee is also obligated to pay a marketing assistance fee equal to
.25% of gross room revenues. The marketing and association fees are not
expected to exceed 2.25% of gross room revenues for any twelve-month period.
The association membership agreement terminates in October 2008; the Lessee is
obligated to pay liquidated damages if the agreement is terminated earlier.
The Lessee has future lease commitments to the Company under the
Participating Leases which have various expiration dates between July 2008 to
June 2009. The Participating Lease expenses are based on percentages of room
revenues, food and beverage revenues and telephone and other revenues. The
departmental revenue thresholds in the Participating Leases are seasonally
adjusted for interim periods and the Participating Lease formulas are adjusted
effective January 1, 1997 by a percentage equal to the percentage increase in
the Consumer Price Index plus .75% as compared to the prior year. Additionally,
several of the Hotels will have further adjustments to the Participating Lease
formulas due to the significant renovations expected to be completed in those
hotels in 1997. Minimum future rental expense (i.e. base rents) under these
noncancellable Participating Leases is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
Remainder of 1997..................... $ 24,435,104
1998.................................. 50,908,816
1999.................................. 52,691,684
2000.................................. 54,534,872
2001 and thereafter................... 450,118,688
------------
Total....................... $632,689,164
============
</TABLE>
Five of the Hotels are subject to ground leases with third parties with
respect to the land underlying each such hotel. The ground leases are triple net
leases which require the tenant to pay all expenses of owning and operating the
hotel, including real estate taxes and structural maintenance and repair. The
Company is responsible for payments under the ground leases.
21
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma statement of operations for the six
months ended June 30, 1997 is presented as if the acquisition of the 26 Hotels
owned as of June 30, 1997, the IPO had occurred at the beginning of the period
presented and all of the Hotels had been leased to the Lessee pursuant to the
Participating Leases. Such pro forma information is based in part upon the
Statement of Operations of the Lessee included elsewhere in this Quarterly
Report on Form 10-Q. Such information should be read in conjunction with the
financial statements listed in the Index on page 2.
In management's opinion, all adjustments necessary to reflect the effects
of the transactions previously described have been made. The pro forma
information does not purport to present what actual results of operations would
have been if the acquisitions and leasing to the Lessee had occurred on such
date or to project results for any future period.
22
<PAGE>
AGH LEASING, L.P.
PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
MANAGEMENT
PRO FORMA FEE COMBINED
HISTORICAL ADJUSTMENTS ADJUSTMENT PRO FORMA
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue
Room revenue........................... $48,520,357 $25,705,067 $ 74,225,424
Food and beverage revenue.............. 12,890,419 9,163,567 22,053,986
Other revenue.......................... 3,009,742 1,651,882 4,661,624
----------- ----------- ------- ------------
Total revenue................... 64,420,518 36,520,516 100,941,034
----------- ----------- ------- ------------
Expenses
Property operating costs and expenses.. 12,989,007 6,275,280 19,264,287
Food and beverage costs and expenses... 10,344,888 6,298,355 16,643,243
General and administrative............. 5,983,471 2,718,131 8,701,602
Advertising and promotion.............. 4,498,429 2,362,637 6,861,066
Repairs and maintenance................ 2,519,364 1,698,630 4,217,994
Utilities.............................. 2,699,700 1,453,801 4,153,501
Management fees........................ 1,305,473 1,049,217 $(6,973) 2,347,717
Franchise costs........................ 1,692,510 957,253 2,649,763
Depreciation........................... 31,500 31,500
Amortization........................... 20,301 20,301
Interest expense....................... 14,063 14,063
Other expense.......................... 79,028 170,085 249,113
Participating Lease expense............ 22,832,233 13,549,661 36,381,894
----------- ----------- ------- ------------
Total expenses.................. 65,009,967 36,533,050 (6,973) 101,536,044
----------- ----------- ------- ------------
Net income (loss)............... $ (589,449) $ (12,534) $ 6,973 $ (595,010)
=========== =========== ======= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
The following should be read in conjunction with the Company's consolidated
financial statements included elsewhere in this report. Certain statements in
this Form 10-Q constitute "forward-looking statements" as that term is defined
under the Private Securities Reform Act of 1995 and the Securities and Exchange
Commission. The words "believe", "expect", "anticipate", "intend", "estimate"
and other expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Although the Company believes that such forward-looking statements
are based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved.
On July 31, 1996, the Company completed its IPO of 8,075,000 shares of
Common Stock (including 575,000 shares of common stock issued upon exercise of
the underwriters' over-allotment option on August 28, 1996) and contributed
substantially all of the net proceeds from the IPO in exchange for an
approximate 81.3% interest in the Operating Partnership.
The Operating Partnership used approximately $119.8 million of the net
proceeds from the IPO together with the proceeds of initial borrowings of $10.0
million under the Line of Credit (which was repaid upon the exercise of the
underwriters' over-allotment option) to acquire the thirteen Initial Hotels and
to repay existing mortgage indebtedness encumbering the Initial Hotels. In
addition, in connection with the IPO, the Company closed on its $100 million
Line of Credit that it utilizes primarily for the acquisition and renovation of
hotels, and for working capital.
On February 7, 1997, the Company completed the 1997 Public Offering of
6,368,300 shares of Common Stock (including 568,300 shares of Common Stock
issued upon exercise of the underwriters' over-allotment option on March 7,
1997). The Company contributed all of the net proceeds to the Operating
Partnership and, following such contribution, owned an approximate 88.5%
interest in the Operating Partnership. The Operating Partnership used the net
proceeds (i) to repay amounts borrowed under the Line of Credit, (ii) to pay
fees and expenses in connection with the increase in the borrowing limit under
the Line of Credit, (iii) to fund the cash portion of the purchase price of the
Radisson Hotel Arlington Heights and the Portfolio Purchase, (iv) for hotel
renovations and (v) for working capital purposes. Concurrent with the
completion of the 1997 Public Offering, the Company increased the borrowing
limit on its Line of Credit to $150 million.
On June 24, 1997, the Company increased its Line of Credit from $150
million to $300 million and improved the terms of the Line of Credit Agreement.
The interest rate on the increased facility decreased from 1.85 percent over
LIBOR to 1.75 percent over LIBOR and the advance rate increased from 40% of the
qualified borrowing base to 50% of the qualified borrowing base, subject to
other financial ratio tests and limitations.
Consistent with the Company's acquisition strategy, the Company has
acquired the following hotels since the IPO for the purchase prices (including
closing costs) set forth below:
<TABLE>
<S> <C>
Days Inn Lake Buena Vista....................... $ 33,150,000
Holiday Inn Resort Monterey..................... 15,790,000
Hilton Hotel Durham............................. 12,400,000
Radisson Hotel Arlington Heights................ 11,818,755
Wyndham Garden Hotel Marietta................... 17,300,000
Sheraton Key Largo.............................. 26,375,000
DoubleTree Guest Suites Atlanta................. 16,300,000
Holiday Inn Corporate Center Phoenix............ 16,000,000
Hilton Airport Hotel Grand Rapids............... 16,900,000
Holiday Inn Select Bucks County................. 21,455,000
Radisson Twin Towers Orlando.................... 78,566,186
Marriott Houston West Loop and office building.. 38,615,193
Hilton Hotel Cocoa Beach........................ 22,200,000
----------------------
Total................................. $ 326,870,134
======================
</TABLE>
24
<PAGE>
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate hotels. The Operating Partnership leases the
Hotels to the Lessee for terms of twelve years pursuant to separate
Participating Leases providing for the payment of base rent and participating
rent. The principal source of revenue for the Operating Partnership and the
Company is lease payments paid by the Lessee under the Participating Leases. The
Lessee's ability to make payments to the Operating Partnership under the
Participating Leases is dependent on the ability of the Lessee, AGHI and any
other lessees or operators to generate cash flow from the operations of the
Hotels. The Lessee has entered into management agreements whereby 25 of the
Hotels are managed by AGHI and the remaining Hotel is managed by Wyndham Hotel
Corporation. The management agreements are for a period of twelve years from
the date each Hotel was acquired.
RESULTS OF OPERATIONS
Actual for the Six Months Ended June 30, 1997
For the six months ended June 30, 1997, the Company had revenues of
$23,514,877 consisting of Participating Lease revenue of $22,832,233 and
interest income of $682,644. The interest income earned was primarily from the
excess cash from the Company's 1997 Public Offering and from excess cash
balances of the Company's subsidiaries. Depreciation expense for the six months
was $4,825,333 reflecting the additional depreciation expense related to the
Company's recent property acquisitions. Amortization expense was comprised of
deferred financing costs related to the Company's Line of Credit and the two
subsequent increases to the Line of Credit of $370,732, franchise transfer fees
of $40,765, other deferred expenses, such as organization costs, of $10,732 and
amortization relating to the restricted stock grants issued at the IPO of
$44,375. Real estate and personal property taxes and insurance for the six
month period was $2,618,218. The Company reported $1,995,176 of interest
expense for the period which consists of $609,810 attributable to the
indebtedness on the Holiday Inn Select Dallas DFW Airport South, $193,253
attributable to the indebtedness on the Courtyard by Marriott Meadowlands,
$212,318 attributable to the indebtedness on the Radisson Hotel Arlington
Heights, $263,894 attributable to the indebtedness on the DoubleTree Guest
Suites Atlanta and $715,901 attributable to the borrowings on the Line of
Credit. The Line of Credit balance outstanding at December 31, 1996 and the
additional borrowings made before the Company's 1997 Public Offering were
substantially repaid with the net proceeds from the 1997 Public Offering. The
Company has subsequently borrowed approximately $171 million to fund property
acquisitions, renovations and working capital needs. The minority interest in
income for the period was $1,567,225. The resulting net income applicable to
the common stockholders was $10,471,756 or $0.79 per share.
The Company believes that the hotels it acquires will generally experience
increases in revenues (and accordingly, provide the Company with increases in
Participating Lease revenues) after the completion of the renovation and
conversion process; however, as individual hotels undergo such renovations,
their performance has been, and is expected to continue to be adversely affected
by such temporary factors as rooms out of service and disruptions of hotel
operations. (A more detailed discussion of hotel revenue is contained in "The
Lessee - Actual" section of this Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
Actual for the Three Months Ended June 30, 1997
For the three months ended June 30, 1997, the Company had revenues of
$13,611,799 consisting of Participating Lease revenue of $13,323,868 and
interest income of $287,931. The interest income earned was primarily from the
excess cash remaining from the Company's 1997 Public Offering and from excess
cash balances of the Company's subsidiaries. Depreciation expense for the three
months was $2,893,943. Amortization expense was comprised of deferred financing
costs related to the Company's Line of Credit and the two subsequent increases
to the Line of Credit of $196,774, franchise transfer fees of $22,539, other
deferred expenses such as organization costs of $5,702 and amortization relating
to the restricted stock grants issued at the IPO of $22,188. Real estate and
personal property taxes and insurance for the three month period was $1,368,101.
The Company reported interest expense for the quarter of $1,053,176 which
consists of $304,111 attributable to the indebtedness on the Holiday Inn Select
DFW Airport South, $93,179 attributable to the indebtedness on the Courtyard by
Marriott Meadowlands, $160,951 attributable to the indebtedness on the Radisson
Hotel Arlington Heights, $231,436 attributable to the indebtedness on the
DoubleTree Guest Suites Atlanta and $263,499 attributable to the borrowings on
the Line of Credit. During the quarter, the Company borrowed approximately $171
million to fund property acquisitions, renovations and working capital. The
minority interest in income for the period was $840,531. The resulting net
income applicable to the common stockholders was $6,455,133 or $0.44 per share
25
<PAGE>
Pro Forma for the Six Months Ended June 30, 1997
Pro forma revenues for the six months ended June 30, 1997 would have been
$38,199,120 consisting of Participating Lease revenue of $36,381,894, interest
income of $682,644 earned on excess cash balances and office building rental
income of $1,134,582. The office building rental income is related to the
office building connected to the Marriott West Loop Hotel which was acquired on
June 25, 1997. The office building is currently 68% occupied with two major
leases in the process of being negotiated. The office building, which is not
part of the Company's business strategy, is not intended to be a long-term
asset.
Pro forma expenses for the period consist of: depreciation expense of
$8,506,996; real estate and personal property taxes and insurance of $3,888,265;
general and administrative expense of $968,466; ground lease expense of
$602,099; amortization expense of $481,459 and office building operating expense
of $658,611. Also included in pro forma expense is interest expense of
$8,258,024 relating to the Line of Credit and mortgage indebtedness assumed
relating to: the Holiday Inn Select DFW Airport South; the Courtyard by
Marriott Meadowlands; the Radisson Hotel Arlington Heights; and the DoubleTree
Guest Suites Atlanta.
Funds From Operations
Actual Funds From Operations for the six months and three months ended June
30, 1997, calculated using the NAREIT definition of Funds From Operations, was
$14,668,931 and $9,015,666, respectively which is the sum of net income
applicable to common stockholders and the Company's share of depreciation.
The Company considers Funds From Operations to be a key measure of the
performance of an equity REIT. Funds From Operations should not be considered
an alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or an alternative
to cash flows from operating, investing or financing activities as a measure of
liquidity.
The following is a reconciliation of net income applicable to common
stockholders to Funds From Operations and illustrates the difference in the two
measures of operating performance:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net income applicable to common
stockholders....................... $10,471,756 $12,939,262
Depreciation (Company share).......... 4,197,175 7,420,200
----------- -----------
Funds From Operations................. $14,668,931 $20,359,462
=========== ===========
Weighted Average Number of shares of
Common Stock Outstanding........... 13,267,420 14,770,110
</TABLE>
THE LESSEE
The "Lessee" refers to the consolidated operations of AGH Leasing and Twin
Towers Leasing. Twin Towers Leasing commenced operations on June 25, 1997 with
the acquisition of the Radisson Twin Towers Hotel in Orlando, Florida. Twin
Towers Leasing is owned 51% by AGH Leasing, which is the sole general partner,
and 49% by Regent Carolina Corporation, which is an affiliate of the selling
entity and the sole limited partner. Regent Carolina Corporation is allocated
100% of the losses of Twin Towers Leasing up to their capital contribution of $3
million.
26
<PAGE>
Actual for the Six Months Ended June 30, 1997
For the six months ended June 30, 1997 the Lessee's revenues were
$64,420,518 consisting of room revenues of $48,520,357, food and beverage
revenues of $12,890,419 and other revenues of $3,009,742.
Participating Lease payments and property operating costs and expenses were
$22,832,233 and $42,177,734, respectively. The resulting net loss for the
period was $589,449.
Certain Hotels are performing below the Company's expectations and below
last year's performance due to increased market supply, disruptions in
operations due to renovations and capital improvements and a slower than
expected improvements in operations created by the renovations and rebranding
process. Hotels which have completed the renovation process are reflecting
marked improvements in operations. The Company expects these trend to continue
for the remainder of the current year and into the following year.
Actual for the Three Months Ended June 30, 1997
For the three months ended June 30, 1997 the Lessee's revenues were
$38,451,453 consisting of room revenues of $29,054,389, food and beverage
revenues of $7,693,175 and other revenues of $1,703,889.
Participating Lease payments and property operating costs and expenses were
$13,323,868 and $25,309,527, respectively. The resulting net loss for the
period was $181,942.
Summary Operational Highlights
<TABLE>
<CAPTION>
Second Quarter
----------------------------
1996 %
1997 proforma(1) Change
------ ---------- -----
<S> <C> <C> <C>
REVENUE PER AVAILABLE ROOM (REVPAR)
14 hotels not undergoing repositioning $67.38 $59.76 13%
12 hotels undergoing repositioning $58.07 $55.69 4%
All hotels $62.81 $57.77 9%
OCCUPANCY
14 hotels not undergoing repositioning 78% 77% 1%
12 hotels undergoing repositioning 70% 77% (9%)
All hotels 74% 77% (4%)
AVERAGE DAILY RATE
14 hotels not undergoing repositioning $87.04 $77.85 12%
12 hotels undergoing repositioning $83.35 $72.46 15%
All hotels $85.32 $75.21 13%
</TABLE>
(1) In this reference, proforma results are calculated as if the Company
owned the hotels listed above for the full period from April 1, 1996
through June 30, 1996.
Revenue per available room (REVPAR) for the Company's 14 hotels that were
not undergoing repositioning during the quarter increased 13 percent to $67.38,
while average daily room rate (ADR) increased 12% to $87.04. Occupancy for
these hotels increased to 78 percent in the second quarter from 77 percent in
last year's second quarter.
The 12 hotels experiencing renovation or brand repositioning in the second
quarter generated REVPAR of $58.07 compared with $55.96 last year, up 4 percent.
ADR for these hotels increased 15 percent to $83.35 from $72.46, reflecting the
higher rates being generated from those rooms which have been refurbished.
Occupancy was reduced to 70 percent from 77 percent, reflecting the impact of
both rooms out of service, and public area and exterior construction.
27
<PAGE>
In total, the 26 hotels currently in the Company's portfolio produced
REVPAR for the second quarter of $62.81, an increase of 9 percent. ADR rose 13
percent to $85.32 for the three months, while occupancy decreased to 74 percent
in the second quarter from 77 percent in last year's second quarter, reflecting
the impact of the renovation work in progress.
Pro Forma Operations for the Six Months Ended June 30, 1997
The following table sets forth pro forma financial information for the
Lessee, as a percentage of revenue, for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Room revenue.................... 73.5%
Food and beverage revenue....... 21.9
Other revenue................... 4.6
----------
Total revenue......... 100.0
Hotel operating expenses........ 64.3
Other corporate expenses........ 0.3
Participating Lease expenses.... 36.0
----------
Net loss..... (0.6%)
==========
SIX MONTHS
ENDED
JUNE 30, 1997
-------------
Key Factors:
Occupancy............. 71.1%
ADR................... $86.31
REVPAR................ $61.37
</TABLE>
28
<PAGE>
The following table sets forth room revenue for each of the Hotels:
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS
ENDED
JUNE 30, 1997
---------------
Hotels:
<S> <C>
Holiday Inn Dallas DFW Airport West................... $ 2,259,005
Courtyard by Marriott Meadowlands..................... 2,511,386
Hampton Inn Richmond Airport.......................... 1,211,661
Hotel Maison de Ville................................. 811,788
Hilton Hotel-Toledo................................... 1,822,593
Holiday Inn Select Dallas DFW Airport South........... 4,182,495
Holiday Inn Select New Orleans International Airport.. 3,685,416
Hampton Inn Ocean City................................ 753,292
Crowne Plaza Madison.................................. 2,672,542
Holiday Inn Park Center Plaza......................... 3,189,984
Wyndham Albuquerque Airport Hotel..................... 2,005,750
Wyndham Airport Hotel San Jose........................ 3,382,210
Holiday Inn Select Mission Valley..................... 2,517,508
Days Inn Lake Buena Vista............................. 4,636,476
Holiday Inn Resort Monterey........................... 2,276,698
Hilton Hotel Durham................................... 1,872,490
Radisson Hotel Arlington Heights...................... 2,061,352
Wyndham Garden Hotel Marietta......................... 1,818,116
DoubleTree Guest Suites Hotel......................... 1,962,716
Sheraton Key Largo.................................... 4,238,818
Holiday Inn Corporate Center Phoenix.................. 2,572,082
Hilton Airport Hotel Grand Rapids..................... 2,284,851
Holiday Inn Select Bucks County....................... 2,445,147
Marriott Houston West Loop............................ 4,240,386
Radisson Twin Towers Orlando.......................... 9,391,259
Hilton Hotel Cocoa Beach.............................. 3,419,403
-----------
Total (All Hotels).................................... $74,225,424
===========
</TABLE>
For the six months ended June 30, 1997, the Lessee would have had pro forma
room revenues of $74,225,424 from the Hotels and pro forma total revenues of
$100,941,034. Pro forma operating expenses were $65,154,150 and pro forma
Participating Lease payments would have been $36,381,894.
Pro forma net loss for the period was $595,010.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, is its share of the Operating
Partnership's cash flow from the Participating Leases. For the six months ended
June 30, 1997 cash flow provided by operating activities, consisting primarily
of Participating Lease revenue was $18,704,719 and Funds From Operations (as
previously defined) was $14,668,931. The Lessee's obligations under the
Participating Leases are collateralized by the pledge of 275,000 OP Units in AGH
Leasing and the contribution of $3 million in Twin Towers Leasing. The Lessee's
ability to make rent payments under the Participating Leases and the Company's
liquidity, including its ability to make distributions to stockholders, are
substantially dependent on the ability of the Lessee, AGHI and other operators
and managers to generate sufficient cash flow from the operation of the Hotels.
29
<PAGE>
During the six months ended June 30, 1997, the Company completed the 1997
Public Offering, producing net proceeds to the Company of $161.7 million. In
addition, the Company increased its Line of Credit from $100 million to $150
million in February, 1997 and from $150 million to $300 million in June, 1997.
The June, 1997 amendment to the Company's Line of Credit decreased the
applicable interest rate from 1.85% plus LIBOR to 1.75% plus LIBOR and increased
the advance rate from 40% of the qualified borrowing base to 50% of the
qualified borrowing base, subject to other financial ratio tests and
limitations. The June 25, 1997 Line of Credit amendment also increased the
number of facility banks, led by Societe Generale and Bank One, from five banks
to twelve banks. The Company's borrowing capacity under the Line of Credit at
June 30, 1997 is approximately $232 million.
At June 30, 1997 the Company had $3.5 million in cash and cash equivalents
and $171 million outstanding under the Line of Credit. The Line of Credit
balance outstanding at December 31, 1996 and the additional borrowings made
before the Company's 1997 Public Offering were substantially repaid with the net
proceeds from the 1997 Public Offering. The Company has subsequently borrowed
approximately $171 million to fund property acquisitions, renovations and
capital improvements and working capital needs. Borrowings under the Line of
Credit bear interest at 30-day, 60-day or 90-day LIBOR (5.69%, 5.72% and 5.78%
at June 30, 1997) plus 1.75% per annum, payable monthly in arrears or one-half
percent in excess of the prime rate at the option of the Company. While no
definitive agreements with respect to the acquisition of any additional hotels
have been entered into, the Company expects that during 1997 additional
acquisitions will be completed and funded with borrowings under the Line of
Credit or permanent debt or equity financing. To the extent that the Line of
Credit is not sufficient to make additional property acquisitions, complete the
renovation and capital improvement programs and for working capital, the Company
expects that it will return to the equity market or will seek alternative
financing opportunities.
Cash and cash equivalents as of June 30, 1997 were $3,487,475. Restricted
cash of $429,092 includes escrow deposits on the Holiday Inn Select Dallas DFW
Airport South hotel as required by its loan agreement and an escrow deposit used
to pay certain unused facility fees under the Line of Credit. Cash flow from
operating activities of the Company was $18,704,719 for six months ended June
30, 1997, which primarily represents the collection of rents under the
Participating Leases, less the Company's operating expenses for the period,
adjusted for changes in other working capital components. Cash flow used in
investing activities during that period in the amount of $280,977,022 resulted
from the purchase of and improvements made to the Hotels. Cash flows from
financing activities of $261,871,497 during this period was primarily related to
the receipt of proceeds from the 1997 Public Offering and borrowings on the Line
of Credit, net of principal payments on borrowings and payments for deferred
loan costs.
To provide for additional financing flexibility, the Company has registered
up to an aggregate of $500 million in common stock, $0.01 par value per share,
and warrants to purchase common stock pursuant to a shelf registration filed on
August 6, 1997 but not yet declared effective by the Securities and Exchange
Commission. Under the terms of the registration, the Company may decide the
amount of securities to sell from time to time. Any proceeds from such a sale
would be for various purposes, which may include, without limitation, the
repayment of outstanding indebtedness, the acquisition of additional hotels, the
improvement and/or expansion of one or more of its hotel properties or for
working capital purposes.
RENOVATIONS AND OTHER CAPITAL IMPROVEMENTS
The Participating Leases require the Company to establish annual minimum
reserves equal to 4.0% of total revenue of the Hotels which will be utilized by
the Lessee for the replacement and refurbishment of FF&E and other capital
expenditures to enhance the competitive position of the Hotels. The Company and
the Lessee will jointly determine the use of funds in this reserve, and the
Company will have the right to approve the Lessee's capital expenditure budgets.
While the Company expects its reserve to be adequate to fund recurring capital
needs the Company may use Cash Available for Distribution in excess of
distributions paid or funds drawn under the Line of Credit or other borrowings
or equity to fund additional capital improvements, as necessary, including major
renovations at the Company's hotels.
The Company has budgeted $105.9 million to fund capital improvements and
renovations at the Hotels. As of June 30, 1997, the Company had spent
approximately $36.3 million on capital improvements and renovations and the
Company has budgeted to spend the remaining $69.6 million on the Hotels during
the remainder of 1997, and in 1998 and 1999. In certain circumstances such
capital improvements are being completed in connection with franchisor
requirements. The following table describes the remaining renovations and
improvements:
30
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF REMAINING
HOTELS: RENOVATION/IMPROVEMENT BUDGETED AMOUNT
- ------- ---------------------- ---------------
<S> <C> <C>
Radisson Twin Towers Orlando........... Upgrade and renovation of guest rooms, public $13,985,000
areas and exterior
Radisson Hotel Arlington Heights....... Upgrade and renovation of guest rooms and 10,022,000
public areas as well as addition of approximately
100 guest rooms.
Marriott Houston West Loop............. Upgrade and renovation of guest rooms, public 6,100,000
areas and exterior.
Holiday Inn Corporate Center Phoenix... Upgrade of guest rooms and public areas in 3,896,000
connection with conversion to the Crowne Plaza
brand.
Sheraton Key Largo..................... Upgrade and renovation of guest rooms, public 3,827,000
areas and exterior in connection with the
conversion to the Westin Resort brand.
Holiday Inn Select Bucks County........ Upgrade and renovation of guest rooms, public 3,800,000
areas and exterior in connection with conversion
to the Crowne Plaza brand.
Holiday Inn Resort Monterey............ Upgrade and renovation of guest rooms and 3,709,000
public areas in connection with conversion to the
Hilton Hotel brand.
Days Inn Lake Buena Vista.............. Upgrade and renovation of guest rooms and 3,656,000
public areas, including the addition of
approximately 9,000 square feet of convention
space as well as the addition of extensive
landscaping and entertainment attractions to hotel
exterior in connection with conversion to the
Wyndham Hotel brand.
DoubleTree Guest Suites Atlanta........ Upgrade and renovation of guest rooms, atrium 3,349,000
and public areas in connection with conversion to
the DoubleTree Guest Suites brand.
Wyndham Garden Hotel Marietta.......... Upgrade and renovation of guest rooms, public 2,652,000
areas and restaurant in connection with the
conversion to the Wyndham Hotel brand.
Wyndham Airport Hotel San Jose......... Upgrade of public areas and guest rooms and 2,593,000
convert ninth floor to concierge floor in
connection with conversion to the Wyndham
Hotel brand.
Hilton Hotel Cocoa Beach............... Upgrade and renovation of guest rooms, public 2,400,000
areas and exterior.
Holiday Inn Park Center Plaza.......... Upgrade of guest rooms and public areas and 2,322,000
conversion of the ninth floor to ''club'' level in
connection with the conversion to the Crowne
Plaza brand.
Wyndham Albuquerque Airport Hotel...... Upgrade of guest rooms and public areas and 671,000
convert meeting space to additional guest rooms
in connection with the conversion to the
Wyndham Hotel brand.
Ballroom addition 1,500,000
Hilton Hotel Durham.................... Addition of 42 guest rooms and renovation of 1,491,000
guest rooms and public areas.
Hilton Airport Hotel Grand Rapids...... Upgrade and renovate guest bathrooms and public 1,300,000
areas.
Hampton Inn Richmond Airport........... Upgrade of public areas, guest rooms and 830,000
replacement of roof.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF REMAINING
HOTELS: RENOVATION/IMPROVEMENT BUDGETED AMOUNT
- ------- ---------------------- ---------------
<S> <C> <C>
Holiday Inn Select Mission Valley...... Upgrade of guest rooms and public areas in 615,000
connection with conversion to the Holiday Inn
Select brand.
Hilton Hotel Toledo.................... Upgrade of guest rooms and renovation of public 266,000
areas.
Holiday Inn Select New Orleans
International Airport............. Upgrade of guest rooms and public areas and 199,000
renovation of roof in connection with the
conversion to the Holiday Inn Select brand.
Holiday Inn Dallas DFW Airport West.... Upgrade of guest rooms and corridors. 196,000
Hampton Inn Ocean City................. Upgrade of guest rooms and public areas in 99,000
connection with the conversion to the Hampton
Inn brand.
Crowne Plaza Madison................... Upgrade of guest rooms, public areas and 86,000
reservation equipment in connection with the
conversion to the Crowne Plaza brand.
Holiday Inn Select Dallas DFW Airport Upgrade of guest rooms, public areas and hotel 20,000
South............................. exterior in connection with the conversion to the
Holiday Inn Select brand.
Hotel Maison de Ville.................. Upgrade of selected guest rooms and public 1,000
areas.
-----------
All Hotels--Total: $69,585,000
===========
</TABLE>
The Company intends to use borrowings under the Line of Credit and the FF&E
reserve established under the Participating Leases to fund these expenditures.
There can be no assurance that the Company will be able to complete the
scheduled capital improvements within the expected time frames or that the
anticipated costs for the capital improvements will not exceed the amounts
budgeted for that purpose. Changes in the scope of the work are inherent in
large renovation projects such as the ones undertaken by the Company. The
Company has increased the scope of the work in certain projects in response to
market conditions, building code and other requirements. The Company attempts
to schedule renovations and improvements during traditionally lower occupancy
periods in an effort to minimize disruption to the hotels' operations, however,
the impact of rooms out of service and public area construction remains
significant. As individual hotels undergo such renovation and capital
improvements, their performance may be adversely affected, although such effects
are expected to be temporary.
INFLATION
Operators of hotels, in general, possess the ability to adjust room rates
quickly. Competitive pressures may, however, limit the Lessee's ability to raise
room rates in the face of inflation.
SEASONALITY
The hotel industry is seasonal in nature. Generally, hotel revenue is
greater in the second and third quarters of a calendar year, although this may
not be true for hotels in major tourist destinations. Seasonal variations in
revenue at the Hotels may cause quarterly fluctuations in the Company's lease
revenue. To the extent that cash flow from operations may be insufficient during
any quarter to pay distributions at its current distribution rate due to
temporary or seasonal fluctuations in lease revenues, the Company expects to
utilize other cash on hand or borrowings under the Line of Credit to make such
distributions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 21, 1997
to (1) elect one Class I director of the Company, (2) to approve certain
amendments to the American General Hospitality Corporation 1996 Incentive Plan
and (3) to ratify the selection of Coopers & Lybrand L.L.P. as the independent
auditors of the Company for the fiscal year ended December 31, 1997.
32
<PAGE>
On Proposal I the stockholders voted to elect the one Class I director, Mr.
Steve Jorns, to continue to serve until the Annual Meeting of Stockholders in
2000. There were 12,859,245 votes for and 44,558 votes withheld authority.
For the second proposal, the stockholders voted to approve certain
amendments to the American General Hospitality Corporation 1996 Incentive Plan.
There were 5,631,998 votes for, 4,882,536 votes against and 65,581 votes
abstained.
On the third proposal the stockholders voted to ratify the selection of
Coopers & Lybrand L.L.P. as the independent auditors. There were 12,850,225
votes for, 33,849 votes against and 19,729 votes abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.1 Amended and Restated Credit Agreement dated as of June 25, 1997 among
American General Hospitality Operating Partnership, L.P., Societe
Generale, Southwest Agency, Bank One, Texas, N.A., The Bank of Nova
Scotia and Wells Fargo Bank, National Association and the Banks named
herein. (The exhibits and schedules to this exhibit are available upon
request to the Company at the address listed on the cover page).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 25, 1997
reporting that the Company, and its subsidiary, acquired the 302-room Marriott
Houston West Loop in Houston, Texas and connecting office building and the 742-
room Radisson Twin Towers Orlando in Orlando, Florida.
The Company filed a Current Report on Form 8-K/A, which included Item 2 and
7, "Acquisition or Disposition of Assets" and "Financial Statements and
Exhibits" with respect to the Marriott Houston West Loop and the Radisson Twin
Towers Orlando was filed on August 4, 1997.
33
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1997
AMERICAN GENERAL HOSPITALITY CORPORATION
By: /s/ Kenneth E. Barr
----------------------------------------
Kenneth E. Barr
Executive Vice President
Secretary and Chief Financial Officer
(Principal Financial and Accounting Officer)
34
<PAGE>
$300,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of June 25, 1997
Among
AMERICAN GENERAL HOSPITALITY OPERATING PARTNERSHIP, L.P.
as the Borrower,
---------------
SOCIETE GENERALE, SOUTHWEST AGENCY
as Arranger, Syndication Agent, and Documentation Agent,
-------------------------------------------------------
BANK ONE, TEXAS, N.A.
as Administrative Agent,
-----------------------
and
THE BANK OF NOVA SCOTIA and WELLS FARGO BANK, NATIONAL ASSOCIATION
as Co-Agents
------------
and
THE BANKS NAMED HEREIN
as the Banks
------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Certain Defined Terms.......................................... 2
Section 1.02 Computation of Time Periods.................................... 37
Section 1.03 Accounting Terms; Changes in GAAP.............................. 37
Section 1.04 Types of Advances.............................................. 38
Section 1.05 Miscellaneous.................................................. 38
Section 1.06 Recitals....................................................... 38
ARTICLE II
THE ADVANCES AND THE LETTERS OF CREDIT
Section 2.01 The Advances; Extension of Initial Maturity Date............... 38
Section 2.02 Method of Borrowing............................................ 40
Section 2.03 Fees........................................................... 44
Section 2.04 Reduction of the Commitments................................... 44
Section 2.05 Repayment of Advances.......................................... 45
Section 2.06 Interest, Late Payment Fee..................................... 46
Section 2.07 Prepayments.................................................... 47
Section 2.08 Breakage Costs................................................. 50
Section 2.09 Increased Costs................................................ 50
Section 2.10 Payments and Computations...................................... 52
Section 2.11 Taxes.......................................................... 54
Section 2.12 Illegality..................................................... 56
Section 2.13 Letters of Credit.............................................. 57
Section 2.14 Determination of Borrowing Base................................ 60
Section 2.15 Bank Replacement............................................... 61
Section 2.16 Sharing of Payments, Etc....................................... 62
Section 2.17 Collateral..................................................... 63
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE III
CONDITIONS OF LENDING
Section 3.01 Conditions Precedent to Effectiveness of this Agreement........ 63
Section 3.02 Conditions Precedent for each Borrowing or Letter of Credit.... 66
Section 3.03 Conditions Precedent to a Hotel Property Qualifying as an
Eligible Property.............................................. 67
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Existence; Qualification; Partners; Subsidiaries............... 75
Section 4.02 Partnership and Corporate Power................................ 77
Section 4.03 Authorization and Approvals.................................... 77
Section 4.04 Enforceable Obligations........................................ 77
Section 4.05 Parent Common Stock............................................ 78
Section 4.06 Financial Statements........................................... 78
Section 4.07 True and Complete Disclosure................................... 78
Section 4.08 Litigation..................................................... 79
Section 4.09 Use of Proceeds................................................ 79
Section 4.10 Investment Company Act......................................... 80
Section 4.11 Taxes.......................................................... 80
Section 4.12 Pension Plans.................................................. 80
Section 4.13 Condition of Hotel Property; Casualties; Condemnation.......... 81
Section 4.14 Insurance...................................................... 81
Section 4.15 No Burdensome Restrictions; No Defaults........................ 81
Section 4.16 Environmental Condition........................................ 82
Section 4.17 Legal Requirements, Zoning, Utilities, Access.................. 83
Section 4.18 Existing Mortgage Debt......................................... 83
Section 4.19 Title; Encumbrances............................................ 84
Section 4.20 Leasing Arrangements........................................... 84
Section 4.21 Cash Management Systems........................................ 85
Section 4.22 Franchise Agreements........................................... 85
ARTICLE V
AFFIRMATIVE COVENANTS
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Section 5.01 Compliance with Laws, Etc........................................... 86
Section 5.02 Preservation of Corporate Existence; Corporate Separateness, Etc.... 86
Section 5.03 Payment of Taxes, Etc............................................... 88
Section 5.04 Visitation Rights; Bank Meeting..................................... 88
Section 5.05 Reporting Requirements.............................................. 88
Section 5.06 Maintenance of Property, Required Work and Approved Preliminary
Property Plan Work.................................................. 93
Section 5.07 CAPEX Reserve....................................................... 94
Section 5.08 Appraisals.......................................................... 95
Section 5.09 Duplicate Louisiana Notes........................................... 95
Section 5.10 Insurance........................................................... 96
Section 5.11 Casualty; Condemnation.............................................. 96
Section 5.12 Cash Management Systems............................................. 98
Section 5.13 Supplemental Guaranties............................................. 100
Section 5.14 Participating Leases................................................ 101
ARTICLE VI
NEGATIVE COVENANTS
Section 6.01 Liens, Etc.......................................................... 101
Section 6.02 Indebtedness........................................................ 102
Section 6.03 Agreements Restricting Distributions From Subsidiaries.............. 103
Section 6.04 Restricted Payments................................................. 103
Section 6.05 Fundamental Changes; Asset Sales.................................... 104
Section 6.06 Personal Property Leases............................................ 105
Section 6.07 Investments, Loans, Future Properties............................... 105
Section 6.08 Affiliate Transactions.............................................. 106
Section 6.09 Sale and Leaseback.................................................. 106
Section 6.10 Sale or Discount of Receivables..................................... 107
Section 6.11 No Further Negative Pledges......................................... 107
Section 6.12 Franchise Agreements................................................ 107
Section 6.13 Material Documents.................................................. 107
Section 6.14 Other Businesses; Undeveloped Land.................................. 108
Section 6.15 Borrower Debt Service Ratio......................................... 108
Section 6.16 Parent Debt Service Ratio........................................... 109
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Section 6.17 Net Worth...................................................... 109
Section 6.18 Bank Accounts.................................................. 109
ARTICLE VII
EVENTS OF DEFAULT; REMEDIES
Section 7.01 Events of Default.............................................. 110
Section 7.02 Optional Acceleration of Maturity.............................. 116
Section 7.03 Automatic Acceleration of Maturity............................. 116
Section 7.04 Cash Collateral Account........................................ 117
Section 7.05 Non-exclusivity of Remedies.................................... 117
Section 7.06 Right of Set-off............................................... 117
ARTICLE VIII
AGENCY AND ISSUING BANK PROVISIONS
Section 8.01 Authorization and Action....................................... 118
Section 8.02 Agents' Reliance, Etc.......................................... 118
Section 8.03 Each Agent and Its Affiliates.................................. 119
Section 8.04 Bank Credit Decision........................................... 119
Section 8.05 Indemnification................................................ 119
Section 8.06 Successor Agent and Issuing Banks.............................. 120
Section 8.07 Arranger, Syndication Agent and Co-Agents...................... 121
ARTICLE IX
MISCELLANEOUS
Section 9.01 Amendments, Etc................................................ 121
Section 9.02 Notices, Etc................................................... 124
Section 9.03 No Waiver; Remedies............................................ 124
Section 9.04 Costs and Expenses............................................. 124
Section 9.05 Binding Effect................................................. 125
Section 9.06 Bank Assignments and Participations............................ 125
Section 9.07 Indemnification................................................ 128
Section 9.08 Execution in Counterparts...................................... 129
Section 9.09 Survival of Representations, Indemnifications, etc............. 129
</TABLE>
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<TABLE>
<S> <C> <C>
Section 9.10 Severability................................................... 129
Section 9.11 Business Loans................................................. 129
Section 9.12 Usury Not Intended............................................. 130
Section 9.13 Houston, Texas Marriott Office Space........................... 130
Section 9.14 Governing Law.................................................. 131
Section 9.15 Consent to Jurisdiction........................................ 131
Section 9.16 Knowledge of Borrower.......................................... 131
Section 9.17 Banks Not in Control........................................... 131
Section 9.18 Headings Descriptive........................................... 132
Section 9.19 Time is of the Essence......................................... 132
Section 9.20 WAIVERS OF JURY TRIAL.......................................... 132
Section 9.21 ENTIRE AGREEMENT............................................... 132
</TABLE>
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<PAGE>
EXHIBITS:
Exhibit A - Form of Note
Exhibit B - Form of Assignment and Acceptance
Exhibit C - Form of Assignment of Leases (Borrower)
Exhibit D - Form of Assignment of Leases (Participating Lessee)
Exhibit E - Form of Assignment of Management Agreement
Exhibit F - Form of Bank One Cash Management Agreement
Exhibit G - [UNUSED]
Exhibit H - Form of Borrowing Base Certificate
Exhibit I - Form of Collateral Assignment and Security Agreement
Exhibit J - Form of Compliance Certificate
Exhibit K - Form of Credit Card Agreement
Exhibit L - Form of Depository Account Agreement
Exhibit M - Form of Environmental Indemnity
Exhibit N - Form of Franchisor Consent
Exhibit O - Form of General Assignment and Agreement
Exhibit P - Form of Ground Lessor Consent
Exhibit Q - Form of Guaranty
Exhibit R - Form of Irrevocable Direction to Pay
Exhibit S - Form of Liquor License Concession Agreement
Exhibit T - Form of Liquor License Company Consent
Exhibit U - Form of Liquor License Company Pledge Agreement
Exhibit V - Form of Manager Consent
Exhibit W - Form of Mortgages
Exhibit X - Form of Notice of Borrowing
Exhibit Y - Form of Notice of Conversion or Continuation
Exhibit Z - Form of Participating Lessee Estoppel
Exhibit AA - Form of Property Adjustment Report
Exhibit BB - Form of Property Certificate
Exhibit CC - Form of Security Agreement
Exhibit DD - Form of Battle Fowler L.L.P. Opinion
Exhibit EE - Form of Kane, Russell, Coleman and Logan Opinion
Exhibit FF - Form of Local Counsel Opinion
Exhibit GG - Form of Ballard, Spahr, Andrews & Ingersoll Opinion
-vii-
<PAGE>
Exhibit HH - Form of McDonald, Hopkins, Buske & Harber Co. Opinion
Exhibit II - Form of Foley & Lardner Opinion
Exhibit JJ - Form of McDonald, Cabano, Wilson, McCune, Bergin, Frankovich
& Hicks LLP Opinion
-viii-
<PAGE>
SCHEDULES:
Schedule 1.01(a) - Commitments
Schedule 1.01(b) - Initial Properties, Appraisal Amounts and Cost Basis
Schedule 1.01(c) - Approved Preliminary Property Plan
Schedule 1.01(d) - Engineer Report Scope of Services
Schedule 1.01(e) - Approved Engineers
Schedule 1.01(f) - Environmental Report Scope of Services
Schedule 1.01(g) - Approved Environmental Consultants
Schedule 1.01(h) - Franchisors
Schedule 1.01(i) - Ground Leases
Schedule 1.01(j) - Guarantors
Schedule 1.01(k) - Liquor License Companies
Schedule 1.01(l) - Participating Leases
Schedule 3.03 - Post-Closing Matters
Schedule 4.01 - Subsidiaries
Schedule 4.08 - Litigation
Schedule 4.15 - Loan and Lease Disclosure
Schedule 4.17 - Legal Requirements; Zoning; Utilities; Access
Schedule 4.19 - Participating Lessee Personal Property
Schedule 4.21 - Cash Management Systems
Schedule 4.22 - Franchise Agreements
Schedule 4.23 - Management Agreements
Schedule 5.06 - Required Work and Required Work Deadlines for Initial
Properties
Schedule 5.10 - Insurance
Schedule 9.02 - Notice Information
-ix-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement (this "Agreement") dated as of June
25, 1997 is among AMERICAN GENERAL HOSPITALITY OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership, as the Borrower, SOCIETE GENERALE, SOUTHWEST
AGENCY, as Arranger, Syndication Agent, and Documentation Agent, BANK ONE,
TEXAS, N.A., as Administrative Agent, THE BANK OF NOVA SCOTIA and WELLS FARGO
BANK, NATIONAL ASSOCIATION, as Co-Agents and the Banks.
PRELIMINARY STATEMENTS
WHEREAS, many of the parties hereto previously entered into a Credit Agreement
dated as of July 31, 1996 by and between American General Hospitality Operating
Partnership, L.P., Societe Generale, Southwest Agency, as Structuring Agent,
Bank One, Texas, N.A., as Administrative Agent, and the banks named therein, as
amended by First Amendment to Credit Agreement dated as of October 18, 1996 and
Second Amendment to Credit Agreement dated as of February 11, 1997 executed by
and among such parties (as so amended, the "Existing Credit Agreement") pursuant
to which the banks party to the Existing Credit Agreement (the "Existing
Lenders") have made Advances (as defined in the Existing Credit Agreement) to
the Borrower, and have issued or participated in Letters of Credit (as defined
in the Existing Credit Agreement) for the account of the Borrower, in each case
on the terms and conditions set forth therein;
WHEREAS, the Borrower has requested that the Existing Lenders amend the
Existing Credit Agreement and the other Credit Documents (as defined in the
Existing Credit Agreement, and as used herein, the "Existing Credit Documents")
in order to revise certain terms thereof and the Existing Lenders have agreed to
do so on the terms and conditions set forth herein; and
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Credit Agreement as amended in its entirety for clarity only, and amend the
other Existing Credit Documents, in order to (i) add certain Banks as parties to
this Agreement, (ii) provide that Societe Generale, Southwest Agency is no
longer Structuring Agent under this Agreement, but is instead Arranger,
Syndication Agent, and Documentation Agent under this Agreement, (iii) provide
that the Bank of Nova Scotia and Wells Fargo Bank, National Association are each
a Co-Agent under this Agreement, (iv) increase the Commitments under this
Agreement to $300,000,000 and (v) amend certain other provisions of the Existing
Credit Agreement and the other Existing Credit Documents;
<PAGE>
WHEREAS, this Amended and Restated Credit Agreement constitutes for all
purposes an amendment to the Existing Credit Agreement and not a new or
substitute agreement and each reference to an "Advance" and "Letter of Credit"
herein shall mean such Advance made and each Letter of Credit issued heretofore
under the Existing Credit Agreement;
WHEREAS, the Borrower and the Guarantors desire to secure their respective
obligations to the Banks under this Agreement and the other Credit Documents by
confirming the Liens in the Hotel Properties granted in favor of the
Administrative Agent under the Security Documents;
NOW, THEREFORE, in consideration of the foregoing recitals and the provisions
contained in this Agreement, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Certain Defined Terms. As used in this Agreement, the following
---------------------
terms shall have the following meanings (unless otherwise indicated, such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Accession Agreement" means an Accession Agreement in the form attached
-------------------
respectively to the Guaranty, Environmental Indemnity and Irrevocable Direction
to Pay Rent as Annex 1 thereto, which agreement causes the Person executing and
delivering the same to the Administrative Agent to become a party to the
Guaranty, the Environmental Indemnity and Irrevocable Direction to Pay Rent.
"Acquisition Agreements" means for any Hotel Property the agreements entered
----------------------
into in connection with the acquisition of such Hotel Property.
"Adjusted Prime Rate" means, for any day, the fluctuating rate per annum of
-------------------
interest equal to the greater of (a) the Prime Rate in effect on such day and
(b) the Federal Funds Rate in effect on such day plus 1/2%.
"Adjustment Event" has the meaning set forth in Section 2.14(b).
----------------
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<PAGE>
"Administrative Agent" means Bank One, Texas, N.A. in its capacity as
--------------------
Administrative Agent for the Banks pursuant to Article VIII and any successor
Administrative Agent appointed pursuant to Section 8.06.
"Advance" means an Advance by a Bank to the Borrower, any such Advance being
-------
either a Prime Rate Advance or a LIBOR Rate Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
---------
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of a Control Percentage, by contract or otherwise.
"Agents" means the Administrative Agent and the Documentation Agent, and
------
"Agent" means either such agent.
- ------
"Agents' Fee Letter" means the letter agreement dated as of May 13, 1997 among
------------------
the Borrower, the Documentation Agent and the Administrative Agent.
"AGHI" means American General Hospitality, Inc., a Texas corporation.
----
"AGH Leasing" means AGH Leasing, L.P., a Delaware limited partnership.
-----------
"AGH LP" means AGH LP, Inc., a Nevada corporation.
------
"Agreement" has the meaning given such term in the initial paragraph of this
---------
agreement.
"Allocated Debt Amount" means for any Hotel Property, 50% (45% following a
---------------------
Ratio Modification Event) of the Real Estate Value of such Hotel Property.
"Applicable Lending Office" means, with respect to each Bank, such Bank's
-------------------------
Domestic Lending Office in the case of a Prime Rate Advance and such Bank's
LIBOR Lending Office in the case of a LIBOR Rate Advance.
-3-
<PAGE>
"Applicable Margin" means, at any time, (a) with respect to a LIBOR Rate
-----------------
Advance, one and 75/100 percent (1.75%), and (b) with respect to a Prime Rate
Advance, one-half of one percent (.50%).
"Appraisal" means an appraisal of the Hotel Property prepared by an M.A.I.
---------
appraiser approved by the Agents in writing which appraisal is acceptable to the
Agents and done in conformity with the following standards: Uniform Standards
of Professional Appraisal Practice, the requirements of the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the Appraisal
Institute, the appraisal guidelines set forth by the office of the Comptroller
of the Currency and the Federal Reserve Board.
"Appraised Value" means for any Hotel Property (a) prior to the completion of
---------------
the Capital Expenditures and acquisition of FF&E to be completed or acquired in
accordance with the Approved Preliminary Property Plan for such Hotel Property,
the "Appraised Value" will initially be the sum of (i) the "As Is" value of such
Hotel Property based upon the latest Appraisal for such Hotel Property and (ii)
those amounts included in the Cost Basis for such Hotel Property based upon
clause (b) of the definition of Cost Basis, provided the "Appraised Value" under
this clause (a) shall never exceed the "Appraised Value" under clause (b) of
this definition, and (b) after the completion of the Capital Expenditures and
acquisition of FF&E to be completed or acquired in accordance with the Approved
Preliminary Property Plan for such Hotel Property, the "Appraised Value" will be
the "As Improved" value of such Hotel Property based upon the latest Appraisal
for such Hotel Property. The "As Is" and "As Improved" values for the Initial
Properties are set forth in Schedule 1.01(b)).
"Approved Preliminary Property Plan" means (a) with respect to the Initial
----------------------------------
Properties for which plans are set forth on Schedule 1.01(c), the preliminary
plans and projections of the Capital Expenditures and the expenditures for FF&E
of each Initial Property and set forth on Schedule 1.01(c), as such plans and
projections may be amended with the approval of the Agents (which approval shall
not be unreasonably withheld) and (b) with respect to the other Initial
Properties and any Future Property that the Borrower desires be an Eligible
Property, the preliminary plans and projections of the Capital Expenditures and
the expenditures for FF&E for such Hotel Property approved by the Majority Banks
within one hundred eighty (180) days of the date of acquisition of such Hotel
Property (which approval will not be unreasonably withheld or delayed).
-4-
<PAGE>
"Approved Preliminary Property Plan Work" means, for any Hotel Property, the
---------------------------------------
performance of the Capital Expenditures and the purchase of the FF&E
contemplated by the Approved Preliminary Property Plan for such Hotel Property.
"Asset Sale" means (a) any sale, financing lease (in which the Borrower or a
----------
Guarantor is lessor but exclusive of the Participating Leases), conveyance,
exchange, transfer, or assignment of any Property by the Borrower or a Guarantor
to a Person other than the Borrower or a Guarantor; and (b) any insured loss or
casualty of Hotel Property owned by the Borrower or any Guarantor if the
insurance proceeds in connection therewith are required by the provisions of
this Agreement to be used to repay Obligations.
"Assignment and Acceptance" means an assignment and acceptance entered into by
-------------------------
a Bank and an Eligible Assignee, and accepted by the Administrative Agent, in
substantially the form of the attached Exhibit B.
"Assignment of Leases (Borrower)" means an assignment of leases, rents and
-------------------------------
security deposits executed by the Borrower or any Guarantor to secure the
Obligations, each substantially in the form of Exhibit C with such modifications
as may be necessary and appropriate in the opinion of counsel to the Agents to
comply with the state law of the filing jurisdiction and as may be reasonably
satisfactory to the Agents (provided any such modification does not materially
and adversely affect the rights and benefits to be accorded to the
Administrative Agent for the benefit of the Banks), as the same may be amended
or terminated in accordance with their terms.
"Assignment of Leases (Participating Lessee)" means an assignment of leases,
-------------------------------------------
rents and security deposits executed by the Participating Lessee for the benefit
of the Borrower or Guarantor who is the particular Property Owner for a Hotel
Property to secure the Participating Lessee's obligations under the
Participating Lease for such Hotel Property, each substantially in the form of
Exhibit D with such modifications as may be necessary and appropriate in the
opinion of counsel to the Agents to comply with the state law of the filing
jurisdiction and as may be reasonably satisfactory to the Agents (provided any
such modification does not materially and adversely affect the rights and
benefits accorded thereunder), as the same may be amended or terminated in
accordance with their terms.
"Assignment of Management Agreement" means an assignment of management
----------------------------------
agreement executed by the Participating Lessee for the benefit of the Borrower
or Guarantor who is the
-5-
<PAGE>
particular Property Owner for a Hotel Property to secure the Participating
Lessee's obligations under the Participating Lease for such Hotel Property, each
substantially in the form of Exhibit E with such modifications as may be
necessary and appropriate in the opinion of counsel to the Agents to comply with
the state law of the filing jurisdiction and as may be reasonably satisfactory
to the Agents (provided any such modification does not materially and adversely
affect the rights and benefits accorded thereunder), as the same may be amended
or terminated in accordance with their terms.
"Associates" means, for any individual, the Associates (as such term is
----------
defined in Rule 12b-2 promulgated under the Exchange Act) of such individual.
"Banks" means the lenders listed on the signature pages of this Agreement and
-----
each Eligible Assignee that shall become a party to this Agreement pursuant to
Section 9.06.
"Bank One Cash Management Agreement" means the depository account agreement
----------------------------------
substantially in the form of the attached Exhibit F by and among the Cash
Manager, the Administrative Agent and the Borrower covering the Borrower's Bank
Accounts.
"Borrower" means American General Hospitality Operating Partnership, L.P., a
--------
Delaware limited partnership.
"Borrower's Bank Accounts" means the CAPEX Reserve, the Concentration Bank
------------------------
Account and the Operating Accounts (Borrower).
"Borrower Capitalization Event" means (a) any sale or issuance by the Borrower
-----------------------------
or any of its Subsidiaries of equity securities for consideration other than a
direct or indirect ownership interest in a Person that owns a Hotel Property,
(b) an issuance or incurrence by the Borrower or any of its Subsidiaries of
Indebtedness except for Indebtedness permitted pursuant to the provisions of
Section 6.02.
"Borrower Controlled Group" means all members of a controlled group of
-------------------------
corporations and all trades (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.
-6-
<PAGE>
"Borrowing" means a borrowing consisting of simultaneous Advances of the same
---------
Type made by each Bank pursuant to Section 2.01(a) or Converted by each Bank to
Advances of a different Type pursuant to Section 2.02(b).
"Borrowing Base" means an amount equal to the lesser of (i) 50% (45% following
--------------
a Ratio Modification Event) of the aggregate Real Estate Value of all Eligible
Properties; and (ii) the product of (A) the combined trailing twelve months
Borrowing Base EBITDA generated by the Eligible Properties multiplied by (B)
5.25 (5.0 following the earlier of (i) a Ratio Modification Event or (ii) June
30, 1998).
"Borrowing Base Certificate" means a certificate of the Borrower in
--------------------------
substantially the form of the attached Exhibit H, certified by a Responsible
Officer of Borrower to be true, correct and accurate in all material respects.
"Borrowing Base Determination Date" means any date the Borrowing Base is
---------------------------------
determined in accordance with Section 2.14.
"Borrowing Base EBITDA" means for any period the aggregate Property EBITDA of
---------------------
all Eligible Property.
"Business Day" means a day of the year on which banks are not required or
------------
authorized to close in New York City or Dallas, Texas and, if the applicable
Business Day relates to any LIBOR Rate Advances, on which dealings are carried
on by banks in the London interbank market.
"CAPEX Bills Pending" means, for any calendar quarter, the amount of payables
-------------------
for Capital Expenditures and expenditures for FF&E (except for the Approved
Preliminary Property Plan Work and the Required Work for which the Borrower is
not entitled to withdraw funds from the CAPEX Reserve to pay for) for the
Eligible Properties as of the end of such calendar quarter (a) which the
Borrower is at such time processing for payment in the ordinary course of
business and (b) which are not past due, all as certified in writing to the
Administrative Agent by the Borrower.
"CAPEX Reserve" means a bank account complying with the requirements of
-------------
Section 5.07 established by the Borrower with the Administrative Agent.
-7-
<PAGE>
"CAPEX Reserve Deposit Amount" means, for any calendar quarter, an amount
----------------------------
equal to (a) 4% of the gross revenues from each Eligible Property for such
calendar quarter minus (b) the amount paid in such calendar quarter for Capital
Expenditures or FF&E for Eligible Properties (except for the Approved
Preliminary Property Plan Work and the Required Work for which the Borrower is
not entitled to withdraw funds from the CAPEX Reserve to pay for) which were
made or purchased in accordance with this Agreement minus (c) the CAPEX Bills
Pending as of the end of such calendar quarter plus (d) the CAPEX Bills Pending
as of the end of the previous calendar quarter.
"Capital Expenditure" means any payment made directly or indirectly for the
-------------------
purpose of acquiring or constructing fixed assets, Real Property or equipment
which in accordance with GAAP would be added as a debit to the fixed asset
account of such Person making such expenditure, including, without limitation,
amounts paid or payable for such purpose under any conditional sale or other
title retention agreement or under any Capital Lease, but excluding repairs of
Property in the normal and ordinary course of business in keeping with the past
practices of the Borrower.
"Capitalization Event" means either a Borrower Capitalization Event or a
--------------------
Parent Capitalization Event.
"Capital Lease" means, for any Person, any lease of any Property (whether
-------------
real, personal or mixed) by that Person as lessee which, in accordance with
GAAP, is or should be accounted for as a capital lease on the balance sheet of
that Person.
"Cash Collateral Account" means a special cash collateral account containing
-----------------------
cash deposited pursuant to the terms of this Agreement to be maintained at the
Administrative Agent's office in accordance with Section 7.04.
"Cash Manager" means Bank One, Texas, N.A. or any successor thereto approved
------------
by the Agents.
"Cash Management System (Borrower)" means the system of Deposit Accounts of
---------------------------------
the Borrower and the Borrower's Subsidiaries (excluding the Permitted Other
Subsidiaries) including the Borrower's Bank Accounts pursuant to which all cash,
cash equivalents and credit card receipts (other than Discover Card receipts) of
the Borrower and the Borrower's Subsidiaries (excluding that of the Permitted
Other Subsidiaries), respectively, are collected and distributed, all as
described in
-8-
<PAGE>
Schedule 4.21 annexed hereto, as it may be modified from time to time in
accordance with the terms hereof.
"Cash Management System (Participating Lessee)" means the system of Deposit
---------------------------------------------
Accounts of the Participating Lessees including the Operating Account
(Participating Lessee) for each Hotel Property (excluding Permitted Non-Eligible
Properties and Hotel Properties securing Permitted Other Subsidiary
Indebtedness) pursuant to which all cash, cash equivalents and credit card
receipts (other than Discover Card receipts) of the Participating Lessees
(excluding that received in connection with Permitted Non-Eligible Properties
and Hotel Properties securing Permitted Other Subsidiary Indebtedness) are
collected and distributed, all as described in Schedule 4.21 annexed hereto, as
it may be modified from time to time in accordance with the terms hereof.
"Cash Management Systems" means collectively the Cash Management System
-----------------------
(Borrower) and the Cash Management System (Participating Lessee).
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
------
Liability Act of 1980, as amended, state and local analogs, and all rules and
regulations and requirements thereunder in each case as now or hereafter in
effect.
"Closing Date" means the date on which each of the conditions set forth in
------------
Section 3.01 are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, and any successor
----
statute.
"Collateral Assignment and Security Agreement" means a collateral assignment
--------------------------------------------
and agreement executed by the Borrower or any Guarantor to secure the
Obligations, each substantially in the form of Exhibit I with such modifications
as may be necessary and appropriate in the opinion of counsel to the Agents to
comply with the state law of the filing jurisdiction and as may be reasonably
satisfactory to the Agents (provided any such modification does not materially
and adversely affect the rights and benefits to be accorded to the
Administrative Agent for the benefit of the Banks), as the same may be amended
or terminated in accordance with their terms.
"Commitment" means, with respect to any Bank, the amount set opposite such
----------
Bank's name on Schedule 1.01(a) as its Commitment, or if such Bank has entered
into any Assignment and Acceptance, the amount set forth for such Bank as its
Commitment in the Register maintained by
-9-
<PAGE>
the Administrative Agent pursuant to Section 9.06(c), as such amount may be
reduced pursuant to Section 2.04.
"Compliance Certificate" means a certificate of the Borrower in substantially
----------------------
the form of the attached Exhibit J.
"Concentration Bank Account" means the Deposit Account maintained with the
--------------------------
Cash Manager located in Dallas, Texas for the benefit of the Borrower which is a
part of the Cash Management System (Borrower), or any substitute account
maintained with the Cash Manager reasonably acceptable to the Administrative
Agent.
"Conditions to Collateral Release" shall for any Asset Sale (other than Asset
--------------------------------
Sales involving Permitted Other Subsidiary Properties) include all of the
following requirements: (a) no Default has occurred and is continuing or would
occur upon the consummation of such Asset Sale; (b) the Borrower, the Parent and
their respective Subsidiaries shall be in compliance with all covenants, terms
and conditions of the Credit Documents and the consummation of such Asset Sale
shall not cause or result in any of such Persons being in non-compliance; (c)
the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate dated as of the date of the Asset Sale certifying that the
Conditions to Collateral Release are satisfied which Compliance Certificate
shall (i) certify that the financial covenants contained in this Agreement
measured as of the date of the Asset Sale (without inclusion in the calculation
of such covenants the operating results of the Hotel Property for such Asset
Sale) are satisfied and (ii) set forth the Borrower's calculations of such
financial covenants; (d) at least 10 days prior to such Asset Sale the Borrower
shall have delivered to the Administrative Agent a copy of the documents that
have or will be executed in connection with such Asset Sale and a draft of the
Compliance Certificate that the Borrower is obligated to deliver pursuant to the
preceding clause (c); (e) the Borrower shall have delivered to the
Administrative Agent a Property Adjustment Report in connection with such Asset
Sale; (f) the Asset Sale is to a Person other than the Borrower or a Subsidiary
of Borrower and for fair market value; (g) the written approval of the
Administrative Agent has been obtained which approval shall not be unreasonably
withheld; (h) upon consummation of such Asset Sale the Pool Requirements would
be satisfied; and (i) contemporaneously with such Asset Sale the Borrower makes
a prepayment of the Advances as provided in Section 2.07(c)(iii) in an amount of
not less than the Release Amount for such Hotel Property, provided that if the
Asset Sale is a sale of a Permitted Non-Eligible Property the Borrower shall not
have to make a prepayment as long as no Default has occurred and is continuing
or would occur upon the consummation of such Asset Sale.
-10-
<PAGE>
"Consolidated" refers to the consolidation of the accounts of the Borrower
------------
with the Borrower's Subsidiaries and the Parent with the Parent's Subsidiaries,
as applicable, in accordance with GAAP, including, when used in reference to the
Borrower, principles of consolidation consistent with those applied in the
preparation of the Financial Statements.
"Control Percentage" means, with respect to any Person, the percentage of the
------------------
outstanding capital stock of such Person having ordinary voting power which
gives the direct or indirect holder of such stock the power to elect a majority
of the Board of Directors of such Person.
"Controlled Group" means each of the Borrower Controlled Group, the
----------------
Participating Lessee Controlled Group and the Manager Controlled Group, and
"Controlled Groups" means, collectively, all of such groups .
-----------------
"Convert", "Conversion", and "Converted" each refers to a conversion of
------- ---------- ---------
Advances of one Type into Advances of another Type pursuant to Section 2.02(b).
"Cost Basis" means for any Hotel Property the sum of (a) for any Initial
----------
Property, the amount set forth for such Initial Property on Schedule 1.01(b)
attached hereto, and for any other Hotel Property, the aggregate purchase price
paid by the Borrower or its Subsidiary for such other Hotel Property (giving
effect to any securities used to purchase a Hotel Property at the fair market
value of the securities at the time of purchase based upon the price at which
such securities could be exchanged into the Parent's common stock assuming such
exchange occurred on the date of acquiring the Hotel Property), and (b) the
actual cost of any Capital Expenditures or expenditures for FF&E for such Hotel
Property made by the Borrower or its Subsidiaries pursuant to an Approved
Preliminary Property Plan as preliminarily certified monthly by the Borrower in
connection with a request for a Borrowing or request from withdrawal from the
CAPEX Reserve, provided that, at the Borrower's expense, both upon the
completion of any calendar quarter and upon completion of such Capital
Expenditures or FF&E, the actual cost of such Capital Expenditures or FF&E, as
applicable, is further certified by a property condition consultant or engineer
reasonably acceptable to the Agents who shall have inspected the Hotel Property
and delivered to the Administrative Agent a certificate that such Capital
Expenditures or FF&E, as applicable, have been made or purchased and delivered
to such Hotel Property.
"Credit Card Agreements" means each credit card agreement among each of a
----------------------
Participating Lessee, the Borrower or the Borrower's Subsidiaries (as
applicable), the credit card companies for
-11-
<PAGE>
all major credit cards accepted by the Hotel Properties (other than for Discover
Card) and the Administrative Agent, in each case substantially in the form of
Exhibit K attached hereto with such changes as are acceptable to the
Administrative Agent, and all other agreements with or directions to credit card
companies satisfactory to the Administrative Agent, in either case pursuant to
which, in accordance with Section 5.12 such credit card companies are to direct
funds from credit card receipts of a Hotel Property to either the Deposit
Account or Operating Account (Participating Lessee) of the Participating Lessee
for such Hotel Property which is subject to a Depository Account Agreement.
"Credit Documents" means this Agreement, the Notes, the Guaranties, the
----------------
Environmental Indemnities, the Security Documents, the Agents' Fee Letter, and
each other agreement, instrument or document executed by the Borrower or any of
its Subsidiaries at any time in connection with this Agreement.
"Debt Service" means, for any Person for the period for which such amount is
------------
being determined, the amount (without duplication) of all mandatory principal
payments made and interest accrued with respect to any Indebtedness of such
Person and all payments made in respect of Capital Leases of such Person.
"Debt Service Rate" means, for any Indebtedness for the period for which such
-----------------
amount is being determined, the greatest of (a) the percentage (on an annualized
basis) obtained by dividing the actual Debt Service for such Indebtedness for
such period by the average outstanding amount of such Indebtedness for such
period, (b) the percentage (on an annualized basis) that would be obtained by
dividing (i) the estimated Debt Service that would have been paid for such
Indebtedness for such period based upon (Y) an interest rate for such
Indebtedness for such period equal to 2.25% plus the Treasury Rate (as defined
----
herein) and (Z) a 20 year principal amortization of such Indebtedness with
constant monthly payments of principal and interest by (ii) the amount of such
Indebtedness, and (c) 10%. As used herein, "Treasury Rate" means the rate of
interest on United States Treasury Securities with a ten-year maturity, most
recently published prior to the date of any calculation made hereunder, and
shown in the "Week Ending" column and in the ten-year listing under the heading
"Treasury Constant Maturities" of the Federal Reserve Statistical Release Form
H-15.
"Deposit Account" means a demand, time, savings, passbook, checking or like
---------------
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
-12-
<PAGE>
"Depository Account Agreements" means (i) the Bank One Cash Management
-----------------------------
Agreement, (ii) each depository account agreement among each of a Participating
Lessee, the Borrower or the Borrower's Subsidiaries (as applicable), and the
financial institutions at which Deposit Accounts are located pursuant to the
Cash Management System (Participating Lessee) with the consent and
acknowledgment of such Persons of the collateral assignment of such agreement to
the Administrative Agent, in each case substantially in the form of Exhibit L
attached hereto with such changes as are acceptable to the Administrative Agent,
and (iii) all other agreements with or directions to the financial institutions
at which Deposit Accounts are located satisfactory to the Administrative Agent,
in either case pursuant to which, in accordance with Section 5.12 such financial
institutions are upon the occurrence of certain events to direct funds from such
Deposit Accounts to the account designated by the Administrative Agent.
"Default" means (a) an Event of Default or (b) any event or condition which
-------
with notice or lapse of time or both would, unless cured or waived, become an
Event of Default.
"DFW South" means the Holiday Inn Dallas DFW Airport South hotel.
---------
"DFW South LP" means DFW South I Limited Partnership, a Texas limited
------------
partnership.
"Documentation Agent" means Societe Generale, Southwest Agency in its capacity
-------------------
as Documentation Agent for the Banks pursuant to Article VIII and any successor
Documentation Agent pursuant to Section 8.06.
"Dollar Equivalent" means the equivalent in another currency of an amount in
-----------------
U.S. Dollars to be determined by reference to the rate of exchange quoted by the
Administrative Agent, at 11:00 a.m. (Dallas, Texas time) on the date of
determination, for the spot purchase in the foreign exchange market of such
amount of Dollars with such other currency.
"Dollars" and "$" means lawful money of the United States of America.
------- -
"Domestic Lending Office" means, with respect to any Bank, the office of such
-----------------------
Bank specified as its "Domestic Lending Office" opposite its name on Schedule
9.02 or such other office of such Bank as such Bank may from time to time
specify to the Borrower and the Administrative Agent.
-13-
<PAGE>
"EBITDA" means for any Person for any period for which such amount is being
------
determined, an amount equal to (a) Net Income for such period plus (b) to the
----
extent deducted in determining Net Income, Interest Expense, income taxes,
depreciation, amortization, and other non-cash items for such period minus (c)
-----
4% of the gross revenues for such Person for such period, as determined in
accordance with GAAP; provided that if any Property of such Person has been sold
--------
or conveyed by such Person in such period, the amounts referred to in clauses
(a)-(c) above arising from such Property shall be excluded from the calculation
of EBITDA for such period; and provided further that if such Person has acquired
----------------
any Property in such period, the amounts referred to in clauses (a)-(c) above
arising from such Property during such entire period shall be included in the
calculation of EBITDA for such period.
"Effective Date" means the date all of the conditions precedent set forth in
--------------
Section 3.01 have been satisfied.
"Eligible Assignee" means (a) a commercial bank organized under the laws of
-----------------
the United States, or any State thereof, and having primary capital of not less
than $250,000,000 and approved by the Agents and the Issuing Bank, which
approvals will not be unreasonably withheld, (b) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development and having primary capital (or its
equivalent) of not less than $250,000,000 (or its Dollar Equivalent) and
approved by the Agents and the Issuing Bank, which approvals will not be
unreasonably withheld, (c) a Bank, and (d) an Affiliate of the respective
assigning Bank, without approval of any Person but otherwise meeting the
eligibility requirements of (a) or (b) above.
"Eligible Property" means, as of any Borrowing Base Determination Date, any
-----------------
Hotel Property which is owned by the Borrower or any Guarantor on such date and
was so owned on the date of the most recent Borrowing Base Certificate delivered
to the Banks, and which satisfies the conditions to qualifying as an Eligible
Property set forth in Section 3.03 on such Borrowing Base Determination Date.
"Engineering Report" means with respect to any Hotel Property, an engineering
------------------
report in accordance with the scope of services attached hereto as Schedule 1.01
(d) reasonably satisfactory to the Agents prepared for the Banks by a Person set
forth on Schedule 1.01(d) or otherwise satisfactory to the Agents covering the
physical condition of the Hotel Property, including without
-14-
<PAGE>
limitation the structural, electrical, plumbing, mechanical and other essential
components of the Hotel Property.
"Environment" or "Environmental" shall have the meanings set forth in 43
----------- -------------
U.S.C. (S) 9601(8) (1988).
"Environmental Claim" means any third party (including governmental agencies
-------------------
and employees) action, lawsuit, claim, demand, regulatory action or proceeding,
order, decree, consent agreement or notice of potential or actual responsibility
or violation (including claims or proceedings under the Occupational Safety and
Health Acts or similar laws or requirements relating to health or safety of
employees) which seeks to impose liability under any Environmental Law.
"Environmental Indemnity" means one or more environmental indemnity agreements
-----------------------
dated of even date herewith in substantially the form of the attached Exhibit M
executed or to be executed by the Borrower, the Parent and all Subsidiaries of
the Borrower (including each Permitted New Subsidiary but excluding the
Permitted Other Subsidiaries), and any future environmental indemnities executed
in connection with any Hotel Property, as any of such environmental indemnities
may be amended hereafter in accordance with the terms of such agreements.
"Environmental Law" means all Legal Requirements arising from, relating to, or
-----------------
in connection with the Environment, health, or safety, including without
limitation CERCLA, relating to (a) pollution, contamination, injury,
destruction, loss, protection, cleanup, reclamation or restoration of the air,
surface water, groundwater, land surface or subsurface strata, or other natural
resources; (b) solid, gaseous or liquid waste generation, treatment, processing,
recycling, reclamation, cleanup, storage, disposal or transportation; (c)
exposure to pollutants, contaminants, hazardous, medical, infectious, or toxic
substances, materials or wastes; (d) the safety or health of employees; or (e)
the manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, medical, infectious, or toxic substances,
materials or wastes.
"Environmental Permit" means any permit, license, order, approval or other
--------------------
authorization under Environmental Law.
"Environmental Report" means with respect to any Hotel Property, an
--------------------
environmental report in accordance with the scope of services attached hereto as
Schedule 1.01 (f) prepared for the Banks by a Person set forth on Schedule
1.01(f) or otherwise satisfactory to the Agents certifying to the
-15-
<PAGE>
Agents and the Banks that the Hotel Property and the soil and the groundwater
thereunder do not contain Hazardous Substances except for Permitted Hazardous
Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
-----
from time to time.
"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation
------------------------
D of the Federal Reserve Board (or any successor), as in effect from time to
time.
"Event of Default" has the meaning set forth in Section 7.01.
----------------
"Expiration Date" means, with respect to any Letter of Credit, the date on
---------------
which such Letter of Credit will expire or terminate in accordance with its
terms.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
------------------
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for any such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
---------------------
System or any of its successors.
"FF&E" means furniture, fixtures and equipment.
----
"Financial Statements" means the financial statements of the Parent, the
--------------------
Borrower and their respective Subsidiaries dated as of March 31, 1997.
"Financing Statement (Borrower)" means any Uniform Commercial Code - Financing
------------------------------
Statement - Form UCC-1 to be executed and delivered by Borrower or any of its
Subsidiaries in connection with perfecting the security interest assigned by any
Security Document, and any extension, renewal, or amendment thereof.
-16-
<PAGE>
"Financing Statement (Participating Lessee)" means any Uniform Commercial Code
------------------------------------------
- - Financing Statement - Form UCC-1 to be executed and delivered by Participating
Lessee in connection with perfecting the security interest assigned by any
Participating Lessee Document, and any extension, renewal, or amendment
thereof.
"Franchise Agreements" means those certain Agreements listed on Schedule 4.22
--------------------
attached hereto and any future franchise or license agreement for an Eligible
Property with a reputable, nationally known, third party franchisor or licensor
approved by the Agents in writing.
"Franchisor" means those certain franchisors listed on Schedule 1.01(h )
----------
attached hereto, or any other franchisor or licensor of a Hotel Property
approved by the Agents in writing.
"Franchisor Consent" means a Franchisor's Consent and Agreement acceptable to
------------------
the Agents and in substantially the form of one of the forms attached as Exhibit
N or such other form as approved by the Agents in writing, executed by a
Franchisor for a Hotel Property.
"Fund," "Trust Fund," or "Superfund" means the Hazardous Substance Response
---- ---------- ---------
Trust Fund, established pursuant to 42 U.S.C. (S) 9631 (1988) and the Post-
closure Liability Trust Fund, established pursuant to 42 U.S.C. (S) 9641 (1988),
which statutory provisions have been amended or repealed by the Superfund
Amendments and Reauthorization Act of 1986, and the "Fund," "Trust Fund," or
"Superfund" that are now maintained pursuant to 42 U.S.C. (S) 9507.
"Funds from Operations" means for any period an amount equal to the
---------------------
Consolidated Net Income of the Borrower and the Borrower's Subsidiaries for such
period excluding gains (losses) from debt restructuring and sales of property
(including furniture and equipment) plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs) and after
adjustments for unconsolidated partnerships and joint ventures; provided,
however, if any extraordinary items are excluded for purposes of calculating Net
Income, such items shall not be further excluded for purposes of making the
calculation set forth in this definition.
"Future Property" means any Hotel Property except for the Initial Properties
---------------
or Permitted Other Subsidiary Properties which the Borrower or any Subsidiary of
the Borrower acquires.
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time, applied on a basis consistent with the requirements of
Section 1.03.
-17-
<PAGE>
"General Assignment and Agreement" means a general assignment and agreement
--------------------------------
executed by the Participating Lessee for the benefit of the Borrower or
Guarantor who is the particular Property Owner for a Hotel Property to secure
the Participating Lessee's obligations under the Participating Lease for such
Hotel Property, each substantially in the form of Exhibit O with such
modifications as may be necessary and appropriate in the opinion of counsel to
the Agents to comply with the state law of the jurisdiction in which the Hotel
Property is located and as may be reasonably satisfactory to the Agents
(provided any such modification does not materially and adversely affect the
rights and benefits accorded thereunder), as the same may be amended or
terminated in accordance with their terms.
"General Partner" means AGH GP, Inc., a Nevada corporation.
---------------
"Governmental Authority" means any foreign governmental authority, the United
----------------------
States of America, any state of the United States of America and any subdivision
of any of the foregoing, and any agency, department, commission, board,
authority or instrumentality, bureau or court having jurisdiction over any Bank,
the Parent, the Borrower, any Subsidiaries of the Borrower or the Parent, the
Participating Lessee, the Manager or any of their respective Properties.
"Governmental Proceedings" means any action or proceedings by or before any
------------------------
Governmental Authority, including, without limitation, the promulgation,
enactment or entry of any Legal Requirement.
"Ground Lease" means each of the ground leases or subground leases set forth
------------
on Schedule 1.01(i) hereto and any ground lease for a Future Property acceptable
to the Agents in their sole discretion, together with all right, title and
interest of Borrower or any Subsidiary of Borrower (except the Permitted Other
Subsidiaries), as the case may be, in and to the leasehold estate created
pursuant to each such ground lease as each such ground lease may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof and hereof.
"Ground Lessor Consent" means a Ground Lessor Consent and Agreement acceptable
---------------------
to the Agents and in substantially the form of the attached Exhibit P or other
form approved by the Agents, executed by the then current lessor for the Ground
Lease.
-18-
<PAGE>
"Guarantor" means Parent and each Subsidiary of the Borrower (except the
---------
Permitted Other Subsidiaries). The Guarantors on the Effective Date are
identified on Schedule 1.01(j).
"Guaranty" means one or more Guaranty and Contribution Agreements in
--------
substantially the form of the attached Exhibit Q executed by the Borrower and
all of the Subsidiaries of the Borrower (including any Permitted New Subsidiary
but excluding the Permitted Other Subsidiaries), evidencing the joint and
several guaranty by the signatories thereto of the obligations of Borrower in
respect of the Credit Documents and the obligations of landlords under
Participating Leases, and any future guaranty and contribution agreement
executed to secure Advances except for Supplemental Guaranties, as any of such
agreements may be amended hereafter in accordance with the terms of such
agreements.
"Hazardous Substance" means the substances identified as such pursuant to
-------------------
CERCLA and those regulated under any other Environmental Law, including without
limitation pollutants, contaminants, petroleum, petroleum products, radio
nuclides, radioactive materials, and medical and infectious waste.
"Hazardous Waste" means the substances regulated as such pursuant to any
---------------
Environmental Law.
"Hotel Capital Lease Limit" means for any Hotel Property $1,000 or such other
-------------------------
amount of Capital Leases as is approved by the Agents in writing (which approval
will not be unreasonably withheld).
"Hotel Operating Lease Limit" means for any Hotel Property $750 or such other
---------------------------
amount of operating leases as is approved by the Agents in writing (which
approval will not be unreasonably withheld).
"Hotel Property" for any hotel means the Real Property and the Personal
--------------
Property for such hotel, and the property referred to in Section 9.13.
"Improvements" for any hotel means all buildings, structures, fixtures, tenant
------------
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to the Land for such hotel; and all
additions and betterments thereto and all renewals, substitutions and
replacements thereof.
-19-
<PAGE>
"Indebtedness" means (without duplication), at any time and with respect to
------------
any Person, (i) indebtedness of such Person for borrowed money (whether by loan
or the issuance and sale of debt securities) or for the deferred purchase price
of property or services purchased (other than amounts constituting trade
payables or bank drafts payable within 120 days arising in the ordinary course);
(ii) indebtedness of others in the amount which such Person has directly or
indirectly assumed or guaranteed or otherwise provided credit support therefor;
(iii) indebtedness of others in the amount secured by a Lien on assets of such
Person, whether or not such Person shall have assumed such indebtedness; (iv)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person (other than trade
payables or bank drafts payable within 120 days arising in the ordinary course);
and (v) obligations of such Person under Capital Leases.
"Initial Properties" means collectively the Hotel Properties listed on
------------------
Schedule 1.01(b), and "Initial Property" means any of such Hotel Properties.
----------------
"Initial Maturity Date" means July 31, 1999.
---------------------
"Interest Expense" means, for any Person, for any period for which such amount
----------------
is being determined, total interest expense (including that properly
attributable to Capital Leases in accordance with GAAP) and all charges incurred
with respect to letters of credit.
"Interest Period" means, for each LIBOR Rate Advance comprising part of the
---------------
same Borrowing, the period commencing on the date of such Advance or the date of
the Conversion of any Prime Rate Advance into such an Advance and ending on the
last day of the period selected by the Borrower pursuant to the provisions below
and Section 2.02 and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below and Section
2.02. The duration of each such Interest Period shall be one, two, or three
months, in each case as the Borrower may select, upon notice received by the
Administrative Agent not later than 11:00 a.m. (Dallas, Texas time) on the third
Business Day prior to the first day of such Interest Period, provided, however,
-------- -------
that:
(a) Interest Periods for Advances of the same Borrowing shall be of the same
duration;
-20-
<PAGE>
(b) whenever the last day of any Interest Period would otherwise occur on a
day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided that if such
--------
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day;
(c) any Interest Period which begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month; and
(d) each successive Interest Period shall commence on the day on which the
next preceding Interest Period expires; and
(e) no Interest Period with respect to any portion of any Advance shall extend
beyond the Maturity Date.
"Interest Rate Agreements" means any interest rate swap agreement, interest
------------------------
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement designed to protect the Borrower, the Parent or any of their
respective Subsidiaries against fluctuations in interest rates.
"Irrevocable Direction to Pay Rent" means one or more Irrevocable Direction to
---------------------------------
Pay Rent in substantially the form of the attached Exhibit R executed by the
Parent and all of the Subsidiaries of the Borrower (including any Permitted New
Subsidiary but excluding the Permitted Other Subsidiaries) and acknowledged by
the Participating Lessee, evidencing the direction by the landlords under the
Participating Leases to the Participating Lessee to make rental payments under
the Participating Leases into the Concentration Bank Account, and any future
direction, as any of such directions may be amended hereafter in accordance with
the terms of such directions.
"Issuing Bank" means Bank One, Texas, N.A., or any Bank acting as a successor
------------
issuing bank pursuant to Section 8.06, and "Issuing Banks" means, collectively,
-------------
all of such Banks.
"Land" for any hotel means the real property upon which the hotel is located,
----
together with all rights, title and interests appurtenant to such real property,
including without limitation all rights, title and interests to (a) all strips
and gores within or adjoining such property, (b) the streets, roads,
-21-
<PAGE>
sidewalks, alleys, and ways adjacent thereto, (c) all of the tenements,
hereditaments, easements, reciprocal easement agreements, rights-of-way and
other rights, privileges and appurtenances thereunto belonging or in any way
pertaining thereto, (d) all reversions and remainders, (e) all air space rights,
and all water, sewer and wastewater rights, (e) all mineral, oil, gas,
hydrocarbon substances and other rights to produce or share in the production of
anything related to such property, and all other appurtenances appurtenant to
such property, including without limitation, any now or hereafter belonging or
in anywise appertaining thereto.
"Legal Requirement" means any law, statute, ordinance, decree, requirement,
-----------------
order, judgment, rule, regulation (or official interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
"Letter of Credit" means, individually, any letter of credit issued by the
----------------
Issuing Bank in accordance with the provisions of Section 2.13 of this
Agreement, and "Letters of Credit" means all such letters of credit
-----------------
collectively.
"Letter of Credit Documents" means, with respect to any Letter of Credit, such
--------------------------
Letter of Credit and any reimbursement or other agreements, documents, and
instruments entered into in connection with or relating to such Letter of
Credit.
"Letter of Credit Exposure" means, at any time, the sum of (a) the aggregate
-------------------------
undrawn maximum face amount of each Letter of Credit at such time and (b) the
aggregate unpaid amount of all Reimbursement Obligations at such time.
"Letter of Credit Obligations" means all obligations of the Borrower arising
----------------------------
in respect of this Agreement or the Letter of Credit Documents.
"LIBOR Lending Office" means, with respect to any Bank, the office of such
--------------------
Bank specified as its "LIBOR Lending Office" opposite its name on Schedule 9.02
(or, if no such office is specified, its Domestic Lending Office) or such other
office of such Bank as such Bank may from time to time specify to the Borrower
and the Administrative Agent.
"LIBOR Rate" means, for the Interest Period for each LIBOR Rate Advance
----------
comprising part of the same Borrowing, an interest rate per annum (rounded
upward to the nearest whole multiple of 1/16 of 1% per annum) equal to (A) the
rate per annum at which deposits in Dollars are offered
-22-
<PAGE>
by the principal office of the Administrative Agent in London, England to prime
banks in the London interbank market at 11:00 a.m. (London time) three Business
Days before the first day of such Interest Period in an amount substantially
equal to the Administrative Agent's LIBOR Rate Advance comprising part of such
Borrowing and for a period equal to such Interest Period divided by (B) one
minus the LIBOR Reserve Requirement. It is agreed that for purposes of this
definition, LIBOR Rate Advances made hereunder shall be deemed to constitute
Eurocurrency Liabilities as defined in Regulation D and to be subject to the
reserve requirements of Regulation D.
"LIBOR Rate Advance" means any Advance which bears interest as provided in
------------------
Section 2.06(b).
"LIBOR Reserve Requirement" shall mean, on any day, that percentage (expressed
-------------------------
as a decimal fraction) which is in effect on such date, as provided by the
Federal Reserve System for determining the maximum reserve requirements
generally applicable to financial institutions regulated by the Federal Reserve
Board comparable in size and type to the Administrative Agent (including,
without limitation, basic, supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined as
Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding (or other category of
liabilities which includes deposits by reference to which the interest rate on a
LIBOR Rate Advance is determined or any category or extensions of credit which
includes loans by a non-United States office of the Administrative Agent to
United States residents). Each determination by the Administrative Agent of the
LIBOR Reserve Requirement, shall, in the absence of manifest error, be
conclusive and binding upon the Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of trust, security
----
interest, encumbrance or other type of preferential arrangement to secure or
provide for the payment of any obligation of any Person, whether arising by
contract, operation of law or otherwise (including, without limitation, the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement).
"Liquid Investments" means:
------------------
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States;
-23-
<PAGE>
(b) (i) negotiable or nonnegotiable certificates of deposit, time deposits, or
other similar banking arrangements maturing within 180 days from the date of
acquisition thereof ("bank debt securities"), issued by (A) any Bank or (B) any
other bank or trust company which has a combined capital surplus and undivided
profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the
time of deposit or purchase, such bank debt securities are rated not less than
"A" (or the then equivalent) by the rating service of S&P or of Moody's
Investors Service, and (ii) commercial paper issued by (A) any Bank or (B) any
other Person if at the time of purchase such commercial paper is rated not less
than "A-2" (or the then equivalent) by the rating service of S&P or not less
than "P-2" (or the then equivalent) by the rating service of Moody's Investors
Service, or upon the discontinuance of both of such services, such other
nationally recognized rating service or services, as the case may be, as shall
be selected by the Borrower with the consent of the Administrative Agent;
(c) repurchase agreements relating to investments described in clauses (a) and
(b) above with a market value at least equal to the consideration paid in
connection therewith, with any Person who regularly engages in the business of
entering into repurchase agreements and has a combined capital surplus and
undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof,
if at the time of entering into such agreement the debt securities of such
Person are rated not less than "A" (or the then equivalent) by the rating
service of S&P or of Moody's Investors Service; and
(d) such other instruments (within the meaning of Article 9 of the Texas
Business and Commerce Code) as the Borrower may request and the Administrative
Agent may approve in writing, which approval will not be unreasonably withheld.
"Liquor License Concession Agreement" means a Lease/Concession Agreement
-----------------------------------
between the Participating Lessee and a Liquor License Company in the form of
Exhibit S attached hereto or such other form as approved by the Agents in
writing.
"Liquor License Companies" means those certain companies listed on Schedule
------------------------
1.01(k) attached hereto and any future company wholly-owned by Steve D. Jorns,
any other officer of the Parent having a concession to sell liquor for a Hotel
Property, Robin Galloway, the general manager of a Hotel Property or any other
Persons approved by the Agents in writing (which approval will not be
unreasonably withheld).
-24-
<PAGE>
"Liquor License Company Consent" for any Initial Property or Future Property
------------------------------
for which the liquor license(s) for such Hotel Property is held by a Person
(including a Liquor License Company) other than Borrower, a Guarantor owning
such Hotel Property, the Manager or the Participating Lessee, means, a consent
and agreement in the form of Exhibit T attached hereto or such other form as
reasonably approved by the Agents executed by the Liquor License Company.
"Liquor License Pledge Agreement" for any Initial Property or Future Property
-------------------------------
for which the liquor license(s) for such Hotel Property is held by a Person
(including a Liquor License Company) other than Borrower, a Guarantor owning
such Hotel Property, the Manager or the Participating Lessee, means a pledge of
the legal and beneficial ownership interest in such Person to the Participating
Lessee in the form of Exhibit U with such modifications as may be necessary and
appropriate in the opinion of counsel to the Agents to comply with the state law
of the Hotel Property's state and as may be reasonably satisfactory to the
Agents (provided any such modification does not materially and adversely affect
the rights and benefits to be accorded thereunder).
"Major Renovation" means, for any Hotel Property, renovation of such Hotel
----------------
Property for which the anticipated cost of the Capital Expenditures and FF&E
involved in such renovation equals or exceeds an amount equal to the product of
(a) $15,000 times (b) the number of guest rooms for such Hotel Property.
"Majority Banks" means, at any time, Banks holding at least 66 2/3% of the
--------------
then aggregate unpaid principal amount of the Notes and the Letter of Credit
Exposure of the Banks at such time, or, if no such principal amount of the Notes
and Letter of Credit Exposure is then outstanding, Banks having at least 66 2/3%
of the aggregate amount of the Commitments at such time.
"Management Agreements" means those certain Management Agreements listed on
---------------------
Schedule 4.23 attached hereto and any future management agreement for an
Eligible Property is substantially the same form or as otherwise approved by the
Agents in writing.
"Manager" means AGHI, or any other manager of a Hotel Property approved by the
-------
Agents in writing.
"Manager Consent" means a Manager Consent and Agreement in substantially the
---------------
form of the attached Exhibit V, executed by the Manager for the Hotel Property.
-25-
<PAGE>
"Manager Controlled Group" means all members of a controlled group of
------------------------
corporations and all trades (whether or not incorporated) under common control
which, together with the Manager, are treated as a single employer under Section
414 of the Code.
"Material Adverse Change" shall mean a material adverse change in the
-----------------------
business, financial condition, or results of operations of the Borrower, the
Parent or any Guarantor, in each case since the date of the Financial
Statements.
"Material Lease" means any lease, other than the Participating Lease, either
--------------
(i) demising in excess of 10,000 square feet of the Improvements with respect to
any Hotel Property or (ii) generating in excess of 10% of the gross revenues
with respect to any Hotel Property.
"Maturity Date" means the Initial Maturity Date, unless the Maturity Date is
-------------
extended pursuant to Section 2.01(b), in which event such extended date shall be
the Maturity Date.
"Maximum Rate" means the maximum nonusurious interest rate under applicable
------------
law.
"Meadowlands" means the Courtyard by Marriott-Meadowlands Hotel.
-----------
"Meadowlands LP" means 455 Meadowland Associates, Ltd., a Texas limited
--------------
partnership.
"Mortgages" means, collectively, the deeds of trust, mortgages and deeds to
---------
secure debt executed by the Borrower or any Guarantor to secure the Obligations,
each substantially in the form of Exhibit W with such modifications as may be
necessary and appropriate in the opinion of counsel to the Agents to comply with
the state law of the filing jurisdiction and as may be reasonably satisfactory
to the Agents (provided any such modification does not materially and adversely
affect the rights and benefits to be accorded to the Administrative Agent for
the benefit of the Banks), as the same may be amended or terminated in
accordance with their terms, and "Mortgage" means any of such instruments.
--------
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
------------------
4001(a)(3) of ERISA to which the Borrower or any member of a Controlled Group is
making or accruing an obligation to make contributions.
-26-
<PAGE>
"Net Cash Proceeds" means (a) the aggregate cash proceeds (including, without
-----------------
limitation, insurance proceeds) received by the Parent, the Borrower or any of
their respective Subsidiaries (as applicable) in connection with any Asset Sale
or Capitalization Event, minus (b) the reasonable expenses of such Person in
-----
connection with such Asset Sale or such Capitalization Event.
"Net Income" means, for any Person or Hotel Property for any period for which
----------
such amount is being determined, the net income of such Person or Hotel
Property, as applicable, after taxes, as determined in accordance with GAAP,
excluding, however, extraordinary items, including but not limited to (i) any
net gain or loss during such period arising from the sale, exchange, or other
disposition of capital assets (such term to include all fixed assets and all
securities) other than in the ordinary course of business and (ii) any write-up
or write-down of assets.
"Net Worth" means, for any Person, stockholders equity of such Person
---------
determined in accordance with GAAP.
"Note" means a promissory note of the Borrower payable to the order of any
----
Bank, in substantially the form of the attached Exhibit A, evidencing
indebtedness of the Borrower to such Bank resulting from Advances owing to such
Bank, and "Notes means all of such promissory notes.
-----
"Notice of Borrowing" means a notice of borrowing in the form of the attached
-------------------
Exhibit X signed by a Responsible Officer of the Borrower.
"Notice of Conversion or Continuation" means a notice of conversion or
------------------------------------
continuation in the form of the attached Exhibit Y signed by a Responsible
Officer of the Borrower.
"Obligations" means all Advances, Reimbursement Obligations, and other amounts
-----------
payable by the Borrower to the Documentation Agent, the Administrative Agent, or
the Banks under the Credit Documents.
"Operating Accounts (Borrower)" means (a) a Deposit Account of the Borrower to
-----------------------------
be established and maintained by the Borrower with the Cash Manager at its
offices at 1717 Main Street, Dallas, Texas, Account Name: " American General
Hospitality Operating Partnership, L.P. -Operating Account," and (b) a Deposit
Account of the Property Owner for each Hotel Property (except for those Hotel
Properties securing Permitted Other Subsidiary Indebtedness) to be
-27-
<PAGE>
established and maintained by the Borrower with the Cash Manager at its offices
at 1717 Main Street, Dallas, Texas, in the name of the Property Owner.
"Operating Account (Participating Lessee)" means the Deposit Account of the
----------------------------------------
Participating Lessee for each Hotel Property (except for those Hotel Properties
securing Permitted Other Subsidiary Indebtedness) to be established and
maintained by the Participating Lessee with the Cash Manager at its offices at
1717 Main Street, Dallas, Texas, Account Name: "AGH Leasing, L.P. -Operating
Account [Hotel Property]."
"Parent" means American General Hospitality Corporation, a Maryland
------
corporation.
"Parent Capitalization Event" means any of the following which do not
---------------------------
constitute a Borrower Capitalization Event: (a) any sale or issuance by the
Parent or any of its Subsidiaries of equity securities, or (b) any issuance or
incurrence by the Parent of any Indebtedness.
"Parent Common Stock" means the common stock of Parent, par value $.01 per
-------------------
share.
"Parent's Other Subsidiaries" means all Subsidiaries of the Parent except for
---------------------------
the Borrower and the Subsidiaries of the Borrower.
"Participating Leases" means those certain Participating Leases listed on
--------------------
Schedule 1.01(l) attached hereto and any future participating lease for an
Eligible Property approved by the Agents in writing (which approval shall not
be unreasonably withheld as long as such Person is at least 65% owned by the
same individuals required of a Participating Lessee pursuant to the provisions
of Section 7.01(r).
"Participating Lessee" means AGH Leasing, TT Leasing and any future
--------------------
participating lessee for a Hotel Property approved by the Agents in writing.
"Participating Lessee Controlled Group" means all members of a controlled
-------------------------------------
group of corporations and all trades (whether or not incorporated) under common
control which, together with the Participating Lessee, are treated as a single
employer under Section 414 of the Code.
-28-
<PAGE>
"Participating Lessee Estoppel" means a Lessee Estoppel, Acknowledgment and
-----------------------------
Subordination Agreement in substantially the form of the attached Exhibit Z,
executed by the Participating Lessee for the Hotel Property.
"Participating Lessee Documents" for any Initial Property or Future Property,
------------------------------
means collectively (a) an Assignment of Leases (Participating Lessee), (b) a
General Assignment, (c) Financing Statements (Participating Lessee), (d) an
Assignment of Management Agreements, (e), a Depository Account Agreement, (f)
the Credit Card Agreements for such Hotel Property, and (i) such other security
agreements, pledge agreements, assignments, mortgages, financing statements,
stock powers, and other collateral documentation as may be reasonably needed to
confirm or perfect the liens and security interests conveyed to such Hotel
Property's Property Owner pursuant to any of the documents listed in clauses in
(a)-(f) of this definition.
"Participating Lessee Pledged Property" means, for any Hotel Property, the
-------------------------------------
Property of the Participating Lessee assigned or pledged to the Property Owner
of such Hotel Property pursuant to the Participating Lessee Documents for such
Hotel Property.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding
----
to any or all of its functions under ERISA.
"Permitted Encumbrances" means the Liens permitted to exist pursuant to
----------------------
Section 6.01.
"Permitted Hazardous Substances" means (a) Hazardous Substances, petroleum and
------------------------------
petroleum products which are (i) used in the ordinary course of business and in
typical quantities for a mid-market hotel and (ii) generated, used and disposed
of in accordance with all Legal Requirements and good hotel industry practice
and (b) non-friable asbestos to the extent (i) that no applicable Legal
Requirements require removal of such asbestos from the Hotel Property and (ii)
such asbestos is encapsulated in accordance with all applicable Legal
Requirements and such reasonable operations and maintenance program as may be
required by the Agents.
"Permitted Hotel Sale" means the Asset Sale of all, but not a portion, of a
--------------------
Hotel Property for which the Conditions to Collateral Release are satisfied;
provided, however, that the Borrower shall be entitled to sell the office
building portion of the Houston, Texas Marriott as long as the other Conditions
to Collateral Release are satisfied in connection with such sale.
-29-
<PAGE>
"Permitted New Subsidiary" means a Subsidiary at least 99% of the interests
------------------------
therein are owned directly or indirectly by the Borrower which (a) owns a Hotel
Property and does not own and has never owned any Property except for such Hotel
Property, (b) if not a Permitted Other Subsidiary, has delivered to the
Administrative Agent either (i) an original Guaranty, Environmental Indemnity
and Irrevocable Direction to Pay Rent executed by such Subsidiary or (ii) an
Accession Agreement executed by such Subsidiary, and (c) is newly-formed and
bankruptcy remote.
"Permitted Non-Eligible Property" means any Hotel Property (a) which either
-------------------------------
(i) does not satisfy the conditions to qualifying as an Eligible Property set
---
forth in Section 3.03 or (ii) has not been submitted to the Banks as a potential
Eligible Property by the Borrower; (b) which is owned by a Permitted New
Subsidiary; (c) which neither is subject to any Environmental Claim, nor
contains any Hazardous Substance which could reasonably be expected to cause a
Material Adverse Change as evidenced by an Environmental Report delivered to the
Administrative Agent at least 10 days prior to the acquisition of such Hotel
Property by Borrower or one of Borrower's Subsidiaries; (d) for which the
Borrower or the Property Owner (as applicable) shall have satisfied the
conditions precedent set forth in Sections 3.03(a)(i)-(iv), 3.03(a)(vi),
3.03(b)-(c), 3.03(h), 3.03(j), and 3.03(o) within 90 days of the acquisition
date of such Hotel Property, provided that if any of the requirements of this
clause (d) with respect to a Future Property (but not an Initial Property) shall
result in the payment of material mortgage or intangible taxes or in a Material
Adverse Change, the Borrower or the Property Owner (as applicable) shall not
have to satisfy the condition[s] precedent which would result in the payment of
material mortgage or intangible taxes or in a Material Adverse Change until the
occurrence of an Event of Default; (e) which is not subject to any Liens except
for those permitted pursuant to the provisions of Section 6.01; and (f) which
would if considered with the other Permitted Non-Eligible Properties, if any, as
an Eligible Property for the purpose of testing the Pool Requirements, not cause
the Borrower to violate the Pool Requirements.
"Permitted Officer Assignment" means such sales, assignments or pledges of
----------------------------
such legal and beneficial interests in the Parent or the Borrower by Steve D.
Jorns, Bruce Wiles, Russ Valentine or Kenneth E. Barr or any of their respective
Associates which for any such individual and such individual's Associates either
(a) does not result in a decrease in such individual's or individual's
Associates' ownership interests below 50% of the ownership interests in the
Borrower and the Parent's common stock represented by the sum of (i) the
interests that are owned on the date of this Agreement by such individual or
such individual's Associates and which is not subject to forfeiture on the date
of this Agreement and (ii) for which such individual or such individual's
Associates have vested options to acquire as of the date of this Agreement, (b)
occurs following such individual's
-30-
<PAGE>
termination of employment with the Parent or (c) involves the exchange of
ownership interests in the Borrower for the Parent's common stock.
"Permitted Other Subsidiaries" means (a) DFW South LP; (b) Meadowlands LP; (c)
----------------------------
AGH DFW South LLC, the sole general partner of DFW South LP; (d) AGH Secaucaus
LLC, the sole general partner of Meadowlands LP, (e) 75 Arlington Heights
Limited Partnership, L.P., (f) 75 LLC, (g) 2780 Atlanta Limited Partnership,
L.P., (g) AGH 2780 Atlanta LLC and (h) such other Subsidiaries of the Borrower
which will not be Guarantors and not own Eligible Property, as may be approved
by the Agents in their sole discretion.
"Permitted Other Subsidiary Indebtedness" means (a) any Indebtedness of DFW
---------------------------------------
South LP in an amount not to exceed $14,250,000, (b) any Indebtedness of
Meadowlands LP in an amount not to exceed $6,000,000, (c) any Indebtedness of 75
Arlington Heights Limited Partnership, L.P. in an amount not to exceed
$8,300,000, (d) any Indebtedness of 2780 Atlanta Limited Partnership, L.P. in an
amount not to exceed $9,800,000, and (e) such other Indebtedness of Permitted
Other Subsidiaries (but not the Borrower) which when added to all other
Permitted Other Subsidiary Indebtedness will not in the aggregate exceed
$50,000,000.
"Permitted Other Subsidiary Property" means the Hotel Properties owned by the
-----------------------------------
Permitted Other Subsidiaries.
"Permitted Other Subsidiary Loan Documents" means the notes, the deeds of
-----------------------------------------
trust, mortgages and the other loan documents executed in connection with or
securing the Permitted Other Subsidiary Indebtedness.
"Permitted Personal Property Replacement" means the removal from any Hotel
---------------------------------------
Property of any items of tangible Personal Property for which the following
requirements are met: (a) no Default has occurred and is continuing or would
occur upon the consummation of such Permitted Personal Property Replacement; and
(ii) Borrower promptly substitutes and installs on the Hotel Property other
Personal Property of equal or greater value in the operation of the Hotel
Property as a hotel of the class of the Hotel Property prior to such removal,
all of which items shall be free of Liens and shall be subject to the Liens of
the Mortgage encumbering such Hotel Property, and executes and delivers to the
Administrative Agent all documents required by the Administrative Agent to
create and perfect a valid and binding first priority security interest and the
attachment of such Lien to such Personal Property in favor of the Administrative
Agent for the benefit of the Banks.
-31-
<PAGE>
"Person" means an individual, partnership, corporation (including a business
------
trust), joint stock company, trust, unincorporated association, limited
liability company, joint venture or other entity, or a government or any
political subdivision or agency thereof or any trustee, receiver, custodian or
similar official.
"Personal Property" for any Hotel Property means all FF&E, inventory and other
-----------------
personal property of every kind, whether now existing or hereafter acquired,
tangible and intangible, now or hereafter located on or about the Land, and used
or to be used in the future in connection with the operation of such Hotel
Property, as more fully described in the Property Security Documents and the
Participating Lessee Documents for such Hotel Property.
"Plan" means an employee benefit plan (other than a Multiemployer Plan)
----
maintained for employees of the Borrower or any member of a Controlled Group and
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code.
"Pool Requirements" means collectively that (a) except for the Orlando
-----------------
Radisson Twin Towers, the Cost Basis for any individual Hotel Property shall not
exceed 20% of the Cost Basis for all Eligible Property; (b) the Cost Basis for
all Eligible Property at all times must exceed $300,000,000; (c) the Cost Basis
for Hotel Properties which are limited service hotels (for purposes of this
definition Marriott Courtyards shall not be deemed limited service hotels) shall
not exceed 20% of the Cost Basis for all Eligible Property; (d) the Cost Basis
for Hotel Properties which do not have Franchise Agreements shall not exceed 20%
of the Cost Basis for all Eligible Property; (e) the occupancy levels, operating
revenues and geographic diversity of the Eligible Property shall be generally
comparable to that of the Initial Properties taken as whole; (f) no Hotel
Property or other Property shall cause the Parent to forfeit the Parent's tax
status as a real estate investment trust under Sections 856-860 of the Code, (g)
any Future Property shall be comparable in quality to the Initial Properties,
and (h) the Cost Basis for Hotel Properties which are subject to a Ground Lease
shall not exceed 20% of the Cost Basis for all Eligible Property.
"Prime Rate" means a fluctuating interest rate per annum as shall be in effect
----------
from time to time equal to the rate of interest publicly announced by the
Administrative Agent as its prime commercial lending rate (which may not be the
lowest rate offered to its customers), whether or not the Borrower has notice
thereof.
"Prime Rate Advance" means an Advance which bears interest as provided in
------------------
Section 2.06(a).
-32-
<PAGE>
"Property" of any Person means any property or assets (whether real, personal,
--------
or mixed, tangible or intangible) of such Person.
"Property Adjustment Report" means a certificate of the Borrower in
--------------------------
substantially the form of the attached Exhibit AA.
"Property Certificate" for any Hotel Property means a Property Certificate
--------------------
dated of even date herewith executed by the Property Owner in substantially the
form of Exhibit BB, and any future Property Certificate executed by a Property
Owner of any Future Property.
"Property EBITDA" means for any Hotel Property for any period for which such
---------------
amount is being determined, (a) the EBITDA of the Property Owner for such Hotel
Property from the Hotel Property plus (b) the Participating Lessee's Net Income
----
for such Hotel Property minus (c) any payments received from the Participating
-----
Lessee which were not made out of the net revenues of such Hotel Property from
customary and continuing operations.
"Property Information" for any Hotel Property means the information and
--------------------
documentation for such Hotel Property listed in Sections 3.03(a)(ii)-(xiv) and
3.03(f) and a commitment for a Title Policy for such Hotel Property, together
with a legible copy of all documents referred to in such commitment.
"Property Owner" for any Initial Property or Future Property, means the Person
--------------
who owns fee or leasehold title interest (as applicable) in, and to such
Property.
"Property Security Documents" for any Initial Property or Future Property,
---------------------------
means collectively (a) a Mortgage, (b) an Assignment of Leases (Borrower), (c)
Financing Statements (Borrower), (d) a Collateral Assignment and Security
Agreement, (e) the Liquor License Company Consent, (f) a Property Certificate
and (h) such other security agreements, pledge agreements, assignments,
mortgages, financing statements, stock powers, and other collateral
documentation as the Agents may reasonably request.
"Pro Rata Share" means, at any time with respect to any Bank, either (a) the
--------------
ratio (expressed as a percentage) of such Bank's Commitment at such time to the
aggregate Commitments at such time or (b) if the Commitments have been
terminated, the ratio (expressed as a percentage) of such Bank's aggregate
outstanding Advances and participation interest in the Letter of Credit Exposure
at such
-33-
<PAGE>
time to the aggregate outstanding Advances and Letter of Credit Exposure of all
the Banks at such time.
"Ratio Modification Event" means any Capitalization Event(s) after the date of
------------------------
this Agreement, other than a Capitalization Event involving the issuance of
Indebtedness, for which the aggregate Net Cash Proceeds is at least
$125,000,000.
"Real Estate Value" means, with respect to any Hotel Property, the lesser of
-----------------
(a) the Appraised Value of such Hotel Property under the most recent Appraisal
for such Hotel Property, and (b) the Cost Basis of such Hotel Property as of the
date of the most recent Borrowing Base Certificate (or, if applicable, Property
Adjustment Report) delivered to the Banks.
"Real Property" for any hotel means the Land and the Improvements for such
-------------
hotel, and, with respect to the Houston, Texas Marriott shall include the Land
and the Improvements for the office building owned by the Borrower or a
Guarantor other than the Parent in connection with such hotel.
"Register" has the meaning set forth in paragraph (c) of Section 9.06.
--------
"Registration Statement" means Registration Statement (No. 333-19385) of
----------------------
Parent on Form S-11 and the prospectus included therein, as filed with the
Securities and Exchange Commission on January 10, 1997, as it may be amended or
supplemented from time to time.
"Reimbursement Obligations" means all of the obligations of the Borrower set
-------------------------
forth in Section 2.13(c) and the Letter of Credit Documents.
"Release" shall have the meaning set forth in CERCLA or under any other
-------
Environmental Law.
"Release Amount" shall in connection with any Asset Sale mean the greater of
--------------
(a) one-hundred twenty percent (120%) of the Allocated Debt Amount for the Hotel
Property in such Asset Sale, (b) seventy-five percent (75%) of the Net Cash
Proceeds from such Asset Sale, (c) the amount of Advances that would need to be
repaid, if any, to cure a Borrowing Base deficiency under Section 2.07(c)(iii),
and (d) the amount of Advances that would need to be repaid, if any, to satisfy
the financial covenants contained in Sections 6.15 and 6.16 calculating such
tests without inclusion of the results of the Hotel Property in such Asset Sale.
Notwithstanding the foregoing, if an Asset Sale occurs during the Renewal Term
and in connection with such Asset Sale all of the Conditions to
-34-
<PAGE>
Collateral Release are satisfied except for the payment of the Release Amount,
then the "Release Amount" for such Asset Sale shall not exceed the amount which
would cause the Parent to forfeit the Parent's tax status as a real estate
investment trust under Sections 856-860 of the Code, as evidenced by a written
opinion of the Parent's accountants or legal counsel acceptable to the Agents .
"Renewal Term" shall have the meaning set forth in Section 2.01(b).
------------
"Reportable Event" means any of the events set forth in Section 4043(b) of
----------------
ERISA.
"Required Work" means for any Initial Property, the Capital Expenditures and
-------------
expenditures for FF&E for such Initial Property described on Schedule 5.06
attached hereto as may be modified by agreement between the Borrower and the
Majority Banks, and for any Future Property which the Borrower requests be an
Eligible Property, the Capital Expenditures and expenditures for FF&E agreed
upon by the Borrower and the Majority Banks as the Required Work for such Future
Property, if any.
"Required Work Deadline" means for any Initial Property, the date for
----------------------
completion of the Required Work which is the date set forth for such Initial
Property on Schedule 5.06 attached hereto,, and for any Future Property, the
date for completion of the Required Work which is the date which is one year
following the date of acquisition of such Future Property.
"Response" shall have the meaning set forth in CERCLA or under any other
--------
Environmental Law.
"Responsible Officer" means the Chief Executive Officer, President, Executive
-------------------
Vice President or Chief Financial Officer of any Person.
"Restricted Payment" means (a) any direct or indirect payment, prepayment,
------------------
redemption, purchase, or deposit of funds or Property for the payment (including
any sinking fund or defeasance), prepayment, redemption or purchase of
Indebtedness not permitted by this Agreement, and (b) the making by any Person
of any dividends or other distributions (in cash, property, or otherwise) on, or
payment for the purchase, redemption or other acquisition of, any shares of any
capital stock, any limited liability company interests or any partnership
interests of such Person, other than dividends or distributions payable in such
Person's stock, limited liability company interests or any partnership
interests.
-35-
<PAGE>
"Rolling Period" means with respect to any calendar quarter of the Borrower,
--------------
such fiscal quarter and the three immediately preceding calendar quarters.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.,
---
or any successor thereof.
"Security Agreement" means the Security Agreement dated of even date herewith
------------------
executed by the Borrower and the Guarantors in substantially the form of Exhibit
CC, as it may be amended from time to time in accordance with its terms.
"Security Documents" means, collectively, the Security Agreement, all Property
------------------
Security Documents, the Bank One Cash Management Agreement, the Irrevocable
Direction to Pay Rent, all Financing Statements (Borrower) and any other
agreement executed in connection with the Liens in favor of the Administrative
Agent for the benefit of the Banks securing the Obligations; and any "Security
Document" means any one of the foregoing.
"Subsidiary" of a Person means any corporation, association, partnership or
----------
other business entity of which more than 50% of the outstanding shares of
capital stock (or other equivalent interests) having by the terms thereof
ordinary voting power under ordinary circumstances to elect a majority of the
board of directors or Persons performing similar functions (or, if there are no
such directors or Persons, having general voting power) of such entity
(irrespective of whether at the time capital stock (or other equivalent
interests) of any other class or classes of such entity shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person.
"Supplemental Guarantor" means any partner of the Borrower except for the
----------------------
Parent, the Guarantors, the General Partner or AGH LP that executes a
Supplemental Guaranty.
"Supplemental Guaranty" means any future assumption of liability in a form
---------------------
reasonably acceptable to the Agents executed by a Supplemental Guarantor to
secure Advances, as such future supplemental guaranties may be amended hereafter
in accordance with their terms.
"Termination Event" means (a) the occurrence of a Reportable Event with
-----------------
respect to a Plan, as described in Section 4043 of ERISA and the regulations
issued thereunder (other than a Reportable
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<PAGE>
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), (b) the withdrawal of the Borrower or any of a Controlled Group
from a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (c) the giving of a notice of intent to
terminate a Plan under Section 4041(c) of ERISA, (d) the institution of
proceedings to terminate a Plan by the PBGC, or (e) any other event or condition
which constitutes grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.
"Title Policy" means a Mortgagee Policy of Title Insurance which (a) is in the
------------
form of American Land Title Association Standard Loan Policy - 1970 (without
modification, revision or amendment) (or such other form as approved by the
Agents) with ALTA Endorsements Form 1, 3.1 (with parking), 6, 9, and
endorsements commonly known Doing Business, Usury, Utility Facility, contiguity,
survey, access, creditor's rights deletion, plat act, revolver, "tie-in" and
specific endorsements relating to encroachments, (b) is issued by underwriters
reasonably acceptable to the Agents, with such reinsurance as the Agents shall
reasonably request, (c) insures that the grantor of the Lien insured by such
policy owns the Real Property subject to such Lien in fee simple or pursuant to
a leasehold estate and that the Mortgage covering the Real Property is a valid
lien on the Real Property in favor of the Administrative Agent for the benefit
of the Banks (subject only to Permitted Encumbrances), (d) does not contain any
exceptions for rights of parties in possession, or unpaid delinquent
installments of taxes, special assessments or subsequent assessments due to
changes in ownership or usage, or any other exceptions to coverage other than
Permitted Encumbrances.
"Total Collateral EBITDA" means for any period the aggregate Property EBITDA
-----------------------
of all Eligible Properties and all Permitted Non-Eligible Properties.
"TT Leasing" means Twin Towers Leasing, L.P., a Delaware limited partnership.
----------
"Type" has the meaning set forth in Section 1.04.
----
Section 1.02 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
means "to but excluding".
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Section 1.03 Accounting Terms; Changes in GAAP.
---------------------------------
(a) All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP applied on a consistent basis with those
applied in the preparation of the Financial Statements.
(b) Unless otherwise indicated, all financial statements of the Borrower and
the Parent, all calculations for compliance with covenants in this Agreement,
and all calculations of any amounts to be calculated under the definitions in
Section 1.01 shall be based upon the Consolidated accounts of the Borrower, the
Parent and their respective Subsidiaries (as applicable) in accordance with
GAAP.
(c) If any changes in accounting principles after December 31, 1995 required
by GAAP or the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants or similar agencies results in a change in the
method of calculation of, or affects the results of such calculation of, any of
the financial covenants, standards or terms found in this Agreement, then the
parties shall enter into and diligently pursue negotiations in order to amend
such financial covenants, standards or terms so as to equitably reflect such
change, with the desired result that the criteria for evaluating the financial
condition of Borrower and its Subsidiaries (determined on a Consolidated basis)
shall be the same after such change as if such change had not been made.
Section 1.04 Types of Advances. Advances are distinguished by "Type". The
-----------------
"Type" of an Advance refers to the determination whether such Advance is a LIBOR
Rate Advance or Prime Rate Advance, each of which constitutes a Type.
Section 1.05 Miscellaneous. Article, Section, Schedule and Exhibit references
-------------
are to Articles and Sections of and Schedules and Exhibits to this Agreement,
unless otherwise specified.
Section 1.06 Recitals. The matters set forth in
--------
the recitals at the beginning of this Agreement are agreed to by the parties
to this Agreement and incorporated into this Agreement as if set forth in
their entirety herein.
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ARTICLE II
THE ADVANCES AND THE LETTERS OF CREDIT
Section 2.01 The Advances; Extension of Initial Maturity Date.
------------------------------------------------
(a) Advances. Each Bank severally agrees, on the terms and conditions set
--------
forth in this Agreement, to make Advances to the Borrower from time to time on
any Business Day up to 30 days prior to the Initial Maturity Date in an
aggregate amount not to exceed at any time outstanding an amount equal to such
Bank's Commitment less such Bank's Pro Rata Share of the Letter of Credit
----
Exposure at such time. The aggregate amount of all outstanding Advances and
Letter of Credit Exposure at any time may not exceed either the lesser of (i)
the aggregate Commitments at such time or (ii) the Borrowing Base at such time.
Within the limits of each Bank's Commitment and the Borrowing Base limitation
set forth above, the Borrower may from time to time prepay pursuant to Section
2.07 and reborrow under this Section 2.01(a).
(b) Extension of Initial Maturity Date. The Borrower shall have a one time
----------------------------------
option, exercisable as hereinafter provided, to extend the Initial Maturity Date
of the Notes for an additional one year period (the "Renewal Term") to the first
anniversary of the Initial Maturity Date upon the completion by the Borrower of
the following conditions prior to the Initial Maturity Date to the satisfaction
of the Agents.
(i) No Default which has not been cured or waived in writing by the
Administrative Agent as set forth in Section 9.01 shall have occurred.
(ii) The Agents shall have received no later than ninety (90) days prior to
the Initial Maturity Date written notice from the Borrower that it intends to
exercise its option to extend the Initial Maturity Date of the Notes.
(iii) The Borrower shall have paid to the Administrative Agent for the
account of each Bank an extension fee equal to the product of (A) one quarter
of one percent (1/4%) times (B) the aggregate amount of such Bank's
outstanding Advances and Pro Rata Share of the Letter of Credit Exposure as of
the Initial Maturity Date.
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<PAGE>
(iv) The Borrower shall have delivered to the Administrative Agent (A)
Appraisals of the Eligible Property performed no later than 120 days prior to
the Initial Maturity Date and no earlier than 90 days prior to the Initial
Maturity Date and (B) a Borrowing Base Certificate dated as of the Initial
Maturity Date based upon the new Appraisals.
(v) If, based upon the Borrowing Base Certificate to be delivered to the
Administrative Agent pursuant to the preceding clause (iv) or as otherwise
required under this Agreement, the Borrower is obligated to repay any
Advances, the Borrower shall have repaid such Advances.
(vi) The representations and warranties of the Borrower in Sections 4.04,
4.06 and 4.09 of the Credit Agreement remain true and correct as of the
Initial Maturity Date. The other representations and warranties of the
Borrower, the Parent and the Guarantors in the Credit Documents remain true
and correct in all material respects as of the Initial Maturity Date.
If the Initial Maturity Date has been extended as provided in this Section
2.01(b), the aggregate Banks' Commitments shall be capped at the then
outstanding principal balance of all Advances and the Letter of Credit Exposure
and the Borrower shall have the right to extend the Expiration Date to the new
Maturity Date. After the Initial Maturity Date, the Borrower will no longer
have the right to request any more Advances, or any increase in the Letter of
Credit Exposure and shall repay the Advances in accordance with the provisions
of Section 2.05.
Section 2.02 Method of Borrowing.
-------------------
(a) Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing,
------
given not later than 11:00 a.m. (Dallas, Texas time) on the third Business Day
before the date of the proposed Borrowing, by the Borrower to the Administrative
Agent, which shall give each Bank prompt notice on the day of receipt of such
timely Notice of Borrowing of such proposed Borrowing by telecopier. Each Notice
of Borrowing shall be in writing or by telecopier specifying the requested (i)
date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii)
aggregate amount of such Borrowing, and (iv) if such Borrowing is to be
comprised of LIBOR Rate Advances, the Interest Period for each such Advance. In
the case of a proposed Borrowing comprised of LIBOR Rate Advances, the
Administrative Agent shall promptly notify each Bank of the applicable interest
rate under Section 2.06(b). Each Bank shall, before 11:00 a.m. (Dallas, Texas
time) on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Administrative
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Agent at its address referred to in Section 9.02, or such other location as the
Administrative Agent may specify by notice to the Banks, in same day funds, such
Bank's Pro Rata Share of such Borrowing. After the Administrative Agent's
receipt of such funds and upon fulfillment of the applicable conditions set
forth in Article III, the Administrative Agent will make such funds available to
the Borrower at its account with the Administrative Agent.
(b) Conversions and Continuations. In order to elect to Convert or continue
-----------------------------
Advances comprising part of the same Borrowing under this Section, the Borrower
shall deliver an irrevocable Notice of Conversion or Continuation to the
Administrative Agent at the Administrative Agent's office no later than 11:00
a.m. (Dallas, Texas time) at least three Business Days in advance of the
proposed Conversion or continuation date. Each such Notice of Conversion or
Continuation shall be in writing or by telecopier, specifying (i) the requested
Conversion or continuation date (which shall be a Business Day), (ii) the
Borrowing amount and Type of the Advances to be Converted or continued, (iii)
whether a Conversion or continuation is requested, and if a Conversion, into
what Type of Advances, and (iv) in the case of a Conversion to, or a
continuation of, LIBOR Rate Advances, the requested Interest Period. Promptly
after receipt of a Notice of Conversion or Continuation under this paragraph,
the Administrative Agent shall provide each Bank with a copy thereof and, in
the case of a Conversion to or a continuation of LIBOR Rate Advances, notify
each Bank of the applicable interest rate under Section 2.06(b). For purposes
other than the conditions set forth in Section 3.02, the portion of Advances
comprising part of the same Borrowing that are Converted to Advances of another
Type shall constitute a new Borrowing. If the Borrower shall fail to specify an
Interest Period for a LIBOR Rate Advance including the continuation of a LIBOR
Rate Advance, the Borrower shall be deemed to have selected a Prime Rate
Advance.
(c) Certain Limitations. Notwithstanding anything in paragraphs (a) and (b)
-------------------
above:
(i) in the case of LIBOR Rate Advances each Borrowing shall be in an
aggregate amount of not less than $2,000,000 or greater multiples of $100,000;
(ii) except for Borrowings for the acquisition of Future Properties by
the Borrower or a Permitted New Subsidiary, (A) the Borrower may not request
Borrowings on more than two days in any calendar month, and (B) the Borrower
shall not request more than one Borrowing in any calendar month for the
payment of Capital Expenditures and FF&E and any such request shall be made
contemporaneously with any request to withdraw funds from the CAPEX Reserve
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<PAGE>
as set forth in Section 5.07 in such month and shall be accompanied by the
same documentation as required for a withdraw from the CAPEX Reserve.
(iii) at no time shall there be more than three Interest Periods
applicable to outstanding LIBOR Rate Advances;
(iv) the Borrower may not select LIBOR Rate Advances for any Borrowing to
be made, Converted or continued if a Default has occurred and is continuing;
(v) if any Bank shall, at any time prior to the making of any requested
Borrowing comprised of LIBOR Rate Advances, notify the Administrative Agent
that the introduction of or any change in or in the interpretation of any law
or regulation makes it unlawful, or that any central bank or other
governmental authority asserts that it is unlawful, for such Bank or its LIBOR
Lending Office to perform its obligations under this Agreement to make LIBOR
Rate Advances or to fund or maintain LIBOR Rate Advances, then such Bank's Pro
Rata Share of such Borrowing shall be made as a Prime Rate Advance, provided
that such Prime Rate Advance shall be considered part of the same Borrowing
and interest on such Prime Rate Advance shall be due and payable at the same
time that interest on the LIBOR Rate Advances comprising the remainder of such
Borrowing shall be due and payable; and such Bank agrees to use commercially
reasonable efforts (consistent with its internal policies and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such designation would avoid the effect of this paragraph and
would not, in the reasonable judgment of such Bank, be otherwise materially
disadvantageous to such Bank;
(vi) if the Administrative Agent is unable to determine the LIBOR Rate for
LIBOR Rate Advances comprising any requested Borrowing, the right of the
Borrower to select LIBOR Rate Advances for such Borrowing or for any
subsequent Borrowing shall be suspended until the Administrative Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist, and each Advance comprising such Borrowing shall
be a Prime Rate Advance;
(vii) if the Majority Banks shall, at least one Business Day before the
date of any requested Borrowing, notify the Administrative Agent that the
LIBOR Rate for LIBOR Rate Advances comprising such Borrowing will not
adequately reflect the cost to such Banks of making or funding their
respective LIBOR Rate Advances, as the case may be, for such
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<PAGE>
Borrowing, the right of the Borrower to select LIBOR Rate Advances for such
Borrowing or for any subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrower and the Banks that the
circumstances causing such suspension no longer exist, and each Advance
comprising such Borrowing shall be a Prime Rate Advance; and
(viii) if the Borrower shall fail to select the duration or continuation
of any Interest Period for any LIBOR Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01
and paragraph (a) or (b) above, the Administrative Agent will forthwith so
notify the Borrower and the Banks and such Advances will be made available to
the Borrower on the date of such Borrowing as Prime Rate Advances or, if an
existing Advance, Converted into Prime Rate Advances.
(d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or
-------------------
Continuation shall be irrevocable and binding on the Borrower. In the case of
any Borrowing which the related Notice of Borrowing specifies is to be comprised
of LIBOR Rate Advances, the Borrower shall indemnify each Bank against any loss,
out-of-pocket cost or expense incurred by such Bank as a result of any condition
precedent for Borrowing set forth in Article III not being satisfied for any
reason, including, without limitation, any loss, cost or expense actually
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Bank to fund the Advance to be made by such Bank as part of
such Borrowing when such Advance, as a result of such failure, is not made on
such date.
(e) Administrative Agent Reliance. Unless the Administrative Agent shall have
-----------------------------
received notice from a Bank before the date of any Borrowing that such Bank will
not make available to the Administrative Agent such Bank's Pro Rata Share of the
Borrowing, the Administrative Agent may assume that such Bank has made its Pro
Rata Share of such Borrowing available to the Administrative Agent on the date
of such Borrowing in accordance with paragraph (a) of this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that
such Bank shall not have so made its Pro Rata Share of such Borrowing available
to the Administrative Agent, such Bank and the Borrower severally agree to
immediately repay to the Administrative Agent on demand such corresponding
amount, together with interest on such amount, for each day from the date such
amount is made available to the Borrower until the date such amount is repaid to
the Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable on each such day to Advances comprising such Borrowing and (ii) in
the case of such Bank, the Federal Funds Rate for each such
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<PAGE>
day. If such Bank shall repay to the Administrative Agent such corresponding
amount and interest as provided above, such corresponding amount so repaid shall
constitute such Bank's Advance as part of such Borrowing for purposes of this
Agreement even though not made on the same day as the other Advances comprising
such Borrowing.
(f) Bank Obligations Several. The failure of any Bank to make the Advance to
------------------------
be made by it as part of any Borrowing shall not relieve any other Bank of its
obligation, if any, to make its Advance on the date of such Borrowing. No Bank
shall be responsible for the failure of any other Bank to make the Advance to be
made by such other Bank on the date of any Borrowing.
(g) Notes. The indebtedness of the Borrower to each Bank resulting from
-----
Advances owing to such Bank shall be evidenced by the Note of the Borrower
payable to the order of such Bank in substantially the form of Exhibit A.
Section 2.03 Fees.
----
(a) Commitment Fees. For the period from the Effective Date until the
---------------
Initial Maturity Date the Borrower agrees to pay to the Administrative Agent for
the account of each Bank a commitment fee on the average daily amount by which
such Bank's Commitment exceeds the sum of such Bank's outstanding Advances and
Pro Rata Share of the Letter of Credit Exposure at a rate per annum equal to one
quarter of one percent (.25%) based upon a 360-day year. Such fees shall be due
and payable quarterly in arrears (i) on the date which is 30 days following the
end of the last Business Day of each March, June, September and December and
(ii) on the Initial Maturity Date.
(b) Letter of Credit Fees. The Borrower agrees to pay to the Administrative
---------------------
Agent for the benefit of the Banks, fees in respect of all Letters of Credit
outstanding at a rate per annum equal to one and 75/100 percent (1.75%)
calculated based upon a 360-day year and in respect of the maximum amount
available from time to time to be drawn under such outstanding Letters of
Credit, payable in arrears (i) on the last Business Day of each calendar month
and (ii) on the Maturity Date. In addition, the Borrower agrees to pay to the
Issuing Bank for its own account $500 for each Letter of Credit issued,
reissued, amended, increased, or extended by such Issuing Bank, such fees due
and payable at the time of such issuance, reissuance, amendment, increase or
extension.
(c) Agents Fees. The Borrower agrees to pay to the Agents for their benefit
-----------
the fees set forth in the Agents' Fee Letter as and when the same are due and
payable pursuant to the terms of
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<PAGE>
the Agent's Fee Letter. The Borrower also agrees to pay to the Administrative
Agent for its benefit the Administrative Agent's Fee described in the letter
dated June 25, 1997, executed by the Administrative Agent and the Borrower.
Section 2.04 Reduction of the Commitments.
----------------------------
(a) Change of Control. Upon the occurrence of any of the following:
-----------------
(i) a change in control is reported by the Borrower, the Parent, AGH
Leasing or any other Participating Lessee which is an Affiliate of the
Borrower, or AGHI in response to either Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), or
(ii) any "person" (as such term is used in Section 13(d) and Section
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Borrower, the Parent, AGH Leasing or any other
Participating Lessee which is an Affiliate of the Borrower, or AGHI
representing the Control Percentage or more of the combined voting power
of the Borrower's, the Parent's, such Participating Lessee's or the
Manager's, as applicable, then outstanding securities;
then, in such event the Majority Banks may, at their sole option upon written
notice to the Borrower (a "Termination Notice"), declare the obligation of each
Bank to make Advances and the obligation of the Issuing Bank to issue, increase,
or extend Letters of Credit to be terminated, whereupon the same shall forthwith
terminate and the Commitments shall reduce to zero.
Notwithstanding the foregoing, a "change of control" shall not be deemed to
occur as a result of the acquisition of securities of the Borrower, the Parent,
AGH Leasing or any other Participating Lessee which is an Affiliate of the
Borrower or AGHI by any of Steven D. Jorns, Bruce G. Wiles, Kenneth E. Barr,
James E. Sowell, Louis W. Shaw, II, Kenneth W. Shaw or their respective
Associates (as such term is defined in Rule 12b-2 promulgated under the Exchange
Act) or controlled Affiliates.
(b) Borrower Capitalization Event. Upon the occurrence of any Borrower
-----------------------------
Capitalization Event, the aggregate Commitments shall reduce by an amount equal
to 100% of the Net Cash
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Proceeds of such Borrower Capitalization Event, with each Bank's Commitment
being reduced by such Bank's Pro Rata Share of the aggregate reduction in
Commitments.
Section 2.05 Repayment of Advances.
---------------------
Advances. The Borrower shall repay the outstanding principal amount of each
--------
Advance on the Initial Maturity Date; provided that if the Maturity Date is
extended as provided in Section 2.01(b), the total outstanding balance of all
Advances as of the Initial Maturity Date shall be payable thereafter in
quarterly installments on August 1, 1999, November 1, 1999, February 1, 2000 and
May 1, 2000 in an amount equal to the product of (i) one sixtieth (1/60) times
(ii) the sum of (A) the amount of the outstanding Advances on the Initial
Maturity Date following the conversion of the loan to a term loan and (B) the
amount of the Letter of Credit Exposure on the Initial Maturity Date. The
Borrower shall on the Maturity Date repay the outstanding principal amount of
Advances.
Section 2.06 Interest, Late Payment Fee. The Borrower shall pay interest on
--------------------------
the unpaid principal amount of each Advance made by each Bank from the date of
such Advance until such principal amount shall be paid in full, at the following
rates per annum:
(a) Prime Rate Advances. If such Advance is a Prime Rate Advance, a rate per
-------------------
annum (computed on the actual number of days elapsed, including the first day
and excluding the last, based on a 365 day year) equal at all times to the
lesser of (i) the Adjusted Prime Rate in effect from time to time plus the
----
Applicable Margin and (ii) the Maximum Rate, payable in arrears on the last
Business Day of each calendar month and on the date such Prime Rate Advance
shall be paid in full, provided that during the continuance of an Event of
--------
Default, Prime Rate Advances shall bear interest at a rate per annum equal at
all times to the lesser of (i) the rate required to be paid on such Advance
immediately prior to the date on which such amount becomes due plus three
----
percent (3%) and (ii) the Maximum Rate.
(b) LIBOR Rate Advances. If such Advance is a LIBOR Rate Advance, a rate per
-------------------
annum (computed on the actual number of days elapsed, including the first day
and excluding the last, based on a 360 day year) equal at all times during the
Interest Period for such Advance to the lesser of (i) the LIBOR Rate for such
Interest Period plus the Applicable Margin and (ii) the Maximum Rate, payable in
----
arrears on the last day of each calendar month and the last day of such Interest
Period, and on the date such LIBOR Rate Advance shall be paid in full; provided
--------
that during the continuance of an Event of Default, LIBOR Rate Advances shall
bear interest at a rate per annum equal at all times
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<PAGE>
to the lesser of the rate required to be paid on such Advance immediately
prior to the date on which such amount became due plus three percent (3%) and
----
(ii) the Maximum Rate.
(c) Usury Recapture. In the event the rate of interest chargeable under this
---------------
Agreement or the Notes at any time is greater than the Maximum Rate, the unpaid
principal amount of the Notes shall bear interest at the Maximum Rate until the
total amount of interest paid or accrued on the Notes equals the amount of
interest which would have been paid or accrued on the Notes if the stated rates
of interest set forth in this Agreement had at all times been in effect. In the
event, upon payment in full of the Notes, the total amount of interest paid or
accrued under the terms of this Agreement and the Notes is less than the total
amount of interest which would have been paid or accrued if the rates of
interest set forth in this Agreement had, at all times, been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay the
Administrative Agent for the account of the Banks an amount equal to the
difference between (i) the lesser of (A) the amount of interest which would have
been charged on the Notes if the Maximum Rate had, at all times, been in effect
and (B) the amount of interest which would have accrued on the Notes if the
rates of interest set forth in this Agreement had at all times been in effect
and (ii) the amount of interest actually paid or accrued under this Agreement on
the Notes. In the event the Banks ever receive, collect or apply as interest
any sum in excess of the Maximum Rate, such excess amount shall, to the extent
permitted by law, be applied to the reduction of the principal balance of the
Notes, and if no such principal is then outstanding, such excess or part thereof
remaining shall be paid to the Borrower.
(d) Other Amounts Overdue. If any amount payable under this Agreement other
---------------------
than the Advances is not paid when due and payable, including without
limitation, accrued interest and fees, then such overdue amount shall accrue
interest hereon due and payable on demand at a rate per annum equal to the
Adjusted Prime Rate plus three percent (3%), from the date such amount became
----
due until the date such amount is paid in full.
(e) Late Payment Fee. Subject to the provisions of Section 9.12, if any
----------------
interest payable under this Agreement is not paid when due and payable (after
taking into account any applicable grace period), then the Borrower will pay to
the Banks contemporaneously with the payment of such past due interest a late
payment fee equal to an amount equal to the product of (i) such overdue interest
times (ii) four percent (4%).
- -----
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Section 2.07 Prepayments.
-----------
(a) Right to Prepay. The Borrower shall have no right to prepay any principal
---------------
amount of any Advance except as provided in this Section 2.07.
(b) Optional Prepayments. The Borrower may elect to prepay any of the
--------------------
Advances, after giving by 11:00 a.m. (Dallas, Texas time) (i) in the case of
LIBOR Rate Advances, at least three Business Days' or (ii) in case of Prime Rate
Advances, at least one Business Day's prior written notice to the Administrative
Agent stating the proposed date and aggregate principal amount of such
prepayment, and if applicable, the relevant Interest Period for the Advances to
be prepaid. If any such notice is given, the Borrower shall prepay Advances
comprising part of the same Borrowing in whole or ratably in part in an
aggregate principal amount equal to the amount specified in such notice, and
shall also pay accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to Section 2.08
as a result of such prepayment being made on such date; provided, however, that
-------- -------
each partial prepayment shall be in an aggregate principal amount not less than
$500,000 and in integral multiples of $100,000.
(c) Mandatory Prepayments.
---------------------
(i) Change of Control. On the fifth Business Day following the Borrower's
-----------------
receipt of a Termination Notice pursuant to Section 2.04 (a) hereof, the
Borrower shall be required to prepay all outstanding Advances in full and to
deposit with the Administrative Agent into the Cash Collateral Account an
amount equal to the Letter of Credit Exposure.
(ii) Borrowing Base Deficiency. On each Borrowing Base Determination Date,
-------------------------
the Borrower shall be required to prepay Advances in an aggregate amount equal
to the excess of (A) the aggregate amount of outstanding Advances and Letter
of Credit Exposure on such date over (B) the Borrowing Base, as determined on
such Borrowing Base Determination Date (or, upon payment in full of all
outstanding Advances, to deposit with the Administrative Agent into the Cash
Collateral Account an amount equal to the amount of the Letter of Credit
Exposure which exceeds the Borrowing Base).
(iii) Asset Sale. Contemporaneously with the occurrence of any Asset
----------
Sale, the Borrower shall prepay Advances in an amount equal to the Release
Amount of each such Asset
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Sale (except as otherwise provided in the definition of Conditions to
Collateral Release for a sale of a Permitted Non-Eligible Property).
(iv) Capitalization Event. Upon the occurrence of any Capitalization
--------------------
Event, the Borrower shall prepay Advances in an amount equal to 100% of the
Net Cash Proceeds of such Capitalization Event on the Business Day such Net
Cash Proceeds are received by the Borrower or the Parent, as applicable (or,
in connection with a Borrower Capitalization Event only, upon payment in full
of all outstanding Advances, to deposit with the Administrative Agent into the
Cash Collateral Account an amount equal to the lesser of the amount of the
Letter of Credit Exposure or the remaining Net Cash Proceeds).
(v) Accrued Interest. Each prepayment pursuant to this Section 2.07(c)
----------------
shall be accompanied by accrued interest on the amount prepaid to the date of
such prepayment and amounts, if any, required to be paid pursuant to Section
2.08 as a result of such prepayment being made on such date.
(vi) Avoidance of Breakage Costs. In the event that the amount of any
---------------------------
mandatory prepayment of Advances under this Section 2.07(c) exceeds the
aggregate principal amount of Advances which consist of Prime Rate Advances
(the amount of such excess being the "Excess Amount"), the Borrower shall have
-------------
the right, in lieu of making such prepayment in full, to prepay such
outstanding Advances which are Prime Rate Advances and to deposit an amount
equal to the Excess Amount with the Administrative Agent in the Cash
Collateral Account maintained by and in the sole dominion and control of the
Administrative Agent for the ratable benefit of the Banks. Any amount so
deposited shall be held by the Administrative Agent as collateral for the
Obligations and applied to the prepayment of Advances which are LIBOR Rate
Advances at the end of the current Interest Period(s) applicable thereto. On
any day on which amounts collected in the Cash Collateral Account remain on
deposit in or to the credit of the Cash Collateral Account after giving effect
to the payment made on such day pursuant to this Section 2.07(c), and the
Borrower shall have delivered to the Administrative Agent a written request or
a telephonic request (which shall be promptly confirmed in writing) prior to
11:00 am (Dallas, Texas time) that such remaining collected amounts be
invested in cash equivalents specified in such request, the Administrative
Agent shall invest such funds, to the extent the Administrative Agent is
reasonably able to do so, in such cash equivalents as are acceptable to, and
with no risk to, the Administrative Agent on an overnight basis or with
maturities such that amounts will be available to pay the Obligations secured
thereby as they become due, whether
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<PAGE>
at maturity, by acceleration or otherwise; provided, however, that any loss
-------- -------
resulting from such investments shall be charged to and be immediately payable
by the Borrower on demand by the Administrative Agent.
(d) Ratable Payments. Each payment of any Advance pursuant to this Section
-----------------
2.07 or any other provision of this Agreement shall be made in a manner such
that all Advances comprising part of the same Borrowing are paid in whole or
ratably in part.
(e) Effect of Notice. All notices given pursuant to this Section 2.07 shall
----------------
be irrevocable and binding upon the Borrower.
(f) Payments with respect to Hotel Property Limitations. Notwithstanding
----------------------------------------------------
anything in this Agreement or any other Credit Document to the contrary, each
payment of any Advance pursuant to this Section 2.07 or any other provision of
this Agreement shall be made in a manner such that all Advances secured by a
Hotel Property for which any of the Security Documents for such Hotel Property
state that the amount of the Obligations secured by such Hotel Property is
limited in some way shall be deemed the last Advances repaid and, to the extent
that the Advances are repaid to an amount less than the amount of any such
limitation, shall be deemed the first Advances made to the Borrower if and when
the Borrower requests any further Advances.
Section 2.08 Breakage Costs. If (a) any payment of principal of any LIBOR
--------------
Rate Advance is made other than on the last day of the Interest Period for such
Advance as a result of any payment pursuant to Section 2.07 or the acceleration
of the maturity of the Notes pursuant to Article VIII or otherwise; (b) any
Conversion of a LIBOR Rate Advance is made other than on the last day of the
Interest Period for such Advance pursuant to Section 2.12 or otherwise; or (c)
the Borrower fails to make a principal or interest payment with respect to any
LIBOR Rate Advance on the date such payment is due and payable, the Borrower
shall, within 10 days of any written demand sent by any Bank to the Borrower
through the Administrative Agent, pay to the Administrative Agent for the
account of such Bank any amounts (without duplication of any other amounts
payable in respect of breakage costs) required to compensate such Bank for any
additional losses, out-of-pocket costs or expenses which it may reasonably incur
as a result of such payment or nonpayment, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Bank to fund or maintain such Advance.
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<PAGE>
Section 2.09 Increased Costs.
---------------
(a) LIBOR Rate Advances. If, due to either (i) the introduction of or any
-------------------
change (other than any change by way of imposition or increase of reserve
requirements included in the calculation of the LIBOR Rate) in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Bank of agreeing to make or making, funding or maintaining LIBOR
Rate Advances, then the Borrower shall from time to time, upon demand by such
Bank (with a copy of such demand to the Administrative Agent), immediately pay
to the Administrative Agent for the account of such Bank additional amounts
(without duplication of any other amounts payable in respect of increased costs)
sufficient to compensate such Bank for such increased cost; provided, however,
-------- -------
that, before making any such demand, each Bank agrees to use commercially
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if the making
of such a designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate as to the amount of such
increased cost and detailing the calculation of such cost submitted to the
Borrower and the Administrative Agent by such Bank at the time such Bank demands
payment under this Section shall be conclusive and binding for all purposes,
absent manifest error.
(b) Capital Adequacy. If any Bank or the Issuing Bank determines in good
----------------
faith that compliance with any law or regulation or any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law) implemented or effective after the date of this Agreement affects
or would affect the amount of capital required or expected to be maintained by
such Bank or the Issuing Bank and that the amount of such capital is increased
by or based upon the existence of such Bank's commitment to lend or the Issuing
Bank's commitment to issue Letters of Credit or any Bank's commitment to risk
participate in Letters of Credit and other commitments of this type, then, upon
30 days prior written notice by such Bank or the Issuing Bank (with a copy of
any such demand to the Administrative Agent), the Borrower shall immediately pay
to the Administrative Agent for the account of such Bank or to the Issuing Bank,
as the case may be, from time to time as specified by such Bank or the Issuing
Bank, additional amounts (without duplication of any other amounts payable in
respect of increased costs) sufficient to compensate such Bank or the Issuing
Bank, in light of such circumstances, (i) with respect to such Bank, to the
extent that the Issuing Bank reasonably determines such increase in capital to
be allocable to the existence of such Bank's commitment to lend under this
Agreement or its commitment to risk participate in
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<PAGE>
Letters of Credit and (ii) with respect to the Issuing Bank, to the extent that
such Issuing Bank reasonably determines such increase in capital to be allocable
to the issuance or maintenance of the Letters of Credit. A certificate as to
such amounts and detailing the calculation of such amounts submitted to the
Borrower and the Administrative Agent by such Bank or the Issuing Bank shall be
conclusive and binding for all purposes, absent manifest error.
(c) Letters of Credit. If any change in any law or regulation or in the
-----------------
interpretation thereof by any court or administrative or Governmental Authority
charged with the administration thereof shall either (i) impose, modify, or deem
applicable any reserve, special deposit, or similar requirement against letters
of credit issued by, or assets held by, or deposits in or for the account of,
Issuing Bank or any Bank or (ii) impose on Issuing Bank or any Bank any other
condition regarding the provisions of this Agreement relating to the Letters of
Credit or any Letter of Credit Obligations, and the result of any event referred
to in the preceding clause (i) or (ii) shall be to increase the cost to Issuing
Bank of issuing or maintaining any Letter of Credit, or increase the cost to
such Bank of its risk participation in any Letter of Credit (which increase in
cost shall be determined by Issuing Bank's or such Bank's reasonable allocation
of the aggregate of such cost increases resulting from such event), then, upon
demand by Issuing Bank or such Bank (with a copy sent to the Administrative
Agent), as the case may be, the Borrower shall pay to the Administrative Agent
for the account of Issuing Bank or Bank, as the case may be, from time to time
as specified by Issuing Bank or such Bank, additional amounts which shall be
sufficient to compensate such Issuing Bank or such Bank for such increased cost.
Issuing Bank and each Bank agrees to use commercially reasonable efforts
(consistent with internal policy and legal and regulatory restrictions) to
designate a different Applicable Lending Office for the booking of its Letters
of Credit or risk participations if the making of such designation would avoid
the effect of this paragraph and would not, in the reasonable judgment of
Issuing Bank or such Bank, be otherwise disadvantageous to Issuing Bank or such
Bank, as the case may be. A certificate as to such increased cost incurred by
Issuing Bank or such Bank, as the case may be, as a result of any event
mentioned in clause (i) or (ii) above, and detailing the calculation of such
increased costs submitted by Issuing Bank or such Bank to the Borrower and the
Administrative Agent, shall be conclusive and binding for all purposes, absent
manifest error.
Section 2.10 Payments and Computations.
-------------------------
(a) Payment Procedures. Except if otherwise set forth herein, the Borrower
------------------
shall make each payment under this Agreement and under the Notes not later than
11:00 a.m. (Dallas, Texas time)
-52-
<PAGE>
on the day when due in Dollars to the Administrative Agent at the location
referred to in the Notes (or such other location as the Administrative Agent
shall designate in writing to the Borrower) in same day funds. The
Administrative Agent will on the same day cause to be distributed like funds
relating to the payment of principal, interest or fees ratably (other than
amounts payable solely to the Administrative Agent, the Issuing Banks, or a
specific Bank pursuant to Section 2.03(b), 2.03(c), 2.06(c), 2.08, 2.09, 2.11,
2.12, or 2.13(c) but after taking into account payments effected pursuant to
Section 9.04) to the Banks in accordance with each Bank's Pro Rata Share for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Bank or Issuing Bank for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. The Borrower hereby authorizes the
Administrative Agent to instruct the Cash Manager following and during the
continuance of an Event of Default to withdraw from or offset against the
Borrower's and the Borrower's Subsidiaries accounts with the Cash Manager
(including the Borrower's Bank Accounts) in order to cause timely payment to be
made to the Administrative Agent of all principal, interest, fees and expenses
due hereunder or under the Notes or the other Credit Documents (subject to
sufficient funds being available in such accounts for that purpose).
(b) Computations. All computations of interest based on the Adjusted Prime
------------
Rate shall be made by the Administrative Agent on the basis of a year of 365
days and all computations of fees and interest based on the LIBOR Rate and the
Federal Funds Rate shall be made by the Administrative Agent on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day, but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Administrative Agent of
an interest rate shall be conclusive and binding for all purposes, absent
manifest error.
(c) Non-Business Day Payments. Whenever any payment 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 fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
- --------
principal of LIBOR Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(d) Administrative Agent Reliance. Unless the Administrative Agent shall have
-----------------------------
received written notice from the Borrower prior to the date on which any payment
is due to the Banks that the Borrower will not make such payment in full, the
Administrative Agent may assume that the
-53-
<PAGE>
Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such date an amount equal to the amount then due
such Bank. If and to the extent the Borrower shall not have so made such
payment in full to the Administrative Agent, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank,
together with interest, for each day from the date such amount is distributed to
such Bank until the date such Bank repays such amount to the Administrative
Agent, at the Federal Funds Rate for each such day.
(e) Application of Payments. Unless otherwise specified in Section 2.07
-----------------------
hereof, whenever any payment received by the Administrative Agent under this
Agreement is insufficient to pay in full all amounts then due and payable under
this Agreement and the Notes, such payment shall be distributed and applied by
the Administrative Agent and the Banks in the following order: first, to the
-----
payment of fees and expenses due and payable to the Administrative Agent under
and in connection with this Agreement or any other Credit Document; second, to
------
the payment of all expenses due and payable under Section 2.11(c), ratably among
the Banks in accordance with the aggregate amount of such payments owed to each
such Bank; third, to the payment of fees due and payable to the Issuing Bank
-----
pursuant to Section 2.03(b); fourth, to the payment of all other fees due and
------
payable under Section 2.03 ratably among the Banks in accordance with their
applicable Commitments; and fifth, to the payment of the interest accrued on and
-----
the principal amount of all of the Notes and the interest accrued on and all
Reimbursement Obligations, regardless of whether any such amount is then due and
payable, ratably among the Banks in accordance with the aggregate accrued
interest plus the aggregate principal amount owed to such Bank.
(f) Register. The Administrative Agent shall record in the Register the
--------
Commitment and the Advances from time to time of each Bank and each repayment or
prepayment in respect to the principal amount of such Advances of each Bank.
Any such recordation shall be conclusive and binding on the Borrower and each
Bank, absent manifest error; provided however, that failure to make any such
-------- -------
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder in respect of such Advances.
Section 2.11 Taxes.
-----
(a) No Deduction for Certain Taxes. Any and all payments by the Borrower
------------------------------
shall be made, in accordance with Section 2.10, 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
-54-
<PAGE>
thereto, excluding, in the case of each Bank, Issuing Bank, and the
Administrative Agent, taxes imposed on its income, and franchise taxes imposed
on it, by the jurisdiction under the laws of which such Bank, Issuing Bank, or
the Administrative Agent (as the case may be) is organized or any political
subdivision of the jurisdiction (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes") and, in the case of each Bank and Issuing Bank, Taxes by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision of such jurisdiction. If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable to any Bank, Issuing
Bank, or the Administrative Agent, (i) the sum payable shall be increased as may
be necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.11), such Bank,
Issuing Bank, or the Administrative Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made;
provided, however, that if the Borrower's obligation to deduct or withhold Taxes
- --------
is caused solely by such Bank's, Issuing Bank's, or the Administrative Agent's
failure to provide the forms described in paragraph (e) of this Section 2.11 and
such Bank, Issuing Bank, or the Administrative Agent could have provided such
forms, no such increase shall be required; (ii) the Borrower shall make such
deductions; and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
Legal Requirements.
(b) Other Taxes. In addition, the Borrower agrees to pay any present or
-----------
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Notes, or the other Credit Documents (hereinafter referred to as "Other Taxes").
(c) Indemnification. The Borrower indemnifies each Bank, Issuing Bank, and
---------------
the Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any Governmental
Authority on amounts payable under this Section 2.11) paid by such Bank, Issuing
Bank, or the Administrative Agent (as the case may be) and any liability
(including interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Each payment required to be made by the Borrower in respect of this
indemnification shall be made to the Administrative Agent for the benefit of any
party claiming such indemnification within 30 days from the date the Borrower
receives written demand detailing the calculation of such amounts therefor from
the Administrative Agent on behalf of itself as Administrative Agent, Issuing
Bank, or any such Bank. If any Bank, the Administrative Agent, or Issuing Bank
receives a refund in respect of any Taxes or Other Taxes paid
-55-
<PAGE>
by the Borrower under this paragraph (c), such Bank, the Administrative Agent,
or Issuing Bank, as the case may be, shall promptly pay to the Borrower the
Borrower's share of such refund.
(d) Evidence of Tax Payments. The Borrower will pay prior to delinquency all
------------------------
Taxes and other Taxes payable in respect of any payment. Within 30 days after
the date of any payment of Taxes, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.02, the original
or a certified copy of a receipt evidencing payment of such Taxes or Other
Taxes.
(e) Foreign Bank Withholding Exemption. Each Bank and each Issuing Bank that
----------------------------------
is not incorporated under the laws of the United States of America or a state
thereof agrees that it will deliver to the Borrower and the Administrative Agent
on the date of this Agreement or upon the effectiveness of any Assignment and
Acceptance (i) two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 or successor applicable form, as the case may be,
certifying in each case that such Bank is entitled to receive payments under
this Agreement and the Notes payable to it, without deduction or withholding of
any United States federal income taxes, (ii) if applicable, an Internal Revenue
Service Form W-8 or W-9 or successor applicable form, as the case may be, to
establish an exemption from United States backup withholding tax, and (iii) any
other governmental forms which are necessary or required under an applicable tax
treaty or otherwise by law to reduce or eliminate any withholding tax, which
have been reasonably requested by the Borrower. Each Bank which delivers to the
Borrower and the Administrative Agent a Form 1001 or 4224 and Form W-8 or W-9
pursuant to the next preceding sentence further undertakes to deliver to the
Borrower and the Administrative Agent two further copies of Form 1001 or 4224
and Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Borrower and
the Administrative Agent, and such extensions or renewals thereof as may
reasonably be requested by the Borrower and the Administrative Agent certifying
in the case of a Form 1001 or 4224 that such Bank is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes. If an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
delivery required by the preceding sentence would otherwise be required which
renders all such forms inapplicable or which would prevent any Bank from duly
completing and delivering any such letter or form with respect to it and such
Bank advises the Borrower and the Administrative Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax,
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<PAGE>
and in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax, such Bank shall not be required to deliver such
forms. The Borrower shall withhold tax at the rate and in the manner required
by the laws of the United States with respect to payments made to a Bank failing
to timely provide the requisite Internal Revenue Service forms.
Section 2.12 Illegality. If any Bank shall notify the Administrative Agent
----------
and the Borrower that the introduction of or any change in or in the
interpretation of any Legal Requirement makes it unlawful, or that any central
bank or other Governmental Authority asserts that it is unlawful for such Bank
or its LIBOR Lending Office to perform its obligations under this Agreement to
maintain any LIBOR Rate Advances of such Bank then outstanding hereunder, then,
notwithstanding anything herein to the contrary, the Borrower shall, if demanded
by such Bank by notice to the Borrower and the Administrative Agent no later
than 11:00 a.m. (Dallas, Texas time), (a) if not prohibited by Legal Requirement
to maintain such LIBOR Rate Advances for the duration of the Interest Period, on
the last day of the Interest Period for each outstanding LIBOR Rate Advance of
such Bank or (b) if prohibited by Legal Requirement to maintain such LIBOR Rate
Advances for the duration of the Interest Period, on the second Business Day
following its receipt of such notice from such Bank, Convert all LIBOR Rate
Advances of such Bank then outstanding to Prime Rate Advances, and pay accrued
interest on the principal amount Converted to the date of such Conversion and
amounts, if any, required to be paid pursuant to Section 2.08 as a result of
such Conversion being made on such date. Each Bank agrees to use commercially
reasonable efforts (consistent with its internal policies and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such designation would avoid the effect of this paragraph and
would not, in the reasonable judgment of such Bank, be otherwise disadvantageous
to such Bank.
Section 2.13 Letters of Credit.
-----------------
(a) Issuance. From time to time from the date of this Agreement until three
--------
months before the Maturity Date, at the request of the Borrower, each Issuing
Bank shall, on any Business Day and on the terms and conditions hereinafter set
forth, issue, increase, decrease, amend, or extend the expiration date of
Letters of Credit for the account of the Borrower (for its own benefit or for
the benefit of any of its Subsidiaries). No Letter of Credit will be issued,
increased, or extended (i) if such issuance, increase, or extension would cause
the Letter of Credit Exposure to exceed the lesser of (x) $20,000,000 or (y) an
amount equal to (A) the lesser of the Borrowing Base or the aggregate
Commitments less (B) the aggregate outstanding Advances and Letter of Credit
----
Exposure at such time; (ii) unless such Letter of Credit has an Expiration Date
not later than the earlier of (A) one year
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<PAGE>
after the date of issuance thereof and (B) one day prior to the Maturity Date;
(iii) unless such Letter of Credit is in form and substance acceptable to the
respective Issuing Bank; (iv) unless such Letter of Credit is a standby letter
of credit not supporting the repayment of indebtedness for borrowed money of any
Person; (v) unless the Borrower has delivered to the respective Issuing Bank the
completed and executed Letter of Credit Documents (other than the Letter of
Credit) on such Issuing Bank's standard form, which shall contain terms no more
restrictive than the terms of this Agreement; (vi) unless such Letter of Credit
is governed by the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500 ("UCP") or any
successor to the UCP. After the Initial Maturity Date, the Borrower will no
longer have the right to any increase in the Letter of Credit Exposure; and
(vii) no Default has occurred and is continuing or would result from the
issuance of such Letter of Credit. If the terms of any of the Letter of Credit
Documents referred to in the foregoing clause (v) conflicts with the terms of
this Agreement, the terms of this Agreement shall control.
(b) Participations. On the date of the issuance or increase of any Letter of
--------------
Credit on or after the Effective Date, each Issuing Bank shall be deemed to have
sold to each other Bank and each other Bank shall have been deemed to have
purchased from such Issuing Bank a participation in the Letter of Credit
Exposure related to the Letters of Credit issued by such Issuing Bank equal to
such Bank's Pro Rata Share at such date and such sale and purchase shall
otherwise be in accordance with the terms of this Agreement. Each Issuing Bank
shall promptly notify each such participant Bank by telex, telephone, or
telecopy of each Letter of Credit of such Issuing Bank issued, increased or
decreased, and the actual dollar amount of such Bank's participation in such
Letter of Credit. Each Bank's obligation to purchase participating interests
pursuant to this Section and to reimburse the respective Issuing Bank for such
Bank's Pro Rata Share of any payment under a Letter of Credit by such Issuing
Bank not reimbursed in full by the Borrower shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(i) any of the circumstances described in paragraph (d) below, (ii) the
occurrence and continuance of a Default, (iii) an adverse change in the
financial condition of the Borrower or any Guarantor, or (iv) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing, except for any such circumstance, happening or event constituting
or arising from gross negligence or willful misconduct on the part of such
Issuing Bank.
(c) Reimbursement. The Borrower shall have the right (but not the obligation)
-------------
to pay promptly on demand to each Issuing Bank in respect of each Letter of
Credit issued by such Issuing Bank an amount equal to any amount paid by such
Issuing Bank under or in respect of such Letter
-58-
<PAGE>
of Credit. In the event any Issuing Bank makes a payment pursuant to a request
for draw presented under a Letter of Credit and such payment is not promptly
reimbursed by the Borrower upon demand, such Issuing Bank shall give notice of
such payment to the Administrative Agent and the Banks, and each Bank shall
promptly reimburse such Issuing Bank for such Bank's Pro Rata Share of such
payment, and such reimbursement shall be deemed for all purposes of this
Agreement to constitute a Prime Rate Advance to the Borrower from such Bank. If
such reimbursement is not made by any Bank to any Issuing Bank on the same day
on which such Issuing Bank shall have made payment on any such draw, such Bank
shall pay interest thereon to such Issuing Bank for each such day from the date
such payment should have been made until the date repaid at a rate per annum
equal to the Federal Funds Rate for each such day. The Borrower hereby
unconditionally and irrevocably authorizes, empowers, and directs the
Administrative Agent and the Banks to record and otherwise treat each payment
under a Letter of Credit not immediately reimbursed by the Borrower as a
Borrowing comprised of Prime Rate Advances to the Borrower.
(d) Obligations Unconditional. The obligations of the Borrower under this
-------------------------
Agreement in respect of each Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, notwithstanding the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit
Documents;
(ii) any amendment or waiver of or any consent to departure from any
Letter of Credit Documents;
(iii) the existence of any claim, set-off, defense or other right which
the Borrower or any Bank or any other Person may have at any time against any
beneficiary or transferee of such Letter of Credit (or any Persons for whom
any such beneficiary or any such transferee may be acting), the respective
Issuing Bank or any other Person or entity, whether in connection with this
Agreement, the transactions contemplated in this Agreement or in any Letter of
Credit Documents or any unrelated transaction;
(iv) any statement or any other document presented under such Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect to
the extent the respective Issuing Bank would not be liable therefor pursuant
to the following paragraph (e);
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<PAGE>
(v) payment by the respective Issuing Bank under such Letter of Credit
against presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit; or
(vi) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
(e) Liability of Issuing Banks. The Borrower assumes all risks of the acts or
--------------------------
omissions of any beneficiary or transferee of any Letter of Credit with respect
to its use of such Letter of Credit. No Issuing Bank, nor any other Bank, nor
any of their respective officers or directors shall be liable or responsible
for:
(i) the use which may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith;
(ii) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged;
(iii) payment by such Issuing Bank against presentation of documents
which do not comply with the terms of a Letter of Credit, including failure of
any documents to bear any reference or adequate reference to the relevant
Letter of Credit; or
(iv) any other circumstances whatsoever in making or failing to make
payment under any Letter of Credit (including such Issuing Bank's own
negligence),
except that the Borrower shall have a claim against such Issuing Bank, and such
- ------
Issuing Bank shall be liable to, and shall promptly pay to, the Borrower, to the
extent of any direct, as opposed to consequential, damages suffered by the
Borrower which the Borrower proves were caused by (A) such Issuing Bank's
willful misconduct or gross negligence in determining whether documents
presented under a Letter of Credit comply with the terms of such Letter of
Credit or (B) such Issuing Bank's gross negligence in failing to make lawful
payment under any Letter of Credit after the presentation to it of a draft and
certificate strictly complying with the terms and conditions of such Letter of
Credit. In furtherance and not in limitation of the foregoing, any Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation.
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Section 2.14 Determination of Borrowing Base. The Borrowing Base shall be
-------------------------------
determined by the Administrative Agent, as follows:
(a) Quarterly. On the 45th day following each calendar quarter the
---------
Administrative Agent shall determine the Borrowing Base upon receipt of a
Borrowing Base Certificate setting forth the components of the Borrowing Base
dated as of the last day of the immediately preceding calendar quarter.
(b) Property Adjustments. Following each addition or deletion of a Hotel
--------------------
Property as an Eligible Property (an "Adjustment Event"), and with respect to
----------------
the addition of an Eligible Property the Administrative Agent's receipt of a
Property Adjustment Report with respect thereto, the Administrative Agent shall
adjust the Borrowing Base accordingly.
(c) Notice of Borrowing Base Change. Promptly following any date the
-------------------------------
Borrowing Base is redetermined in accordance with the preceding paragraphs, the
Administrative Agent shall give notice to the Banks and the Borrower of the new
Borrowing Base.
Section 2.15 Bank Replacement.
----------------
(a) Right to Replace. The Borrower shall have the right to replace each Bank
----------------
affected by a condition under Section 2.02(c)(v), 2.09, or 2.12 for more than 90
days (each such affected Bank, an "Affected Bank") in accordance with the
procedures in this Section 2.15 and provided that no reduction of the total
Commitments occurs as a result thereof.
(b) First Right of Refusal; Replacement.
-----------------------------------
(i) Upon the occurrence of any condition permitting the replacement of a
Bank, each Bank which is not an Affected Bank shall have the right, but not
the obligation, to elect to increase its respective Commitment by an amount
not to exceed the amount of the Commitments of the Affected Banks, which
election shall be made by written notice from each such Bank to the
Administrative Agent and the Borrower given within 30 days after the date such
condition occurs specifying the amount of such proposed increase in such
Bank's Commitment.
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(ii) If the aggregate amount of the proposed increases in Commitments
of all such Banks making such an election is in excess of the Commitments of
the Affected Banks, (A) the Commitments of the Affected Banks shall be
allocated pro rata among such Banks based on the respective amounts of the
proposed increases to Commitments elected by each of such Banks, and (B) the
respective Commitments of such Banks shall be increased by the respective
amounts as so allocated so that after giving effect to such termination and
increases the aggregate amount of the Commitments of the Banks will be the
same as prior to such termination.
(iii) If the aggregate amount of the proposed increases to Commitments of
all Banks making such an election equals the Commitments of the Affected
Banks, the respective Commitments of such Banks shall be increased by the
respective amounts of their proposed increases, so that after giving effect to
such termination and increase the aggregate amount of the Commitments of all
of the Banks will be the same as prior to such termination.
(iv) If the aggregate amount of the proposed increases to Commitments of
all Banks making such an election is less than the Commitments of the Affected
Banks, (A) the respective Commitments of such Banks shall be increased by the
respective amounts of their proposed increases, and (B) the Borrower shall
have the right to add additional Banks which are Eligible Assignees to this
Agreement to replace such Affected Banks, which additional Banks would have
aggregate Commitments no greater than those of the Affected Banks minus the
-----
amounts thereof assumed by the other Banks pursuant to such increases.
(c) Procedure. Any assumptions of Commitments pursuant to this Section 2.15
---------
shall be (i) made by the purchasing Bank or Eligible Assignee and the selling
Bank entering into an Assignment and Assumption and by following the procedures
in Section 9.06 for adding a Bank. In connection with the increase of the
Commitments of any Bank pursuant to the foregoing paragraph (b), each Bank with
an increased Commitment shall purchase from the Affected Banks at par such
Bank's ratable share of the outstanding Advances of the Affected Banks and
assume such Bank's ratable share of the Affected Banks' Letter of Credit
Exposure.
Section 2.16 Sharing of Payments, Etc. If any Bank shall obtain any payment
------------------------
(whether voluntary, involuntary, through the exercise of any right of set-off or
otherwise) on account of its Advances or its share of Letter of Credit
Obligations in excess of its Pro Rata Share of payments on account of the
Advances or Letter of Credit Obligations obtained by all the Banks, such Bank
shall notify the Administrative Agent and forthwith purchase from the other
Banks such participations in
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the Advances made by them or Letter of Credit Obligations held by them as shall
be necessary to cause such purchasing Bank to share the excess payment ratably
in accordance with the requirements of this Agreement with each of them;
provided, however, that if all or any portion of such excess payment is
- --------
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the purchase
price to the extent of such Bank's ratable share (according to the proportion of
(a) the amount of the participation sold by such Bank to the purchasing Bank as
a result of such excess payment to (b) the total amount of such excess payment)
of such recovery, together with an amount equal to such Bank's ratable share
(according to the proportion of (a) the amount of such Bank's required repayment
to the purchasing Bank to (b) the total amount of all such required repayments
to the purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower agrees
that any Bank so purchasing a participation from another Bank pursuant to this
Section 2.16 may, to the fullest extent permitted by Legal Requirement, unless
and until rescinded as provided above, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of the Borrower in the amount of such
participation.
Section 2.17 Collateral.
----------
(a) Creation and Perfection of Liens. Prior to the termination of the
--------------------------------
Commitments and the repayment in full of the Obligations, a valid, perfected
first priority lien or security interest, as applicable, in the Property of the
Borrower and its Subsidiaries (other than the Permitted Other Subsidiaries) and
in the Participating Lessee Pledged Property (through the Collateral Assignment
and Security Agreement) shall exist in favor of the Administrative Agent for the
benefit of the Banks to secure the Obligations in accordance with the terms of
the Security Documents.
(b) Further Assurances. The Borrower agrees to promptly, on demand, execute
------------------
and deliver, and cause the Guarantors and the Participating Lessee to execute
and deliver, at the Borrower's expense, such security agreements, pledge
agreements, assignments, mortgages, Financing Statements, stock powers, and
other collateral documentation, and take such other actions deemed by the
Administrative Agent and its counsel to be necessary in order to effect the
foregoing.
(c) Appraisals. The Borrower agrees to obtain, at its own expense and as
----------
promptly as practicable, such other appraisals as any Governmental Authority may
require the Administrative Agent to obtain from time to time to satisfy any
applicable Legal Requirement.
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ARTICLE III
CONDITIONS OF LENDING
Section 3.01 Conditions Precedent to Effectiveness of this Agreement. This
-------------------------------------------------------
Agreement shall become effective on the date hereof if on or prior to the close
of business on such date the following conditions precedent have been satisfied:
(a) Documentation. The Documentation Agent or the Administrative Agent shall
-------------
have received counterparts of this Agreement executed by the Borrower and the
Banks, and the following duly executed by all the parties thereto, in form and
substance satisfactory to the Agents, and in sufficient copies for each Bank
(except with respect to the Property Security Documents, the Participating
Lessee Documents, the Credit Card Agreements and the Depository Account
Agreements with financial institutions other than the Cash Manager, the
Financing Statements (Borrower), or the Financing Statements (Participating
Lessee)):
(i) the Notes, all Guaranties, the Environmental Indemnity, the
Irrevocable Direction to Pay Rent, the Security Agreement, the Mortgages, the
other Credit Documents and the Participating Lessee Documents which have been
prepared for execution on the Effective Date and any related Financing
Statements;
(ii) a certificate from the Chief Executive Officer, President or Chief
Financial Officer of the General Partner on behalf of the Borrower dated as of
the Effective Date stating that as of the Effective Date (A) all
representations and warranties of the Borrower set forth in this Agreement and
the Credit Documents are true and correct in all material respects; (B) no
Default has occurred and is continuing; (C) the conditions in this Section
3.01 have been met or waived in writing; and (D) there are no claims,
defenses, counterclaims or offsets against the Banks under the Credit
Documents;
(iii) a certificate of the Secretary or an Assistant Secretary of the
General Partner on behalf of the Borrower and each Guarantor dated as of the
date of this Agreement certifying as of the date of this Agreement (A) the
names and true signatures of officers or authorized representatives of the
general partner of the Borrower and such Guarantor authorized to sign the
Credit Documents to which such Person is a party as general partner of such
Person, (B) resolutions of the Board of Directors or the members of the
general partner of such Person with
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respect to the transactions herein contemplated, (C) either (x) the copies of
the organizational documents of the general partner of such Person delivered
to the Banks are still true and correct and have not been amended or modified
since such date or (y) copies of any modification or amendment to the
organizational documents of the general partner of such Person made since such
date, (D) a true and correct copy of the partnership agreement for such
Person, and (E) a true and correct copy of all partnership authorizations
necessary or desirable in connection with the transactions herein
contemplated;
(iv) a certificate of the Secretary or an Assistant Secretary of the Parent
dated as of the date of this Agreement certifying as of the date of this
Agreement (A) resolutions of the Board of Directors of such Person with
respect to the transactions herein contemplated, and (B) the copies of the
charter and bylaws of the Parent and any modification or amendment to the
articles or certificate of incorporation or bylaws of the Parent made since
such date;
(v) a certificate of the Secretary or an Assistant Secretary of the
general partner of the Participating Lessee on behalf of the Participating
Lessee dated as of the date of this Agreement certifying as of the date of
this Agreement (A) the partnership authorization of such Person with respect
to the transactions contemplated by the Participating Leases and the
Participating Lessee Documents, (B) the copies of the Partnership Agreement
and any modification or amendment to the Partnership Agreement of the
Participating Lessee made since such date;
(vi) (A) one or more favorable written opinions of Battle Fowler L.L.P.,
special counsel for the Borrower, the Parent, and the Participating Lessee and
their Subsidiaries, substantially in the form of the attached Exhibit DD, in
each case dated as of the Closing Date and with such changes as the Agents may
approve, (B) one or more favorable written opinions of Kane, Russell, Coleman
& Logan, special Texas counsel for the Borrower, the Parent, and the Manager
and their Subsidiaries, substantially in the form of the attached Exhibit EE,
in each case dated as of the Closing Date and with such changes as the Agents
may approve, (C) one or more favorable written opinions of the local counsel
for the Borrower, the Parent, the applicable Participating Lessee and their
Subsidiaries for each state in which a Hotel Property is located,
substantially in the form of the attached Exhibit FF, in each case dated as of
the Closing Date and with such changes as the Agents may approve, (D) one or
more favorable written opinions of Ballard, Spahr, Andrews & Ingersoll,
special Maryland counsel for the Parent, substantially in the form of the
attached Exhibit GG, in each case dated as of the Closing
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<PAGE>
Date and with such changes as the Agents may approve, (E) one or more
favorable written opinions of McDonald, Hopkins, Buske & Harber Co., special
Ohio counsel for 3100 Glendale Joint Venture, substantially in the form of the
attached Exhibit HH, in each case dated as of the Closing Date and with such
changes as the Agents may approve, (F) one or more favorable written opinions
of Foley & Lardner, special Wisconsin counsel for Madison Motel Associates,
substantially in the form of the attached Exhibit II, in each case dated as of
the Closing Date and with such changes as the Agents may approve, and (G) one
or more favorable written opinions of McDonald, Carano, Wilson, McCune,
Bergin, Frankovich &Hicks LLP, special Nevada counsel for the General Partner,
substantially in the form of the attached Exhibit JJ, in each case dated as of
the Closing Date and with such changes as the Agents may approve;
(vii) a Borrowing Base Certificate dated as of May 31, 1997, each duly
completed and executed by the Chief Financial Officer or Treasurer of the
General Partner on behalf of the Borrower; and
(viii) such other documents, governmental certificates, agreements, lien
searches as either Agent may reasonably request.
(b) Representations and Warranties. The representations and warranties
------------------------------
contained in Article IV hereof, the Guaranties, the Environmental Indemnities
and in each Security Document and Participating Lessee Document shall be true
and correct in all material respects.
(c) Certain Payments. The Borrower shall have paid the fees required to be
----------------
paid as of the Effective Date pursuant to the Agents' Fee Letter.
Section 3.02 Conditions Precedent for each Borrowing or Letter of Credit. The
-----------------------------------------------------------
obligation of each Bank to fund an Advance on the occasion of each Borrowing
(other than the Conversion or continuation of any existing Borrowing) and of
any Issuing Bank to issue or increase or extend any Letter of Credit shall be
subject to the further conditions precedent that on the date of such Borrowing
or the issuance or increase or extension of such Letter of Credit:
(a) the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing and the acceptance by the Borrower of the
proceeds of such Borrowing or the issuance or increase or extension of such
Letter of Credit shall constitute a representation and warranty by the
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<PAGE>
Borrower that on the date of such Borrowing or the issuance or increase or
extension of such Letter of Credit such statements are true):
(i) the representations and warranties contained in Article IV hereof,
the Guaranties, the Environmental Indemnities and in each Security Document
and Participating Lessee Document are correct in all material respects on and
as of the date of such Borrowing or the issuance or increase or extension of
such Letter of Credit, before and after giving effect to such Borrowing or to
the issuance or increase or extension of such Letter of Credit and to the
application of the proceeds from such Borrowing, as though made on and as of
such date; and
(ii) no Default has occurred and is continuing or would result from such
Borrowing or from the application of the proceeds therefrom;
(b) the Borrower shall have executed and delivered to the Administrative Agent
a Borrowing Base Certificate dated not earlier than the date 10 days prior to
the anticipated date of such Borrowing;
(c) if all or a portion of such Borrowing is intended to be used to make
Capital Expenditures or purchase FF&E for a Hotel Property, the Administrative
Agent shall have received (i) an analysis of the amount of such renovation
performed to date and the actual costs incurred therefore versus an Approved
Preliminary Property Plan or another budget for such renovation in sufficient
detail as the Administrative Agent shall reasonably request, and (ii) invoices,
lien waivers and any additional information as the Administrative Agent may
reasonably request; and
(d) the Administrative Agent shall have received such other approvals,
opinions or documents deemed necessary or desirable by any Bank, the
Documentation Agent or the Administrative Agent as such party may reasonably
request.
(e) all filing fees and applicable mortgage or intangible taxes that need to
be paid in connection with such Borrowing in order for such Borrowing to be
secured by the Mortgages (subject to any recovery limitations set forth in the
individual Mortgages) shall have been paid by Borrower.
Section 3.03 Conditions Precedent to a Hotel Property Qualifying as an
---------------------------------------------------------
Eligible Property. In order for an Initial Property or a Future Property to
- -----------------
qualify initially and thereafter to continue to
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<PAGE>
qualify as an Eligible Property, the following conditions precedent must be
satisfied and remain satisfied for that Property:
(a) Documents and Information. The Documentation Agent shall have received
-------------------------
each of the following executed by the Borrower, the Property Owner or other
appropriate person, in form and substance satisfactory to the Agents:
(i) the original executed Property Security Documents and the
Participating Lessee Documents (except for the Credit Card Agreements and the
Depository Account Agreements with financial institutions other than the Cash
Manager);
(ii) a copy of each of the following for such Hotel Property certified as
true and correct by the Borrower pursuant to a Property Certificate:
A. If the Hotel Property is subject to a Franchise Agreement, the
Franchise Agreement and any requirements or conditions imposed by the
Franchisor at such time in connection with the Franchise Agreement, including
without limitation any requirements with respect to Capital Expenditures or
expenditures for FF&E for the Hotel Property;
B. Management Agreement;
C. Participating Lease;
D. List of the Personal Property for such Hotel Property;
E. Acquisition Agreements;
F. A rent roll for the Hotel Property identifying all leased
space within the Hotel Property, if any, the tenant, concessionaire or
licensee (or if vacant, identified as vacant), the monthly rental payable
(including any adjustments to operating expenses), the date through which rent
is paid, the termination date of each such leases, concessions and licenses
and a delinquency report.
G. The occupancy permit, if available;
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<PAGE>
H. If the Hotel Property is subject to a Ground Lease, the Ground
Lease;
I. The liquor license for such Hotel Property;
J. Liquor License Concession Agreement and any other agreements
related to the liquor license(s); and
K. The Property Owner's articles of incorporation, by-laws,
partnership agreements, as applicable, and certificates of existence, good
standing and authority to do business from each appropriate state authority,
and partnership or corporate, as applicable, authorizations authorizing the
execution, delivery and performance of the Security Documents all certified to
be true and complete by a duly authorized officer of such Property Owner;
L. The Participating Lessee's articles of incorporation, by-laws,
partnership agreements, as applicable, and certificates of existence, good
standing and authority to do business from each appropriate state authority,
and partnership or corporate, as applicable, authorizations authorizing the
execution, delivery and performance of the Tenant Documents all certified to
be true and complete by a duly authorized officer of such Property Owner;
(iii) a ALTA/ASCM survey of the Real Property certified in a manner
reasonably satisfactory to the Agents by a registered surveyor and dated no
more than ninety (90) days prior to the date the Borrower desires that such
Hotel Property be an Eligible Property;
(iv) all financial statements related to the Hotel Property (i)
reasonably required by the Agents; or (ii) necessary to provide the Agents
with a true and complete knowledge of the financial condition of the Hotel
Property;
(v) an Environmental Report;
(vi) an Engineering Report;
(vii) if available, a set of as-built plans for the Hotel Property;
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<PAGE>
(viii) either (A) evidence from the applicable Governmental Authority
of compliance with zoning for the Hotel Property, (B) a zoning endorsement to
the Title Policy, (C) legal opinion of compliance with zoning for the Hotel
Property in form reasonably acceptable to the Documentation Agent, or (D)
other evidence of compliance with zoning for the Hotel Property reasonably
acceptable to the Documentation Agent;
(ix) a summary list of the Capital Expenditures and FF&E expenditures
for the Hotel Property for the immediately preceding 12-month period and an
estimate of the Capital Expenditures and FF&E expenditures for the upcoming
12-month period, certified by Borrower;
(x) a tenant estoppel certificate and subordination, non-disturbance
and attornment agreement in forms reasonably acceptable to the Agents from
each tenant of the Hotel Property which has a Material Lease;
(xi) certificates and policies of insurance evidencing that the Hotel
Property is covered by the insurance required pursuant to Section 5.10 hereof,
provided that for the required earthquake insurance for the Initial Properties
the policy or policies for such earthquake insurance need only be delivered
within 30 days of the date of this Agreement;
(xii) a written opinion of the Borrower's counsel or counsels covering
such matters relating to the Property Owner, the Participating Lessee, the
Hotel Property, the Security Documents, the Participating Lessee Documents as
the Agents reasonably require;
(xiii) a Manager Consent; and
(xiv) all other documents reasonably required by either Agent.
(b) Recordation and Filing. The Mortgage, the Assignment of Leases
----------------------
(Borrower), the Assignment of Leases (Participating Lessee) and the
Participating Lessee Estoppel, shall each have been recorded in the Official
Public Records of Real Property of the County in which the Hotel Property is
located with all filing fees and applicable mortgage or intangible taxes paid by
Borrower. All appropriate Financing Statements (Borrower) and Financing
Statements (Participating Lessee) shall have been (a) filed with the Secretary
of State of the state in which the Hotel Property is located and the state in
which the Property Owner and Participating Lessee, as applicable, was formed and
of its respective principal place of business, and the Documentation Agent shall
have received a
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certificate of each Secretary of State showing such financing statements to be
subject to no prior filings; and (b) recorded in the official records of all
appropriate counties.
(c) Perfection; Priority. The Administrative Agent, as agent for the Banks,
--------------------
will have a valid, perfected first priority lien or security interest, as
applicable, in the Hotel Property (including without limitation the
Participating Lessee Pledged Property through the Collateral Assignment and
Security Agreement), subject only to the Permitted Encumbrances.
(d) Title Insurance. Borrower shall, at its sole expense, have delivered to
---------------
the Documentation Agent the paid Title Policy insuring the Mortgage securing the
Obligations to be a valid, perfected first priority lien on the Real Property
covered thereby, subject only to the Permitted Encumbrances.
(e) Adverse Property Situation. Neither all nor any material portion of the
--------------------------
Hotel Property shall be the subject of any proceeding by a governmental
authority for the condemnation, seizure or appropriation thereof, nor the
subject of any negotiations for sale in lieu of condemnation, seizure or
appropriation. The Hotel Property shall not have been materially damaged or
destroyed by fire or other casualty which cannot be substantially restored or
repaired within ninety (90) days of such occurrence from the proceeds of
insurance maintained by the Borrower, nor shall all or any material portion of
the Hotel Property cease to be in operation; provided, however, that if the
Property Owner is receiving insurance proceeds under any business interruption
(not property) insurance in connection with such event, then such Hotel Property
shall not become ineligible as an Eligible Property because of such event though
the Property EBITDA for such Hotel Property will be adjusted downward to the
extent such proceeds result in a lower Property EBITDA for such Hotel Property.
(f) Appraisal. The Agents shall have received a current Appraisal of the
---------
Hotel Property satisfactory to the Agents.
(g) Subsidiary. In addition, if the Property Owner for such Hotel Property is
----------
not Borrower, the Property Owner is at least a 99%-owned Subsidiary of the
Borrower listed on Schedule 4.01 (other than a Permitted Other Subsidiary) or
Permitted New Subsidiary.
(h) New Guarantor. In addition, if the Property Owner for such Hotel Property
-------------
is not the Borrower or a Guarantor, the following:
<PAGE>
(i) The Administrative Agent shall have received financial statements
of the Property Owner (i) reasonably required by the Agents; or (ii) necessary
to provide the Agents with a true and complete knowledge of the financial
condition of the Property Owner, all certified as true and correct by the
Borrower;
(ii) The Property Owner shall be a Permitted New Subsidiary whose sole
asset is the Future Property, who complies with all of the covenants and
requirements of Guarantors under the Credit Documents and who has delivered to
the Documentation Agent either (A) an original Guaranty, Environmental
Indemnity and Irrevocable Direction to Pay Rent executed by such Subsidiary or
(B) an Accession Agreement executed by such Subsidiary.
(i) Future Property. In addition, if the Hotel Property is a Future Property,
---------------
the following:
(i) The addition of the Future Property to the Eligible Property shall
not (A) cause the Eligible Property to violate the Pool Requirements, (B)
cause a Default, or (C) cause or result in the Borrower failing to comply with
any of the financial covenants contained herein;
(ii) The Borrower shall have delivered to the Administrative Agent and
the Banks the Property Information for such Future Property 20 days prior to
the date the Borrower proposes such Future Property qualify as an Eligible
Property;
(iii) the Majority Banks shall have approved such Future Property as a
possible Eligible Property and reached agreement with the Borrower as to the
Required Work for such Future Property, if any; and
(iv) within one hundred eighty (180) days of the date such Future
Property initially qualifies as an Eligible Property the Majority Banks shall
have approved the Approved Preliminary Property Plan for such Future Property.
(j) Ground Leases. In addition, if the Hotel Property is subject to a Ground
-------------
Lease, no default by the lessee under the Ground Lease exists, the Ground Lease
remains in full force and effect and the Documentation Agent shall have received
a Ground Lessor Consent.
(k) Franchise Agreement. In addition, if the Hotel Property is subject to a
-------------------
Franchise Agreement, no default by the franchisee under the Franchise Agreement
exists, the Franchise
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Agreement remains in full force and effect and the Documentation Agent shall
have received a Franchisor Consent.
(l) Management Agreement Fees and Participating Lessee Net Income. The sum of
-------------------------------------------------------------
(i) the management fees payable to the Manager under the Management Agreement
for a Hotel Property whether payable by the Participating Lessee or the Property
Owner of such Hotel Property and (ii) the actual or expected Net Income for the
Participating Lessee for such Hotel Property shall not in the aggregate exceed
6% of the gross revenues for such Hotel Property.
(m) Depository Account Agreements and Credit Card Agreements. Within 30 days
--------------------------------------------------------
of the initial date any property is deemed an Eligible Property but for the
requirements of this subsection (m), the Borrower shall have delivered to the
Administrative Agent the Depository Account Agreements for each financial
institution at which a Deposit Account for such Hotel Property is located
pursuant to the Cash Management System (Participating Lessee) and the Credit
Card Agreements for each credit card company for all major credit cards accepted
by such Hotel Property, which Depository Account Agreements, Credit Card
Agreements and the Cash Management Systems shall be in form and substance
reasonably satisfactory to the Agents.
(n) Hilton Hotel & Conference Center, Toledo, Ohio. If in connection with the
----------------------------------------------
Hotel Property commonly known as the Hilton Hotel & Conference Center, Toledo,
Ohio either (i) any utility service for such Hotel Property is interrupted or
materially decreased for more than 7 days because no easement or other legal
right exists across such Hotel Property's neighboring properties permitting such
service to the Hotel Property (a "Utility Interruption Event") or (ii) the
Borrower or the Property Owner for such Hotel Property receives written notice
that a Utility Interruption Event will occur and the Borrower and the Property
Owner fails to cure such anticipated Utility Interruption Event as provided in
clause (ii) of the following sentence on or prior to the date 90 days prior to
the date such Utility Interruption Event is anticipated to occur, then such
Hotel Property will no longer be deemed an Eligible Property until such
situation is cured as provided in the following sentence. Such situation will
be deemed cured (i) with respect to a Utility Interruption Event, when such
service is restored to substantially the same level as prior to such
interruption or decrease and (ii) with respect to an anticipated Utility
Interruption Event, when the Property Owner shall have received such utility
easements of record and commenced construction and thereafter diligently
continued construction of any Capital Expenditures needed to receive such
affected service in substantially the same level as prior to such anticipated
Utility Interruption Event within a time frame
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<PAGE>
that would prevent a Utility Interruption Event, all as reasonably acceptable to
the Administrative Agent.
(o) Participating Lease. In addition, if the Hotel Property is subject to a
-------------------
Participating Lease, no default by the Participating Lessee or the Property
Owner under the Participating Lease exists beyond any applicable cured period
(provided that for purposes of this subsection (o) such cure period will be
deemed to commence running when the Borrower, the Parent or a Guarantor has
knowledge of such default), the Participating Lease remains in full force and
effect and the Documentation Agent shall have received a Participating Lessee
Estoppel and the Participating Lessee Documents.
(p) Maison De Ville, New Orleans, Louisiana. For the Hotel Property commonly
---------------------------------------
known as the Maison De Ville, New Orleans, Louisiana, the Agents shall have
received a legal opinion or other evidence acceptable to the Agents that such
Hotel Property is exempt from or currently complies with the requirements of the
Americans with Disabilities Act, as amended.
(q) Other Actions. Borrower shall have executed and acknowledged (or caused
-------------
to be executed and acknowledged) and delivered to the Documentation Agent, on
behalf of the Banks, all documents, and taken all actions reasonably required by
Agents from time to time to confirm the rights created or now or hereafter
intended to be created under the Credit Documents, to protect and further the
validity, priority and enforceability of the Security Documents including
without limitation with respect to the Participating Lessee Documents and the
Participating Lessee Pledged Property, to subject to the Security Documents and
Participating Lessee Pledged Property any Property intended by the terms of any
such document to be covered by the Security Documents or Participating Lessee
Documents, as applicable, or otherwise to carry out the purposes of the Credit
Documents or Participating Lessee Documents, as applicable, and the transactions
contemplated thereunder. The Agents shall have received all other evidence and
information that they may reasonably require.
To the extent that Existing Credit Documents satisfy, or upon modification would
satisfy, conditions precedent in this Section 3.03, such Existing Credit
Documents, as modified if necessary by documentation acceptable to the Agents,
shall be deemed to have satisfied such conditions precedent. Schedule 3.03 sets
forth a list of conditions precedent to certain Hotel Properties qualifying as
Eligible Properties which have not been satisfied as of the Effective Date.
Such outstanding conditions precedent shall not prevent each such Hotel Property
from being deemed an Eligible
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Property as of and after the Effective Date; provided that for any such Hotel
Property the conditions precedent listed on Schedule 3.03 for such Hotel
Property are satisfied prior to the satisfaction date stated for such condition
precedent on Schedule 3.03.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 4.01 Existence; Qualification; Partners; Subsidiaries.
------------------------------------------------
(a) The Borrower is a limited partnership duly organized, validly existing,
and in good standing under the laws of Delaware and in good standing and
qualified to do business in each jurisdiction where its ownership or lease of
property or conduct of its business requires such qualification, except where
the failure to so qualify would not have a material adverse effect on the
Borrower.
(b) The Parent is a corporation duly organized, validly existing, and in good
standing under the laws of Maryland and in good standing and qualified to do
business in each jurisdiction where its ownership or lease of property or
conduct of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the Parent. The Parent
owns 100% of the issued and outstanding shares of the General Partner and AGH
LP. The Parent has no first tier Subsidiaries (other than the General Partner
and AGH LP).
(c) The General Partner is the Borrower's sole general partner with full power
and authority to bind the Borrower. The General Partner is a corporation duly
organized, validly existing, and in good standing under the laws of Nevada and
in good standing and qualified to do business in each jurisdiction where its
ownership or lease of property or conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the General Partner.
(d) AGH LP is a limited partnership duly organized, validly existing, and in
good standing under the laws of Nevada and in good standing and qualified to do
business in each jurisdiction
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where its ownership or lease of property or conduct of its business requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on AGH LP.
(e) As of the date of this Agreement, the General Partner owns a 1% general
partner interest in and AGH LP owns an approximately 87.5% limited partnership
interest in the Borrower.
(f) Each Subsidiary of the Borrower is a limited partnership, general
partnership or limited liability company duly organized, validly existing, and
in good standing under the laws of its jurisdiction of formation and in good
standing and qualified to do business in each jurisdiction where its ownership
or lease of property or conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on such Subsidiary. The Borrower has no Subsidiaries on the date of this
Agreement other than the Subsidiaries listed on the attached Schedule 4.01, and
Schedule 4.01 lists the jurisdiction of formation and the address of the
principal office of each such Subsidiary existing on the date of this Agreement.
As of the date of this Agreement, the Borrower owns, directly or indirectly, at
least 99% of the interests in each such Subsidiary.
(g) To the knowledge of the Borrower, each Participating Lessee is a limited
partnership duly organized, validly existing, and in good standing under the
laws of the state of its creation and in good standing and qualified to do
business in each jurisdiction where its ownership or lease of property or
conduct of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the Participating Lessee.
To the knowledge of the Borrower, the sole general partner of AGH Leasing is
AGHL GP, Inc. As of the date of this Agreement, to the knowledge of Borrower,
James Sowell, Louis Shaw and Kenneth Shaw legally and beneficially own, directly
or indirectly, approximately 77% of the partnership interests in AGH Leasing.
As of the date of this Agreement, to the knowledge of Borrower, Steve D. Jorns,
Bruce G. Wiles, and Kenneth E. Barr legally and beneficially own approximately
23% of the partnership interests in AGH Leasing. To the knowledge of the
Borrower, the sole general partner of TT Leasing is AGH Leasing. As of the date
of this Agreement, to the knowledge of Borrower, AGH Leasing legally and
beneficially owns, directly or indirectly, approximately 51% of the partnership
interests in TT Leasing.
(h) To the knowledge of Borrower, the Manager is a corporation duly organized,
validly existing, and in good standing under the laws of Texas and in good
standing and qualified to do business in each jurisdiction where its ownership
or lease of property or conduct of its business
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requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the Manager. To the knowledge of the
Borrower, as of the date of this Agreement, James Sowell, Louis Shaw and Kenneth
Shaw legally and beneficially own, directly or indirectly, approximately 79% of
the outstanding shares of AGHI common stock. To the knowledge of the Borrower,
as of the date of this Agreement, Steve D. Jorns and Bruce G. Wiles legally and
beneficially own approximately 21% of the outstanding shares of the Manager
common stock.
(i) The principal place of business of the Borrower, the Parent, each
Participating Lessee and the Manager and their Subsidiaries is in the Dallas,
Texas metropolitan area. The principal place of business of the General Partner
and AGH LP is Las Vegas, Nevada.
Section 4.02 Partnership and Corporate Power. The execution, delivery, and
-------------------------------
performance by the Borrower, the Parent, and each Guarantor of the Credit
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby (a) are within such Persons' partnership,
limited liability company and corporate powers, as applicable, (b) have been
duly authorized by all necessary corporate, limited liability company and
partnership action, as applicable, (c) do not contravene (i) such Person's
certificate or articles, as the case may be, of incorporation or by-laws,
operating agreement or partnership agreement, as applicable, or (ii) any law or
any contractual restriction binding on or affecting any such Person, the
contravention of which could reasonably be expected to cause a Material Adverse
Change, and (d) will not result in or require the creation or imposition of any
Lien prohibited by this Agreement. At the time of each Borrowing, such
Borrowing and the use of the proceeds of such Borrowing will be within the
Borrower's partnership powers, will have been duly authorized by all necessary
partnership action, (a) will not contravene (i) the Borrower's partnership
agreement or (ii) any law or any contractual restriction binding on or affecting
the Borrower, the contravention of which could reasonably be expected to cause a
Material Adverse Change, and (b) will not result in or require the creation or
imposition of any Lien prohibited by this Agreement.
Section 4.03 Authorization and Approvals. No authorization or approval or
---------------------------
other action by, and no notice to or filing with, any Governmental Authority is
required for the due execution, delivery and performance by the Borrower, the
Parent, or any Guarantor of the Credit Documents to which it is a party or the
consummation of the transactions contemplated thereby. At the time of each
Borrowing, no authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority will be required for such Borrowing or
the use of the proceeds of such Borrowing.
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Section 4.04 Enforceable Obligations. This Agreement, the Notes, and the
-----------------------
other Credit Documents to which the Borrower is a party have been duly executed
and delivered by the Borrower; each Guaranty and the other Credit Documents to
which each Guarantor and the Parent is a party have been duly executed and
delivered by such Guarantor and the Environmental Indemnity and Irrevocable
Direction to Pay Rent has been duly executed and delivered by the parties
thereto. Each Credit Document is the legal, valid, and binding obligation of
the Borrower, the Parent, and each Guarantor which is a party to it enforceable
against the Borrower, the Parent, and each such Guarantor in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors' rights generally and by general principles of equity (whether
considered in proceeding at law or in equity). The Participating Lessee
Documents have been duly executed and delivered by the applicable Participating
Lessee. Each Participating Lessee Document is the legal, valid, and binding
obligation of the applicable Participating Lessee enforceable against such
Participating Lessee in accordance with its terms, except as such enforceability
may be limited by any applicable bankruptcy, insolvency, reorganization,
moratorium, or similar law affecting creditors' rights gener ally and by
general principles of equity (whether considered in proceeding at law or in
equity).
Section 4.05 Parent Common Stock. The entire authorized capital stock of the
-------------------
Parent consists of 100,000,000 shares of Parent Common Stock of which 14,
657,141 shares of Parent Common Stock are duly and validly issued and
outstanding, fully paid and nonassessable. The issuance and sale of such Parent
Common Stock either (i) has been registered under applicable federal and state
securities laws or (ii) was issued pursuant to an exemption therefrom. The
Parent Common Stock shall at all times be duly listed on the New York Stock
Exchange, Inc. and the Parent shall use commercially reasonable efforts to
timely file all reports required to be filed by it with the New York Stock
Exchange, Inc. and the Securities and Exchange Commission. The Parent qualifies
as a real estate investment trust under Sections 856-860 of the Code, as
amended.
Section 4.06 Financial Statements.
--------------------
The Consolidated balance sheet of the Borrower and its Subsidiaries, and the
related Consolidated statements of operations, shareholders' equity and cash
flows, of the Borrower and its Subsidiaries contained in the Financial
Statements, fairly present the estimated financial condition in all material
respects and reflects the Indebtedness of the Borrower and its Subsidiaries as
of the dates indicated in the Financial Statements and the results of the
operations of the Borrower and its Subsidiaries for the periods indicated, and
such balance sheet and statements were prepared in
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accordance with GAAP, subject to year-end adjustments. Since the date of such
statements, no Material Adverse Change has occurred.
Section 4.07 True and Complete Disclosure. No representation, warranty, or
----------------------------
other statement made by the Borrower (or on behalf of the Borrower) in this
Agreement or any other Credit Document contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made as of the date of this Agreement. There is no fact known
to any Responsible Officer of the Borrower or the Parent on the date of this
Agreement that has not been disclosed to the Agents which could reasonably be
expected to cause a Material Adverse Change. All projections, estimates, and
pro forma financial information furnished by the Borrower and the Parent or on
behalf of the Borrower or the Parent were prepared on the basis of assumptions,
data, information, tests, or conditions believed to be reasonable at the time
such projections, estimates, and pro forma financial information were furnished.
No representation, warranty or other statement made in the Registration
Statement, the 10K, the 10Q or the annual report contains any untrue statement
of material fact or omits to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made as of the date same were made. Borrower and/or Parent have
made all filings required by the Exchange Act.
Section 4.08 Litigation. Except as set forth in the attached Schedule 4.08,
----------
there is no pending or, to the best knowledge of the Borrower, threatened action
or proceeding affecting the Borrower, the Parent, the Manager, any Participating
Lessee or any of their respective Subsidiaries before any court, Governmental
Authority or arbitrator (provided that with respect to the giving of this
representation after the date of this Agreement, the representation shall only
be deemed to apply to those matters for which Administrative Agent would have
been entitled to notice under Section 5.05(n)).
Section 4.09 Use of Proceeds.
---------------
(a) Advances. The proceeds of the Advances have been, and will be used by the
--------
Borrower (i) to refinance the existing indebtedness of each Initial Property
which qualifies as an Eligible Property, (ii) to finance the acquisition of any
Future Property which either qualifies as an Eligible Property or a Permitted
Non-Eligible Property, (iii) to finance the renovation of, Capital Expenditures
for and FF&E for any Eligible Property or a Permitted Non-Eligible Property in
accordance with the provisions of Section 5.06, (iv) for general corporate
purposes of the Borrower
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and its Subsidiaries and (v) for costs incurred in connection with any Parent
Capitalization Event done in compliance with this Agreement.
(b) Regulations. No proceeds of Advances will be used to purchase or carry
-----------
any margin stock in violation of Regulations G, T, U or X of the Federal Reserve
Board, as the same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Federal Reserve Board).
Section 4.10 Investment Company Act. Neither the Borrower, the Parent nor any
----------------------
of their respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 4.11 Taxes. All federal, state, local and foreign tax returns,
-----
reports and statements required to be filed (after giving effect to any
extension granted in the time for filing) by the Borrower, its Subsidiaries, or
any member of a Controlled Group have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns, reports and
statements are required to be filed, and where the failure to file could
reasonably be expected to cause a Material Adverse Change, except where
contested in good faith and by appropriate proceedings; and all taxes (which are
material in amount) and other impositions due and payable have been timely paid
prior to the date on which any fine, penalty, interest, late charge or loss may
be added thereto for non-payment thereof except where contested in good faith
and by appropriate proceedings. As of the date of this Agreement, neither the
Borrower nor any member of a Controlled Group has given, or been requested to
give, a waiver of the statute of limitations relating to the payment of any
federal, state, local or foreign taxes or other impositions. None of the
Property owned by the Borrower or any other member of a Controlled Group is
Property which the Borrower or any member of a Controlled Group is required to
be treated as being owned by any other Person pursuant to the provisions of
Section 168(f)(8) of the Code. Proper and accurate amounts have been withheld
by the Borrower and all members of each Controlled Group from their employees
for all periods to comply in all material respects with the tax, social security
and unemployment withholding provisions of applicable federal, state, local and
foreign law. Timely payment of all material sales and use taxes required by
applicable law have been made by the Borrower and all other members of each
Controlled Group, the failure to timely pay of which could reasonably be
expected to cause a Material Adverse Change. The amounts shown on all tax
returns to be due and payable have been
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paid in full or adequate provision therefor is included on the books of the
appropriate member of the applicable Controlled Group.
Section 4.12 Pension Plans. All Plans are in compliance in all material
-------------
respects with all applicable provisions of ERISA. No Termination Event has
occurred with respect to any Plan, and each Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. No "accumulated funding deficiency" (as defined in
Section 302 of ERISA) has occurred and there has been no excise tax imposed
under Section 4971 of the Code. To the knowledge of any Responsible Officer of
the Borrower, no Reportable Event has occurred with respect to any Multiemployer
Plan, and each Multiemployer Plan has complied with and been administered in all
material respects with applicable provisions of ERISA and the Code. To the
knowledge of any Responsible Officer of the Borrower, neither the Borrower nor
any member of a Controlled Group has had a complete or partial withdrawal from
any Multiemployer Plan for which there is any material withdrawal liability. As
of the most recent valuation date applicable thereto, neither the Borrower nor
any member of a Controlled Group has received notice that any Multiemployer Plan
is insolvent or in reorganization.
Section 4.13 Condition of Hotel Property; Casualties; Condemnation. Except as
-----------------------------------------------------
disclosed in an Engineering Report, each Initial Property and any Future
Property (a) is and will continue to be in good repair, working order and
condition, normal wear and tear excepted, (b) is free of structural defects, (c)
is not subject to material deferred maintenance and (d) has and will have all
building systems contained therein and all other FF&E in good repair, working
order and condition, normal wear and tear excepted. None of the Properties of
the Borrower or of any of its Subsidiaries has been materially and adversely
affected as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of property or cancellation of contracts, permits or concessions by a
Governmental Authority, riot, activities of armed forces or acts of God or of
any public enemy. No condemnation or other like proceedings that has had, or
could reasonably be expected to result in, a Material Adverse Effect, are
pending and served nor, to the knowledge of the Borrower, threatened against any
Property in any manner whatsoever. No casualty has occurred to any Property that
could reasonably be expected to have a Material Adverse Effect.
Section 4.14 Insurance. The Borrower and each of its Subsidiaries carry the
---------
insurance required pursuant to the provisions of Section 5.10.
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Section 4.15 No Burdensome Restrictions; No Defaults.
---------------------------------------
(a) Except as set forth on Schedule 4.15, neither the Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement or any lease
except for the Participating Leases. Neither the Borrower, the Parent nor any of
their respective Subsidiaries is a party to any agreement or instrument or
subject to any charter or corporate restriction or provision of applicable law
or governmental regulation which could reasonably be expected to cause a
Material Adverse Change. Neither the Borrower, the Parent nor any of their
Subsidiaries is in default under or with respect to (i) any contract, agreement,
lease or other instrument which could reasonably be expected to cause a Material
Adverse Change or (ii) any Ground Lease, Participating Lease, Franchise
Agreement or Management Agreement except as disclosed to the Administrative
Agent in writing prior to the date such representation is deemed given. Neither
the Borrower, the Parent nor any of their Subsidiaries has received any notice
of default under any material contract, agreement, lease or other instrument
which is continuing and which, if not cured, could reasonably be expected to
cause a Material Adverse Change.
(b) No Default has occurred and is continuing (or with respect to the giving of
this representation after the date of this Agreement, as otherwise disclosed to
the Administrative Agent in writing after the date of this Agreement and prior
to the date such representation is deemed given).
Section 4.16 Environmental Condition.
-----------------------
(a) Except as disclosed in the Environmental Reports (or with respect to the
giving of this representation after the date of this Agreement, as otherwise
disclosed to the Administrative Agent in writing after the date of this
Agreement and prior to the date such representation is deemed given), to the
knowledge of the Borrower, the Borrower and its Subsidiaries (i) have obtained
all Environmental Permits necessary for the ownership and operation of their
respective Properties and the conduct of their respective businesses; (ii) have
been and are in material compliance with all terms and conditions of such
Environmental Permits and with all other requirements of applicable
Environmental Laws; (iii) have not received notice of any violation or alleged
violation of any Environmental Law or Environmental Permit; and (iv) are not
subject to any actual or contingent Environmental Claim.
(b) Except as set forth in the Environmental Reports or the surveys for the
Hotel Properties, to the knowledge of Borrower, none of the present or
previously owned or operated Property of the
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Borrower or of any of its present or former Subsidiaries, wherever located, (i)
has been placed on or proposed to be placed on the National Priorities List, the
Comprehensive Environmental Response Compensation Liability Information System
list, or their state or local analogs, or have been otherwise investigated,
designated, listed, or identified as a potential site for removal, remediation,
cleanup, closure, restoration, reclamation, or other response activity under any
Environmental Laws which could reasonably be expected to cause a Material
Adverse Change; (ii) is subject to a Lien, arising under or in connection with
any Environmental Laws, that attaches to any revenues or to any Property owned
or operated by the Borrower or any of its Subsidiaries, wherever located; (iii)
has been the site of any Release, use or storage of Hazardous Substances or
Hazardous Wastes from present or past operations except for Permitted Hazardous
Substances, which Permitted Hazardous Substances have not caused at the site or
at any third-party site any condition that has resulted in or could reasonably
be expected to result in the need for Response or (iv) none of the Improvements
are constructed on land designated by any Governmental Authority having land use
jurisdiction as wetlands.
Section 4.17 Legal Requirements, Zoning, Utilities, Access. Except as set
---------------------------------------------
forth on Schedule 4.17 attached hereto, the use and operation of each Hotel
Property as a commercial hotel with related uses constitutes a legal use under
applicable zoning regulations (as the same may be modified by special use
permits or the granting of variances) and complies in all material respects with
all Legal Requirements, and does not violate in any material respect any
material approvals, material restrictions of record or any material agreement
affecting any Hotel Property (or any portion thereof). The Borrower and its
Subsidiaries possess all certificates of public convenience, authorizations,
permits, licenses, patents, patent rights or licenses, trademarks, trademark
rights, trade names rights and copyrights (collectively "Permits") required by
Governmental Authority to own and operate the Hotel Properties, except for those
Permits if not obtained would not cause a Material Adverse Change. The Borrower
and its Subsidiaries own and operate their business in material compliance with
all applicable Legal Requirements. To the extent necessary for the full
utilization of each Hotel Property in accordance with its current use, telephone
services, gas, steam, electric power, storm sewers, sanitary sewers and water
facilities and all other utility services are available to each Hotel Property,
are adequate to serve each such Hotel Property, exist at the boundaries of the
Land and are not subject to any conditions, other than normal charges to the
utility supplier, which would limit the use of such utilities. All streets and
easements necessary for the occupancy and operation of each Hotel Property are
available to the boundaries of the Land.
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Section 4.18 Existing Mortgage Debt. Except for the Obligations, the only
----------------------
Indebtedness secured by a Lien on Real Property of the Borrower, the Parent or
any of their respective Subsidiaries existing as of the Effective Date is the
Permitted Other Subsidiary Indebtedness, and the respective amounts of such
Indebtedness is approximately the amounts set forth in the definition of
Permitted Other Subsidiary Indebtedness as of the Effective Date. No "default"
or "event of default", however defined, has occurred and is continuing under any
Permitted Other Subsidiary Loan Document or the Lien securing such Permitted
Other Subsidiary Indebtedness (or with respect to the giving of this
representation after the date of this Agreement, as otherwise disclosed to the
Administrative Agent in writing after the date of this Agreement and prior to
the date such representation is deemed given).
Section 4.19 Title; Encumbrances. On the date any Mortgage is filed covering
-------------------
an Eligible Property, the Borrower or any Guarantor, as the case may be, will
have (i) good and marketable fee simple title to the Real Property (other than
for Real Property subject to a Ground Lease, as to which it has a valid
leasehold or subleasehold interest) and (ii) good and marketable title to the
Personal Property (other than Personal Property for any Hotel Property (A) which
has been leased which does not in the aggregate exceed the Hotel Operating Lease
Limit or the Hotel Capital Lease Limit, as applicable, for such Hotel Property
and (B) for which the Property Owner has a valid leasehold interest) free and
clear of all Liens, and there will exist no Liens or other charges against such
Property or leasehold interest or any of the real or personal, tangible or
intangible, Property of the Borrower or any Guarantor (including without
limitation statutory and other Liens of mechanics, workers, contractors,
subcontractors, suppliers, taxing authorities and others; provided that certain
Capital Expenditures have been made to the Hotel Properties prior to the
Effective Date for which the payment is not past due), except (A) those matters
expressly set forth as permitted encumbrances in the respective Mortgages
covering such Property, (B) inchoate tax Liens and (C) the Personal Property
listed on Schedule 4.19 and the other Participating Lessee Pledged Property
(plus any replacements thereof) to which the Participating Lessee will have good
and marketable title to free and clear of all Liens. Upon the recording of the
Mortgages and the recording or filing of the other Security Documents and
Participating Lessee Documents, as applicable, the Administrative Agent, as
agent for the Banks, will have a valid, perfected first priority lien or
security interest, as applicable, in the Property of the Borrower and its
Subsidiaries (other than the Permitted Other Subsidiaries) and the
Participating Lessee Pledged Property.
Section 4.20 Leasing Arrangements. The only leases of Real Property for which
--------------------
either the Borrower or a Guarantor is a lessee are the Ground Leases. The
Borrower or Guarantor which executes the Mortgage for a Real Property subject to
a Ground Lease is the lessee under such Ground
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Lease and no consent is necessary to such Person being the lessee under such
Ground Lease which has not already been obtained. The Ground Leases are in full
force and effect and no defaults exist thereunder. The only participating leases
burdening the Hotel Properties are the Participating Leases. The Participating
Leases are in full force and effect and no defaults by the Borrower or any
Subsidiary exist thereunder.
Section 4.21 Cash Management Systems. The summary of the Cash Management
-----------------------
Systems attached hereto as Schedule 4.21 is accurate and complete in all
material respects as of the Effective Date and does not omit to state any
material fact necessary to make the statements set forth therein not misleading.
Neither a Participating Lessee, the Borrower nor any of the Borrower's
Subsidiaries owns any Deposit Account with respect to any Hotel Property (other
than a Permitted Other Subsidiary Property) which is not described in Schedule
4.21 other than an account located in New York, New York from which
distributions are made to the Borrower's partners promptly upon wire transfer
from an Operating Account (Borrower). Schedule 4.21 lists all major credit
cards accepted by the Hotel Properties. There has been no change to the Cash
Management Systems since the date of this Agreement. The revenues from
Permitted Other Subsidiary Properties are not commingled with (a) the Deposit
Accounts of the Participating Lessees, the Borrower or any of the Borrower's
other Subsidiaries for either the Eligible Properties or the Permitted Non-
Eligible Properties or (b) the Borrower's Bank Accounts.
Section 4.22 Franchise Agreements. The only hotel franchise agreements
--------------------
burdening the Hotel Properties (excluding the Permitted Other Subsidiary
Properties) are the Franchise Agreements. The Participating Lessee which
executes the Assignment of Management Agreement for a Hotel Property subject to
a Franchise Agreement is the licensee under such Franchise Agreement and no
consent is necessary to such Person being the licensee under such Franchise
Agreement which has not already been obtained. The Franchise Agreements are in
full force and effect and no defaults by the Borrower or any Subsidiary exist
thereunder (or with respect to the giving of this representation after the date
of this Agreement, as otherwise disclosed to the Administrative Agent in writing
after the date of this Agreement and prior to the date such representation is
deemed given). Schedule 4.22 sets forth, as of the date of this Agreement, (a)
which Franchise Agreements the Borrower expects to terminate, (b) the expected
date of such termination, (c) the expected fees, if any, which will be owed to
the Franchisor being terminated in connection with such termination and (d) the
expected replacement Franchisor and the material terms of the expected
replacement Franchise Agreement.
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Section 4.23 Management Agreements. The only management agreements burdening
---------------------
the Hotel Properties (excluding the Permitted Other Subsidiary Properties) are
the Management Agreements. To the knowledge of the Borrower, the Participating
Lessee which executes the Assignment of Management Agreement for a Hotel
Property subject to a Management Agreement is the owner under such Management
Agreement and no consent is necessary to such Person being the owner under such
Management Agreement which has not already been obtained. To the knowledge of
the Borrower, the Management Agreements are in full force and effect and no
defaults by the Participating Lessee exist thereunder (or with respect to the
giving of this representation after the date of this Agreement, as otherwise
disclosed to the Administrative Agent in writing after the date of this
Agreement and prior to the date such representation is deemed given).
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Note or any amount under any Credit Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have
any Commitment hereunder, unless the Administrative Agent shall otherwise
consent in writing, the Borrower agrees to comply with the following covenants.
Section 5.01 Compliance with Laws, Etc. The Borrower will comply, and cause
-------------------------
each of its Subsidiaries to comply, in all material respects with all Legal
Requirements.
Section 5.02 Preservation of Corporate Existence; Corporate Separateness, Etc.
----------------------------------------------------------------
(a) The Borrower will preserve and maintain, and cause each of its Subsidiaries
to preserve and maintain, its partnership, limited liability company or
corporate (as applicable) existence, rights, franchises and privileges in the
jurisdiction of its formation, and qualify and remain qualified, and cause each
such Subsidiary to qualify and remain qualified, as a foreign partnership or
corporation as applicable in each jurisdiction in which qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties, and, in each case, where failure to qualify or preserve and
maintain its rights and franchises could reasonably be expected to cause a
Material Adverse Change.
(b) The Borrower shall, and shall cause the Borrower's Subsidiaries, the Parent
and the Parent's Other Subsidiaries to, (i) maintain financial statements,
payroll records, accounting records
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and other corporate records and other documents separate from each other and any
other Person, (ii) maintain its own bank accounts in its own name, separate from
each other and any other Person, (iii) pay its own expenses and other
liabilities from its own assets and incur (or endeavor to incur) obligations to
other Persons based solely upon its own assets and creditworthiness and not upon
the creditworthiness of each other or any other Person, and (iv) file its own
tax returns or, if part of a consolidated group, join in the consolidated tax
return of such group as a separate member thereof. The Borrower shall, and shall
cause the Parent to, use reasonable efforts to correct any known
misunderstanding or misrepresentation regarding the independence of the Parent
and the Parent's Other Subsidiaries from the Borrower and the Borrower's
Subsidiaries.
(c) The Borrower shall, and shall cause the Permitted Other Subsidiaries to,
take all actions necessary to keep the Permitted Other Subsidiaries, separate
from the Borrower and the Borrower's other Subsidiaries, including, without
limitation, (i) the taking of action under the direction of the Board of
Directors, members or partners, as applicable, of the Permitted Other
Subsidiaries and, if so required by the Certificate of Incorporation or the
Bylaws, operating agreement or partnership agreement, as applicable, of the
Permitted Other Subsidiaries or by any Legal Requirement, the approval or
consent of the stockholders, members or partners, as applicable, of the
Permitted Other Subsidiaries, (ii) the preparation of corporate, partnership or
limited liability company minutes for or other appropriate evidence of each
significant transaction engaged in by the Permitted Other Subsidiaries, (iii)
the observance of separate approval procedures for the adoption of resolutions
by the Board of Directors or consents by the partners, as applicable, of the
Permitted Other Subsidiaries, on the one hand, and of the Borrower and the
Borrower's other Subsidiaries, on the other hand, and (iv) the holding of the
annual stockholders meeting, if applicable, of the Permitted Other Subsidiaries,
which are corporations on a date other than the date of the annual stockholders'
meeting of the General Partner or AGH LP.
(d) The Borrower shall, and shall cause the Permitted Other Subsidiaries to,
manage the business of and conduct the administrative activities of the
Permitted Other Subsidiaries independently from the business of the Borrower,
any of the Borrower's other Subsidiaries and any other Person. Any moneys
earned by the Permitted Other Subsidiaries on their assets or proceeds of the
sale of any of their assets shall be deposited in bank accounts separate from
any of the assets of the Borrower, any of the Borrower's other Subsidiaries and
any other Person, and no assets of the Permitted Other Subsidiaries shall become
commingled with assets of such Persons.
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(e) The Borrower shall hold itself out, and shall continue to hold itself out,
to the public and to its creditors as a legal entity, separate and distinct from
all other entities, and shall continue to take all steps reasonably necessary to
avoid (i) misleading any other Person as to the identity of the entity with
which such Person is transacting business or (ii) implying that the Borrower is,
directly or indirectly, absolutely or contingently, responsible for the
Indebtedness or other obligations the Permitted Other Subsidiaries or any other
Person.
(f) Except as otherwise consented to in writing by the Documentation Agent,
the Borrower shall, and shall cause the Borrower's Subsidiaries, the Parent, the
Participating Lessees and the Manager and their Subsidiaries to maintain their
principal place of business in Dallas, Texas.
Section 5.03 Payment of Taxes, Etc. The Borrower will pay and discharge, and
---------------------
cause each of its Subsidiaries to pay and discharge, before the same shall
become delinquent (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or Property that are material in
amount, prior to the date on which penalties attach thereto and (b) all lawful
claims that are material in amount which, if unpaid, might by Legal Requirement
become a Lien upon its Property; provided, however, that neither the Borrower
-------- -------
nor any such Subsidiary shall be required to pay or discharge any such tax,
assessment, charge, levy, or claim (a) which is being contested in good faith
and by appropriate proceedings, (b) with respect to which reserves in conformity
with GAAP have been provided, (c) such charge or claim does not constitute and
is not secured by any choate Lien on any portion of any Hotel Property and no
portion of any Hotel Property is in jeopardy of being sold, forfeited or lost
during or as a result of such contest, (d) neither the Agents nor any Bank could
become subject to any civil fine or penalty or criminal fine or penalty, in each
case as a result of non-payment of such charge or claim and (e) such contest
does not, and could not reasonably be expected to, result in a Material Adverse
Change.
Section 5.04 Visitation Rights; Bank Meeting. At any reasonable time and from
-------------------------------
time to time and so long as any visit or inspection will not unreasonably
interfere with the Borrower's or any of its Subsidiaries' operations, upon
reasonable notice, the Borrower will, and will cause its Subsidiaries to, permit
the Agents and any Bank or any of its agents or representatives thereof, to
examine and make copies of and abstracts from the records and books of account
of, and visit and inspect at its reasonable discretion the properties of, the
Borrower and any such Subsidiary, to discuss the affairs, finances and accounts
of the Borrower and any such Subsidiary with any of their respective officers or
directors. Without in any way limiting the foregoing, the Borrower will, upon
the request of either Agent, participate in a meeting with the Agents and the
Banks once during each
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calendar year to be held at the Borrower's office in Dallas, Texas (or such
other location as may be agreed to by the Borrower and the Agents) at such time
as may be agreed to by the Borrower and the Agents.
Section 5.05 Reporting Requirements. The Borrower will furnish to the
----------------------
Administrative Agent and each Bank:
(a) Monthly Financials. As soon as available and in any event not later than
------------------
45 days after the end of each calendar month, statements of the Capital
Expenditures and expenditures for FF&E and the operating income of each Hotel
Property owned by the Borrower, the Parent or any of their respective
Subsidiaries and for all such Hotel Properties in the aggregate (separately
aggregated for (i) the Borrower and the Borrower's Subsidiaries [including the
Permitted Other Subsidiaries], and (ii) the Parent and the Parent's
Subsidiaries) for such month, together with comparisons versus the budgeted
amounts for such Capital Expenditures and expenditures for FF&E and the
operating income of each Hotel Property and for all such Hotel Properties in the
aggregate as aforesaid for such month, duly certified by a Responsible Officer
of the Borrower as having been prepared in accordance with GAAP, together with a
Compliance Certificate duly executed by a Responsible Officer of the Borrower.
(b) Quarterly Financials. As soon as available and in any event not later
--------------------
than 45 days after the end of each quarter of each fiscal year of the Borrower
and the Parent, as applicable, the unaudited Consolidated balance sheets of
Borrower, the Parent and their respective Subsidiaries (separately aggregated
for (i) the Borrower and the Borrower's Subsidiaries [including the Permitted
Other Subsidiaries], and (ii) the Parent and the Parent's Subsidiaries) as of
the end of such quarter and the related unaudited statements of income,
shareholders' equity and cash flows of the Borrower, the Parent and their
respective Subsidiaries (separately aggregated for (i) the Borrower and the
Borrower's Subsidiaries [including the Permitted Other Subsidiaries], and (ii)
the Parent and the Parent's Subsidiaries) for the period commencing at the end
of the previous year and ending with the end of such quarter, and the
corresponding figures as at the end of, and for, the corresponding period in the
preceding fiscal year, all in reasonable detail by Hotel Property and duly
certified with respect to such statements (subject to year-end audit
adjustments) by a Responsible Officer of the Borrower and the Parent, as
applicable, as having been prepared in accordance with GAAP, together with (i) a
Compliance Certificate duly executed by a Responsible Officer of the Borrower
and (ii) a completed Borrowing Base Certificate duly executed by a Responsible
Officer of the Borrower
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setting forth the components of the Borrowing Base as of the last day of the
immediately preceding calendar quarter.
(c) Annual Financials. As soon as available and in any event not later than
-----------------
90 days after the end of each fiscal year of the Borrower and the Parent, as
applicable, (i) a copy of the Consolidated balance sheets of the Borrower, the
Parent and their respective Subsidiaries (separately aggregated for (i) the
Borrower and the Borrower's Subsidiaries [including the Permitted Other
Subsidiaries], and (ii) the Parent and the Parent's Subsidiaries) as of the end
of such fiscal year and the related Consolidated statements of income,
shareholders' equity and cash flows of the Borrower, the Parent and their
respective Subsidiaries (separately aggregated for (i) the Borrower and the
Borrower's Subsidiaries [including the Permitted Other Subsidiaries], and (ii)
the Parent and the Parent's Subsidiaries) for such fiscal year, and the
corresponding figures as at the end of, and for, the preceding fiscal year, and
with respect to the Consolidated financial statements of the Parent and its
Subsidiaries certified by Coopers & Lybrand L.L.P. or other independent
certified public accountants of nationally recognized standing reasonably
acceptable to the Agents and including, if requested by either Agent, any
management letters delivered by such accountants to the Parent in connection
with such audit, together with (A) a Compliance Certificate duly executed by a
Responsible Officer and (B) a completed Borrowing Base Certificate duly executed
by a Responsible Officer setting forth the components of the Borrowing Base as
of the day of such financial statements and (ii) statements of the Capital
Expenditures, expenditures for FF&E and operating income of each Hotel Property
owned by the Borrower, the Parent or any of their respective Subsidiaries and
for all such Hotel Properties in the aggregate (separately aggregated for (i)
the Borrower and the Borrower's Subsidiaries [including the Permitted Other
Subsidiaries], and (ii) the Parent and the Parent's Subsidiaries). During the
occurrence of an Event of Default, either Agent can require that the audited
financial statements required under this Section 5.06(c) be provided for each of
such Hotel Properties and the Borrower and the Borrower's Subsidiaries on a
Consolidated and consolidating basis.
(d) Manager Financials. As soon as available and in any event not later than
------------------
120 days after the end of each fiscal year of AGHI, as applicable, (i) a copy of
the annual audit report for such year for AGHI and its Subsidiaries, if any,
including therein audited Consolidated balance sheets of AGHI and its
Consolidated Subsidiaries as of the end of such fiscal year and the related
Consolidated statements of income, shareholders' equity and cash flows of AGHI
and its Subsidiaries for such fiscal year, and the corresponding figures as at
the end of, and for, the preceding fiscal year, in each case certified by an
independent certified public accountant reasonably acceptable to the Agents and
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including, if requested by either Agent, any management letters delivered by
such accountants to AGHI in connection with such audit.
(e) Annual Budgets. As soon as available and in any event not later than the
--------------
date 30 days prior to the start of each fiscal year, (i) the Consolidated annual
budgets of the Parent and its Subsidiaries for such upcoming fiscal year in
reasonable detail and duly certified by a Responsible Officer of the Parent as
the budgets presented or to be presented to the Parent's Board of Directors for
their review and (ii) annual budgets of the Capital Expenditures and
expenditures for FF&E and the operating income of each Hotel Property owned by
the Borrower, the Parent or any of their respective Subsidiaries and for all
such Hotel Properties in the aggregate (separately aggregated for (i) the
Borrower and the Borrower's Subsidiaries [including the Permitted Other
Subsidiaries], and (ii) the Parent and the Parent's Subsidiaries).
(f) Securities Law Filings. Promptly and in any event within 15 days after
----------------------
the sending or filing thereof, copies of all proxy material, reports and other
information which the Borrower, the Parent or any of their respective
Subsidiaries sends to or files with the United States Securities and Exchange
Commission or sends to all shareholders of the Parent or of any of its
Subsidiaries.
(g) Defaults. As soon as possible and in any event within five days after the
--------
occurrence of each Default known to a Responsible Officer of the Borrower, the
Parent or any of their respective Subsidiaries, a statement of an authorized
financial officer or Responsible Officer of the Borrower setting forth the
details of such Default and the actions which the Borrower has taken and
proposes to take with respect thereto.
(h) ERISA Notices. As soon as possible and in any event (i) within 30 days
-------------
after the Borrower or any of a Controlled Group knows to know that any
Termination Event described in clause (a) of the definition of Termination Event
with respect to any Plan has occurred, (ii) within 10 days after the Borrower or
any of a Controlled Group knows to know that any other Termination Event with
respect to any Plan has occurred, a statement of the Chief Financial Officer of
the Borrower describing such Termination Event and the action, if any, which the
Borrower or such member of such Controlled Group proposes to take with respect
thereto; (iii) within 10 days after receipt thereof by the Borrower or any of a
Controlled Group from the PBGC, copies of each notice received by the Borrower
or any such member of such Controlled Group of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Plan; and (iv) within
10 days after receipt thereof by the Borrower or any member of a Controlled
Group from a Multiemployer Plan
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sponsor, a copy of each notice received by the Borrower or any member of such
Controlled Group concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA.
(i) Environmental Notices. Promptly upon the knowledge of any Responsible
---------------------
Officer of the Borrower of receipt thereof by the Borrower or any of its
Subsidiaries, a copy of any form of notice, summons or citation received from
the United States Environmental Protection Agency, or any other Governmental
Authority concerning (i) violations or alleged violations of Environmental Laws,
which seeks to impose liability therefor, (ii) any action or omission on the
part of the Parent or Borrower or any of their present or former Subsidiaries in
connection with Hazardous Waste or Hazardous Substances which, based upon
information reasonably available to the Borrower, could reasonably be expected
to cause a Material Adverse Change or an Environmental Claim in excess of
$1,000,000, (iii) any notice of potential responsibility under CERCLA, or (iv)
concerning the filing of a Lien upon, against or in connection with the Parent,
Borrower, their present or former Subsidiaries, or any of their leased or owned
Property, wherever located.
(j) Other Governmental Notices or Actions. Promptly and in any event within
-------------------------------------
five Business Days after receipt thereof by the Borrower, the Parent or any of
their respective Subsidiaries, (i) a copy of any notice, summons, citation, or
proceeding seeking to adversely modify in any material respect, revoke, or
suspend any license, permit, or other authorization from any Governmental
Authority, which action could reasonably be expected to cause a Material Adverse
Change, and (ii) any revocation or involuntary termination of any license,
permit or other authorization from any Governmental Authority, which revocation
or termination could reasonably be expected to cause a Material Adverse Change.
(k) Reports Affecting the Borrowing Base. On or prior to the 2nd day
------------------------------------
following any Adjustment Event, a Property Adjustment Report with respect to
such Adjustment Event.
(l) Press Releases. Promptly and in any event within 5 days after the sending
--------------
or releasing thereof, copies of all press releases or other releases of
information to the public by the Borrower, the Parent or any of their respective
Subsidiaries.
(m) Other Notices.
-------------
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(i) Upon the request of either Agent, a certified rent roll listing
all of the Real Property of the Borrower and the Guarantors that are subject
to leases and containing such other information regarding such leases that
such Agent may reasonably request,
(ii) As soon as received, a copy of any notice of default or any
other material notice (including without limitation property condition
reviews) received by the Borrower or any Guarantor from any Franchisor,
Manager, or any ground lessor under a Ground Lease,
(iii) Promptly following any merger or dissolution of any Subsidiary
of the Borrower which is permitted hereunder or event which would make any of
the representations in Section 4.01-4.04 untrue, notice thereof, and
(iv) Promptly upon the occurrence of a Utility Interruption Event or
receipt of a notice of an anticipated Utility Interruption Event, notice of
such Utility Interruption Event or a copy of any such notice, as applicable.
(n) Material Litigation. As soon as possible and in any event within five
-------------------
days of any Responsible Officer of the Borrower, the Parent or any of their
respective Subsidiaries having knowledge thereof, notice of any litigation,
claim or any other event which could reasonably be expected to cause a Material
Adverse Change.
(o) Other Information. Such other information respecting the business or
-----------------
Properties, or the condition or operations, financial or otherwise, of the
Borrower, the Parent or any of their respective Subsidiaries, as any Bank
through the Administrative Agent may from time to time reasonably request.
Section 5.06 Maintenance of Property, Required Work and Approved Preliminary
---------------------------------------------------------------
Property Plan Work. The Borrower will, and will cause each of its Subsidiaries
- ------------------
to, (a) maintain their owned, leased, or operated Property in a manner
consistent for hotel properties and related property of the same quality and
character and shall keep or cause to be kept every part thereof and its other
properties in good condition and repair, reasonable wear and tear excepted, and
make all reasonably necessary repairs, renewals or replacements thereto as may
be reasonably necessary to conduct the business of the Borrower and its
Subsidiaries, (b) not remove, demolish or structurally alter, or permit or
suffer the removal, demolition or structural alteration of, any of the
Improvements except as expressly permitted hereunder or pursuant to an Approved
Preliminary Property Plan or with the
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<PAGE>
prior written consent of the Administrative Agent, (c) not knowingly or
willfully permit the commission of waste or other injury, or the occurrence of
pollution, contamination or any other condition in, on or about any Hotel
Property, (d) maintain and repair each Hotel Property as required by any
Franchise Agreement, Management Agreement or Ground Lease for such Hotel
Property, and (e) commence the Required Work and Approved Preliminary Property
Plan Work for any Hotel Property by a date which would allow a reasonable period
of time to complete such work on or prior to the Required Work Deadline for such
Hotel Property, (f) after any commencement of any of the work described in
clause (e) of this Section 5.06 diligently perform such Required Work or
Approved Preliminary Property Plan Work, as applicable, provide status reports
in reasonable detail of the progress of the Required Work or Approved
Preliminary Property Plan Work, as applicable, to the Administrative Agent
within 45 days of the end of each calendar quarter and complete such Required
Work or Approved Preliminary Property Plan Work, as applicable, prior to the
Required Work Deadline (i) for the Required Work, as described in the
Engineering Reports and/or the Environmental Reports referred to in Schedule
5.06 or as otherwise described for any Future Property, (ii) in a good and
workmanlike manner and (iii) in compliance in all material respects with all
Legal Requirements. At the end of every calendar quarter and upon the
completion of any Capital Expenditures and purchase of FF&E for a Hotel Property
made pursuant to an Approved Preliminary Property Plan, at the Borrower's
expense, a property condition consultant or engineer acceptable to the Agents
shall inspect the Hotel Property and deliver to the Administrative Agent a
certificate that the Capital Expenditures and FF&E, as applicable, has been made
or purchased and delivered to such Hotel Property. Except as may be required
to maintain the Parent's status as a real estate investment trust under the
Code, any Capital Expenditures or expenditures or leases for FF&E made for any
Hotel Property shall be in the name of the Property Owner for such Hotel
Property.
Section 5.07 CAPEX Reserve. On or prior to the date sixty days after the date
-------------
of each calendar quarter the Borrower will (i) deposit into the CAPEX Reserve
the CAPEX Reserve Deposit Amount for such calendar quarter and (ii) deliver to
the Administrative Agent a statement certified by a Responsible Officer of the
Borrower to be true and correct in all material respects, which statement shall
specify the calculation of such gross revenues and the amount of such Capital
Expenditures or FF&E and such other information reasonably requested by the
Administrative Agent. The CAPEX Reserve will be used to make or purchase Capital
Expenditures or FF&E (except for those made or purchased under an Approved
Preliminary Property Plan or Required Work performed for any Hotel Property
after the date which is 365 days following the date such Hotel Property
initially qualified as an Eligible Property) for Eligible Properties in
accordance with this Agreement. In addition to the Bank One Cash Management
Agreement, Borrower shall execute
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such Financing Statements and other documents and execute such other documents
as either Agent shall reasonably require in order for the Administrative Agent
to have a perfected first lien security interest in such CAPEX Reserve. Within
10 days after presentation to the Administration Agent of documentation
reasonably required the Administrative Agent (including without limitation
copies of invoices and a summary of Capital Expenditures and expenditures for
FF&E) evidencing that in accordance with this Agreement either (a) Capital
Expenditures to an Eligible Property have been performed or (b) FF&E has been
purchased by the Borrower and delivered to an Eligible Property, the
Administrative Agent shall permit the withdrawal from the CAPEX Reserve of the
amounts for such Capital Expenditures or FF&E (except for those made or
purchased under an Approved Preliminary Property Plan or Required Work performed
for any Hotel Property after the date which is 365 days following the date such
Hotel Property initially qualified as an Eligible Property), including payment
to an escrow agent or title company to disburse such amounts. Any requests for
disbursements from the CAPEX Reserve (a) shall not be made more often than once
in any calendar month or for less than $50,000, (b) shall be made
contemporaneously with any request for a Borrowing in such month pertaining to
Capital Expenditures or FF&E, (c) shall be made contemporaneously with a request
for a Borrowing if in the month requested the Borrower requests Borrowings on 2
days in such month, (d) shall not be made for Capital Expenditures or FF&E made
or purchased under an Approved Preliminary Property Plan or Required Work
performed for any Hotel Property after the date which is 365 days following the
date such Hotel Property initially qualified as an Eligible Property, (e) shall
also include the information and materials required in the preceding sentence
for all Capital Expenditures and FF&E purchased with funds drawn out of the
Concentration Bank Account and a reconciliation of such amounts with the draws
from the CAPEX Reserve and Borrowings for such expenditures.
Section 5.08 Appraisals. The Borrower agrees that the Administrative Agent or
----------
the Majority Banks may from time to time obtain an Appraisal of any Hotel
Property and the Borrower shall, and shall cause each of its Subsidiaries to,
cooperate fully with the appraiser selected by the Administrative Agent or the
Majority Banks, as applicable, to conduct such Appraisals; it being understood
and agreed that the Borrower shall be required to pay the costs of such
Appraisal if either (a) the Person(s) requesting the Appraisal believe in their
reasonable discretion that Real Estate Value of the Hotel Property has
materially decreased or (b) an Event of Default has occurred. In the event that
the Borrower or any of its Subsidiaries obtains an Appraisal of any Hotel
Property other than pursuant to this subsection, the Borrower shall deliver a
copy of such appraisal to the Administrative Agent promptly upon the completion
thereof and the Administrative Agent may elect, in its sole discretion and
subject to Legal Requirements, to treat such appraisal as an "Appraisal."
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In the event that the Administrative Agent or the Majority Banks obtains an
Appraisal of any Hotel Property pursuant to the provisions of this Section 5.08,
such Person(s) shall deliver a copy of such Appraisal to the Borrower upon the
completion thereof.
Section 5.09 Duplicate Louisiana Notes. For each Hotel Property located
-------------------------
within the State of Louisiana, the Borrower agrees to execute an additional
promissory note for each Bank identical to the Note for such Bank which
additional promissory note (a) shall be held by the Administrative Agent to be
used in connection with the exercise of remedies against such Hotel Property in
accordance with Louisiana law and (b) shall not evidence any additional
Obligations. If any Note is exchanged or issued pursuant to the provisions of
Section 9.06(d), (a) the Borrower shall again execute additional promissory
notes identical to any new Notes issued by the Borrower and (b) the
Administrative Agent shall be authorized to exchange the promissory notes held
pursuant to the provisions of this Section 5.09 for the duplicates of the new
Notes.
Section 5.10 Insurance. The Borrower will maintain, and cause each of its
---------
Subsidiaries to maintain, the insurance required pursuant to Schedule 5.10.
Section 5.11 Casualty; Condemnation.
----------------------
(a) Any proceeds collected (the "Proceeds") under any fire or other physical
damage insurance policy described in this Agreement pertaining to any Hotel
Property (excluding the Permitted Other Subsidiary Properties) shall be
disbursed as provided in this Section 5.11. If (i) both (A) the Proceeds for
any casualty are in excess of twenty five percent (25%) of the Real Estate Value
of the Hotel Property affected by such casualty and (B) such casualty would
result in a decrease to the Borrowing Base which would require a prepayment of
the Obligations pursuant to the provisions of this Agreement, (ii) the casualty
shall have occurred within ninety (90) days of the Maturity Date or (iii) in the
Administrative Agent's discretion the casualty cannot be restored by a date
thirty (30) days prior to the Maturity Date, then at the Administrative Agent's
option and in its sole discretion, any Proceeds received by the Administrative
Agent shall be (A) disbursed to the Borrower for repairs and reconstruction;
and/or (B) applied against the outstanding principal balance of and/or unpaid
accrued interest on, the Notes in such order as the Administrative Agent chooses
in its sole discretion . If the Proceeds are not applied against the Notes as
provided in the preceding sentence, any Proceeds received by the Administrative
Agent shall be disbursed to the Borrower for repairs and reconstruction as
provided in Section 5.11(b) but only upon fulfillment of each of the following
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conditions within 90 days following the occurrence of the damage for which the
Proceeds are collected:
(i) The Borrower shall demonstrate to the Administrative Agent's reasonable
satisfaction that the Proceeds, together with amounts deposited by the
Borrower pursuant to subparagraph (ii) will be adequate to accomplish the
repair and reconstruction of the Improvements and to restore the fair market
value of the Hotel Property to at least the value it had immediately prior to
sustaining the damage. Such demonstration shall include delivery to the
Administrative Agent of (i) plans and specifications satisfactory to the
Administrative Agent; and (ii) a construction contract in form and content,
and with a contractor, satisfactory to the Administrative Agent.
(ii) To the extent that the Proceeds are insufficient in the reasonable
determination of the Administrative Agent to accomplish the repairs and
reconstruction required above, the Borrower shall deliver to the
Administrative Agent funds (the "Shortfall Funds") in the amount of such
shortfall, which funds shall be, at the Administrative Agent's option,
assigned to the Administrative Agent as security for the Borrower's
obligations hereunder and shall be maintained with the Administrative Agent
and disbursed in the same manner as the Proceeds.
(iii) The Borrower shall execute such documents, in form and content
satisfactory to the Administrative Agent, as the Administrative Agent requires
to evidence and secure the Borrower's obligation to use all amounts disbursed
for the prompt repair and reconstruction of the Hotel Property in accordance
with the plans and specifications approved by the Administrative Agent.
(iv) There shall have occurred no Default which is continuing or has not
otherwise been cured or waived, and the Administrative Agent shall have
received a certificate to that effect signed by a Responsible Officer of the
Borrower.
(b) Any Proceeds and Shortfall Funds to be disbursed to the Borrower shall be
held by the Administrative Agent and disbursed at such times and in such amounts
as the Administrative Agent shall reasonably deem necessary to fund the ongoing
repairs, provided the Administrative Agent is satisfied with such repairs. The
Administrative Agent shall have no obligation to disburse proceeds more than
once per month. Any amounts remaining undisbursed following completion of (and
full payment for) such repairs and reconstruction shall be returned to the
Borrower up to the amount of
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any Shortfall Funds deposited by Borrower, and any other amounts remaining shall
be applied against the outstanding principal balance of and/or unpaid accrued
interest on, the Notes, in such order as the Administrative Agent chooses in its
sole discretion.
(c) In the event the Borrower fails to fulfill the conditions set forth in
Sections 5.11(a)(i)-(iv) within 90 days following the date on which the damage
occurs, the Proceeds shall be applied by the Administrative Agent against the
outstanding principal balance of and/or unpaid accrued interest on, the Notes in
such order as the Administrative Agent chooses in its sole discretion.
(d) The Borrower hereby assigns to the Administrative Agent, as security for
the Borrower's obligations under the Credit Documents, all compensation, awards
and other amounts payable to the Borrower in connection with any taking of any
portion of a Hotel Property for public use, and any proceeds of any related
settlement regardless of whether eminent domain proceedings are instituted in
connection therewith (collectively, "Compensation"). The Borrower shall deliver
all Compen sation to the Administrative Agent immediately upon receipt. If
such condemnation or taking would result in a decrease to the Borrowing Base
which would require a prepayment of the Obligations pursuant to the provisions
of this Agreement at the Administrative Agent's option and in its sole
discretion, any Compensation received by the Administrative Agent shall be (i)
disbursed to Borrower for repairs and reconstruction; and/or (ii) paid to
Borrower; and/or (iii) applied against the outstanding principal balance of
and/or unpaid accrued interest on, the Notes in such order as the Administrative
Agent chooses in its sole discretion; all in accordance with the rights,
procedures and other provisions set forth in Sections 5.11(a)-(c) for the
application of casualty insurance proceeds. Otherwise, the Compensation shall be
disbursed by the Administrative Agent to Borrower for repairs and
reconstruction.
Section 5.12 Cash Management Systems. The Borrower shall, and shall cause
-----------------------
each of its Subsidiaries and each Participating Lessee to, maintain the Cash
Management Systems with respect to each of the Hotel Properties other than the
Permitted Other Subsidiary Properties. The applicable Participating Lessee
shall establish separate Deposit Accounts for each Hotel Property with financial
institutions having offices in the same locale as the applicable Hotel Property.
The Deposit Accounts for the Eligible Properties shall be subject to a
Depository Account Agreement in form satisfactory to the Agents. The applicable
Participating Lessee also shall establish with the Cash Manager a separate
Operating Account (Participating Lessee) for each Hotel Property other than the
Permitted Other Subsidiary Properties. The Borrower also shall establish with
the Cash Manager the Borrower's Bank Accounts. As of the Effective Date,
collections of cash and cash equivalents for
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each Hotel Property (except for any Permitted Other Subsidiary Properties
and any Permitted Non-Eligible Property) shall be deposited on a daily basis by
the applicable Participating Lessee into the Deposit Account established for
such Hotel Property as part of the Cash Management System (Participating
Lessee). The Borrower shall cause the Deposit Account for each Hotel Property
(except for any Permitted Other Subsidiary Property and any Permitted Non-
Eligible Property) to be swept at the end of each Business Day into the
respective Operating Account (Participating Lessee) for such Hotel Property to
reduce the net daily balance of good funds in such Deposit Account to an amount,
sufficient in the reasonable opinion of the Agents, to cover usual and customary
account fees and chargebacks applicable to such Deposit Account. As provided in
the Irrevocable Direction to Pay Rent, the rental payments and other sums owed
by the Participating Lessee to the Borrower and the Borrower's Subsidiaries
under the Participating Leases (except for Permitted Other Subsidiary
Properties) shall be paid into the Concentration Bank Account established as
part of the Cash Management System (Borrower) for the purpose of holding and
investing such rental payments. Except as provided in subsection (b) below, the
Parent, the Borrower, and their Subsidiaries shall have no right to withdraw
funds from, or otherwise transfer, pledge or assign any funds in the Borrower's
Bank Accounts except the pledge to the Administrative Agent pursuant to the
Security Agreement and the Bank One Cash Management Agreement. In addition, the
Borrower shall and shall cause each of its Subsidiaries and the Participating
Lessees to, perform and comply with the following covenants and agreements:
(a) Cash, cash equivalents and other revenues shall be received and held by
the Participating Lessee and any of its officers, employees, agents, managers or
other Persons acting for or in concert with the Participating Lessee to make
collections for or on behalf of the Participating Lessee ("Collecting Agents"),
in trust for the Borrower and the Borrower's Subsidiaries as collateral for the
Participating Lessee's obligations under the Participating Lease.
Notwithstanding any other provision of this Agreement or any other Credit
Document, all such cash, cash equivalents and other revenues from the Eligible
Properties shall be paid by the Collecting Agents into Deposit Accounts subject
to a Depository Account Agreement and the Cash Management Systems. Funds
received from credit card companies pursuant to the Credit Card Agreements for
any Hotel Property (except for Permitted Other Subsidiary Properties and any
Permitted Non-Eligible Property) shall be deposited either directly into the
Operating Account ( Participating Lessee) for such Hotel Property or Deposit
Account for such Hotel Property subject to a Depository Account Agreement and
the Cash Management System (Participating Lessee).
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(b) As long as no Default shall have occurred and be continuing or would
result therefrom, the Borrower may request, but not more often than once in any
calendar week, in written certificate from a Responsible Officer that the
Administrative Agent instruct the Cash Manager to either (i) apply Dollars on
deposit in the Concentration Bank Account to pay the Obligations, (ii) transfer
such Dollars to the CAPEX Reserve, (iii) transfer such Dollars as directed by
the Borrower or its Subsidiaries to make an investment permitted by the
provisions of Section 6.07 or (iv) transfer such Dollars to any of the Operating
Accounts (Borrower) as required by the Borrower to pay for Capital Expenditures,
FF&E, insurance premiums, taxes and general operating expenses incurred in the
ordinary course of business for the Hotel Properties (except for Permitted Other
Subsidiary Properties) and to make distributions to the Borrower's or its
Subsidiaries partners as permitted by the provisions of Section 6.04, in each
case by delivering such a request to the Administrative Agent in accordance with
the provisions of the Bank One Cash Management Agreement. Upon receipt by the
Administrative Agent of such a request, the Administrative Agent shall, as
applicable, instruct the Cash Manager to apply or transfer Dollars on deposit in
the Concentration Bank Account as so requested, in each case subject to the
availability of funds on deposit in the Concentration Bank Account. Funds
transferred into any of the Operating Accounts (Borrower) shall be withdrawn by
the Borrower or its Subsidiaries, as applicable, and used to pay for those
matters for which the Borrower had made request.
(c) The Borrower or all Subsidiaries of Borrower (except for the Permitted
Other Subsidiaries) irrevocably makes, constitutes and appoints the
Administrative Agent, and all Persons designated by Administrative Agent for
that purpose (including the Cash Manager), at any time, as such Person's true
and lawful attorney-in-fact to, during the continuance of an Event of Default,
endorse such Person's name on any checks, notes, drafts or any other form of
payment relating to Hotel Property that come into the Administrative Agent's or
the Cash Manager's possession or under the Cash Managers or the Administrative
Agent's control; provided, however, that such appointment by such Person of the
-------- -------
Administrative Agent as such Person's attorney-in-fact shall in no case impose
upon the Administrative Agent or any such Person any obligation or duty to take
any actions on behalf of such Person or any fiduciary obligations with respect
to such Person.
(d) Within 30 days following the date of acquisition of an Initial Property
and within 30 days following the date of that the Borrower desires that a Future
Property qualify as an Eligible Property, the Borrower shall have delivered to
the Administrative Agent the Depository Account Agreements and the Credit Card
Agreements necessary to qualify such Hotel Property as an Eligible
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Property, which documents shall be in form and substance reasonably satisfactory
to the Administrative Agent
(e) No cash, cash equivalents, credit card receipts or other revenues of the
Hotel Properties owned by the Permitted Other Subsidiaries or any other assets
of the Permitted Other Subsidiaries shall be commingled with cash, cash
equivalents, credit card receipts or other revenues collected or applied
pursuant to the Cash Management Systems or collected from the Permitted Non-
Eligible Properties.
Section 5.13 Supplemental Guaranties. The Borrower has requested and the
-----------------------
Agents have agreed that any partner of the Borrower except the General Partner,
AGH LP or any Guarantor may execute a Supplemental Guaranty. However, the
execution of or release of any Supplemental Guaranty shall not be construed as a
release or modification of any obligation of a Guarantor under a Guaranty or
Environmental Indemnity.
Section 5.14 Participating Leases. Upon knowledge of a default by a
--------------------
Participating Lessee under a Participating Lease or a Participating Lessee
Document, the Borrower will send, or will cause the Guarantor who is a party to
such Participating Lease or Participating Lessee Document to send, a notice of
such default to such Participating Lessee as provided in the document under
which such default has occurred.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Note or any amount under any Credit Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have
any Commitment, the Borrower agrees, unless the Administrative Agent shall
otherwise consent in writing, to comply with the following covenants.
Section 6.01 Liens, Etc. The Borrower will not create, assume, incur or
----------
suffer to exist, or permit any of its Subsidiaries (except for Permitted Other
Subsidiaries) to create, assume, incur, or suffer to exist, any Lien on or in
respect of any of its Property whether now owned or hereafter acquired, or
assign any right to receive income, except that the Borrower and its
Subsidiaries may create, incur, assume or suffer to exist Liens:
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(a) securing the Obligations;
(b) for taxes, assessments or governmental charges or levies on Property of
the Borrower or any Guarantor to the extent not required to be paid pursuant to
Sections 5.03;
(c) Liens imposed by law (such as landlords', carriers', warehousemen's and
mechanics' liens or otherwise arising from litigation) (a) which are being
contested in good faith and by appropriate proceedings, (b) with respect to
which reserves in conformity with GAAP have been provided, (c) such Liens are
subordinate to the Liens of the Security Documents and no portion of any Hotel
Property is in jeopardy of being sold, forfeited or lost during or as a result
of such contest, (d) neither the Agents nor any Bank could become subject to any
civil fine or penalty or criminal fine or penalty, in each case as a result of
non-payment of such charge or claim and (e) such contest does not, and could not
reasonably be expected to, result in a Material Adverse Change; and
(d) on leased personal property to secure solely the lease obligations
associated with such property.
Section 6.02 Indebtedness. The Borrower will not incur or permit to exist, or
------------
permit any of its Subsidiaries to incur or permit to exist, any Indebtedness
other than the Obligations and the following:
(a) Permitted Other Subsidiary Indebtedness;
(b) Indebtedness in the form of Capital Leases for any particular Hotel
Property which have over the term of such Capital Leases payments in the
aggregate for all such Capital Leases for such Hotel Property for an amount
which does not exceed the Hotel Capital Lease Limit for such Hotel Property;
(c) Debt in the form of accounts payable to trade creditors for goods or
services for which not more than $50,000.00 for any two Hotel Properties is aged
more than 60 days from the billing date, incurred in the ordinary course of
business, as presently conducted, and paid within the specified time, unless
contested in good faith and by appropriate proceedings;
(d) Debt in the form of Interest Rate Agreements; provided that (i) such
Interest Rate Agreements shall only be entered into with one or more of the
Banks, (ii) the term of such Interest
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<PAGE>
Rate Agreements shall not expire after the Maturity Date, (iii) the dollar
amount of indebtedness subject to such Interest Rate Agreements and the
indebtedness subject to the agreements referenced in clause (f) in the last
paragraph of this Section 6.02 in the aggregate shall not exceed the amount of
the Commitments, and (iv) the Interest Rate Agreements shall be at such interest
rates and otherwise in form and substance reasonably acceptable to the
Documentation Agent; and
(e) extensions, renewals and refinancing of any of the Indebtedness specified
in paragraphs (a) - (b) above so long as the principal amount of such
Indebtedness is not thereby increased.
The Borrower will cause the Parent and the Parent's Other Subsidiaries not to
incur or permit to exist any Indebtedness (except for Indebtedness of the type
listed in clauses (b) and (c) above) without the Majority Bank's written
consent; provided that such consent shall not be withheld if such Indebtedness
will not cause the Borrower or the Parent to breach another covenant of this
Credit Agreement and such Indebtedness will not cause a Material Adverse Change.
The Banks hereby consent to the Parent:
(a) guarantying Permitted Other Subsidiary Indebtedness if such guaranty will
not cause the Parent to breach another covenant of this Credit Agreement;
(b) guarantying in connection with the Indebtedness secured by the Meadowlands
(i) the payment of rent under the ground lease relating to the Meadowlands, (ii)
real estate taxes relating to the Meadowlands, (iii) capital reserves required
under such Indebtedness, and (iv) after a default under such Indebtedness, the
base rent under the applicable participating lease will be applied to such
Indebtedness;
(c) executing indemnities for certain acts of malfeasance, misappropriation
and misconduct and an environmental indemnity for the lender under the
Indebtedness secured by the DFW South;
(d) executing indemnities for certain acts of malfeasance, misappropriation
and misconduct by the Permitted Other Subsidiaries and environmental
indemnities, all for the benefit of the lenders of other Permitted Other
Subsidiary Indebtedness in connection with such Indebtedness;
(e) executing guaranties of the Franchise Agreements; and
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<PAGE>
(f) incurring Debt in the form of interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements or other similar agreements
or arrangements designed to protect the Parent against fluctuations in interest
rates; provided that (i) such agreements shall be unsecured, (ii) the dollar
amount of indebtedness subject to such agreements and the indebtedness subject
to Interest Rate Agreements in the aggregate shall not exceed the amount of the
Commitments, and (iii) the agreements shall be at such interest rates and
otherwise in form and substance reasonably acceptable to the Documentation
Agent.
Section 6.03 Agreements Restricting Distributions From Subsidiaries. The
------------------------------------------------------
Borrower will not, nor will it permit any of its Subsidiaries (other than
Permitted Other Subsidiaries) to, enter into any agreement (other than a Credit
Document) which limits distributions to or any advance by any of the Borrower's
Subsidiaries to the Borrower.
Section 6.04 Restricted Payments. The Borrower will not, and will not permit
-------------------
any of its Subsidiaries to, make any Restricted Payment, except that:
(a) a Subsidiary of the Borrower may make a Restricted Payment to the
Borrower,
(b) provided no Default has occurred and is continuing or would result
therefrom, the Borrower may in any calendar quarter, based on the Rolling Period
for such calendar quarter, make cash distributions to its partners (including in
connection with the repurchase of partnership interests in the Borrower) which
with the previous cash distributions (including in connection with the
repurchase of partnership interests in the Borrower) in such Rolling Period are
not in excess of 90% of Funds from Operations during such Rolling Period (such
limitation commencing with the Rolling Period ending June 30, 1997);
(c) the Borrower shall be entitled to distribute to its partners a sufficient
amount received from an Asset Sale in excess of that which would be required to
be used to repay Obligations pursuant to the terms of this Agreement which would
be necessary to permit the Parent to maintain the Parent's status as a real
estate investment trust under the Code;
(e) the limited partners of the Borrower shall be entitled to exchange
limited partnership interests in the Borrower for the Parent's stock in
accordance with the Registration Statement; and
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<PAGE>
(f) the Borrower shall be entitled to issue limited partnership interests in
the Borrower in exchange of ownership interests in Permitted New Subsidiaries
which own a Future Property.
Section 6.05 Fundamental Changes; Asset Sales. The Borrower will not, and
--------------------------------
will not permit any of its Subsidiaries (other than the Permitted Other
Subsidiaries) to, (a) merge or consolidate with or into any other Person, unless
(i) a Guarantor is merged into the Borrower and the Borrower is the surviving
Person or a Subsidiary (other than a Permitted Other Subsidiary) is merged into
any Subsidiary (other than a Permitted Other Subsidiary), and (ii) immediately
after giving effect to any such proposed transaction no Default would exist; (b)
sell, transfer, or otherwise dispose of all or any of the Borrower's or any of
the Borrower's Subsidiary's Property except for a Permitted Hotel Sale, a
Permitted Personal Property Replacement or Hotel Properties which are not
Eligible Properties; (c) enter into a Material Lease (other than a Participating
Lease) of all or any portion of any Eligible Property with any Person without
the consent of the Administrative Agent; (d) sell or otherwise dispose of any
shares of capital stock, membership interests or partnership interests of any
Subsidiary (except for a Permitted Other Subsidiary); (e) except for sales of
ownership interests permitted under this Agreement and the issuance of limited
partnership interests in the Borrower in exchange for ownership interests in an
Eligible Property, a Permitted Non-Eligible Property or a Permitted New
Subsidiary, alter the corporate, capital or legal structure of the Borrower or
any of its Subsidiaries (except for a Permitted Other Subsidiary); (f)
incorporate or otherwise organize any Subsidiaries except a Permitted New
Subsidiary; (g) liquidate, wind-up or dissolve itself (or suffer any liquidation
or dissolution) provided that nothing herein shall prohibit the Borrower from
dissolving any Subsidiary which has no assets on the date of dissolution.
Section 6.06 Personal Property Leases. For any Eligible Property, the
------------------------
Borrower will not, and will not permit any of its Subsidiaries to (a) enter into
leases of Personal Property which constitute Capital Leases in excess of the
Hotel Capital Lease Limit or (b) enter into leases of Personal Property which do
not constitute Capital Leases in excess of the Hotel Operating Lease Limit.
Section 6.07 Investments, Loans, Future Properties. The Borrower will not,
-------------------------------------
and will not permit any of its Subsidiaries to, acquire by purchase or otherwise
all or substantially all the business, property or fixed assets of any Person or
any Hotel Property, make or permit to exist any loans, advances or capital
contributions to, or make any investment in, or purchase or commit to purchase
any evidences of indebtedness of, stock or other securities, partnership
interests, member interests or other interests in any Person, except the
following (provided that after giving effect thereto there shall exist no
Default):
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<PAGE>
(a) the purchase of Liquid Investments with the Administration Agent;
(b) trade and customer accounts receivable (including in connection with the
sale of used FF&E) which are for goods furnished or services rendered in the
ordinary course of business and are payable in accordance with customary trade
terms;
(c) wholly-owned Subsidiaries which own an Initial Property;
(d) Permitted Other Subsidiaries which own Permitted Other Subsidiary
Properties;
(e) a Future Property which qualifies as an Eligible Property or a Permitted
Non-Eligible Property;
(f) contributions to, or capital investments in a Person which, prior to such
contribution or investment, is not a Subsidiary but which becomes a Permitted
New Subsidiary as a result of such contribution or investment and which
Permitted New Subsidiary uses such contributions or capital investments to make
an acquisition of a Future Property permitted under the preceding clause (e);
(g) a loan to the Participating Lessee in amount sufficient to allow the
Participating Lessee to purchase Personal Property from the Property Owners of
the Hotel Properties which qualify as either an Eligible Property, a Permitted
Non-Eligible Property or a Permitted Other Subsidiary Property so that the
ownership of Personal Property by such Property Owners does not cause the Parent
to forfeit the Parent's status as a real estate investment trust under the Code;
(h) receivables purchased in connection with the acquisition of a Hotel
Property; and
(i) other assets owned in the ordinary course of owning the Borrower's and
the Borrower's Subsidiaries' Hotel Properties.
Section 6.08 Affiliate Transactions. Except for the Management Agreements,
----------------------
the Participating Lease Agreements, the Liquor License Concession Agreements,
the transactions described in Section 6.07(g) and the purchase by the Borrower
or one of its Subsidiaries of the Madison, Wisconsin Ramada currently owned by
an Affiliate of the Borrower at a purchase price equal to or less than (a) the
fair market value for such property at the time of entering into such purchase
agreement, as confirmed by an Appraisal plus (b) the costs of Capital
Expenditures and FF&E for such property
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<PAGE>
incurred in connection with the major renovation of such property contemplated
by such agreement, the costs of financing such expenditures, and carrying costs
and pre-opening costs for such property during the period of construction, and
as expressly permitted elsewhere in this Agreement, the Borrower will not, and
will not permit any of its Subsidiaries to, make, directly or indirectly: (a)
any transfer, sale, lease, assignment or other disposal of any assets to any
Affiliate of the Borrower or any purchase or acquisition of assets from any such
Affiliate except for sales of new Personal Property (i) which in any calendar
year do not exceed $1,000,000 in the aggregate and (ii) for which the sales
price is the actual cost to the party selling; or (b) any arrangement or other
transaction directly or indirectly with or for the benefit of any such Affiliate
(including without limitation, guaranties and assumptions of obligations of an
Affiliate), other than in the ordinary course of business and at market rates.
Section 6.09 Sale and Leaseback. The Borrower will not, and will not permit
------------------
any of its Subsidiaries to, enter into any arrangement with any Person, whereby
in contemporaneous transactions the Borrower or such Subsidiary sells
essentially all of its right, title and interest in a material asset and the
Borrower or such Subsidiary acquires or leases back the right to use such
property.
Section 6.10 Sale or Discount of Receivables. The Borrower will not, and
-------------------------------
will not permit any of its Subsidiaries to, directly or indirectly, sell with
recourse, or discount or otherwise sell for less than the face value thereof,
any of its notes or accounts receivable.
Section 6.11 No Further Negative Pledges. The Borrower will not, and will not
---------------------------
permit any of its Subsidiaries to, enter into or suffer to exist any agreement
(other than this Agreement and the Credit Documents) (a) prohibiting the
creation or assumption of any Lien upon the Properties of the Borrower or any of
its Subsidiaries (except for the Permitted Other Subsidiaries), whether now
owned or hereafter acquired, or (b) requiring an obligation to be secured if
some other obligation is or becomes secured.
Section 6.12 Franchise Agreements. The Borrower will not, nor will it permit
--------------------
any of its Subsidiaries (other than Permitted Other Subsidiaries) or any
Participating Lessee (other than as a lessee of a Permitted Other Subsidiary
Property) to (a) enter into a new Franchise Agreement except in connection with
(i) the acquisition of a Future Property or (ii) the conversion of a Hotel
Property from one franchise to another franchise which conversion has been
approved by the Majority Banks or (b) enter into any termination, or material
modification or amendment of any Franchise
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Agreement except in connection with the conversion of a Hotel Property from one
franchise to another franchise which conversion has been approved by the
Majority Banks.
Section 6.13 Material Documents. The Borrower will not, nor will it permit
------------------
any of its Subsidiaries (other than Permitted Other Subsidiaries) or any
Participating Lessee (other than as a lessee of a Permitted Other Subsidiary
Property) to, enter into any termination, modification or amendment of any:
(a) Management Agreement;
(b) Participating Lease;
(c) Ground Lease; and
(d) Participating Lessee Document.
The Borrower will not, nor will it permit any of its Subsidiaries (other than
Permitted Other Subsidiaries) or any Participating Lessee to, enter into any
termination or material modification or material amendment of any:
(a) Acquisition Agreement;
(b) Material Lease;
(c) Liquor License Concession Agreement and any agreements related to the
liquor license(s); and
(d) Any other material agreement.
Any termination, modification or amendment prohibited under this Section 6.13
without the Administrative Agent's written consent shall, to the extent
permitted by applicable law, be void and of no force and effect. The Borrower
will not, nor will it permit any of its Subsidiaries (other than Permitted Other
Subsidiaries) or any Participating Lessee (other than as a lessee of a Permitted
Other Subsidiary Property) to, enter into a Participating Lease which does not
provide for (i) base rent to be paid on a weekly basis starting in the second
month of the commencement of the Participating
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Lease or (ii) the participating rent to be paid on monthly estimates with a
quarterly reconciliation which payments shall be made on the 10th day of the
first and third month of every calendar quarter and on the last day of the first
month of every calendar quarter.
Section 6.14 Other Businesses; Undeveloped Land. The Borrower will not, and
----------------------------------
will not permit the Parent or any of their respective Subsidiaries to, (a)
substantially alter the character of their respective businesses from that
conducted as of the date of this Agreement or (b) acquire or develop any real
property except for the expansion of the Permitted Other Subsidiary Properties,
the 100 room expansion contemplated for the Arlington Heights, Illinois
Radisson, the 42 room expansion currently underway for the Durham, North
Carolina Hilton or for the acquisition of Land in connection with the expansion
of an existing Hotel Property which expansion will not cost in excess of the
lesser of (i) $1,000,000 or (ii) five percent (5%) of the Cost Basis of such
Hotel Property.
Section 6.15 Borrower Debt Service Ratio. The Borrower will not permit the
---------------------------
ratio, determined as of the last day of each calendar quarter (commencing with
the quarter ending June 30, 1997), of (a) Borrowing Base EBITDA for the Rolling
Period ending on such date to (b) the product of (i) the Consolidated
Indebtedness of the Borrower and the Borrower's Subsidiaries (other than the
Permitted Other Subsidiaries) as of such date times (ii) the Debt Service Rate
-----
for such Indebtedness for such Rolling Period, to be less than 1.75 to 1.0.
Section 6.16 Parent Debt Service Ratio. The Borrower will not permit the
-------------------------
ratio, determined as of the last day of each calendar quarter (commencing with
the quarter ending June 30, 1997), of (a) the Property EBITDA of all Hotel
Properties owned by the Parent and the Parent's Subsidiaries (including without
limitation the Borrower, the Borrower's Subsidiaries and the Permitted Other
Subsidiaries) for the Rolling Period ending on such date to (b) the product of
(i) the Consolidated Indebtedness of the Parent and the Parent's Subsidiaries as
of such date times (ii) the Debt Service Rate for such Indebtedness for such
-----
Rolling Period, to be less than 1.75 to 1.0.
Section 6.17 Net Worth. The Borrower will not permit the Parent's
---------
Consolidated Net Worth at any time, tested quarterly, to be less than the sum of
(a) $221,000,000 plus ( b) 75% of the Net Cash Proceeds from a Parent
----
Capitalization Event after the Effective Date involving any sale or issuance by
the Parent or any of its Subsidiaries of equity securities.
Section 6.18 Bank Accounts.
-------------
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(a) Location of Borrower's Bank Accounts. Neither the Borrower nor any of
------------------------------------
its Subsidiaries (except the Permitted Other Subsidiaries) shall maintain
accounts with any bank or financial institution except those accounts in the
Cash Management System (Borrower) and the Borrower's bank account in New York
described in Section 4.21.
(b) Concentration Bank Accounts. Neither the Borrower nor any Guarantor
---------------------------
shall move or cancel any of the Borrower's Bank Accounts or make any changes to
the Cash Management System (Borrower) without the prior written consent of the
Administrative Agent.
(c) Location of Participating Lessee Bank Accounts. The Participating
----------------------------------------------
Lessees shall not maintain accounts with any bank or financial institution
except those accounts in the Cash Management System (Participating Lessee) and
those accounts maintained in connection with the Permitted Other Subsidiary
Properties.
ARTICLE VII
EVENTS OF DEFAULT; REMEDIES
Section 7.01 Events of Default. The occurrence of any of the following
-----------------
events shall constitute an "Event of Default" under any Credit Document:
(a) Principal or Reimbursement Obligation Payment. The Borrower shall fail
---------------------------------------------
to pay any principal of any Note or any Reimbursement Obligation when the same
becomes due and payable as set forth in this Agreement;
(b) Interest or Other Obligation Payment. The Borrower shall fail to pay
------------------------------------
any interest on any Note or any fee or other amount payable hereunder or under
any other Credit Document when the same becomes due and payable as set forth in
this Agreement, provided however that the Borrower will have a grace period of
five days after the payments covered by this Section 7.01(b) becomes due and
payable for the first two defaults under this Section 7.01(b) in every calendar
year;
(c) Representation and Warranties. Any representation or warranty made or
-----------------------------
deemed to be made (i) by the Borrower in this Agreement or in any other Credit
Document, (ii) by the Borrower (or any of its officers) in connection with this
Agreement or any other Credit Document, or (iii) by
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any Subsidiary in any Credit Document shall prove to have been incorrect in any
material respect when made or deemed to be made;
(d) Covenant Breaches. (i) The Borrower shall fail to perform or observe any
-----------------
covenant contained in Sections 5.02, 5.03, Section 5.11, Section 5.05 (f), (g),
(h), (i), (l) or (n) or Article VI of this Agreement or the Borrower shall fail
to perform or observe, or shall fail to cause any Guarantor to perform or
observe any covenant in any Security Document beyond any notice and/or cure
period for such default expressly provided in such Security Document or (ii) the
Borrower or any Guarantor shall fail to perform or observe any term or covenant
set forth in any Credit Document which is not covered by clause (i) above or any
other provision of this Section 7.01, in each case if such failure shall remain
unremedied for 30 days after the earlier of the date written notice of such
default shall have been given to the Borrower or such Guarantor by the
Administrative Agent or any Bank or the date a Responsible Officer of the
Borrower or any Guarantor has actual knowledge of such default, unless such
default in this clause (ii) cannot be cured in such 30 day period and the
Borrower is diligently proceeding to cure such default, in which event the cure
period shall be extended to 90 days;
(e) Cross-Defaults. (i) The Borrower, the Parent or any of their respective
--------------
Subsidiaries shall fail to pay any principal of or premium or interest on its
Indebtedness which is outstanding in a principal amount of at least $5,000,000
individually or when aggregated with all such Indebtedness of the Borrower, the
Parent or any of their respective Subsidiaries so in default (but excluding
Indebtedness evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Indebtedness;
(ii) any other event shall occur or condition shall exist under any agreement or
instrument relating to Indebtedness which is outstanding in a principal amount
of at least $5,000,000 individually or when aggregated with all such
Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries
so in default, and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate the maturity of such Indebtedness; or (iii) any such
Indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof;
(f) Insolvency. The Borrower, the Parent, any of their respective
----------
Subsidiaries, or the Participating Lessee for 3 or more Eligible Properties
shall generally not pay its debts as such debts
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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 the Borrower, the Parent, any of
their respective Subsidiaries, or the Participating Lessee for 3 or more
Eligible Properties 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 receiver, trustee or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against the Borrower, the Parent, any of their
respective Subsidiaries, or the Participating Lessee for 3 or more Eligible
Properties, either such proceeding shall remain undismissed for a period of 60
days or any of the actions sought in such proceeding shall occur; or the
Borrower, the Parent, any of their respective Subsidiaries, or the Participating
Lessee for 3 or more Eligible Properties shall take any corporate action to
authorize any of the actions set forth above in this paragraph (f);
(g) Judgments. Any judgment or order for the payment of money in excess of
---------
$5,000,000 (reduced for purposes of this paragraph for the amount in respect of
such judgment or order that a reputable insurer has acknowledged being payable
under any valid and enforceable insurance policy) shall be rendered against the
Borrower, the Parent or any of their respective Subsidiaries which, within 30
days from the date such judgment is entered, shall not have been discharged or
execution thereof stayed pending appeal;
(h) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as
-----
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is likely to result in the termination of such Plan for
purposes of Title IV of ERISA, unless such Reportable Event, proceedings or
appointment are being contested by the Borrower in good faith and by appropriate
proceedings, (iv) any Plan shall terminate for purposes of Title IV of ERISA,
(v) the Borrower or any member of a Controlled Group shall incur any liability
in connection with a withdrawal from a Multiemployer Plan or the insolvency
(within the meaning of Section 4245 of ERISA) or reorganization (within the
meaning of Section 4241 of ERISA) of a Multiemployer Plan, unless such liability
is being contested by the Borrower in good faith and by appropriate proceedings,
or (vi) any other event or condition shall occur or exist, with respect to a
Plan; and in each case in
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clauses (i) through (vi) above, such event or condition, together with all other
such events or conditions, if any, could subject the Borrower or any Guarantor
to any tax, penalty or other liabilities in the aggregate exceeding $10,000,000;
(i) Guaranty. Any provision of any Guaranty except a Supplemental Guaranty
--------
shall for any reason cease to be valid and binding on any Guarantor or any
Guarantor shall so state in writing;
(j) Environmental Indemnity. Any provision of any Environmental Indemnity
-----------------------
shall for any reason cease to be valid and binding on any Person party thereto
or any such Person shall so state in writing;
(k) Invalidity of Subordination Provisions. The subordination provisions in
--------------------------------------
the Mortgages which provide for the subordination of the Participating Leases to
the liens and security interests securing the Obligations shall be invalidated
or otherwise cease to be in full force and effect;
(l) Franchise Agreement. With respect to any Hotel Property other than a
-------------------
Permitted Other Subsidiary any Franchise Agreement has been terminated and not
replaced within 60 days of such termination with a temporary Franchise Agreement
with a nationally recognized Franchisor acceptable to the Majority Banks, any
temporary Franchise Agreement has been terminated and not replaced with a long-
term Franchise Agreement with a nationally recognized Franchisor acceptable to
the Majority Banks, or any three (3) Franchise Agreements shall be in default at
the same time;
(m) Default Under Ground Lease. The occurrence of a default under any Ground
--------------------------
Lease (other than a Ground Lease affecting a Permitted Other Subsidiary
Property) which has not been cured or waived (i) 10 days prior to the date the
ground lessor under such Ground Lease would have the right to terminate such
Ground Lease and (ii) in any event within 30 days of the occurrence of such
default;
(n) Manager. The Participating Lessee of a Hotel Property other than a
-------
Permitted Other Subsidiary Property shall not have replaced the Manager with a
reputable, nationally known, third party manager acceptable to the Majority
Banks within 120 days of the occurrence of any of the following: Any
Management Agreement shall have been terminated except in connection with an
Asset Sale, or the Manager shall have a Consolidated Net Worth of less than
negative $300,000, or 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
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proceeding shall be instituted by or against the Manager 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 receiver, trustee or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against the Manager or any of its Subsidiaries,
either such proceeding shall remain undismissed for a period of 60 days or any
of the actions sought in such proceeding shall occur; or the Manager or any of
its Subsidiaries shall take any corporate action to authorize any of the actions
set forth above in this paragraph (n); or
(o) Parent's REIT Status. There shall be a determination from the
--------------------
applicable Governmental Authority from which no appeal can be taken that the
Parent's tax status as a real estate investment trust under Sections 856-860 of
the Code has been lost.
(p) Parent's Indebtedness; Other Tests. Either of the following events
----------------------------------
continues to exist 5 days following the initial occurrence thereof: (i) the
aggregate Indebtedness of the Parent and the Parent's Subsidiaries (including
without limitation the Borrower, the Borrower's Subsidiaries and the Permitted
Other Subsidiaries) exceeds the lesser of (A) 50% (45% following a Ratio
Modification Event) of the Real Estate Value of all Hotel Properties owned by
the Parent and the Parent's Subsidiaries (including without limitation the
Borrower, the Borrower's Subsidiaries and the Permitted Other Subsidiaries); and
(B) the product of (A) the aggregate trailing 12 months Property EBITDA for all
Hotel Properties owned by the Parent and the Parent's Subsidiaries (including
without limitation the Borrower, the Borrower's Subsidiaries and the Permitted
Other Subsidiaries) multiplied by (B) 5.25 (5.0 following the earlier of (i) a
Ratio Modification Event or (ii) June 30, 1998) or (ii) the Parent and the
Parent's Subsidiaries fail to comply with the covenants set forth in Section
6.16 and 6.17.
(q) Parent Common Stock; Parent Capitalization Event The Parent at any time
------------------------------------------------
hereafter fails to (a) cause the Parent Common Stock to be duly listed on the
New York Stock Exchange, Inc. and (b) file timely all reports required to be
filed by the Parent with the New York Stock Exchange, Inc. and the Securities
and Exchange Commission and, with respect to a failure under clause (b), such
failure remains uncured on the date which is the earlier of (i) the date 30 days
following the initial occurrence of such failure and (ii) the date specified by
the New York Stock Exchange, Inc. or the Securities and Exchange Commission as
the date such failure needs to be cured by. Upon the receipt by the Parent of
any Net Cash Proceeds from a Parent Capitalization Event, (a) the Parent
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fails to immediately make a capital contribution to the Borrower in the
aggregate amount of such Net Cash Proceeds or (b) the Borrower fails to apply
such Net Cash Proceeds to repay any outstanding principal of the Notes, and
accrued and unpaid interest thereon and other amounts payable by the Borrower in
respect thereof.
(r) Changes in Ownership. Any of the following occur without the written
--------------------
consent of the Agents: (a) the Parent owns less than 100% of the stock and
beneficial ownership interest in the General Partner and AGH LP; (b) the General
Partner and AGH LP (i) amend the Borrower's partnership agreement in any
material respect, (ii) admit a new general partner to the Borrower, or (iii) own
less than 51% of the partnership interests in and beneficial ownership of the
Borrower; (c) the General Partner resigns as general partner of the Borrower;
(d) James Sowell, Louis Shaw, Kenneth Shaw, Steve D. Jorns, Bruce G. Wiles and
their respective Associates legally and beneficially own less than 65% of the
outstanding shares of the Manager common stock; (e) Steve D. Jorns, Bruce G.
Wiles or any of their respective Associates sells or assigns either the legal or
beneficial interest in any outstanding shares of the Manager common stock except
to Steve D. Jorns, Bruce G. Wiles or any of their respective Associates; (f)
James Sowell, Louis Shaw, Kenneth Shaw, Steve D. Jorns, Bruce G. Wiles and their
respective Associates legally and beneficially owns less than 65% of the
partnership interests in AGH Leasing; (g) Steve D. Jorns, Bruce G. Wiles,
Kenneth E. Barr or any of their respective Associates sells or assigns either
the legal or beneficial interest in any partnership interests in AGH Leasing
except to Steve D. Jorns, Bruce G. Wiles, Kenneth E. Barr or any of their
respective Associates; (h) Steve D. Jorns or Kenneth E. Barr or any of their
respective Associates sells or assigns either the legal or beneficial interest
in the Parent or the Borrower except (1) to their respective Associates and (2)
in connection with a Permitted Officer Assignment; (i) the Parent shall cease to
employ Steve D. Jorns as the president and chief executive officer of the Parent
and, within 180 days following the termination of such employment of Mr. Jorns
for any reason, another person reasonably acceptable to the Agents is not
employed as the president and chief executive officer of the Parent; (j) the
Parent shall cease to employ Kenneth E. Barr as the chief financial officer of
the Parent and, within 180 days following the termination of such employment of
Mr. Barr for any reason, another person reasonably acceptable to the Agents is
not employed as the chief financial officer of the Parent; (k) unless TT Leasing
is no longer a Participating Lessee or has been merged into AGH Leasing, AGH
Leasing sells or assigns either the legal or beneficial interest in any
partnership interests in TT Leasing except to Steve D. Jorns, Bruce G. Wiles,
Kenneth E. Barr, James Sowell, Louis Shaw, Kenneth Shaw or any of their
respective Associates or (l) AGH Leasing, Steve D. Jorns, Bruce G. Wiles,
Kenneth E. Barr, James Sowell, Louis Shaw,
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Kenneth Shaw or any of their respective Associates is no longer the sole general
partner of TT Leasing, provided, however, TT Leasing can be merged into AGH
Leasing.
(s) Participating Lessee. Either (i) a default by the Participating Lessee
--------------------
shall occur under any Participating Lease or Participating Lessee Document or
Participating Lessee Estoppel related to 3 or more Eligible Properties which
shall remain uncured following any notice and cure period under such document,
(ii) the Participating Lessee suffers to exist (for a period in excess of 30
days), creates, assumes or incurs, any Lien on or in respect of any of the
Participating Lessee Pledged Property whether now owned or hereafter acquired,
or assigns any right to receive income except for those Liens created pursuant
to the Participating Lessee Documents, (iii) with respect to 3 or more Eligible
Properties, (A) the Participating Lease or Participating Lessee Document for any
Hotel Property is terminated and the Administrative Agent on behalf of the Banks
no longer has a perfected first lien and security interest in the Participating
Lessee Pledged Property for such Hotel Property or (B) any Participating Lessee
Estoppel is terminated, or (iv) the Participating Lessee enters into a
Participating Lease or other material agreement except those directly related to
a Hotel Property owned by the Borrower or any of the Borrower's Subsidiaries.
Section 7.02 Optional Acceleration of Maturity. If any Event of Default
---------------------------------
(other than an Event of Default pursuant to paragraph (f) of Section 7.01) shall
have occurred and be continuing, then, and in any such event,
(a) the Administrative Agent (i) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare the
obligation of each Bank to make Advances and the obligation of each Issuing Bank
to issue, increase, or extend Letters of Credit to be terminated, whereupon the
same shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare the Notes,
all interest thereon, the Letter of Credit Obligations, and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest, all such Letter of Credit Obligations and all such
amounts shall become and be forthwith due and payable in full, without
presentment, demand, protest or further notice of any kind (including, without
limitation, any notice of intent to accelerate or notice of acceleration), all
of which are hereby expressly waived by the Borrower, and
(b) the Borrower shall, on demand of the Administrative Agent at the request
or with the consent of the Majority Banks, deposit with the Administrative Agent
into the Cash Collateral
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Account an amount of cash equal to the Letter of Credit Exposure as security for
the Obligations to the extent the Letter of Credit Obligations are not otherwise
paid at such time.
Section 7.03 Automatic Acceleration of Maturity. If any Event of Default
----------------------------------
pursuant to paragraph (f) of Section 7.01 shall occur,
(a) the obligation of each Bank to make Advances and the obligation of each
Issuing Bank to issue, increase, or extend Letters of Credit shall immediately
and automatically be terminated and the Notes, all interest on the Notes, all
Letter of Credit Obligations, and all other amounts payable under this Agreement
shall immediately and automatically become and be due and payable in full,
without presentment, demand, protest or any notice of any kind (including,
without limitation, any notice of intent to accelerate or notice of
acceleration), all of which are hereby expressly waived by the Borrower and
(b) to the extent permitted by law or court order, the Borrower shall deposit
with the Administrative Agent into the Cash Collateral Account an amount of cash
equal to the outstanding Letter of Credit Exposure as security for the
Obligations to the extent the Letter of Credit Obligations are not otherwise
paid at such time.
Section 7.04 Cash Collateral Account.
-----------------------
(a) Pledge. The Borrower hereby pledges, and grants to the Administrative
------
Agent for the benefit of the Banks, a security interest in all funds held in the
Cash Collateral Account from time to time and all proceeds thereof, as security
for the payment of the Obligations, including without limitation all Letter of
Credit Obligations owing to any Issuing Bank or any other Bank due and to become
due from the Borrower to any Issuing Bank or any other Bank under this Agreement
in connection with the Letters of Credit.
(b) Application against Letter of Credit Obligations. The Administrative
------------------------------------------------
Agent may, at any time or from time to time apply funds then held in the Cash
Collateral Account to the payment of any Letter of Credit Obligations owing to
any Issuing Bank, in such order as the Administrative Agent may elect, as shall
have become or shall become due and payable by the Borrower to any Issuing Bank
under this Agreement in connection with the Letters of Credit.
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(c) Duty of Care. The Administrative Agent shall exercise reasonable care in
------------
the custody and preservation of any funds held in the Cash Collateral Account
and shall be deemed to have exercised such care if such funds are accorded
treatment substantially equivalent to that which the Administrative Agent
accords its own property, it being understood that the Administrative Agent
shall not have any responsibility for taking any necessary steps to preserve
rights against any parties with respect to any such funds.
Section 7.05 Non-exclusivity of Remedies. No remedy conferred upon the
---------------------------
Administrative Agent or the Banks is intended to be exclusive of any other
remedy, and each remedy shall be cumulative of all other remedies existing by
contract, at law, in equity, by statute or otherwise.
Section 7.06 Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent, if any, specified by Section 7.02 to authorize the
Administrative Agent to declare the Notes and any other amount payable hereunder
due and payable pursuant to the provisions of Section 7.02 or the automatic
acceleration of the Notes and all amounts payable under this Agreement pursuant
to Section 7.03, each Bank 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 such Bank to or for the credit
or the account of the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under this Agreement, the Note held by such
Bank, and the other Credit Documents, irrespective of whether or not such Bank
shall have made any demand under this Agreement, such Note, or such other Credit
Documents, and although such obligations may be unmatured. Each Bank agrees to
promptly notify the Borrower after any such set-off and application made by such
Bank, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Bank under this
Section are in addition to any other rights and remedies (including, without
limitation, other rights of set-off) which such Bank may have.
ARTICLE VIII
AGENCY AND ISSUING BANK PROVISIONS
Section 8.01 Authorization and Action. Each Bank hereby appoints and
------------------------
authorizes the Agents to take such action as Agent on its behalf and to exercise
such powers under this Agreement and the other Credit Documents as are delegated
to the Agents by the terms hereof and of the other Credit
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Documents, together with such powers as are reasonably incidental thereto. As
to any matters not expressly provided for by this Agreement or any other Credit
Document (including, without limitation, enforcement or collection of the
Notes), the Agents shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Banks, and such instructions shall be binding upon all Banks and
all holders of Notes; provided, however, that neither Agent shall be required to
--------
take any action which exposes such Agent to personal liability or which is
contrary to this Agreement, any other Credit Document, or applicable law. The
functions of the Agents are administerial in nature and in no event shall the
Agents have a fiduciary or trustee relation in respect of any Bank by reason of
this Agreement or any other Credit Document. Within 5 Business Days of the
Administrative Agent receiving actual notice (without any duty to investigate)
of a Default, the Administrative Agent will provide written notice of such
Default to the Banks.
Section 8.02 Agents' Reliance, Etc. Neither the Agents nor any of their
---------------------
respective directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken (including such Person's own negligence) by
it or them under or in connection with this Agreement or the other Credit
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, each Agent: (a) may
treat the payee of any Note as the holder thereof until such Agent receives
written notice of the assignment or transfer thereof signed by such payee and in
form satisfactory to the Administrative Agent; (b) may consult with legal
counsel (including counsel for the Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Bank and shall not be responsible to any Bank for any statements, warranties or
representations made in or in connection with this Agreement or the other Credit
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any other Credit Document on the part of the Borrower or its
Subsidiaries or to inspect the property (including the books and records) of the
Borrower or its Subsidiaries; (e) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Credit Document; and (f) shall incur no
liability under or in respect of this Agreement or any other Credit Document by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
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Section 8.03 Each Agent and Its Affiliates. With respect to its Commitment,
-----------------------------
the Advances made by it and the Notes issued to it, each Agent shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not an Agent. The term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include each Agent in its individual
capacity. Each Agent and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures of, and generally engage in any kind of
business with, the Borrower or any of its Subsidiaries, and any Person who may
do business with or own securities of the Borrower or any such Subsidiary, all
as if such Agent were not an Agent hereunder and without any duty to account
therefor to the Banks.
Section 8.04 Bank Credit Decision. Each Bank acknowledges that it has,
--------------------
independently and without reliance upon either Agent or any other Bank and based
on the financial statements referred to in Section 4.06 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it
will, independently and without reliance upon either Agent or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement.
Section 8.05 Indemnification. The Banks severally agree to indemnify each
---------------
Agent and each Issuing Bank (to the extent not reimbursed by the Borrower),
according to their respective Pro Rata Shares from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against such Agent or such Issuing Bank in
any way relating to or arising out of this Agreement or any action taken or
omitted by such Agent or such Issuing Bank under this Agreement or any other
Credit Document (including such Agent's or such Issuing Bank's own negligence),
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's or such Issuing Bank's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank agrees to reimburse each Agent promptly upon demand for its Pro Rata
Share of any out-of-pocket expenses (including counsel fees) incurred by such
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or any other Credit Document, to the
extent that such Agent is not reimbursed for such expenses by the Borrower.
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Section 8.06 Successor Agent and Issuing Banks. Either Agent or any Issuing
---------------------------------
Bank may resign at any time by giving written notice thereof to the Banks and
the Borrower and may be removed at any time with or without cause by the
Majority Banks upon receipt of written notice from the Majority Banks to such
effect. Upon receipt of notice of any such resignation or removal, the Majority
Banks shall have the right to appoint a successor Agent or Issuing Bank. If no
successor Agent or Issuing Bank shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Agent's or Issuing
Bank's giving of notice of resignation or the Majority Banks' removal of the
retiring Agent or Issuing Bank, then the retiring Agent or Issuing Bank may, on
behalf of the Banks and the Borrower, appoint a successor Agent or Issuing Bank,
which shall be a commercial bank meeting the financial requirements of an
Eligible Assignee and, in the case of an Issuing Bank, a Bank. Upon the
acceptance of any appointment as Agent or Issuing Bank by a successor Agent or
Issuing Bank, such successor Agent or Issuing Bank shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent or Issuing Bank, and the retiring Agent or Issuing Bank shall be
discharged from its duties and obligations under this Agreement and the other
Credit Documents, except that the retiring Issuing Bank shall remain an Issuing
Bank with respect to any Letters of Credit issued by such Issuing Bank and
outstanding on the effective date of its resignation or removal and the
provisions affecting such Issuing Bank with respect to such Letters of Credit
shall inure to the benefit of the retiring Issuing Bank until the termination of
all such Letters of Credit. After any retiring Agent's or Issuing Bank's
resignation or removal hereunder as Documentation Agent, Administrative Agent or
Issuing Bank, the provisions of this Article VIII shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was such Agent or
Issuing Bank under this Agreement and the other Credit Documents.
Section 8.07 Arranger, Syndication Agent and Co-Agents. The Bank of Nova
-----------------------------------------
Scotia and Wells Fargo Bank, National Association shall each be named a Co-Agent
under the Credit Documents, but the Co-Agents shall have no right or duty to act
as agent on behalf of the Banks. Societe Generale, Southwest Agency shall be
named Arranger and Syndication Agent under the Credit Documents, but the
Arranger and the Syndication Agent shall have no right or duty to act as agent
on behalf of the Banks in such capacities; provided that the provisions of this
sentence shall in no way effect Societe Generale, Southwest Agency's rights or
duties as Documentation Agent on behalf of the Banks.
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ARTICLE IX
MISCELLANEOUS
Section 9.01 Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Documentation
Agent, the Administrative Agent or the Agents, as specified in the particular
provisions of the Credit Documents, and the Borrower, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment shall increase the
--------
Commitment of any Bank without the written consent of such Bank, and no
amendment, waiver or consent shall, unless in writing and signed by all the
Banks, do any of the following: (a) increase the aggregate Commitments of the
Banks, (b) reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder or under any other Credit Document or otherwise
release the Borrower from any Obligations, (c) postpone any date fixed for any
payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, (d) change the number of Banks which shall be required for
the Banks or any of them to take any action hereunder or under any other Credit
Document, (e) amend this Section 9.01, (f) release any Guarantor from its
obligations under any of the Guaranties (provided that the Administrative Agent
can release any Supplemental Guarantor from its obligations under any of the
Supplemental Guaranties), (g) release any Person from its obligations under any
or the Environmental Indemnities, (h) release any Lien in favor of the
Administrative Agent for the benefit of the Banks on Property of the Borrower or
Guarantors or any Participating Lessee, except as contemplated by the Security
Documents or this Agreement, (i) amend the definition of "Majority Banks", (j)
increases the maximum duration of Interest Periods permitted under this
Agreement, (k) waives any covenant prohibiting a second Lien on any Property,
(l) amends the definition of "Borrowing Base or any component of "Borrowing
Base", (m) amends Section 7.01(p); and provided, further, that (A) no amendment,
--------
waiver or consent shall, unless in writing and signed by the Documentation
Agent, the Administrative Agent, or any Issuing Bank in addition to the Banks
required above to take such action, affect the rights or duties of the
Documentation Agent, the Administrative Agent, or such Issuing Bank, as the case
may be, under this Agreement or any other Credit Document, and (B) no waiver or
consent to departure from any of the conditions specified in Section 3.01 or
3.02 or 3.03 shall be effective unless in writing and signed by the Majority
Banks and the Agents. In addition, no Majority Bank Decision (as hereinafter
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defined) shall be made without the written consent of the Majority
Banks. "Majority Bank Decision" shall mean:
(a) any waiver for more than 30 days of, or any material amendment to, of
the reporting requirements set forth in clauses (a)-(e) or (g) of Section 5.05
of this Agreement;
(b) any material waiver of, or any material amendment to, the provisions
related to the Cash Management Systems contained in Section 5.12 of this
Agreement;
(c) any determination to make a Borrowing after the occurrence and during
the continuance of an Event of Default;
(d) any waiver of the provisions of the Manager Consent that require
Management Agreements to be subordinate to the Lien of the Mortgages and
terminable upon the conditions specified in the Manager Consent;
(e) any waiver for a period of more than 60 days of, or any material
amendment to, the financial covenants contained in Sections 6.15, 6.16 or 6.17
of this Agreement;
(f) any material waiver of, or any material amendment to any section of
Article 6 not referenced in the preceding clause (e);
(g) any approval pursuant to subsection 3.03(i) of this Agreement of a
Future Property as a possible Eligible Property;
(h) any material waiver of the conditions to a Hotel Property qualifying as
either an Eligible Property or a Permitted Non-Eligible Property;
(i) any amendment, supplement or modification to, or waiver of, the
provisions of Section 7.01 of this Agreement;
(j) any determination to send notice to the Borrower of, or otherwise
declare, an Event of Default pursuant to Section 7.01 of this Agreement;
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(k) any determination to accelerate the Obligations pursuant to Section
7.02 of this Agreement;
(l) any determination to foreclose on, or exercise remedies in order to
realize upon, any Property after an Event of Default pursuant to any Credit
Document, provided, however, that if an Event of Default has occurred and is
continuing and the Majority Banks cannot agree on a course of action within 60
days following the occurrence of such Event of Default, the Administrative
Agent shall commence exercising remedies against the Property securing the
Obligations;
(m) any material decision regarding the operation, maintenance, sale or
other disposition of any Property after the foreclosure upon such Property,
provided that Administrative Agent shall be able to take any action it
determines necessary to preserve or maintain any such Property and provided
further that if the Majority Banks cannot agree on the sale or disposition of
such Property, the Administrative Agent shall not sell or dispose of such
Property, but shall continue to hold such Property for the benefit of the
Banks;
(n) any decision regarding a new or substitute Manager or Franchisor or new
or substitute Management Agreement, Franchise Agreement, Ground Lease or
Participating Lease, or any other material decision regarding a Management
Agreement, Franchise Agreement, Ground Lease or Participating Lease; and
(o) any modification of any of the following definitions of this Agreement:
"Debt Service Rate" or "Pool Requirements".
Section 9.02 Notices, Etc. All notices and other communications shall be in
------------
writing (including telecopy or telex) and mailed, telecopied, telexed, hand
delivered or delivered by a nationally recognized overnight courier, if to the
Borrower, at its address at 3860 West Northwest Highway, Suite 300, Dallas,
Texas 75220, Attention: Steven D. Jorns; if to any Bank at its Domestic Lending
Office specified opposite its name on Schedule 9.02; if to the Documentation
Agent, at its address at 4900 Trammell Crow Center, 2001 Ross Avenue, Dallas,
Texas 75201, Attention: Thomas K. Day, Vice President (telecopy: (214) 979-
2727; telephone: (214) 979-2774); if to Bank One, Texas, N.A., in its capacity
as Administrative Agent or an Issuing Bank, at its office at 1717 Main Street,
4th Floor, Dallas, Texas 75201, Attention: Commercial Real Estate Department -
Jeff S. Lindsey, Vice President (telecopy: (214) 290-2275; telephone: (214) 290-
2385); or, as to each party, at such
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<PAGE>
other address or teletransmission number as shall be designated by such party in
a written notice to the other parties. All such notices and communications
shall, when mailed, telecopied, telexed or hand delivered or delivered by
overnight courier, be effective three days after deposited in the mails, when
telecopy transmission is completed, when confirmed by telex answer-back or when
delivered, respectively, except that notices and communications to the
Administrative Agent pursuant to Article II or Article VIII shall not be
effective until received by the Administrative Agent.
Section 9.03 No Waiver; Remedies. No failure on the part of any Bank, any
-------------------
Agent, or any Issuing Bank to exercise, and no delay in exercising, any right
hereunder or under any Note 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 provided in
this Agreement and the other Credit Documents are cumulative and not exclusive
of any remedies provided by law.
Section 9.04 Costs and Expenses. The Borrower agrees to pay on demand all
------------------
out-of-pocket costs and expenses of the Agents in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other Credit Documents and syndication
(syndication costs shall not exceed $5,000 per Eligible Assignee) of the
Obligations including, without limitation, (a) the reasonable fees and out-of-
pocket expenses of Bracewell & Patterson, L.L.P., counsel for the Documentation
Agent, and, with respect to advising either Agent as to its rights and
responsibilities under this Agreement, the Agents (such counsel's fees shall no
longer be capped as initially provided in the Agents' Fee Letter), (b) the
reasonable fees and out-of-pocket expenses of Donohoe, Jameson & Carroll, P.C.,
counsel for the Administrative Agent, and (c) all reasonable out-of-pocket costs
and expenses, if any, of each Agent, each Issuing Bank, and each Bank
(including, without limitation, reasonable counsel fees and expenses of each
Agent, such Issuing Bank, and each Bank) in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Agreement
and the other Credit Documents, and (d) to the extent not included in the
foregoing, the costs of any local counsel, travel expenses, Appraisals,
Engineering Reports, Environmental Reports, Title Policies, mortgage and
intangible taxes, costs of recordation or filing of any Mortgage or Financing
Statement or continuation statement, and any related title or Uniform Commercial
Code search conducted subsequent to such recordation, any flood plain search
costs, insurance consultant costs and other costs usual and customary in
connection with the taking of a Lien on any of the Property.
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<PAGE>
Section 9.05 Binding Effect. This Agreement shall become effective when it
--------------
shall have been executed by the Borrower and the Agents, and when the
Documentation Agent shall have, as to each Bank, either received a counterpart
hereof executed by such Bank or been notified by such Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, each Agent, each Issuing Bank, and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights or delegate its duties under this Agreement or any interest in
this Agreement without the prior written consent of each Bank.
Section 9.06 Bank Assignments and Participations.
-----------------------------------
(a) Assignments. Any Bank may assign to one or more banks or other entities
-----------
all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it, the Notes held by it, and the participation interest in the Letter
of Credit Obligations held by it); provided, however, that (i) each such
-------- -------
assignment shall be of a constant, and not a varying, percentage of all of such
Bank's rights and obligations under this Agreement and shall involve a ratable
assignment of such Bank's Commitment and such Bank's Advances, (ii) the amount
of the resulting Commitment and Advances of the assigning Bank (unless it is
assigning all its Commitment) and the assignee Bank pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 and shall
be an integral multiple of $1,000,000, (iii) each such assignment shall be to an
Eligible Assignee, (iv) the parties to each such assignment shall execute and
deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with the Notes subject to such
assignment, (v) the Documentation Agent shall consent to such assignment, which
consent shall not be unreasonably withheld or delayed, and (vi) each Eligible
Assignee (other than the Eligible Assignee of either Agent or an Eligible
Assignee which is an Affiliate of the assigning Bank) shall pay to the
Administrative Agent a $2,500 administrative fee. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least three
Business Days after the execution thereof, (A) the assignee thereunder shall be
a party hereto for all purposes and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder and (B) such Bank thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of
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<PAGE>
an Assignment and Acceptance covering all or the remaining portion of such
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto). Notwithstanding anything herein to the contrary, any Bank may
assign, as collateral or otherwise, any of its rights under the Credit Documents
to any Federal Reserve Bank.
(b) Term of Assignments. By executing and delivering an Assignment and
-------------------
Acceptance, the Bank thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency of
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
Guarantors or the performance or observance by the Borrower or the Guarantors of
any of their obligations under this Agreement or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.05 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon either Agent, such Bank or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee appoints and authorizes each
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to such Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Bank.
(c) The Register. The Administrative Agent shall maintain at its address
------------
referred to in Section 9.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the
Advances owing to, each Bank from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, each Agent, the Issuing Banks, and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall
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<PAGE>
be available for inspection by the Borrower or any Bank at any reasonable time
and from time to time upon reasonable prior notice.
(d) Procedures. Upon its receipt of an Assignment and Acceptance executed by
----------
a Bank and an Eligible Assignee, together with the Note subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of the attached Exhibit B,
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the Borrower, at its
own expense, shall execute and deliver to the Administrative Agent in exchange
for the surrendered Note, a new Note payable to the order of such Eligible
Assignee in amount equal to, respectively, the Commitment and the outstanding
Advances assumed by it pursuant to such Assignment and Acceptance, and if the
assigning Bank has retained any Commitment hereunder, a new Note payable to the
order of such Bank in an amount equal to, respectively, the Commitment and the
outstanding Advances retained by it hereunder. Such new Note shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the attached Exhibit A.
(e) Participations. Each Bank may sell participations to one or more banks or
--------------
other entities in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it, its participation interest in the Letter
of Credit Obligations, and the Notes held by it); provided, however, that (i)
-------- -------
such Bank's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Bank shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, each Agent, and the
Issuing Banks and the other Banks shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under this
Agreement, (v) such Bank shall not require the participant's consent to any
matter under this Agreement, except for change in the principal amount of any
Note in which the participant has an interest, reductions in fees or interest,
or extending the Maturity Date except as permitted in this Agreement, and (vi)
such Bank shall give prompt notice to the Borrower of each such participation
sold by such Bank. The Borrower hereby agrees that participants shall have the
same rights under Sections 2.08, 2.09, 2.11(c), and 9.07 hereof as the Bank to
the extent of their respective participations.
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<PAGE>
(f) Confidentiality. Each Bank may furnish any information concerning the
---------------
Borrower and its Subsidiaries in the possession of such Bank from time to time
to assignees and participants (including prospective assignees and
participants); provided that, prior to any such disclosure, the assignee or
--------
participant or proposed assignee or participant shall agree in writing to
preserve the confidentiality of any confidential information relating to the
Borrower and its Subsidiaries received by it from such Bank. Such Bank shall
promptly deliver a signed copy of any such confidentiality agreement to the
Borrower.
Section 9.07 Indemnification. The Borrower shall indemnify each Agent, the
---------------
Banks (including any lender which was a Bank hereunder prior to any full
assignment of its Commitment), the Issuing Banks, and each affiliate thereof and
their respective directors, officers, employees and agents from, and discharge,
release, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject, insofar
as such losses, liabilities, claims or damages arise out of or result from (i)
any actual or proposed use by the Borrower or any Affiliate of the Borrower of
the proceeds of any Advance, (ii) any breach by the Borrower or any Guarantor of
any provision of this Agreement or any other Credit Document, (iii) any
investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing, or (iv) any
Environmental Claim or requirement of Environmental Laws concerning or relating
to the present or previously-owned or operated properties, or the operations or
business, of the Borrower or any of its Subsidiaries, and the Borrower shall
reimburse each Agent, each Issuing Bank, and each Bank, and each affiliate
thereof and their respective directors, officers, employees and agents, upon
demand for any reasonable out-of-pocket expenses (including legal fees) incurred
in connection with any such investigation, litigation or other proceeding; and
expressly including any such losses, liabilities, claims, damages, or expense
incurred by reason of the Person being indemnified's own negligence, but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified.
THE BORROWER ACKNOWLEDGES AND AGREES THAT CERTAIN OF ITS OBLIGATIONS AND
INDEMNITIES UNDER THIS AGREEMENT INCLUDE ANY CLAIMS RESULTING FROM THE
NEGLIGENCE OR ALLEGED NEGLIGENCE OF THE DOCUMENTATION AGENT, THE ADMINISTRATIVE
AGENT, THE BANKS, OR ANY OTHER PERSON BEING INDEMNIFIED.
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<PAGE>
Section 9.08 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.
Section 9.09 Survival of Representations, Indemnifications, etc. All
--------------------------------------------------
representations, warranties contained in this Agreement or made in writing by or
on behalf of the Borrower in connection herewith shall survive the execution and
delivery of this Agreement and the Credit Documents, the making of the Advances
and any investigation made by or on behalf of the Banks, none of which
investigations shall diminish any Bank's right to rely on such representations
and warranties. All obligations of the Borrower provided for in Sections 2.08,
2.09, 2.11(c), 8.05 and 9.07 shall survive any termination of this Agreement and
repayment in full of the Obligations.
Section 9.10 Severability. In case one or more provisions of this Agreement
------------
or the other Credit Documents shall be invalid, illegal or unenforceable in any
respect under any applicable law, the validity, legality and enforceability of
the remaining provisions contained herein or therein shall not be affected or
impaired thereby.
Section 9.11 Business Loans. The Borrower warrants and represents that the
--------------
Advances evidenced by the Notes are and shall be for business, commercial,
investment or other similar purposes and not primarily for personal, family,
household or agricultural use, as such terms are used in Chapter One ("Chapter
One") of the Texas Credit Code. At all such times, if any, as Chapter One shall
establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling"
(as such term is defined in Chapter One) from time to time in effect.
Section 9.12 Usury Not Intended. It is the intent of the Borrower and each
------------------
Bank in the execution and performance of this Agreement and the other Credit
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Advances of each Bank including such
applicable laws of the State of Texas and the United States of America from time
to time in effect. In furtherance thereof, the Banks and the Borrower stipulate
and agree that none of the terms and provisions contained in this Agreement or
the other Credit Documents shall ever be construed to create a contract to pay,
as consideration for the use, forbearance or detention of money, interest at a
rate in excess of the Maximum Rate and that for purposes hereof "interest" shall
include the aggregate of all charges which constitute interest under such laws
that are contracted for, charged or received under this Agreement; and in the
event that, notwithstanding the
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<PAGE>
foregoing, under any circumstances the aggregate amounts taken, reserved,
charged, received or paid on the Advances, include amounts which by applicable
law are deemed interest which would exceed the Maximum Rate, then such excess
shall be deemed to be a mistake and each Bank receiving same shall credit the
same on the principal of its Notes (or if such Notes shall have been paid in
full, refund said excess to the Borrower). In the event that the maturity of
the Notes is accelerated by reason of any election of the holder thereof
resulting from any Event of Default under this Agreement or otherwise, or in the
event of any required or permitted prepayment, then such consideration that
constitutes interest may never include more than the Maximum Rate and excess
interest, if any, provided for in this Agreement or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited on the applicable Notes (or, if the
applicable Notes shall have been paid in full, refunded to the Borrower). The
provisions of this Section shall control over all other provisions of this
Agreement or the other Credit Documents which may be in apparent conflict
herewith.
Section 9.13 Houston, Texas Marriott Office Space. The Banks acknowledge and
------------------------------------
agree that the office portion of the Houston, Texas Marriott (a) will not be
subject to a Participating Lease, Franchise Agreement or Management Agreement,
(b) will not be part of the Cash Management System, (c) will, if complying with
the other requirements for qualifying as an Eligible Property, be included in
the calculation of the Borrowing Base, and (d) may be sold or transferred
separately from the hotel portion of such Hotel Property in accordance with the
requirements of a Permitted Hotel Sale. If in connection with any such sale or
transfer, the office and hotel portions of such Hotel Property need to enter
into any agreements pertaining to the joint use of facilities, such agreements
will be subject to the reasonable approval of the Documentation Agent.
Section 9.14 Governing Law. This Agreement, the Notes and the other Credit
-------------
Documents shall be governed by, and construed and enforced in accordance with,
the laws of the State of Texas.
Section 9.15 Consent to Jurisdiction. The Borrower hereby irrevocably
-----------------------
submits to the jurisdiction of any Texas state or federal court sitting in
Dallas, Texas in any action or proceeding arising out of or relating to this
Agreement, the Notes and the other Credit Documents, and the Borrower hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such court. The Borrower hereby irrevocably waives,
to the fullest extent it may effectively do so, any right it may have to the
defense of an inconvenient forum to the maintenance of such action or
proceeding. The Borrower hereby agrees that service of copies of the summons and
complaint and any other process which may be served in any such action or
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<PAGE>
proceeding may be made by mailing or delivering a copy of such process to the
Borrower at its address specified in Section 9.02. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Section shall affect the rights of any Bank,
the Documentation Agent, or the Administrative Agent to serve legal process in
any other manner permitted by the law or affect the right of any Bank, the
Documentation Agent or the Administrative Agent to bring any action or
proceeding against the Borrower or its Property in the courts of any other
jurisdiction.
Section 9.16 Knowledge of Borrower. For purposes of this Agreement,
---------------------
"knowledge of the Borrower" means the actual knowledge of any of the executive
officers and all other Responsible Officers of the Parent or the general manager
of each Hotel Property.
Section 9.17 Banks Not in Control. None of the covenants or other provisions
--------------------
contained in the Credit Documents shall or shall be deemed to, give the Banks
the rights or power to exercise control over the affairs and/or management of
the Borrower, any of its Subsidiaries or any Guarantor, the power of the Banks
being limited to the right to exercise the remedies provided in the Credit
Documents; provided, however, that if any Bank becomes the owner of any stock,
or other equity interest in, any Person whether through foreclosure or
otherwise, such Bank shall be entitled (subject to requirements of law) to
exercise such legal rights as it may have by being owner of such stock, or other
equity interest in, such Person.
Section 9.18 Headings Descriptive. The headings of the several Sections and
--------------------
paragraphs of the Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
Section 9.19 Time is of the Essence. Time is of the essence under the Credit
----------------------
Documents.
SECTION 9.20 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE BANKS
---------------------
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER CREDIT DOCUMENT
OR TO ANY COUNTERCLAIM THEREIN.
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<PAGE>
SECTION 9.21 ENTIRE AGREEMENT. PURSUANT TO SECTION 26.02 OF THE TEXAS
----------------
BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE
LOAN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN
AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S
AUTHORIZED REPRESENTATIVE.
THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE
PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT,
AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED
INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS
DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THE BORROWER ACKNOWLEDGES AND AGREES THAT CERTAIN OF ITS OBLIGATIONS AND
INDEMNITIES UNDER THIS AGREEMENT INCLUDE ANY CLAIMS RESULTING FROM THE
NEGLIGENCE OR ALLEGED NEGLIGENCE OF THE DOCUMENTATION AGENT, THE ADMINISTRATIVE
AGENT, THE BANKS, OR ANY OTHER PERSON BEING INDEMNIFIED.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
EXECUTED as of the date first referenced above.
BORROWER:
--------
AMERICAN GENERAL HOSPITALITY OPERATING
PARTNERSHIP, L.P.
By: AGH GP, Inc., its general partner
By: /s/ KENNETH E. BARR
------------------------------------
Name: Kenneth E. Barr
----------------------------------
Title: Executive Vice President
---------------------------------
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<PAGE>
BANK ONE, TEXAS, N.A., individually and as
Administrative Agent
/s/ JEFF LINDSEY
------------------------------------------
By: Jeff Lindsey
---------------------------------------
Title: Vice President
------------------------------------
SOCIETE GENERALE, SOUTHWEST AGENCY,
individually and as Arranger, Syndication
Agent, and Documentation Agent
/s/ THOMAS K. DAY
------------------------------------------
By: Thomas K. Day
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
THE BANK OF NOVA SCOTIA, individually and as
Co-Agent
/s/ PAUL STIPLOSEK
--------------------------------------------
By: Paul Stiplosek
-----------------------------------------
Title: Relationship Manager
--------------------------------------
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<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION,
individually and as Co-Agent
/s/ DAVID A. BARR
------------------------------------------
By: David A. Barr
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
BANKERS TRUST COMPANY
/s/ GARRETT W. THILANDER
------------------------------------------
By: Garrett W. Thilander
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
MELLON BANK, N.A.
/s/ WAYNE P. ROBERTSON
------------------------------------------
By: Wayne P. Robertson
---------------------------------------
Title: Assistant Vice President
------------------------------------
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<PAGE>
BANKBOSTON, N.A.
/s/ JEFFREY L. WARWICK
------------------------------------------
By: Jeffrey L. Warwick
---------------------------------------
Title: Director
------------------------------------
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<PAGE>
AMSOUTH BANK OF ALABAMA
/s/ DEAN H. BURGESS
------------------------------------------
By: Dean H. Burgess
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
FIRST AMERICAN BANK
/s/ KEVIN JORDAN
------------------------------------------
By: Kevin Jordan
---------------------------------------
Title: Assistant Vice President
------------------------------------
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<PAGE>
FIRST NATIONAL BANK OF COMMERCE
/s/ STEPHEN M. VALDES
------------------------------------------
By: Stephen M. Valdes
---------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
THE ROYAL BANK OF SCOTLAND PLC
/s/ DEREK BONNAR
------------------------------------------
By: Derek Bonnar
---------------------------------------
Title: Vice President
------------------------------------
-144-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 3,487,475 3,487,475
<SECURITIES> 0 0
<RECEIVABLES> 6,757,344 6,757,344
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 540,113,222 540,113,222
<DEPRECIATION> 9,009,363 9,009,363
<TOTAL-ASSETS> 547,398,132 547,398,132
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 146,571 146,571
<OTHER-SE> 281,581,667 281,581,667
<TOTAL-LIABILITY-AND-EQUITY> 547,398,132 547,398,132
<SALES> 0 0
<TOTAL-REVENUES> 23,514,877 13,611,799
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 9,480,720 5,262,959
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,995,176 1,053,176
<INCOME-PRETAX> 10,471,756 6,455,133
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 10,471,756 6,455,133
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,471,756 6,455,133
<EPS-PRIMARY> .79 .44
<EPS-DILUTED> .79 .44
</TABLE>
