<PAGE>
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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER 1-12269
----------------
HOMESTEAD VILLAGE INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MARYLAND
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
74-2770966
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
2030 POWERS FERRY ROAD
ATLANTA, GA 30339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(770) 303-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
----------------
Indicate by check mark whether the registrant (1) 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 reports), and (2) has been subject to
such filing for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock as of May
9, 1997 was:21,202,804
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<PAGE>
HOMESTEAD VILLAGE INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
PART I. Condensed Financial Information
Item 1. Financial Statements
Condensed Balance Sheets--March 31, 1997 (unaudited) and
December 31, 1996.......................................... 3
Condensed Statements of Operations--Three-Month Period
Ended March 31, 1997 and 1996 (unaudited).................. 4
Condensed Statements of Cash Flows--Three-Month Period
Ended March 31, 1997 and 1996 (unaudited).................. 5
Notes to Condensed Financial Statements (unaudited)........ 6
Independent Accountants' Review Report..................... 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 15
</TABLE>
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
ASSETS 1997 31, 1996
------ ----------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 9,141 $ 7,415
Accounts receivable, net of allowance of $20 in 1997
and $37 in 1996....................................... 1,542 809
Other current assets................................... 777 736
-------- --------
Total current assets................................. 11,460 8,960
Property and equipment................................... 318,896 263,325
Less accumulated depreciation............................ 9,175 7,717
-------- --------
Net investment in property and equipment................. 309,721 255,608
-------- --------
Deposits and pursuit costs, including $7,355 of funds
with title companies for property acquisitions in 1997
and $3,025 in 1996...................................... 11,841 5,536
Deferred loan costs, net of accumulated amortization of
$408 in 1997 and $141 in 1996........................... 31,325 29,075
Trademark and intangibles, net of accumulated
amortization of $460 in 1997 and $184 in 1996........... 27,427 21,807
Other assets............................................. 4,875 3,639
-------- --------
Total assets......................................... $396,649 $324,625
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Development costs payable.............................. $ 18,051 $ 11,328
Accounts payable....................................... 676 412
Due to affiliate....................................... 413 216
Accrued interest payable to affiliates................. 3,779 853
Accrued real estate taxes.............................. 991 2,066
Other accrued expenses................................. 3,852 2,781
-------- --------
Total current liabilities............................ 27,762 17,656
Convertible mortgage notes payable to affiliates, net.... 137,725 101,309
Deferred income taxes.................................... 1,886 1,657
-------- --------
Total liabilities.................................... 167,373 120,622
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value, 250,000,000 shares
authorized, 21,210,901 issued and outstanding in 1997
and 19,689,130 shares issued and outstanding in 1996.. 212 197
Additional paid-in capital and contributed capital..... 242,078 224,352
Retained earnings...................................... 8,850 7,327
Less shares in escrow.................................. (20,582) (26,477)
Less deferred compensation............................. (1,282) (1,396)
-------- --------
Total shareholders' equity........................... 229,276 204,003
-------- --------
Total liabilities and shareholders' equity........... $396,649 $324,625
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED
MARCH 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Room revenue........................................ $ 10,952 $ 6,753
Other revenue....................................... 135 115
----------- -----------
Total operating revenues.......................... 11,087 6,868
----------- -----------
Operating expenses:
Property operating expenses......................... 4,816 3,604
Corporate operating expenses........................ 3,083 405
Depreciation and amortization....................... 1,811 859
----------- -----------
Total operating expenses.......................... 9,710 4,868
----------- -----------
Operating income...................................... 1,377 2,000
----------- -----------
Interest income....................................... 146 --
Interest expense, net of capitalized interest......... -- (961)
----------- -----------
Earnings before income taxes.......................... 1,523 1,039
Provision for income taxes............................ -- --
----------- -----------
Net income............................................ $ 1,523 $ 1,039
=========== ===========
Earnings per share:
Weighted average shares and common equivalent shares
outstanding........................................ 23,934,063
===========
Primary earnings per common and common equivalent
share.............................................. $ .06
===========
Fully diluted weighted average shares outstanding... 35,164,732
===========
Fully diluted earnings per share.................... $ .04
===========
Pro forma earnings per share:
Weighted average shares and common equivalent shares
outstanding........................................ 10,679,907
===========
Pro forma earnings per common and common equivalent
share.............................................. $ 0.10
===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Operating activities:
Net income................................................. $ 1,523 $ 1,039
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 1,811 859
Deferred compensation.................................... 114 --
Amortization of prepaid rent............................. 75 --
Change in assets and liabilities:
Increase in accounts receivable.......................... (716) (363)
(Increase) decrease in other current assets.............. (116) 39
Increase (decrease) in accounts payable.................. 264 (236)
Decrease in accrued real estate taxes.................... (1,075) (296)
Increase in other accrued expenses....................... 1,084 1,298
Increase (decrease) in due to affiliate.................. 197 (76)
Other.................................................... (17) --
------- -------
Net cash provided by operating activities.............. 3,144 2,264
------- -------
Investing activities:
Investment in properties, excluding development costs
payable................................................... (45,489) (16,527)
Increase in deposits and pursuit costs..................... (6,305) (197)
Increase in other assets................................... (1,084) --
------- -------
Net cash used in investing activities.................. (52,878) (16,724)
------- -------
Financing activities:
Exercise of warrants for common stock...................... 15,210 --
Proceeds from intercompany debt............................ -- 15,495
Proceeds from convertible mortgage notes................... 36,250 --
------- -------
Net cash provided by financing activities.............. 51,460 15,495
------- -------
Net increase in cash and cash equivalents.................... 1,726 1,035
Cash and cash equivalents, beginning of period............... 7,415 1,896
------- -------
Cash and cash equivalents, end of period..................... $ 9,141 $ 2,931
======= =======
Noncash investing and financing transactions:
Conversion of intercompany debt to equity.................. $ -- $ 7,164
======= =======
Conversion of intercompany debt to convertible mortgage
notes payable............................................. $ -- $77,289
======= =======
Deferred loan costs resulting from issuance of convertible
mortgage debt............................................. $ 2,517 $ --
======= =======
Increase in deferred tax asset and deferred tax liability.. $ 229 $ --
======= =======
Increase in trademark and intangibles...................... $ 5,896 $ --
======= =======
Increase in property and equipment from capitalization of
deferred loan costs amortization.......................... $ 434 $ --
======= =======
Increase in property and equipment, and development cost
payable................................................... $ 6,723 $ 201
======= =======
Increase in property and equipment, and accrued interest
payable to affiliates..................................... $ 2,926 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1--GENERAL
The financial statements of Homestead Village Incorporated, a Maryland
corporation ("Homestead"), as of and for the period ended March 31, 1997 are
unaudited and certain information and footnote disclosures normally included
in financial statements have been omitted. While management of Homestead
believes that the disclosures presented are adequate, these interim financial
statements should be read in conjunction with the financial statements and
notes included in Homestead's 1996 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Homestead's financial
statements for the interim periods presented. Certain reclassifications have
been made in the 1996 financial statements to conform to the 1997
presentation. The results of operations for the three-month periods ended
March 31, 1997 and 1996 are not necessarily indicative of the results to be
expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2--ORGANIZATION
Homestead was formed on January 26, 1996 to develop, own, and manage
extended-stay lodging facilities under the Homestead Village(R) trademark.
Homestead's extended-stay lodging rooms are designed to appeal to guests such
as business travelers, professionals and others on a weekly basis, with most
guests staying multiple weeks.
On October 17, 1996 Homestead acquired, through a series of merger
transactions, extended-stay lodging assets operating or to be operated under
the Homestead Village trademark (the "Merger Transaction"). The net assets
related to the Homestead Village properties were acquired through the merger
of various wholly-owned subsidiaries of Security Capital Group Incorporated
("Security Capital"), Security Capital Pacific Trust ("PTR") and Security
Capital Atlantic Incorporated ("ATLANTIC"), all affiliates of Homestead, in
exchange for common stock of Homestead.
Homestead's acquisition of the net assets of PTR's Homestead Village Group
subsidiaries (the "PTR Subsidiaries") consisting of 54 properties (or the
rights to acquire such properties) was accounted for as a combination of
entities under common control in a manner similar to a "pooling of interests."
Accordingly, the historical results of operations for the PTR Subsidiaries
were combined with Homestead for all of 1996. Homestead had no activities from
its formation in January 1996 through March 31, 1996, thus financial results
for the three months ended March 31, 1996 consist exclusively of that of the
PTR Subsidiaries.
The acquisition of the ATLANTIC subsidiaries consisting of 26 properties (or
the rights to acquire such properties), was accounted for as a purchase and,
accordingly, the results of the ATLANTIC subsidiaries have been included in
Homestead's results only for periods subsequent to October 17, 1996.
The acquisition of the Security Capital subsidiaries was accounted for as a
purchase and, accordingly, the results of the Security Capital subsidiaries
have been included in Homestead's results only for periods subsequent to
October 17, 1996. Security Capital provided the trademark, and development and
property management expertise as well as operating systems necessary to
develop, own and operate the properties.
6
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
On November 12, 1996, PTR and ATLANTIC distributed to their shareholders the
shares of Homestead common stock received by them in the Merger Transaction.
Security Capital received 3,442,737 shares from PTR and 2,388,876 shares from
ATLANTIC. Based on shares received in the Merger Transaction (including shares
held in escrow), shares received in the distributions by PTR and ATLANTIC, and
shares obtained by exercise of Homestead warrants (see Note 5), Security
Capital owned 62.0% of Homestead's common stock at March 31, 1997.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Operating properties:
Land........................................... $ 27,375 $ 22,999
Buildings and improvements..................... 112,285 92,964
Furniture, fixtures and equipment.............. 20,263 19,376
-------- --------
159,923 135,339
Properties under construction.................... 140,896 108,692
Properties in planning and owned................. 9,264 12,256
Land held for future development................. 1,452 1,448
Land held for sale............................... 7,361 5,590
-------- --------
Total........................................ $318,896 $263,325
======== ========
</TABLE>
NOTE 4--DEBT
Convertible Mortgage Notes Payable
In connection with the Merger Transaction, Homestead obtained funding
commitment agreements from PTR and ATLANTIC which provide for aggregate
fundings of $198.8 million and $111.1 million, respectively. Under these
agreements, Homestead may call for funding from PTR and ATLANTIC for the
development of the projects acquired from PTR and ATLANTIC in the Merger
Transaction. Assuming full funding of the commitments, PTR and ATLANTIC will
receive convertible mortgage notes in stated principal amounts of $221.3
million and $98.0 million, respectively. The discount, in the case of the
notes payable to PTR, and the premium, in the case of the notes payable to
ATLANTIC, are amortized as an increase and a reduction, respectively, to
interest expense over the term of the notes using the effective interest
method. The notes are collateralized by the Homestead properties acquired in
the mergers ($209.7 million of properties at historical cost mortgaged to PTR
and $83.5 million of properties at historical cost mortgaged to ATLANTIC at
March 31, 1997), accrue interest at 9.0% on the stated principal amount, and
require interest only payments every six months on May 28 and November 28. The
notes are due October 31, 2006, and are callable on or after May 28, 2001.
The mortgage notes are convertible, at the option of PTR and ATLANTIC, into
shares of Homestead common stock on or after March 31, 1997. The conversion
price is equal to one share of common stock for every $11.50 of stated
principal amount outstanding. The fair value of the convertible mortgage notes
(assuming conversion), based upon the $16.875 closing price of Homestead's
common stock on the American Stock Exchange at March 31, 1997, was $217.7
million. The value of the conversion feature, representing the difference
between the conversion price per share and the value per share of Homestead
stock established in the Merger Transaction, is recorded as a deferred
financing cost as the notes are funded. The deferred amounts are amortized as
an increase to interest expense over the term of the notes using the effective
interest method.
7
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Homestead issued warrants to PTR and ATLANTIC in exchange for entering into
the funding commitment agreements. The costs associated with the issuance of
the warrants have been recorded as deferred financing costs and are amortized
to interest expense over the term of the notes using the effective interest
method. The effective interest rates on the PTR and ATLANTIC convertible
mortgage notes payable after giving effect to the related discount or premium,
conversion feature, and warrants is estimated to be 13.56% and 9.05%,
respectively. Amortization of deferred financing costs and discount and
premium included in interest expense for the three months ended March 31, 1997
was approximately $434,000. At March 31, 1997 Homestead owed convertible
mortgage notes to PTR of $130,728,000 (funded amount of $117,438,000; carrying
amount of $117,745,000 net of unamortized discount) and owed convertible
mortgage notes to ATLANTIC of $17,644,000 (funded amount of $20,000,000;
carrying amount of $19,980,000 net of unamortized premium).
Intercompany Debt
Prior to the Merger Transaction closing date, it was assumed that the PTR
Subsidiaries borrowed from PTR to fund the acquisition and development of the
Homestead Village properties. Acquisition and development costs were assumed
to have been financed through borrowing from PTR up through the completion
date of each respective property. Upon completion of a property, 30% of the
intercompany debt associated with the property was assumed to have been
converted to contributed capital. This assumption was made to reflect the
ultimate leverage ratio (70% convertible mortgage debt and 30% common equity)
expected to exist within Homestead after the funding commitment is fulfilled.
Borrowings were assumed to bear interest at the weighted average rate of PTR's
line of credit and unsecured long term debt which rates ranged from 8.0% to
8.92% for the period from January 1, 1996 through March 31, 1996.
Line of Credit
On May 6, 1997 Homestead entered into a secured revolving line of credit
facility with Commerzbank AG, New York Branch, as agent for lenders, which
provides for borrowing up to $50 million, subject to collateral requirements.
Borrowings bear interest at the Eurodollar rate plus 2.5% per annum.
Additionally, there is a commitment fee of .375% per annum on the average
unfunded line of credit balance. The line of credit matures May 1998 and may
be extended with the approval of the lenders. There was no outstanding balance
on the line of credit as of May 6, 1997.
Interest
Homestead incurred total interest cost of $3,360,000 and $1,536,000 for the
three months ended March 31, 1997 and 1996, respectively, of which $3,360,000
and $575,000 were capitalized, respectively. Interest paid in cash in the
three months ended March 31, 1997 and 1996 was none and $353,300,
respectively.
NOTE 5--SHAREHOLDERS' EQUITY
Warrants
Homestead issued a total of 10,000,000 of warrants on the merger date which
entitles the holders to buy one share of Homestead common stock at the
exercise price of $10 per share. Warrants were issued to PTR and ATLANTIC in
exchange for entering into the funding commitment agreements (see Note 4) and
Security Capital received Homestead warrants in exchange for providing
financing to Homestead during the time between the execution of the merger
agreement and the closing date and for the use of office facilities for one
year. The warrants expire October 29, 1997.
After the initial issuance of warrants to PTR, ATLANTIC and Security
Capital, both PTR and ATLANTIC distributed the warrants to their shareholders
which resulted in Security Capital holding a total of 4,730,022
8
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
warrants after the distribution. Homestead has the right (under an investor
agreement entered into with Security Capital at the merger closing) to request
Security Capital to exercise its warrants in minimum increments of $5,000,000.
Through March 31, 1997 Security Capital exercised 3,250,000 warrants or
$32,500,000 in proceeds. Third party holders of warrants had exercised 25,246
warrants resulting in proceeds of $252,460 through March 31, 1997.
Additionally, Security Capital has made market purchases of 1,420,700 warrants
through March 31, 1997 bringing the remaining balance of its holdings of
Homestead warrants to 2,900,722.
Per Share Data
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, Homestead will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive
effect of stock options and warrants will be excluded. The impact is expected
to result in an increase in primary earnings per share for the first quarter
ended March 31, 1997 and March 31, 1996 of $.01 and $.01 per share,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share is not expected to be material.
Historical earnings per share data is not presented for the three-month
period ended March 31, 1996. The outstanding shares and equity interests of
the merged entities differed substantially from the shares, warrants and
convertible mortgages outstanding after the mergers. Therefore, management
does not believe historical earnings per share data is meaningful. Pro forma
earnings per share for the three months ended March 31, 1996 has been
calculated by dividing net income by pro forma weighted average shares
outstanding assuming shares and warrants issued to PTR in the merger had been
outstanding since the beginning of the period. Warrants are considered common
stock equivalents and are included in pro forma weighted average shares on the
treasury stock method.
NOTE 6--INCOME TAXES
Deferred tax assets related primarily to: (1) the difference in the carrying
amount of deferred financing costs recognized at formation and in connection
with subsequent fundings of convertible mortgage notes payable for financial
reporting purposes and the amount recognized for tax purposes; and (2) tax net
operating loss carry-forwards. Deferred tax liabilities relate primarily to
the difference in the carrying amount and the methods of depreciation of
certain depreciable assets for financial reporting purposes and the amount
recognized for tax purposes.
Prior to the Merger Transaction on October 17, 1996, the PTR Subsidiaries
were qualified subsidiaries of PTR, a real estate investment trust and,
accordingly, were not subject to income tax. Additionally, prior to the Merger
Transaction, Homestead was a wholly-owned subsidiary of Security Capital. For
income tax reporting purposes, the net income or loss of the PTR Subsidiaries
and Homestead for the period January 1, 1996 through October 16, 1996 were
included in a consolidated tax return for PTR and Security Capital,
respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
REIT and Property Management Agreements
Prior to the Merger Transaction, the PTR Subsidiaries' activities were
managed through a contract with Security Capital Pacific Incorporated (the
"PTR REIT Manager") and the PTR Subsidiaries operated the Homestead Village
properties through a contract with SCG Realty Services Incorporated (the "PTR
Property Manager").
The PTR REIT Manager provided both strategic and day-to-day management
services to the PTR Subsidiaries including research, asset management, capital
market services and legal and accounting services. In
9
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
exchange, the REIT management contract required the PTR Subsidiaries to pay a
stipulated REIT management fee of 16% of its defined cash flow. Such fees
included in corporate operating expenses totaled $362,000 for the three months
ended March 31, 1996. Additionally, the PTR Subsidiaries reimbursed the PTR
REIT Manager for travel and out-of-pocket costs incurred. Homestead no longer
pays a management fee to an external manager, but instead directly incurs the
cost of corporate employees.
The PTR Property Manager provided services to the PTR Subsidiaries which
were necessary for the operation of its Homestead Village extended-stay
lodging business. The property management agreement provided for fees of
between 5% and 7% of gross revenues. Such property management fees included in
property operating expenses amounted to $500,000 for the three months ended
March 31, 1996. Homestead no longer pays a property management fee but instead
directly incurs the cost of property level employees.
Administrative Services Agreement
At the consummation of the Merger Transaction, Homestead and Security
Capital entered into an administrative services agreement (the "Administrative
Services Agreement"), pursuant to which Security Capital provides Homestead
with administrative services with respect to certain aspects of Homestead's
business. These services include, but are not limited to, insurance
administration, accounts payable, internal audit, cash management, human
resources, management information systems, tax and legal administration,
research, shareholder communications and investor relations. The fees payable
to Security Capital are based on Security Capital's cost of the services
provided plus an additional 20%. Any arrangements under the Administrative
Services Agreement for the provision of services are required to be
commercially reasonable and on terms not less favorable than those which could
be obtained from unaffiliated third parties. The total fee for the three
months ended March 31, 1997 was $627,000. The Administrative Services
Agreement is for an initial term expiring on December 31, 1997 and will
automatically be renewed for one-year terms, subject to approval by a majority
of the disinterested members of the Homestead Board.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Unfunded Development Commitments
At March 31, 1997, Homestead had approximately $174.5 million of unfunded
commitments for developments under construction.
Finder's Agreement
In conjunction with the Merger Transaction, PTR assigned its rights and
obligations pursuant to a series of agreements with an unaffiliated person
("Finder") who developed the Homestead Village concept, and has performed
certain services. The agreements which expire February 5, 2043, provide for
the payment of fees to Finder as follows: (i) $535,000 annually with respect
to the four properties for which Finder assisted in the location, development
and initial operations; (ii) an annual amount of $7,500 per property (subject
to certain conditions as defined in the agreements) for assistance in site
location with respect to the first 35 properties constructed (other than the
four properties referred to in (i) above); (iii) 20% of the net proceeds as
defined per the agreements, upon the sale of the four properties noted in (i)
above to an unaffiliated third party; and (iv) 10% of the net proceeds as
defined per the agreement, upon the sale of the additional 35 properties to an
unaffiliated third party. No such sales have occurred to date. Effective
December 1994, the agreement to assist in the site location of any additional
properties beyond the 39 properties was terminated. Additionally, Finder
agreed not to compete, directly or indirectly, with the Homestead Village(R)
properties in certain states in which PTR and ATLANTIC do business through
December 31, 1996. Fee expense under this agreement for the three month
periods ended March 31,1997 and 1996 were $177,000 and $158,000 respectively,
which is included in property operating expenses in the accompanying
statements of operations.
10
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Homestead Village Incorporated
We have reviewed the accompanying condensed balance sheet of Homestead
Village Incorporated as of March 31, 1997, and the related condensed statement
of operations and condensed statement of cash flows for the three-month period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. We did not make a similar review of the condensed
statement of operations and condensed statement of cash flows for the three-
month period ended March 31, 1996.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year, with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements at March 31,
1997, and for the three-month period then ended for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Homestead Village Incorporated as of December
31, 1996 and the related statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein) and in our report
dated February 24, 1997, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31,1996, is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
Ernst & Young LLP
Dallas, Texas
May 6, 1997
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion should be read in conjunction with Homestead's
financial statements and the notes thereto in Item 1 of this report.
The statements contained in this discussion and elsewhere in this report
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are based on current expectations, estimates and projections about
the industry and markets in which Homestead operates, management's beliefs and
assumptions made by management. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. Homestead
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Among the
important factors that could cause Homestead's actual results to differ
materially from those expressed in the forward-looking statements are (i)
changes in general economic conditions in its target markets that could
adversely affect demand for Homestead's properties and (ii) changes in
financial markets and interest rates that could adversely affect Homestead's
cost of capital and its ability to meets its financing needs and obligations.
OVERVIEW
Homestead's operating results are substantially influenced by (i) the demand
for and supply of extended-stay lodging in Homestead's target markets and
submarkets, (ii) revenue and average weekly rate growth, (iii) the
effectiveness of property level operations and (iv) the pace and price at
which Homestead can develop additional extended-stay lodging properties.
Capital and credit market conditions which affect Homestead's cost of capital
may influence future operating results.
Homestead's overall results of operations and financial position are also
significantly influenced by its development activity. As of March 31, 1997,
Homestead has developed, owned and operated 35 Homestead Village properties
representing in the aggregate 4,805 units in 10 cities and had 44 Homestead
Village properties under construction totaling 5,929 units within four of
these cities as well as 18 additional cities. In addition, Homestead owns and
controls through contracts 57 development sites for which it plans to initiate
construction within the next 12 months, for a total of 136 properties in 36
cities. Units operating, under construction or in pre-development planning
aggregate 18,276 units.
Homestead's reported results in the accompanying financial statements are
also affected by certain matters of financial presentation for the mergers
through which Homestead acquired its extended stay lodging business (the
"Mergers"). The merger with the subsidiaries of PTR was accounted for as a
combination of entities under common control in a manner similar to a pooling
of interests, thus the historical financial results of the PTR Subsidiaries
are presented for all periods prior to October 17, 1996 and, as Homestead had
no activities through March 31, 1996, the accompanying financial statements
consist exclusively of the activities of the PTR Subsidiaries for the three
months ended March 31, 1996. The merger of the subsidiaries of ATLANTIC was
accounted for as a purchase, thus the development activities of the
subsidiaries of ATLANTIC are not reflected in the accompanying financial
statements until after the merger closing date. The merger of the subsidiaries
of Security Capital was also accounted for as a purchase, thus the direct
incurrence of the costs of personnel for property management and corporate
management are reflected in financial results only after the merger closing
date.
RESULTS OF OPERATIONS
Interim Period Comparison
Net earnings increased $484,000 (46.6%) for the three months ended March 31,
1997 as compared to the same period in 1996. The increase is attributable to
an increase of net property operating income of $3.0 million
12
<PAGE>
and a decrease in interest expense of $961,000, offset by an increase in
corporate operating expense of $2.7 million and an increase in depreciation
and amortization of $1.0 million.
Homestead's development program was the primary reason for the increase of
$3.0 million of net property operating income with 11 more properties
operating at March 31, 1997 than at March 31, 1996. The decrease in interest
expense is also attributable to the development program as all interest costs
incurred in the first quarter 1997 were capitalized.
The increase of $2.7 million in corporate operating expense, arising from
the post merger change in corporate structure to a stand alone public company,
partially offset the above gains.
Property Operations
The following table sets forth certain information for Homestead's operating
properties for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Occupancy................................................ 76.8% 80.0%
Average Weekly Rate(1)................................... $249.07 $216.49
Weekly RevPAR(2)......................................... $191.21 $173.12
Number of Operating Properties at Quarter End............ 35 24
Property Operating Income Margin......................... 56.6% 47.6%
</TABLE>
- --------
(1) Average weekly rate is determined by dividing room revenue by the number
of guest room days occupied for the period and multiplying by seven.
(2) Weekly revenue per available room ("RevPAR") is determined by dividing
room revenue by the number of guest room days available for the period and
multiplying by seven.
Homestead opened 11 properties from the end of the first quarter of 1996
through the end of the first quarter of 1997. These property openings were the
primary reason for the reported operating revenue increase of $4.2 million
(61.4%) for the first three months ended March 31, 1997 as compared to the
same period in 1996. The increase in total operating revenue was also due to
the 15% increase in the average weekly rate of $32.58 in the first quarter of
1997 compared to 1996.
Total property operating expenses increased from $3.6 million to $4.8
million over the same period, an increase of $1.2 million. The increase is
primarily due to an increase in the number of operating properties as noted
above. The increase in property operating expenses was offset by the fact that
in 1997 Homestead was no longer paying a property management fee ($500,000 in
first quarter 1996), but was directly incurring the costs of property
management. Average weekly rate increases noted above, combined with the
decrease in property management fees, were the primary reasons for the
improved property operating income margin of 56.6% in 1997.
Homestead Properties Fully Operating Throughout Both Periods
Homestead had 20 properties, representing 2,755 units that were fully
operational throughout the three months ended March 31, 1997 and 1996. Average
occupancy for such properties during the three months ended March 31, 1997 and
1996 was 74.2% and 83.1%, respectively. Average weekly rate for such
properties during the three months ended March 31, 1997 and 1996 were $245.13
and $215.41, respectively, an increase of 13.8% for the three months ended
March 31, 1997 as compared to the same period in 1996. Similar to the results
for all properties, the property operating income margin for properties fully
operational in both periods improved to 54.7% in first quarter 1997 compared
to 47.5% for first quarter 1996.
13
<PAGE>
Corporate Operating Expenses
Corporate operating expenses increased $2.7 million for the three months
ended March 31, 1997 as compared to the same period in 1996. This comparison
is affected by the fact that 1997 corporate expenses reflect a post merger
operating basis while 1996 operations, as described above, consist only of the
corporate costs and REIT management fee allocations from PTR to the PTR
Subsidiaries. The increase is also attributable to the change in corporate
structure from external management to internal management. This change in
structure involves costs associated with operating as a public company,
recruiting, relocation, and personnel expenses and other costs to create a
corporate infrastructure, offset in part by capitalizing costs related to
information technology, and the acquisition, development or improvement of
real estate. Under the new structure, Homestead no longer pays a management
fee to an external manager, but instead directly incurs the cost of corporate
employees. The management agreement terminated at the merger closing date.
Depreciation and Amortization
Depreciation and amortization increased $1 million (110.9%) for the three
months ended March 31, 1997 as compared to the same period in 1996.
Depreciation of the cost of properties and improvements is calculated using
the straight-line method over the estimated useful lives of the assets.
Depreciation expense increased approximately $676,000 (78.7%) for the three
months ended March 31, 1997 as compared to the same period in 1996. The
increase is due primarily to new properties open for the three months ended
March 31, 1997 as compared to the same period in 1996. Homestead also recorded
$276,000 in amortization expense for the first three months ended March 31,
1997 as a result of the amortization of the Homestead Village trademark and
other intangibles acquired in the Mergers.
Interest Income
Interest income of $146,000 for the three months ended March 31, 1997 was a
result of interest earned from investment of excess cash on hand.
Interest Cost
Total interest cost incurred (interest before consideration of interest
costs capitalized for the period) increased $1.8 million (118.7%) for the
three months ended March 31, 1997 as compared to the same period in 1996. The
increase is due to the increase in investments in operating and under
construction properties and the corresponding increase in convertible mortgage
notes payable. Total interest cost incurred was offset by an increase in
capitalized interest of $2.8 million in the three month period ended March 31,
1997 over the same period in 1996. This increase in capitalized interest is
the result of Homestead's increased development activity.
ENVIRONMENTAL MATTERS
Homestead is not aware of any environmental condition on its properties nor
does it expect any environmental condition on its properties to have a
material adverse effect upon its business, results of operations or financial
position.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997 Homestead had invested approximately $312 million for
the acquisition and development of Homestead Village properties, 35 of which
were operating, 44 of which were under construction and 5 of which were in
planning and owned. Homestead had unfunded development commitments for
properties under construction of approximately $174.5 million. The total
expected future investment to develop properties in planning and owned as of
March 31, 1997 was approximately $28.5 million.
Of the properties in operation, properties under construction and properties
in planning and owned at March 31, 1997, 75 were acquired from PTR and
ATLANTIC in the Mergers. Homestead also acquired in the Mergers the rights
from PTR and ATLANTIC to develop 5 additional properties which are in planning
and under control.
14
<PAGE>
Homestead has financed and expects to finance the remaining construction,
development and land acquisitions for all of the properties it received from
PTR and ATLANTIC with the proceeds of convertible mortgage loans made under
the Funding Commitment Agreements from PTR and ATLANTIC. At March 31, 1997
approximately $81 million and $91 million remaining funding commitments are
available from PTR and ATLANTIC, respectively. Management expects the funding
commitments to be adequate to complete development of such properties.
Homestead had 52 properties in planning and under control at March 31, 1997
in addition to the 5 properties described above. Homestead expects to finance
future construction, development and land acquisitions by exercise of warrants
by Security Capital pursuant to the Security Capital Investor Agreement
(approximately $29 million available as of March 31, 1997), possible exercise
of warrants by warrant holders ($38.2 million outstanding at March 31, 1997),
available cash, cash from a line of credit with Commerzbank AG and/or future
securities offerings.
The line of credit entered into on May 6, 1997 will facilitate an efficient
response to market opportunities while minimizing the amount of cash invested
in short-term investments at lower yields. The line of credit provides for
borrowings of up to $50 million (subject to collateral requirements), will
bear interest at the Eurodollar rate plus 2.5% per annum, matures May 1998,
and may be extended with lender approval. At May 12, 1997 no amounts had been
borrowed under the line.
The Board of Directors has established a policy of retaining earnings to
finance Homestead's growth and for general corporate purposes and, therefore,
does not anticipate paying a cash dividend in the foreseeable future.
Operating Activities
Net cash flow provided by operating activities increased by $880,000 (39%)
for the three months ended March 31, 1997 as compared to the same period in
1996. The increase is due primarily to Homestead property openings as
described under "--Results of Operations" as well as improvements in average
weekly rates.
Investing and Financing Activities
During the three months ended March 31, 1997, Homestead invested $45.5
million in Homestead properties. During the first three months of 1996,
Homestead invested $16.5 million in Homestead properties. The amounts invested
in the first quarter of 1997 were financed primarily from the proceeds of
convertible mortgage loans from PTR and ATLANTIC and additionally by proceeds
from Security Capital's exercise of Homestead warrants. The amounts invested
in the first quarter of 1996 were financed primarily by intercompany
borrowings by the PTR Subsidiaries from PTR.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<C> <S>
10.1 $50,000,000 Credit Agreement among Homestead Village
Incorporated, the Lenders named therein, and Commerzbank AG, New
York Branch, as Agent for the Lenders dated as of May 6, 1997.
15 Letter from Ernst & Young LLP regarding unaudited interim
financial information
27 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during this period.
15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Homestead Village Incorporated
/s/ Robert E. Clark
-------------------------------------
Robert E. Clark
Vice President (Duly Authorized
Officer), Treasurer and Controller
(Principal Financial and Accounting
Officer)
Date: May 13, 1997
16
<PAGE>
EXHIBIT 10.1
$50,000,000
CREDIT AGREEMENT
among
HOMESTEAD VILLAGE INCORPORATED,
THE LENDERS NAMED HEREIN,
and
COMMERZBANK AG,
New York Branch, as Agent for the Lenders
Dated as of May 6, 1997
<PAGE>
CREDIT AGREEMENT
----------------
CREDIT AGREEMENT (this "Agreement"), dated as of May 6, 1997,
among HOMESTEAD VILLAGE INCORPORATED, a Maryland corporation (the "Borrower"),
COMMERZBANK AG, LOS ANGELES BRANCH, and the other lenders listed on Exhibit A
attached hereto, as amended from time to time (each a "Lender" and collectively,
the "Lenders") and COMMERZBANK AG, NEW YORK BRANCH, as agent for the Lenders
(the "Agent").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Agent has agreed to arrange a revolving credit facility
in the amount of $50,000,000 on behalf of the Borrower;
WHEREAS, the Borrower's obligations under the Agreement will be
secured by a lien on the Collateral;
WHEREAS, in consideration of the fees, representations, warranties,
covenants and agreements of the Borrower set forth herein and in the Loan
Documents, the Lenders are willing to establish such revolving credit facility
upon the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
-------------------------
Section 1.1 Definitions. As used herein, the following terms shall
have the following meanings:
"Acquisition Costs" means the actual purchase price paid by Borrower
to acquire the real property constituting a Mortgaged Property or that portion
of a Mortgaged Property (the portion of such actual purchase price allocable to
such portion of a Mortgaged Property to be determined in a manner reasonably
acceptable to Agent) upon which it shall construct an extended stay facility, as
evidenced by the documentation and certificate of Borrower furnished to Agent
pursuant to Section 3.2(g)(i)(1) and (2) hereof.
"Adjusted Eurodollar Rate" means, with respect to each Interest
Period, the rate obtained by dividing (i) the Eurodollar Rate for such Interest
Period by (ii) a percentage equal to one minus the actual rate (stated as a
decimal) of all reserves then actually required to be maintained by each Lender
(provided that
<PAGE>
reasonable evidence of the imposition of such requirement is furnished to
Borrower) against "eurocurrency liabilities" as specified in Regulation D (or
against any other category of liabilities that includes deposits by reference to
which the interest rate on Eurodollar Advances is determined or any category of
extensions of credit or other assets that includes loans by a non-United States
office of the Agent to United States residents) or by any other Requirement of
Law relating to reserve or capital adequacy requirements.
"Advance" has the meaning provided in Section 2.1(a).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, whether through the ownership of voting securities, by contract, or
otherwise. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to (i) vote 50% or more of the
securities having ordinary voting power for the election of directors of such
corporation or (ii) direct or cause the direction of the management and policies
of such corporation, through the ownership of voting securities, by contract or
otherwise.
"Agent" shall mean Commerzbank AG, New York Branch, in its capacity as
agent for the Lenders hereunder, or such successor Agent as may be appointed
pursuant to Section 7.9 of this Agreement.
"Agreement" means this Agreement, as amended, supplemented, or
modified from time to time.
"Alternate Rate" means as of any date of determination a per annum
rate equal to the greater of (a) the Prime Lending Rate plus one hundred (100)
basis points per annum, and (b) the Federal Funds Rate plus one hundred fifty
(150) basis points per annum.
"Applicable Margin" means two hundred fifty (250) basis points.
"Average Undrawn Balance" shall mean the average daily amount of the
Commitment which remained undrawn upon by the Borrower for the related period of
determination (on the basis of a year of 365/366 days for the actual number of
days which have elapsed during such period).
"Bankruptcy Code" has the meaning provided in Section 6.1(g).
"Borrower" has the meaning set forth in the introductory paragraph to
this Agreement.
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<PAGE>
"Borrower's Authorized Representative" means any duly elected officer
designated by the Borrower in a written notice to the Agent, as such officer may
be changed from time to time by written notice to the Agent.
"Budget" means, for any Mortgaged Property (i) until the Final Budget
for such Mortgaged Property is received by Agent, the Initial Budget for such
Mortgaged Property, and (ii) upon and after such time as the Final Budget for
such Mortgaged Property is received by Agent, the Final Budget for such
Mortgaged Property.
"Business Day" means any day excluding Saturday, Sunday, and any other
day on which banks are required or authorized to close in New York City or on
which trading is not carried on by and between banks in Dollar deposits in the
applicable interbank Eurodollar market.
"Capital Stock" means any and all shares, interests, participation, or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests, including but not limited to partnership
interests, in a Person (other than a corporation), and any and all warrants or
options to purchase any of the foregoing.
"Closing Date" means May 6, 1997 or such other Business Day selected
by the parties to be the first day on which funds under the Commitment under
this Agreement will be first made available, but in no event prior to the
execution hereof and satisfaction of all conditions precedent set forth in
Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.
"Collateral" means, collectively, the Mortgaged Properties and all
other property and interests in property now owned or hereafter acquired and
upon which a Lien has been or is purported or intended to have been granted in
favor of the Agent.
"Commitment" has the meaning provided in Section 2.1(b).
"Construction Interest" means all interest expense of the Borrower and
its Subsidiaries for the construction of projects which is capitalized in
accordance with GAAP.
"Contractual Obligation" means as to any Person, any material
provision of any security issued by such Person or of any agreement, instrument,
or other undertaking to which such Person is a party or by which it or any of
its property is bound.
-3-
<PAGE>
"Credit Exposure" has the meaning provided in Section 7.17.
"Debt Service" shall mean for any period the sum of (i) all interest
obligations required to be paid in respect of any Indebtedness of the Borrower
or its Subsidiaries, other than Construction Interest, (ii) all payments of
principal required to be made with respect to any Indebtedness of the Borrower
or its Subsidiaries during such period, other than balloon payments or scheduled
amortizing payments on senior Indebtedness, and (iii) all other payments
required to be made in respect of any Indebtedness of the Borrower or its
Subsidiaries.
"Decisions" has the meaning set forth in Section 7.14.
"Default" means any condition or event that, with the giving of notice
or the lapse of time or both, would constitute an "Event of Default" hereunder
or under the Promissory Notes or the other Loan Documents.
"Default Rate" has the meaning set forth in Section 2.6(b) hereof.
"Development Encumbrances" means all easements, restrictions and
encumbrances customary and appropriate for the development of property as an
extended stay facility and which do not and will not materially impair the use
of the Mortgaged Property affected thereby as an extended stay facility or the
expected value of the Mortgaged Property affected thereby.
"Direct Costs" means, for each Mortgaged Property, the aggregate costs
of all items described under the categories entitled "Hard Costs-Contractor
Costs", "Hard Costs-Other Hard Costs", "Hard Costs-Hard Costs Contingency" and
"Hard Costs-Furniture, Fixtures & Equipment" in the Budget for such Mortgaged
Property actually paid which are necessary for the completion of construction of
an extended stay facility on such Mortgaged Property in accordance with the
Plans and Specifications, as evidenced by the documentation and certificate of
Borrower furnished to Agent pursuant to Sections 3.2(g)(i)(1) and (2) hereof.
"Dollar" and the sign "$" each mean lawful currency of the United
States of America.
"EBITDA" means, for any period and for any Person, the amount derived
from (i) net earnings plus (ii) depreciation, amortization, interest expense and
income taxes plus or minus (iii) any losses or gains resulting from sales,
write-downs, write-ups, write-offs or other valuation adjustments of assets or
liabilities of such Person, in each case as determined on a consolidated basis
in accordance with GAAP for such Person for such period.
-4-
<PAGE>
"Eligible Acquisition Costs" means, for each Mortgaged Property, the
lesser of (i) the Acquisition Costs with respect to such Mortgaged Property, and
(ii) the amount budgeted, in the aggregate, for Acquisition Costs as shown on
the Budget for such Mortgaged Property (including any contingency for
Acquisition Costs shown on such Budget).
"Eligible Costs" means Eligible Acquisition Costs, Eligible Direct
Costs and Eligible Indirect Costs.
"Eligible Direct Costs" means, for each Mortgaged Property, the lesser
of (i) the Direct Costs with respect to such Mortgaged Property, and (ii) the
amount budgeted, in the aggregate, for Direct Costs as shown on the Budget for
such Mortgaged Property (including any contingency for Direct Costs shown on
such Budget).
"Eligible Indirect Costs" means, for each Mortgaged Property, the
lesser of (i) the Indirect Costs with respect to such Mortgaged Property, and
(ii) the amount budgeted, in the aggregate, for Indirect Costs as shown on the
Budget for such Mortgaged Property (including any contingency for Indirect Costs
shown on such Budget).
"Environment" shall mean soil, surface waters, groundwaters, land,
stream, sediments, surface or subsurface strata and ambient air.
"Environmental Discharge" means any discharge of pollutants or
effluent into any aquifer or water source or system (whether naturally occurring
or man made), gaseous emissions (including, without limitation, air emissions),
particulate emissions and noise emissions, in each case, in violation of any
Relevant Environmental Law.
"Environmental Indemnity" means that certain Environmental Indemnity
to be executed by the Borrower in favor of the Agent, substantially in the form
attached hereto as Exhibit E.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with the Borrower or a Subsidiary of the Borrower
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA.
"Eurodollar Rate" means:
(a) the rate per annum appearing on the Telerate page 3750 (the "Telerate
Screen") at or about 11:00 a.m. (New York time), subject to corrections (if any)
made on the Telerate service, two
-5-
<PAGE>
Business Days prior to the commencement of the Interest Period for which such
Eurodollar Rate will apply (the "Rate Fixing Day") for the offering of deposits
in Dollars for a period comparable to the Interest Period for which such
Eurodollar Rate will apply; or
(b) if
(i) no relevant rate appears on the Telerate Screen for the purposes
of the foregoing subparagraph (a), or
(ii) the Agent determines that no rate for a period of comparable
duration to that Interest Period appears on the Telerate Screen at the
relevant time,
the arithmetic mean (rounded upwards, if necessary, to two decimal places)
of the respective rates, as supplied to the Agent at its request, quoted by
the Lenders to leading banks in the London Interbank Market at or about
11:00 a.m. (New York time) on the Rate Fixing Day for the offering of
deposits in Dollars for a period comparable to the Interest Period for
which such Eurodollar Rate will apply. If any of the Lenders is unable or
otherwise fails to supply an offered rate by 11:30 a.m. (New York time) on
the Rate Fixing Day, Eurodollar Rate shall, subject to Section 2.12 hereof,
be determined on the basis of the quotations of the remaining Lenders.
"Event of Default" has the meaning provided in Article VI.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
"Federal Funds Rate" means, for any day of determination, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of one percent)
equal to the weighted average of the rates on overnight Federal Funds transacted
with members of the Federal Reserve System arranged by Federal Funds brokers on
such date, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that (i) if such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day as so published on the next succeeding
Business Day, and (ii) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to the Agent on such day on such transactions as determined by the Agent.
"Financing Statements" means UCC-1 Financing Statements made by the
Borrower, as debtor, in favor of the Agent, as secured party, covering all
fixtures, equipment and personal property of the Borrower at the Mortgaged
Properties.
-6-
<PAGE>
"Final Budget" means, for any Mortgaged Property, a final budget with
respect to such Mortgaged Property in the same form as the Initial Budget for
such Mortgaged Property (as the form of such final budget may be changed from
time to time by Borrower upon the prior written consent of Agent) showing the
amounts budgeted for the Total Costs (including contingencies) for such
Mortgaged Property, provided that Total Costs (including contingencies) as shown
on such final budget do not exceed, in the aggregate, the amount equal to 110%
of the Total Costs (including contingencies) as shown on such Initial Budget, in
the aggregate.
"GAAP" means generally accepted accounting principles as in effect at
the time of application applied on a consistent basis; provided, however, if any
change is adopted after the Closing Date in generally accepted accounting
principles which either Borrower or Agent determines to be adverse, and if
either such party notifies the other of such determination, then both Borrower
and Agent shall negotiate in good faith the extent to which such change shall be
adopted with respect to the matters to which the definition of "GAAP" is
applicable under the Loan Documents, and the term "GAAP" shall mean (i) in the
event a written agreement with respect to such change is executed and delivered
by both Borrower and Agent within 30 days following such notice, generally
accepted accounting principles applied on a consistent basis giving effect to
such agreement, or (ii) in any other event, generally accepted accounting
principles as in effect at the time immediately prior to the adoption of such
change applied on a consistent basis.
"Governmental Authority" means any nation and any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government, including, but not limited to, the Federal Reserve Board, any
Federal Reserve Bank, any other central banking authority, or any agency or
subdivision thereof.
"Gross Asset Value" means the value of all cash, cash equivalents and
the value of all real property assets owned by Borrower valued at one hundred
percent (100%) of cost.
"Guarantee Obligation" means, as to any Person (the "Guaranteeing
Person"), any obligation of (a) the Guaranteeing Person or (b) another Person
(including, without limitation, any bank under any letter of credit) to induce
the creation of which the Guaranteeing Person has issued a reimbursement,
counterindemnity, or similar obligation, in either case guaranteeing any
Indebtedness, leases, dividends, or other obligations (the "primary
obligations") of any other third Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation of
the Guaranteeing Person, whether or not contingent, (i) to purchase any such
-7-
<PAGE>
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities, or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any Guaranteeing Person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such Guaranteeing Person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such Guaranteeing Person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such Guaranteeing Person's maximum reasonably anticipated liability in
respect thereof as determined by the Lenders in good faith.
"Hazardous Materials" shall mean any substance in quantities and/or
form:
(a) the presence of which requires or shall hereafter require
notification, investigation or remediation under any Relevant Environmental
Law; or
(b) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial
waste" or "Pollutant" or "contaminant" under any Relevant Environmental
Law, including without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons or volatile organic compounds, or which
contains polychlorinated biphenyls or asbestos or urea formaldehyde foam
insulation, or which contains or emits radioactive particles, waves or
material, including radon gas; or
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated under any Relevant Environmental Law or by any
Governmental Authority; or
(d) pursuant to applicable Relevant Environmental Laws, the
presence of which on the Mortgaged Property causes or threatens to cause a
nuisance upon the
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Mortgaged Property or adjacent properties; or poses or threatens to pose a
hazard to the Mortgaged Property or to the health or safety of persons or
property on or about the Mortgaged Property.
"Indebtedness" of any Person means as of the date of any determination
thereof:
(i) all obligations of such Person for borrowed money and
for the deferred purchase price of property or services, and
obligations evidenced by bonds, debentures, notes, or other similar
instruments;
(ii) all rental or other obligations under leases required
to be capitalized under GAAP;
(iii) all Guarantee Obligations of such Person;
(iv) all liabilities in respect of currency or interest
rate swap, cap or collar arrangements or any similar derivative
instrument; provided that if such currency or interest rate swap, cap
or collar arrangements or any similar derivative instrument has been
entered into in order to hedge the currency or interest rate exposure
of such Person in respect of current or contemplated Indebtedness, the
amount of any liability in respect of such arrangement or instrument
shall not be included in the determination of Indebtedness; and
(v) Indebtedness of others secured by any Lien upon
property owned by such Person, whether or not assumed by such Person.
"Indirect Costs" means the aggregate costs of all items described in
the line items entitled "Title Insurance", "Commissions", "Closing Costs/Escrow
Fees", "Property Taxes", "Legal" and "Soft Costs Contingency" and under the
categories entitled "Soft Costs-Design Costs", "Soft Costs-Permits & Fees", and
"Soft Costs-Other Soft Costs" in the Budget for such Mortgaged Property actually
paid, in all cases as evidenced by the documentation and certificate of Borrower
furnished to Agent pursuant to Section 3.2(g)(i)(1) and (2) hereof, it being
understood that Indirect Costs shall in no event include, with respect to any
Mortgaged Property, any portion of the legal fees for zoning and planning board
approval and similar matters.
"Initial Budget" means, for any Mortgaged Property, a pro forma budget
with respect to such Mortgaged Property in the form of Exhibit G annexed hereto
(as the form of such pro forma budget may be changed from time to time by
Borrower upon the prior written consent of Agent) showing the amounts budgeted
for
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the Total Costs (including contingencies) for such Mortgaged Property, provided
and to the extent such budget and the amounts set forth thereon reasonably
conform, in the Agent's sole discretion, to the Regional Prototypical Budget
applicable to such Mortgaged Property.
"Intellectual Property" has the meaning set forth in Section 4.12.
"Interest Period" has the meaning set forth in Section 2.7.
"Leases" means all leases, licenses and other arrangements pursuant to
which any Person has the right or option to occupy or use any portion of any
Mortgaged Property, and shall include all right, title and interest to receive
all rent and other revenue thereunder, and shall include all guaranties of the
obligations of all such Persons.
"Lender" or "Lenders" has the meaning set forth in the introductory
paragraph of this Agreement, and any successors and assigns.
"Lending Office" shall mean, with respect to any of the Lenders, the
branch or branches (or affiliate or affiliates) from which any of such Lender's
Advances are made or maintained and for the account of which all payments of
principal of, and interest on, such Lender's Advances are made, as designated in
writing from time to time to the Agent and the Borrower.
"Lien" means with respect to any asset: any mortgage, pledge, security
interest, encumbrance, lien, charge, or deposit arrangement or other arrangement
having the practical effect of the foregoing and shall include the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease, or
other title retention agreement relating to such asset or the filing of any
financing statement under the UCC or comparable law.
"Loan" means, collectively, the loans made by the Lenders pursuant to
the Loan Documents.
"Loan Documents" means, collectively, this Agreement, the Promissory
Notes, all Mortgages, all Financing Statements, the Environmental Indemnity, all
Subsidiary Mortgagor Guaranties and all other documents, certificates,
affidavits and other instruments executed and delivered by the Borrower and its
Affiliates pursuant thereto or in connection therewith, as each of the same may
be amended, modified or otherwise supplemented from time to time.
"Loss" has the meaning provided in Section 7.16(c).
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"Margin Stock" has the meaning provided in Regulation U.
"Market Studies" means, for any Mortgaged Property, all of the
following with respect to such Mortgaged Property in the form of the examples of
the following attached hereto as Exhibit H: (i) a target submarket overview,
(ii) a comparison with the Borrower's acquisition criteria, (iii) an area map,
(iv) a neighborhood map, (v) an aerial photograph, (vi) a contextual site plan,
(vi) a preliminary site plan, (vii) a map indicating retail and restaurant
support, (viii) the identity of and information respecting demand generators and
area employers, (ix) a demand location map, (x) a competitive survey, and (xi) a
competitive survey map.
"Material Adverse Change" means any change, event or circumstance
which has or is reasonably likely to have a material adverse effect on (i) the
ability of the Borrower and its Subsidiaries to perform their respective
obligations under this Agreement or any of the other Loan Documents, or (ii) the
business, condition (financial or otherwise) or results of operation of the
Borrower and its Subsidiaries when taken as a whole.
"Maturity Date" means May 5, 1998 and any extensions thereof.
"Maximum Availability Amount" means, as of any date of determination,
the sum of:
(a) forty-five (45%) percent of the aggregate Eligible Acquisition
Costs for all of the Mortgaged Properties, and
(b) thirty-five (35%) percent of the sum of: (1) the aggregate
Eligible Direct Costs for all of the Mortgaged Properties, and (2) the
aggregate Eligible Indirect Costs for all of the Mortgaged Properties.
"Mortgaged Properties" means, collectively, each New Mortgage Property
of the Borrower or any Subsidiary Mortgagor which subsequent to the Closing Date
is (and for so long as same is) mortgaged to the Agent pursuant to the terms
hereof, and shall include all of the "Property", as such term is defined in the
Mortgages.
"Mortgages" means those certain deeds of trust, deeds to secure debt,
mortgages and security agreements with assignments of rents and fixture filings
delivered by the Borrower or any Subsidiary Mortgagor in favor of the Agent and
covering the Mortgaged Properties, substantially (i.e., with such modifications
as may be required by, or, in the Agent's reasonable judgment, appropriate for,
the jurisdiction in which a particular Mortgaged Property is located) in the
form attached
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hereto as Exhibit N, as the same may be amended, modified, or otherwise
supplemented from time to time.
"Net Operating Income" means, with respect to the most recent twelve
(12) months or, at the option of the Agent, the most recent fiscal quarter of
the Borrower calculated on a year to date basis, the gross revenues from the
Mortgaged Properties for such period less all direct operating expenses of the
Mortgaged Properties, including, without limitation, expenses for the following
to the extent same relate to the Mortgaged Properties: personnel, landscaping,
contracts, utilities, housekeeping, repairs and maintenance, marketing,
administrative duties, insurance and real estate taxes for such period (other
than interest expense, depreciation, amortization and expenditures capitalized
in accordance with GAAP).
"New Mortgaged Property" means any property and all rights, titles and
interests appurtenant thereto which the Borrower or any Subsidiary Mortgagor
proposes to encumber by a Mortgage at any time subsequent to the Closing Date.
"Non-public Information" means any information delivered by the
Borrower to the Agent or the Lenders (in their capacities as such) pursuant to
this Agreement which is not publicly disclosed or known, or which cannot be
readily derived from information which is publicly disclosed or known.
"Notice of Borrowing" has the meaning provided in Section 2.3.
"Notifying Lender" has the meaning provided in Section 2.13.
"Participant" has the meaning provided in Section 7.17.
"Payment Office" means the office of the Agent located at 2 World
Financial Center, New York, New York 10281-1050.
"Percentage" shall mean each Lender's percentage share of the
Commitment as set forth on Exhibit A hereto.
"Period Fraction" means, with respect to any period of time, a
fraction, the numerator of which is the actual number of days in such period,
and the denominator of which is 360.
"Permissible Assumed Indebtedness" has the meaning provided in Section
5.3(a)(iv).
"Permitted Encumbrances" means, with respect to each of the Mortgaged
Properties, (i) all exceptions to title insurance coverage set forth in the
title insurance policies insuring the Mortgages covering such Mortgaged
Properties, other than standard printed exceptions, as of the date such policies
are issued, (ii)
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all liens for real estate taxes and assessments provided either (x) that the
last day by which such taxes or assessments may be paid without the imposition
of any interest, fine or penalty has not occurred, or (y) the amount or validity
of such taxes or assessments are being contested in good faith by appropriate
proceedings which have the effect of staying enforcement or execution of such
liens and with respect to which adequate reserves in conformity with GAAP have
been provided on the books of Borrower, (iii) Development Encumbrances, (iv)
mechanics' and materialmen's liens which remain unsatisfied, unbonded or
unstayed for no more than 30 days other than those the amount or validity of
which are being contested in good faith by appropriate proceedings which have
the effect of staying enforcement or execution of such liens and with respect to
which adequate reserves in conformity with GAAP have been provided on the books
of Borrower, and (v) Leases which are subordinate to the lien of the Mortgages.
"Permitted Purpose" shall mean reimbursement to the Borrower of a
portion of the Total Costs with respect to each Mortgaged Property.
"Person" means any individual, partnership, firm, corporation,
association, joint venture, joint stock company, trust, unincorporated
organization or other entity, or any governmental or political subdivision or
agency, department, or instrumentality thereof.
"Plan" means any multiemployer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five calendar years preceding the date of this
Agreement was maintained, for employees of the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate.
"Plans and Specifications" has the meaning specified in Section
3.2(g).
"Presence" means, when used in connection with Hazardous Materials,
treatment, use, storage, handling, repair, encapsulation, disposal,
transportation, spill, discharge and release.
"Prime Lending Rate" means the rate at which the Agent announces from
time to time as its prime lending rate, as in effect from time to time. The
Prime Lending Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. The Agent and each Lender
may make commercial loans or other loans at rates of interest at, above or below
the Prime Lending Rate.
"Proforma Operating Statement" means, for any Mortgaged Property, a
completed pro forma operating statement with respect
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to such Mortgaged Property in the form of Exhibit I attached hereto, accurate as
of the date of such statement, and containing the information required to
complete such schedule in the manner and detail contemplated by such Exhibit,
provided and to the extent such completed pro forma operating statement and the
amounts set forth thereon reasonably conform, in the Agent's determination, to
the Regional Prototypical Proforma Operating Statement applicable to such
Mortgaged Property.
"Project Cost Report" means, for any Mortgaged Property, a completed
project cost report with respect to such Mortgaged Property in the form of
Exhibit J attached hereto, accurate as of the date of such form, and containing
the information required to complete such schedule in the manner and detail
contemplated by such Exhibit, and including, without limitation, the current
actual and projected Total Costs with respect to such Mortgaged Property and the
deviations of same (on line-item by line-item basis) from the Budget furnished
to Agent with respect to such Mortgaged Property.
"Promissory Notes" means the promissory notes made by the Borrower to
each Lender substantially in the form annexed hereto as Exhibit C.
"Purchasing Lender" has the meaning provided in Section 7.18.
"Regional Prototypical Budget" means, for any Mortgaged Property, the
prototypical budget attached hereto as Schedule 1 with respect to the region in
which such Mortgaged Property is located.
"Regional Prototypical Proforma Operating Statement" means, for any
Mortgaged Property, the prototypical proforma operating statement attached
hereto as Schedule 4 with respect to the region in which such Mortgaged Property
is located.
"Regulation D" and "Regulation U" mean Regulation D and Regulation U,
respectively, of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor thereto.
"Realty" means SC Realty Incorporated, a Nevada corporation.
"Release" has the meaning provided in Section 8.11.
"Release Parcel" has the meaning provided in Section 8.11.
"Release Request" has the meaning provided in Section 8.11.
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"Relevant Environmental Laws" means all Requirements of Law and all
other applicable Federal, state and local environmental statutes, regulations,
rules, ordinances, codes, licenses, permits, approvals, plans, authorizations,
guidelines, concessions, franchises, orders and similar items, and rules of
common law (whether now existing or hereafter enacted or promulgated and whether
now contemplated, anticipated or foreseeable or not) of all courts and
Governmental Authorities, and all applicable judicial and administrative and
regulatory decrees, judgments and orders, including common law rulings and
determinations, relating to injury to or the protection of the Environment,
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, investigation, remediation and removal of emissions,
discharges, releases or threatened releases of Hazardous Materials into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"Required Lenders" means the Lenders holding at least 66-2/3% of the
Commitment.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws, certificate of partnership and partnership agreement
or other organizational or governing documents of such Person, and any law,
treaty, rule, or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Stockholders' Equity" means stockholders' equity as reflected on the
balance sheet of the Borrower determined in accordance with GAAP.
"Studies" means environmental studies and investigations respecting
(i) the condition and circumstances of the Environment on, under, about or
affecting any Mortgaged Property, (ii) any actual or suspected Environmental
Discharge or Presence of any Hazardous Materials on, under, about or affecting
any Mortgaged Property, and (iii) any actual or suspected violation of any
Relevant Environmental Laws on, under, about or related to any Mortgaged
Property.
"Subsidiary" of any Person means a corporation (or partnership) of
which a majority of the outstanding shares of stock (or beneficial interests) of
each class having ordinary voting power is owned by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries.
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"Subsidiary Mortgagor" means any Subsidiary of Borrower or any other
Person which owns any portion of or interest in any New Mortgaged Property.
"Subsidiary Mortgagor Guaranty" has the meaning provided in Section
3.3(b).
"Taxes" has the meaning provided in Section 2.17.
"Total Costs" means, for each Mortgaged Property, the sum of (i) the
Acquisition Costs with respect to such Mortgaged Property, (ii) the Direct Costs
with respect to such Mortgaged Property, and (iii) the Indirect Costs with
respect to such Mortgaged Property.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the relevant jurisdiction.
"Use Requirements" means any and all building codes or permits,
certificates of occupancy or compliance, restrictions of record, easements,
reciprocal easements or other agreements, subdivision, zoning, wetlands
protection, or land use laws or ordinances and any and all applicable rules or
regulations of any Governmental Authority affecting any part of any Mortgaged
Property.
Section 1.2 Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with GAAP.
Section 1.3 Other Definitional Terms. The words "hereof," "herein,"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, section, schedule, exhibit, and like references are to
this Agreement unless otherwise specified. References to agreements,
instruments, documents, statutes, and regulations include all amendments,
supplements, and modifications thereof as may be in effect from time to time.
ARTICLE II
AMOUNTS AND TERMS OF LOANS
--------------------------
Section 2.1 Commitment.
(a) Subject to and upon the terms and conditions herein set forth,
each Lender, severally and not jointly, agrees to make loans (each an "Advance"
and collectively, the
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"Advances") pro rata in accordance with such Lender's Percentage to the Borrower
from time to time on and/or after the Closing Date.
(b) The Advances made pursuant hereto by the Lenders shall not
exceed an aggregate principal amount outstanding at any time of the lesser of
(i) $50,000,000 (the "Commitment"), and (ii) the Maximum Availability Amount at
such time. There may not be more than one Advance made on any day. Within the
foregoing limits and subject to the conditions set out in this Agreement, the
Borrower may borrow Advances under this Section 2.1, repay Advances under
Section 2.8, and reborrow Advances.
(c) The aggregate principal amount of each Advance hereunder
shall be not less than $500,000 and shall be in integral multiples of $100,000.
Section 2.2 Advances. (a) The Lenders will make Advances of the Loan
for (and only for) any Permitted Purpose subject to and in accordance with the
terms and conditions of this Agreement, including, without limitation, subject
to satisfaction of all conditions precedent to Advances set forth herein.
(b) The initial Advance of the loan proceeds will be made upon
satisfaction of the conditions set forth in Article III of this Agreement, and
all subsequent advances shall be made no more frequently than (1) twice during
any calendar month thereafter and (2) once every 12 days.
Section 2.3 Notices of Borrowing. Whenever the Borrower desires to
receive an Advance hereunder, it shall give the Agent at least five Business
Days' prior written notice of the proposed Advance to be made hereunder, such
notice to be given prior to 12:00 noon (New York time) on the date specified.
Each such notice (each a "Notice of Borrowing") shall be in the form of Exhibit
B, be irrevocable, and specify the principal amount of the Advance to be made
and the date (which shall be a Business Day) of the Advance.
Section 2.4 Disbursement of Funds. The Agent shall promptly (but in
no event less than three Business Days prior to the date of the Advance) notify
each Lender of its Percentage of each Advance and the date of such Advance. On
the date so specified, each Lender shall make available to the Agent at the
Payment Office no later than 11:00 a.m. (New York time) in immediately available
funds an amount equal to such Lender's Percentage of such Advance. No later than
1:00 p.m. (New York time) on the date of each Advance, the Agent will make
available to the Borrower at the Payment Office the full amount of the Advance.
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Section 2.5 Promissory Notes; Collateral.
(a) The Borrower's obligation to pay the principal of, and interest
on, the Advances made by each Lender shall be evidenced by one or more
Promissory Notes in the face amount of each such Lender's Percentage of the
Commitment, with blanks as to payee, date and principal amount appropriately
completed. The determination by the Agent of the amount of principal outstanding
hereunder or under any Promissory Note shall, except for patent error, be final,
conclusive and binding upon the Borrower for all purposes.
(b) Each borrowing, prepayment and reborrowing hereunder shall be
recorded by the Agent; provided, however, that no failure to make or error in
making a recordation of an Advance shall in any way limit, affect or modify the
obligation of the Borrower to repay any obligations, or the rights of the Agent
and the Lenders to any amounts due under this Agreement, the Loan Documents and
the Promissory Notes.
(c) Except as otherwise set forth in the Loan Documents, each item of
Collateral shall secure the payment and performance of all indebtedness and
obligations of the Borrower under this Agreement, including without limitation,
any increased cost under Section 2.14 hereof, and each other Loan Document.
Section 2.6 Interest on Advances.
(a) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Advance from the date such Advance is made at a rate
per annum for each Interest Period equal to the Applicable Margin plus the
relevant Adjusted Eurodollar Rate. Interest on each Advance shall accrue from
and including the date of such Advance to but excluding the date of any
repayment thereof and shall be payable (i) (x) with respect to all Advances
other than Advances the Interest Period applicable to which is six months, in
arrears on the last day of the Interest Period for each such Advance, and (y)
with respect to all Advances the Interest Period applicable to which is six
months, in arrears on the 90th day following the first day of such Interest
Period and on the last day of such Interest Period, (ii) at maturity (whether by
acceleration or otherwise), and (iii) after maturity, on demand. Notwithstanding
the foregoing, interest on each Advance bearing interest at the Alternate Rate
pursuant to the terms of this Agreement shall be payable in arrears on the last
day of each calendar month during the Interest Period applicable to such Advance
and on the last day of such Interest Period, (ii) at maturity (whether by
acceleration or otherwise), and (iii) after maturity, on demand.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Advance, and all other overdue amounts owing
hereunder, shall bear
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interest for each day that such amounts are overdue at a rate (the "Default
Rate") per annum equal to three percent per annum plus the interest rate
otherwise applicable thereto from the first day such amounts are overdue to but
excluding the date such overdue amounts are paid.
(c) The Agent, upon determining the Adjusted Eurodollar Rate for any
Interest Period, shall promptly notify by telephone (confirmed in writing) or in
writing the Borrower thereof.
(d) It is expressly stipulated and agreed to be the intent of the
Lenders and Borrower at all times to comply with the applicable law governing
the highest lawful interest rate. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under this Agreement
or under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the Indebtedness evidenced thereby, or if
acceleration of the maturity of the obligations, or the rights of the Agent and
the Lenders to any amounts due, under this Agreement, the Loan Documents and the
Promissory Notes, any prepayment by Borrower, or any other circumstance
whatsoever, results in Borrower having paid any interest, penalty, fee or other
amount in excess of that permitted by applicable law, then it is the express
intent of Borrower and Lenders that all excess amounts theretofore collected by
Lenders be credited on the principal balance of the Advances (or, at Lenders'
option, paid over to Borrower), and the provisions of this Agreement and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
and thereunder. The right to accelerate maturity of the obligations, or the
rights of the Agent and the Lenders to any amounts due, under this Agreement,
the Loan Documents and the Promissory Notes, does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lenders do not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lenders for the
use, forbearance or detention of the obligations, or the rights of the Agent and
the Lenders to any amounts due, under this Agreement, the Loan Documents and the
Promissory Notes shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such obligations and
amounts until payment in full so that the rate or amount of interest on account
of such secured obligations does not exceed the maximum rate or amount of
interest permitted under applicable law.
Section 2.7 Interest Periods. In connection with each Advance bearing
interest at the rate described in Section
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2.6(a) above, an interest period (each an "Interest Period") shall be applicable
thereto, which shall be a period of one, two, three or six months as selected by
the Borrower in the Notice of Borrowing for such Advance, provided that:
(i) the initial Interest Period for any Advance shall
commence on the date of such Advance;
(ii) subject to the provisions of Section 6.2 hereof and
provided that no Event of Default shall have occurred and be
continuing, at the end of the initial Interest Period, and each
subsequent Interest Period for any Advance, the Borrower shall be
permitted to select an additional Interest Period for such Advance by
delivering a written notice thereof, in the form of Exhibit B-1, to
the Agent at any time prior to 12:00 noon (New York time) on the third
Business Day prior to the expiration of the then current Interest
Period applicable to such Advance, provided that if no Interest Period
selection is delivered to the Agent by such time, the Borrower shall
be deemed to have selected an Interest Period of one month and such
Interest Period selected or deemed to have been selected for such
Advance may not be changed without the consent of the Agent;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period in
respect of an Advance (other than an Advance referred to in Section
2.13(b)(ii) or Section 2.14(b)(ii)) would otherwise expire on a day
that is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;
(iv) any Interest Period in respect of an Advance 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, subject to clause (v)
below, end on the last Business Day of a calendar month;
(v) no Interest Period shall extend beyond the Maturity
Date; and
(vi) there shall be no more than six Interest Periods in
effect at any time.
Section 2.8 Repayment of Advances. The Borrower shall repay to the
Agent, for the account of the Lenders, the unpaid principal amount of each
Advance made by the Lenders
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hereunder, together with all accrued and unpaid interest thereon and any other
sums due and payable to the Lenders hereunder or under the other Loan Documents
on the Maturity Date.
Section 2.9 Prepayments of Advances.
(a) The Borrower may prepay all outstanding Advances, any one Advance
or portion thereof on any Business Day without penalty, premium or additional
charge, except as set forth in Section 2.16 hereof; provided such prepayment
shall be at least equal to the lesser of $100,000 or the outstanding amount of
such Advance. Upon three (3) days written notice to the Agent, the Borrower may
terminate the Commitment by prepaying all outstanding Advances and all other
amounts and fees due to the Agent and the Lenders under this Agreement and the
other Loan Documents.
(b) The Borrower shall be liable for all amounts payable pursuant to
Section 2.16 with respect to a prepayment of an Advance on any date other than
the last day of the Interest Period related to such Advance where no new
Interest Period shall have been selected or deemed to have been selected
pursuant to Section 2.7(ii) for such Advance.
Section 2.10 Fees. The Borrower shall pay to the Agent for the
account of the Lenders a commitment fee (the "Commitment Fee") equal to 0.325%
per annum on the Average Undrawn Balance of the Commitment. Such Commitment Fee
shall be due and payable (i) quarterly in arrears on the last day of each
calendar quarter, and (ii) on the Maturity Date. Each payment on account of the
Commitment Fee for a period which is less than a full calendar quarter shall be
prorated.
Section 2.11 Payments, Etc.
(a) All payments under this Agreement shall be pro rata among the
Lenders in accordance with their Percentages and shall be made by the Borrower,
without defense, setoff, or counterclaim, to the Agent not later than 12:00 noon
(New York time) on the date when due and shall be made in Dollars in immediately
available funds at the Payment Office and any funds received by the Agent after
such time shall, for all purposes of this Agreement, be deemed to have been paid
on the next succeeding Business Day. The Agent shall thereafter cause to be
distributed to the Lenders, on the Business Day when paid, in like funds their
Percentage of payments so received.
(b) Whenever any payment to be made hereunder or under the Promissory
Notes shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day (unless the
relevant Interest Period expires on the next preceding Business Day pursuant to
Section 2.7(iii), in which case the due date shall be
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the next preceding Business Day) and, with respect to payments of principal,
interest thereon shall be payable at the applicable rate during such extension.
(c) All computations of interest on the Advances shall be made on the
basis of a year of (x) in the case of Advances on which interest is computed on
the basis of the Eurodollar Rate, 360 days, and (y) in the case of Advances on
which interest is computed on the basis of the Alternate Rate, 365/366 days, in
either case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest is payable.
Section 2.12 Interest Rate Not Ascertainable, Etc. If the Agent
shall have determined (which determination shall be conclusive and binding upon
the Borrower) that on any date for determining the Eurodollar Rate for any
Interest Period, by reason of any circumstances affecting the interbank
Eurodollar market generally, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Adjusted Eurodollar Rate, then, and in any such event, the Agent
shall forthwith give notice (by telephone confirmed in writing) to the Borrower
of such determination. Until the Agent notifies the Borrower that the
circumstances giving rise to the suspension described herein no longer exist:
(i) any Advance made hereunder shall bear interest at the
then applicable Alternate Rate; and
(ii) if any Advance affected is then outstanding, each such
Advance shall immediately convert into an Advance bearing interest at
the then applicable Alternate Rate with an Interest Period ending on
the date on which the Interest Period applicable to the Advance
affected expires.
Section 2.13 Illegality.
(a) If any Lender (a "Notifying Lender") shall have determined
at any time that the making or continuance of any Advance has become unlawful by
compliance by such Lender in good faith with any applicable Requirement of Law
adopted or becoming effective after the date hereof, then, in any such event,
the Notifying Lender shall give prompt notice (by telephone confirmed in
writing) to the Agent and the Borrower of such determination.
(b) Upon the giving of the notice to the Agent and the Borrower
referred to in subsection (a) above, (i) the Borrower's right to request and the
Notifying Lender's obligation to make Advances shall be immediately suspended,
and (ii) if any Advance of the Notifying Lender affected thereby is then
outstanding, each such Advance shall immediately convert into an
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Advance bearing interest at the then applicable Alternate Rate with an Interest
Period ending on the date on which the Interest Period applicable to the Advance
affected expires.
Section 2.14 Increased Costs.
(a) If, by reason of (x) after the date hereof, the implementation of
or any change (including, without limitation, any change by way of imposition or
increase of reserve or capital adequacy requirements) in, or in the
interpretation by any Governmental Authority or any other recognized authority
of, any law or regulation, or (y) the compliance with any guideline or request
from any central bank or other Governmental Authority or quasi-Governmental
Authority exercising control over banks or financial institutions generally
(whether or not having the force of law) adopted or becoming effective after the
date hereof:
(i) any Lender (or its Lending Office) shall be subject to
any tax, duty, or other charge, with respect to the Advances or its
obligation to make Advances, or shall change the basis of taxation of
payments to any Lender of the principal of or interest on the Advances
or its obligation to make Advances (except for changes in the rate of
tax on the overall net income of such Lender or its Lending Office
imposed by the jurisdiction in which such Lender's principal executive
office or Lending Office is located); or
(ii) any reserve, special deposit, or similar requirement
(including, without limitation, any reserve, special deposit, or
similar requirement imposed by the Board of Governors of the Federal
Reserve System) against assets of, deposits with or for the account
of, or credit extended by, any Lender or its Lending Office shall be
imposed or deemed applicable or any other condition affecting the
Advances shall be imposed on such Lender or its Lending Office or the
interbank Eurodollar market;
and as a result thereof there shall be any cost to such Lender of agreeing to
make or maintain the Advances, or there shall be a reduction in the amount
received or receivable by such Lender or its Lending Office, then the Borrower
shall from time to time, upon written notice and demand (including such Lender's
reasonable details with respect to such increased cost) promptly given by the
Agent, pay to the Agent for the account of such Lender, within five Business
Days after the date specified in such notice and demand, additional amounts
sufficient to indemnify such Lender against such increased cost. In the event
that a Lender becomes aware of the imposition of a cost to such Lender or a
reduction in the amount to be received or receivable by such Lender or its
Lending Office which is an additional cost
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pursuant to this Section 2.14, such Lender shall promptly notify the Agent and
the Borrower in writing of such imposition or reduction, which notice shall
include such Lender's reasonable details with respect to such increased cost.
With respect to costs or reductions incurred by a Lender pursuant to this
Section 2.14 relating to any period in which the Commitment is in effect, the
provisions of this Section 2.14 shall survive the termination of this Agreement
and the payment of the Promissory Notes and all other amounts payable hereunder.
(b) If the Lenders shall notify the Borrower in writing that at
any time, because of the circumstances described in clause (x) or (y) in Section
2.14(a) or any other circumstances arising after the Closing Date and relating
to any period in which the Commitment is in effect affecting the interbank
Eurodollar market generally, the then applicable Adjusted Eurodollar Rate, as
determined by the Agent, will not adequately and fairly reflect the cost to the
Lenders of funding the Advances, then, subject to Section 2.14(c), thereafter:
(i) any Advance made hereunder shall bear interest at
the Alternate Rate; and
(ii) if the affected Advance is then outstanding, the
Borrower shall immediately, or if permitted by applicable law, no
later than the date permitted thereby, upon at least one Business
Day's written notice to the Lenders, convert each such Advance into an
Advance bearing interest at the Alternate Rate with an Interest Period
ending on the date on which the Interest Period applicable to the
affected Advance expires.
(c) If the Lenders shall notify the Borrower in writing that at
any time, because of the circumstances described in clause (x) or (y) in Section
2.14(a) or any other circumstances arising after the Closing Date and relating
to any period in which the Commitment is in effect affecting the interbank
Eurodollar market generally, then the Borrower shall be entitled to require each
Lender to which such circumstances apply to assign its Credit Exposure at par to
any Person selected by Borrower that is a financial institution reasonably
acceptable to the Agent, which assignment shall be effected pursuant to Section
7.18 hereof.
Section 2.15 Change of Lending Office. Each Lender agrees that it
will use reasonable efforts to designate an alternate Lending Office with
respect to its Advances affected by the matters or circumstances described in
Section 2.12, 2.13 or 2.14 to reduce the liability of the Borrower or avoid the
results provided thereunder, so long as such designation is not disadvantageous
to such Lender as determined by such Lender in its sole discretion.
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Section 2.16 Funding Losses. The Borrower shall compensate each
Lender, upon such Lender's written request to the Agent and the Agent's delivery
thereof to the Borrower (which request shall set forth in reasonable detail the
basis for requesting such amounts), for all losses, expenses, and liabilities
(including, without limitation, any interest paid by such Lender to lenders of
funds borrowed by it to make or carry its Advances to the extent not recovered
by such Lender in connection with the re-employment of such funds but excluding
loss of anticipated profits), which such Lender may sustain: (i) if for any
reason (other than a default by such Lender) an Advance does not occur on the
date specified therefor in a Notice of Borrowing (whether or not withdrawn);
(ii) if any repayment of any Advance occurs on a date which is not the Maturity
Date or the last day of an Interest Period applicable to such Advance (subject
to Section 2.9(b)); (iii) if, for any reason, the Borrower defaults in its
obligation to repay any Advances when required by the terms of this Agreement;
or (iv) the occurrence of any of the events described in Sections 2.12, 2.13 or
2.15. With respect to losses, expenses and liabilities which a Lender may
sustain as described in this Section 2.16 relating to any period in which the
Commitment is in effect, the provisions of this Section 2.16 shall survive the
termination of this Agreement and the payment of the Promissory Notes and all
other amounts payable hereunder.
Section 2.17 Taxes. (a)
All payments made by the Borrower under this Agreement and the Promissory
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp, or other taxes, levies,
imposts, duties, charges, fees, deductions, reserves or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding in the case of each Lender, net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on such Lender as a result
of a present or former connection between the jurisdiction of the government or
taxing authority imposing such tax and such Lender (excluding a connection
arising solely from such Lender having executed, delivered, or performed its
obligations or received a payment under, or enforced, this Agreement or the
Promissory Notes) or any political subdivision or taxing authority thereof or
therein (all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter called "Taxes"). If any Taxes are
required to be withheld from any amounts payable to any Lender hereunder or
under the Promissory Notes, the amounts so payable to such Lender shall be
increased to the extent necessary to yield to such Lender (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement and the appropriate Promissory Note.
Whenever any Taxes are payable by the Borrower pursuant to applicable law, as
promptly as possible thereafter the Borrower shall send to the Agent a
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certified copy of an original official receipt received by the Borrower showing
payment thereof. If any Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence (other than any such failure due
to failure of any Lender to furnish the documents required to be furnished by
such Lender pursuant to Section 2.17(b)), the Borrower shall indemnify, defend
and hold harmless the Agent and each Lender for any incremental taxes, interest,
or penalties that may become payable by the Agent or any Lender as a result of
any such failure. With respect to any obligations of the Borrower pursuant to
this Section 2.17 relating to any period in which the Commitment is in effect,
the agreements in this Section 2.17, as they apply to any Advance, shall survive
the termination of this Agreement and the payment of the Promissory Notes and
all other amounts payable hereunder.
(b) Agent and each Lender shall furnish Borrower, at least 30
days prior to the date on which the first payment to each Lender (including each
Purchasing Lender) is due, and annually thereafter during the term of the Loan,
with United States Internal Revenue Service Form 1001, 4224, W-8 or W-9 (or any
other successor form) or any other document evidencing such Lender's exemption
from withholding of Taxes from any amounts payable to such Lender hereunder
under as of the Closing Date. If any Taxes are required to be withheld from any
amounts payable to any Lender hereunder or under the Promissory Notes, then the
Borrower shall be entitled to require such Lender to assign its Credit Exposure
at par to any Person selected by Borrower that is a financial institution
reasonably acceptable to the Agent, which assignment shall be effected pursuant
to Section 7.18 hereof.
Section 2.18 Extension of Maturity Date. At least sixty (60) days
prior to the first anniversary of the Closing Date, the Borrower may, by notice
to Agent, request that Agent and each Lender review whether or not it is willing
to extend the Maturity Date. In the event and to the extent that the Agent and
all of the Required Lenders agree, in their respective sole and absolute
discretion, to extend the Maturity Date on such terms and conditions as shall be
acceptable to the Agent and all of the Required Lenders, in their respective
sole and absolute discretion, then the Agent shall so advise the Borrower. If
the terms and conditions to such extension are acceptable to Borrower, in its
sole and absolute discretion, then the Borrower shall so notify the Agent within
the time period set forth in such notice to the Borrower and, provided that all
of the conditions to the effectiveness of such extension as set forth in such
notice to the Borrower are satisfied, the Maturity Date shall be extended
pursuant to such terms and conditions and the provisions of this Section.
Notwithstanding the foregoing or anything else to the contrary, the Agent and
each Lender shall have the right to refuse to extend the Maturity Date for any
reason or for no reason whatsoever. If the Maturity Date is
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extended pursuant to this Section but less than all of the Lenders agree to such
extension, then either (i) the Commitment, for all purposes during the period of
such extension, shall be equal to the product of the Commitment times the
aggregate Percentage of the Lenders agreeing to such extension, or (ii) the
Borrower shall be entitled to require each Lender which does not agree to such
extension to assign its Credit Exposure at par to any Person selected by
Borrower that is a financial institution reasonably acceptable to the Agent,
which assignment shall be effected pursuant to Section 7.18 hereof.
ARTICLE III
CONDITIONS TO BORROWINGS
------------------------
The obligation of the Lenders to make an Advance to the Borrower is
subject to the satisfaction of the following conditions:
Section 3.1 Conditions Precedent to Closing. On or prior to the
Closing Date, all obligations of the Borrower hereunder to the Agent and the
Lenders incurred prior to the Closing Date and any amounts payable to the Agent
or the Lenders on the Closing Date (other than legal fees payable pursuant to
the last paragraph of this Section 3.1), shall have been paid in full. In
addition, the following conditions shall be satisfied:
(a) Receipt of Documents. The Agent shall have received or
waived in writing the following, each dated as of or prior to the Closing Date,
in form and substance satisfactory to the Agent:
(i) an officer's certificate, dated the Closing Date,
signed by any Co-Chairman, the President, any Senior Vice President,
any Vice President or the Controller of the Borrower, and attested to
by the Secretary or any Assistant Secretary of the Borrower, in the
form of Exhibit D with appropriate insertions, together with copies of
the Articles of Incorporation of Borrower certified by the Secretary
of State of the State of the Borrower's incorporation and the By-Laws
of Borrower and the resolutions of the Borrower referred to in such
certificate; and certified copies of all other documents, if any,
evidencing corporate action or governmental authorization or approval
with respect to this Agreement, the Promissory Notes, the Advances and
the Loan Documents;
(ii) duly executed and completed Promissory Notes
payable to the order of each Lender;
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(iii) a duly executed and delivered Environmental
Indemnity;
(iv) an opinion of counsel to the Borrower addressed to
the Agent and the Lenders as to the matters set forth in Exhibit F and
F-1 and in form reasonably acceptable to the Agent;
(v) financial statements in the forms prescribed by
Sections 5.2(a)-(d) for the most recent fiscal year and fiscal
quarter;
(vi) copies of all financial statements, reports, and
proxy statements mailed to the Borrower's shareholders within the last
year, and copies of all registration statements, periodic reports, and
other documents filed by the Borrower with the Securities and Exchange
Commission (or any successor thereto) and any national securities
exchange within the last year;
(vii) such consents or acknowledgements, with respect to
such of the transactions hereunder, from such Persons as the Agent or
its counsel may reasonably determine to be necessary or appropriate;
(viii) (A) a good standing certificate from the State of
Maryland in respect of the Borrower as of a recent date; and (B) a
certificate of the Secretary of State of each state in which the
Borrower owns a Mortgaged Property or is required to qualify to do
business, as to due qualification to do business as a foreign entity
and good standing of Borrower as of a recent date.
Execution and delivery of this Agreement by Borrower shall constitute Borrower's
agreement and covenant to pay to the Agent, promptly upon demand (together with
a reasonably detailed invoice(s) in respect thereof), all reasonable fees and
disbursements of counsel to the Agent and the Lenders incurred prior to or on
the Closing Date.
Section 3.2 Conditions Precedent to Each Advance. At the time of the
making by the Lenders of each Advance (before as well as after giving effect to
such Advance and to the proposed use of the proceeds thereof):
(a) The Agent shall have received a timely Notice of Borrowing
from the Borrower in accordance with Article II;
(b) No Default or Event of Default shall have occurred and be
continuing;
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(c) Such Advance shall not cause the aggregate principal
amount of all outstanding Advances to exceed the lesser of (i) the Commitment,
and (ii) the then Maximum Availability Amount;
(d) Subject to the provisions of Section 5.5 hereof, all
representations and warranties contained herein and incorporated herein by
reference (other than representations and warranties which are expressly
provided as being made only as of the Closing Date) shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such Advance and the Borrower
shall be in compliance in all material respects with all covenants and
agreements contained in Article V hereof and elsewhere in this Agreement;
(e) There shall have been no Material Adverse Change and no
Requirement of Law or Contractual Obligation of the Borrower or any Subsidiary
could reasonably be expected to result in a Material Adverse Change;
(f) No litigation, investigation or proceeding before or by
any arbitrator or Governmental Authority shall be continuing or threatened
against the Borrower or any of the officers or directors of any Subsidiary
thereof in connection with this Agreement and the other Loan Documents which
would result in a Material Adverse Change;
(g) Agent shall have received:
(i) prior to any Advance with respect to any Mortgaged Property (and,
notwithstanding anything to the contrary, no portion of the Total Costs
with respect to such Mortgaged Property shall be included in the
computation of the Maximum Availability Amount unless the Agent shall have
received): (1) such supporting documentation for Total Costs as Agent may
require, (2) Borrower's certificate to the effect that it has actually
incurred the Total Costs for which it is seeking reimbursement with respect
to the requested Advance, that such costs have not been made the basis for
any other request for an Advance under this Agreement, that no Material
Adverse Change has occurred since the immediately preceding Advance, and
that the requested Advance will be used for (and only for) the Permitted
Purpose, (3) a notice of title continuation or an endorsement to each title
policy referred to in Section 3.3(a)(iii) indicating that since the date of
the last preceding Advance there has been no change in the state of title
not theretofore approved by Agent, which endorsement shall have the effect
of redating the title policy to the date, and increasing the coverage
thereof by the amount, of the Advance then being made, and (4) a Project
Cost Report for such Mortgaged Property, dated as of the date of the Notice
of Borrowing;
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(ii) prior to any Advance with respect to any Acquisition Cost for any
Mortgaged Property (and, notwithstanding anything to the contrary, no
portion of the Total Costs with respect to such Mortgaged Property shall be
included in the computation of the Maximum Availability Amount unless the
Agent shall have received): (1) a Budget for such Mortgaged Property,
together with a full copy of the material agreement(s) (together with all
amendments thereto) pursuant to which such Mortgaged Property was acquired,
certified by the Borrower as being true, complete and accurate; (2)
Borrower's certification that, and evidence reasonably satisfactory to
Agent that, the zoning district in which the Mortgaged Property is located
permits the development, use and operation of the Mortgaged Property as an
extended stay facility, and that all zoning, planning board and similar
approvals required to be obtained under any Requirements of Law or Use
Requirements for the development, use and operation of an extended stay
facility on such Mortgaged Property have been obtained and are in full
force and effect; and (3) Borrower's certificate to the effect that the
building permit and all other permits, authorizations and approvals
required to be obtained under any Requirements of Law or Use Requirements
for the construction and operation of an extended stay facility on such
Mortgaged Property will be promptly and duly applied for, are capable of
being obtained, and that Borrower will pursue the obtainment of such
permits, authorizations and approvals with due diligence, and that the
construction and operation of an extended stay facility on such Mortgaged
Property shall at all times comply in all material respects with all
applicable Requirements of Law and Use Requirements; and
(iii) prior to any Advance with respect to any Direct Cost for any
Mortgaged Property (and, notwithstanding anything to the contrary, no
portion of the Direct Costs or with respect to such Mortgaged Property
shall be included in the computation of the Maximum Availability Amount
unless the Agent shall have received): (1) Borrower's certification that
the building permit and all other permits, authorizations and approvals
then required to be obtained under any Requirements of Law or Use
Requirements for the construction and operation of an extended stay
facility on such Mortgaged Property (i.e., only to the extent such permits,
authorizations and approvals are required to have been obtained for an
extended stay facility on such Mortgaged Property as constructed and/or
operated as of the date of such Advance) have been obtained and are in full
force and effect in all material respects; (2) Borrower's certificate to
the effect that final plans and specifications (the "Plans and
Specifications") for the construction of an extended stay facility on such
Mortgaged Property have been duly filed with all Governmental
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Authorities having jurisdiction over the construction of such facility; (3)
a Final Budget for such Mortgaged Property; and (4) prior to the first
Advance with respect to any Direct Cost for any particular Mortgaged
Property, Borrower's certificate to the effect that agreements with the
general contractor and all major trade contractors and subcontractors
required for the construction of an extended stay facility on such
Mortgaged Property have been duly executed and delivered by all parties
thereto and are in full force and effect;
(h) The Agent shall have received such other documents or legal
opinions as the Agent or counsel to the Agent may reasonably request, all in
form and substance reasonably satisfactory to the Agent;
(i) (1) The Agent shall have received payment of all costs and
expenses (other than the legal fees described in the following clause (2) of
this subparagraph) incurred by Agent in connection with reviewing and evaluating
the items furnished and the actions purporting to satisfy the conditions and
requirements to be satisfied pursuant to this Section 3.2, and (2) receipt of a
Notice of Borrowing for each Advance shall constitute Borrower's agreement and
covenant to pay to the Agent, promptly upon demand (together with a reasonably
detailed invoice(s) in respect thereof), all reasonable legal fees and expenses
incurred in connection with preparing and/or reviewing all documents relating
to, and rendering at the request of Agent all advice respecting, such items,
actions, conditions and requirements; and
(j) In the event that, within 120 days after the first Advance
relating to any Mortgaged Property is made, Agent shall not have received
either: (1) the Final Budget for such Mortgaged Property, or (2) Borrower's
certificate to the effect that all agreements with the general contractor and
all major trade contractors and subcontractors required for the construction of
an extended stay facility on such Mortgaged Property have been duly executed and
delivered by all parties and are in full force and effect, then, in either such
event, notwithstanding anything to the contrary, Agent shall have no obligation
to make any further Advances with respect to any Indirect Cost in connection
with such Mortgaged Property (and no portion of the Indirect Costs with respect
to the period commencing after such 120th day in connection with such Mortgaged
Property shall be included in the computation of the Maximum Availability
Amount) unless and until the Agent shall have received the items described in
subclauses (1) and (2) of this subparagraph.
Each request for an Advance by the Borrower, each selection or deemed
selection by the Borrower of an additional Interest Period for any Advance
pursuant to Section 2.7(ii),
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shall constitute a representation and warranty by the Borrower, as of the date
of the Advance, the selection or deemed selection of such additional Interest
Period, as the case may be, that the conditions specified in subsections (a)-(j)
of this Section 3.2 have been satisfied.
Borrower shall use reasonable efforts to furnish, with respect to each
request for an Advance, unless otherwise directed by Agent, all documents
referred to in Sections 3.2(g)(i)(3), 3.2(g)(ii)(2), 3.2(h), 3.3(a) (other than
those referred to in subsections (viii) and (ix) thereof) and 3.3(b), to the
extent applicable to such Advance, to Agent's counsel, Robinson Silverman Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York 10104,
Attention: Michael B. Levy, Esq., or at such other address or to such other
counsel as Agent may from time to time designate by notice to Borrower.
Notwithstanding the foregoing: (i) the failure of any such documents to be
furnished to such counsel shall not constitute a Default or Event of Default
(provided, however, nothing herein shall negate or vitiate any requirement
hereunder to cause the Agent to receive any such documents), and (ii) copies of
all of the foregoing documents delivered to such counsel shall also be given to
Agent as provided herein.
Section 3.3 Additional Conditions Precedent to an Advance in Respect
of New Mortgaged Property. Notwithstanding anything to the contrary, no portion
of the Total Costs with respect to a New Mortgaged Property shall be included in
the computation of the Maximum Availability Amount unless the following
conditions are satisfied with respect to each such New Mortgaged Property:
(a) Receipt of Documents. The Agent shall have received the
following in form and substance satisfactory to the Agent:
(i) a Mortgage for the New Mortgaged Property duly
authorized, executed, acknowledged and delivered in recordable form
and evidence of the recording of such instrument as may be necessary
or, in the opinion of the Agent, desirable to perfect and protect the
Liens or rights purported to be created thereby;
(ii) Financing Statements for the New Mortgaged Property
(including, without limitation, all furniture, fixtures and equipment
the cost of which is or has been included in Total Costs for purposes
of computing the Maximum Availability Amount), duly authorized and
executed and delivered in form suitable for recording and filing in
all necessary and appropriate recorders and filing offices, with
evidence
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of the recording and filing of each such Financing Statement in such
offices;
(iii) with respect to the New Mortgaged Property (i) a
mortgagee's policy of title insurance issued by a reputable national
title insurance company reasonably acceptable to the Agent, in form
and substance satisfactory to the Agent, (x) insuring the Agent and
the Lenders in an amount acceptable to the Agent with respect to the
New Mortgaged Property, that each Mortgage constitutes a valid first
mortgage lien on the Borrower's fee interest in the New Mortgaged
Property, (y) providing full coverage against all mechanics' and
materialmen's liens, and (z) containing the endorsements described on
Schedule 5 attached hereto and such other endorsements and affirmative
coverage as reasonably required by the Agent to the extent available
under applicable law and with such reinsurance (with direct access
provisions) as the Agent may reasonably request; and the Agent shall
also have received evidence that the premiums in respect of such title
insurance policies have been paid; (ii) a survey by a licensed
surveyor reasonably satisfactory to the Agent and such title insurance
company, containing the certification set forth on Schedule 6 attached
hereto and certified to the Agent, the Lenders, the Borrower, and the
title insurance company, showing no state of facts reasonably
unacceptable to the Agent; and (iii) a copy of all recorded documents
referred to, or listed as exceptions to title in, the title policies
referred to in this Section 3.3(a)(iii), including copies of
appurtenant easements affecting or benefitting the New Mortgaged
Property;
(iv) Studies, in each case reasonably satisfactory to the
Agent (and conducted by an experienced and reputable engineering firm
as demonstrated to Agent by evidence reasonably satisfactory to Agent)
confirming that there are no Hazardous Materials on or under the New
Mortgaged Property, except as set forth in such Studies and acceptable
to the Agent in its sole discretion;
(v) UCC lien searches with respect to the Borrower, whether
filed against the New Mortgaged Property or otherwise;
(vi) copies of each policy of insurance required hereunder
and under the other Loan Documents, and, with respect to policies of
insurance covering the New Mortgaged Property, to the extent such New
Mortgaged Property is not insured under existing policies of insurance
required hereunder and under the
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other Loan Documents, certificates or binders naming the Agent and
each Lender as an additional insured thereunder, accompanied by a
certification stating that all insurance required hereunder and under
the other Loan Documents has been obtained, such insurance satisfies
the requirements hereof and thereof, and is in full force and effect
and that all current due premiums therefor have been paid in full;
(vii) an opinion of counsel to the Borrower addressed to
the Agent and the Lenders as to the matters set forth in Exhibit F and
F-1 and in form reasonably acceptable to the Agent;
(viii) copies of Market Studies acceptable to the Agent in
its reasonable discretion with respect to the New Mortgaged Property;
(ix) Pro Forma Operating Statements acceptable to the
Agent for each New Mortgaged Property, dated as of a recent date;
(x) Intentionally omitted;
(xi) such consents or acknowledgements from such Persons
as the Agent or its counsel may reasonably determine to be necessary;
(xii) such other documents and instruments as the Agent or
the Lenders may deem reasonably necessary or appropriate as a
condition to its granting of the Borrower's request to add New
Mortgaged Properties to the Collateral; and
(xiii) (1) The Agent shall have received payment of all
costs and expenses (other than the legal fees described in the
following clause (2) of this subparagraph) incurred by Agent in
connection with reviewing and evaluating the items furnished and the
actions purporting to satisfy the conditions and requirements to be
satisfied pursuant to this Section 3.3, and (2) receipt of any of the
documents or instruments described in this Section 3.3 shall
constitute Borrower's agreement and covenant to pay to the Agent,
promptly upon demand (together with a reasonably detailed invoice(s)
in respect thereof), all reasonable legal fees and expenses incurred
in connection with preparing and/or reviewing all documents relating
to, and rendering at the request of Agent all advice respecting, such
items, actions, conditions and requirements.
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(b) Subsidiary-Owned New Mortgaged Properties. With respect to each
Mortgaged Property any portion of or interest in which is owned by any
Subsidiary Mortgagor, the Agent shall have received the following in form and
substance satisfactory to the Agent: (x) a guaranty of the Indebtedness
hereunder in the form of Exhibit K attached hereto from such Subsidiary
Mortgagor (the "Subsidiary Mortgagor Guaranty"), (y) all of the documents and
instruments described in Section 3.3(a) hereof, and (z) the documents and
instruments described in Section 3.1(a)(i) with respect to the authority,
execution and delivery of documents and instruments by, and the performance of
the obligations thereunder by, such Subsidiary Mortgagor, and the documents and
instruments described in Section 3.1(a)(viii). For purposes of this Section
3.3(b) (and for no other purpose), all references to "Borrower" in Sections
3.1(a)(i), 3.1(a)(viii) and 3.3(a) (and in the definitions and other provisions
referred to in such Sections) shall be deemed to include such Subsidiary
Mortgagor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants the following as of the date hereof
and, except with respect to the representations and warranties expressly
provided herein as being made only as of the Closing Date, further represents
and warrants on the date of each Advance:
Section 4.1 Corporate Existence. Borrower is duly organized and
validly existing under the laws of the jurisdiction of its incorporation. In
addition, Borrower is in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where it owns property or where the
conduct of its business or the ownership of its property or assets (including,
without limitation, the Mortgaged Properties) requires such qualification
(unless the failure to be so qualified or in good standing would not constitute
a Material Adverse Change), and has all corporate powers and all governmental
licenses, authorizations, consents, and approvals required to carry on its
business as is now or is proposed to be conducted (unless the failure to have
same would not constitute a Material Adverse Change).
Section 4.2 Authorization of Agreement; No Violation. The
execution, delivery, and performance by Borrower of this Agreement and of the
Loan Documents (i) are within the Borrower's powers, (ii) have been duly
authorized by all necessary action, and (iii) do not violate or create a default
under any Requirement of Law, the Borrower's Certificate of Incorporation and
By-Laws or any Contractual Obligation binding
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on or affecting the Borrower or its property (other than any violation or
default that would not constitute a Material Adverse Change).
Section 4.3 Governmental Approvals. No authorization or approval or
other action by, and no notice to or filing or registration with, any
Governmental Authority is required in connection with the execution, delivery,
and performance by Borrower of this Agreement or the other Loan Documents
(unless the failure to have obtained or made same would not constitute a
Material Adverse Change).
Section 4.4 Binding Effect. This Agreement and the other Loan
Documents have each been duly executed by Borrower and each constitutes a legal,
valid, and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforcement thereof may be subject to (i)
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium,
or similar law affecting creditors, rights generally, and (ii) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
Section 4.5 Financial Information and No Material Adverse Change.
----------------------------------------------------
(a) Each of the financial statements delivered pursuant to Sections
3.1(a)(v) and 3.1(a)(vi) were prepared in accordance with GAAP and fairly
present the financial condition and results of operation of the Persons and/or
properties covered thereby on the dates and for the periods covered thereby,
except as disclosed in the notes thereto and, with respect to normally recurring
year-end adjustments. As of the date hereof Borrower does not have any material
liability, absolute or contingent, not reflected in such financial statements,
the notes thereto or Schedule 2 hereof.
(b) Since December 31, 1996, there has been no Material Adverse
Change.
Section 4.6 Litigation. There is no action, suit, or proceeding, or
any governmental investigation or any arbitration, in each case pending or, to
the knowledge of the Borrower, threatened against Borrower, or any property of
the Borrower before any court or arbitrator or any governmental or
administrative body, agency, or official (i) which challenges the validity of
this Agreement or any of the other Loan Documents or (ii) which, as reasonably
likely to be determined, and taking into account any insurance with respect
thereto, would constitute a Material Adverse Change.
Section 4.7 Compliance with Law. The Borrower is in compliance with
all Requirements of Law, the Borrower's Certificate of Incorporation and By-Laws
and all Contractual
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Obligations binding on or affecting it or any of its properties (other than
where the failure to so comply would not constitute a Material Adverse Change).
The execution and delivery by Borrower of this Agreement, the Promissory Notes
and the Loan Documents do not, and the performance by Borrower of this
Agreement, the Promissory Notes and each of the Loan Documents will not, (a)
violate any Requirement of Law, (b) violate or contravene any provision of the
Borrower's Certificate of Incorporation and By-Laws, or any law, rule,
regulation, order, writ, judgment, decree, determination or award applicable to
the Borrower, (c) violate, contravene or result in a breach of or constitute a
default under any Contractual Obligation, or (d) result in, or require the
creation or imposition of, any Lien upon or with respect to any of its property
or assets (including, without limitation, the Mortgaged Properties) other than
the Liens created by the Loan Documents (other than, in any such case, where
such violation, contravention, default or result would not constitute a Material
Adverse Change).
Section 4.8 Labor Matters.
-------------
(a) There are no strikes, work stoppages, slowdowns or lockouts
pending, or reasonably likely to occur in the immediate future, against or
involving the Borrower or any of its Subsidiaries, other than those which in the
aggregate would not constitute or result in a Material Adverse Change.
(b) There are no arbitrations or grievances pending against or
involving the Borrower or any of its Subsidiaries, nor, to the best knowledge of
Borrower, are there any arbitrations or grievances threatened involving the
Borrower or any of its Subsidiaries, other than those which in the aggregate
would not constitute or result in a Material Adverse Change.
(c) Neither the Borrower nor any of its Subsidiaries are parties
to, or have any obligations under, any collective bargaining agreement, other
than collective bargaining agreement(s) copies of which (certified by the
Borrower as being true, correct and complete) have been furnished to the Agent.
(d) There are no representation proceedings pending, or, to the
best knowledge of the Borrower, threatened with the National Labor Relations
Board, and no labor organization or group of employees of the Borrower or any of
its Subsidiaries have made a pending demand for recognition, other than those
which in the aggregate would not constitute or result in a Material Adverse
Change.
(e) There are no unfair labor practice charges, grievances or
complaints pending or in process or, to the best knowledge of Borrower,
threatened by or on behalf of any employee or group of employees of the Borrower
or any of its Subsidiaries
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other than those which in the aggregate would not constitute or result in a
Material Adverse Change.
(f) There are no complaints or charges against the Borrower or any of
its Subsidiaries pending or, to the best knowledge of Borrower, threatened to be
filed with any Governmental Authority or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment by the Borrower or any
of its Subsidiaries of any individual, other than those which in the aggregate
would not constitute or result in a Material Adverse Change.
(g) The Borrower and each of its Subsidiaries is in compliance with
all laws, and all orders of any court, governmental agency or arbitrator,
relating to the employment of labor, including all such laws relating to wages,
hours, collective bargaining, discrimination, civil rights, and the payment of
withholding and/or social security and similar taxes, other than such non-
compliances as in the aggregate would not constitute or result in a Material
Adverse Change.
Section 4.9 ERISA. As of the date of this Agreement and throughout the
term of this Agreement, (i) the Borrower is not and will not be an "employee
benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I
of ERISA, (ii) the assets of the Borrower do not and will not constitute "plan
assets" of one or more such plans within the meaning of 29 C.F.R. (S) 2510.3-101
and (iii) the Borrower is not and will not be a "government plan" within the
meaning of Section 3(32) of ERISA.
Section 4.10 No Default. The Borrower is not in default under, or
with respect to, any of its Contractual Obligations in any respect which could
reasonably be expected to result in a Material Adverse Change and no Default or
Event of Default has occurred and is continuing.
Section 4.11 Improvements. Subject to the provisions of Section 5.5
------------
hereof:
(a) Except for portions of the Mortgaged Property under construction
or which are to be demolished in the course of construction, all of the
improvements located on the Mortgaged Properties and the use of such
improvements are covered by existing valid certificates of occupancy and all
other certificates and permits required by applicable laws, rules, regulations,
and ordinances or in connection with the use, occupancy, and operation thereof.
(b) No material portion of any of the Mortgaged Properties, nor any
improvements located on such Mortgaged Properties that are material to the
operation, use, or value thereof, have been damaged in any respect as a result
of any fire, explosion, accident, flood, or other casualty, except to
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the extent that the same have been or will with due diligence and in compliance
with this Agreement and all of the other Loan Documents be restored to their
condition prior thereto.
(c) No written notices of violation of any federal, state, or local
law or ordinance or order or requirement have been received with respect to any
Mortgaged Properties.
Section 4.12 Intellectual Property. Borrower owns, or is licensed to
use, all trademarks, trade names, copyrights, technology, know-how, and
processes necessary for the conduct of its business as currently conducted (the
"Intellectual Property") except for those the failure to own or license which
could not reasonably be expected to have a Material Adverse Change. No claim
has been asserted and is pending by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, nor does the Borrower know of any valid basis for
any such claim (other than claims which would not constitute a Material Adverse
Change). The use of such Intellectual Property by the Borrower does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Change.
Section 4.13 Intentionally Deleted.
Section 4.14 Taxes. Borrower has filed or caused to be filed all tax
returns that, to the knowledge of Borrower, are required to be filed and has
paid all taxes shown to be due and payable on such returns or on any assessments
made against it or any of its property and all other taxes, fees, or other
charges now due and payable imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which adequate reserves in conformity with GAAP have been provided on
the books of Borrower). No tax Lien has been filed which could constitute a Lien
senior in priority to the Lien of any of the Mortgages or Financing Statements
and which has not been (or will not be) removed or discharged of record within
10 days after Borrower's notice of such Lien (or the taxes to which such Lien
relates are being contested in good faith by appropriate proceedings which have
the effect of staying enforcement or execution of such Lien and with respect to
which adequate reserves in conformity with GAAP have been provided on the books
of Borrower).
Section 4.15 Investment Company Act; Other Regulations. Borrower is
not an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Borrower is not subject to regulation under any Federal or state statute or
regulation which limits its ability to incur Indebtedness.
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Section 4.16 Intentionally omitted.
---------------------
Section 4.17 Insurance. Subject in all events to the provisions of
Section 5.5 hereof, notwithstanding anything to the contrary contained in the
Mortgages and subject to Section 4.17(b), the Borrower maintains upon or in
connection with each of the Mortgaged Properties:
(a) Property and casualty insurance coverage evidenced by original or
certified copies of insurance policies or binders for such insurance, together
with evidence that the premiums for such policies have been paid current. Such
insurance policies shall insure each of the Mortgaged Properties for 100% of
their full replacement cost (exclusive of footings and foundations) in so-called
"all risk" form and with coverage for floods, earthquakes (except as provided in
Section 4.17(b)) and such other hazards (including "collapse" and "explosion")
as the Lenders may require for each of the Mortgaged Properties and as are
consistent with reasonable and customary requirements in the industry. Such
insurance policies shall contain replacement cost and agreed amount endorsements
(with no reduction for depreciation), an endorsement providing Building
Ordinance Coverage and an endorsement covering the costs of demolition and
increased costs of construction due to the enforcement of building codes or
ordinances. To the extent there exists a boiler on the premises of any of the
Mortgaged Properties, Borrower shall also furnish insurance providing boiler and
machinery comprehensive coverage for all mechanical and electrical equipment at
each of such Mortgaged Properties insuring against breakdown or explosion of
such equipment on a replacement cost value basis. Borrower shall also furnish
business interruption or loss of rental income insurance in connection with all
policies covering property and boiler and machinery insurance for a period of
not less than one (1) year endorsed, other than with respect to boiler and
machinery insurance, to provide a 180 day extended period of indemnity. All
insurance required under Section 4.17 shall be with companies and in amounts and
with coverage and deductibles satisfactory to the Lenders. All insurance
required under this Section 4.17(a) with respect to the Mortgaged Properties
shall include endorsements naming the Lenders as loss payees, and shall have
endorsed thereon the standard mortgagee clause in favor of the Lenders. All
companies issuing policies required under Section 4.17 shall have a current Best
Insurance Reports rating no less favorable than "A-", and all such companies
shall be licensed to do business in the states where the applicable Mortgaged
Property is located. All policies required under Section 4.17 shall provide
that (i) the insurance evidenced thereby shall not be canceled or modified
without, in the case of non-payment of premiums, at least ten (10) days' prior
written notice from the insurance carrier to the Agent, or, in any other
circumstance, at least thirty (30) days' prior written notice from the insurance
carrier to the Agent; and (ii) no act or thing done by the
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Borrower, or any Affiliate of any of Borrower shall invalidate the policy as
against the Lenders. The Borrower shall deliver renewal certificates of all
policies of insurance required under Section 4.17, together with written
evidence that the premiums are paid current, at least ten (10) days prior to the
expiration of the then current policy.
(b) earthquake insurance provided for in Section 4.17(a) only for the
Mortgaged Properties and only to the extent (i) any Mortgaged Property is
located in an earthquake prone area and (ii) such insurance is available at
commercially reasonable rates.
(c) Liability and worker's compensation insurance evidenced by
original or certified copies of insurance policies, binders for such insurance
policies, or certificates of insurance, together with evidence that the premiums
for such policies have been paid current. Such insurance shall provide for (i)
commercial general liability (including contractual liability) covering each of
the Mortgaged Properties and the Borrower's operations thereon in an amount not
less than $1,000,000 per occurrence and not less than $1,000,000 per occurrence
in the aggregate; (ii) commercial automobile liability with a limit not less
than $1,000,000 combined single limit and be endorsed to cover owned, hired and
non-owned automobiles; and (iii) worker's compensation insurance covering all of
the Borrower's employees and contracted parties (including their employees)
situated at the Mortgaged Properties in accordance with the statutory
requirements of the states where the applicable Mortgaged Property is located
and including an endorsement for employer's liability coverage. The Borrower
shall also furnish umbrella liability coverage in excess of the foregoing
liability coverage with a limit of not less than $9,000,000. The commercial
general liability and automobile policies and umbrella liability policy shall
name the Lenders as additional insureds. Such policies shall also contain a so-
called "products-completed operations endorsement."
(d) Insurance insuring against loss or damage by perils customarily
included under standard "builder's risk completed value non-reporting form" and
which include all insurance required to be carried by Borrower, as "owner,"
under the provisions of all construction contracts let by Borrower; provided
that such insurance shall insure all construction on all of the Mortgaged
Properties, including, without limitation, the construction of an extended stay
facility on each Mortgaged Property, including all materials in storage and
while in transit during construction.
Section 4.18 Properties. Subject to the provisions of Section 5.5
hereof:
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(a) Borrower and/or each Subsidiary Mortgagor has good and marketable
title to all of the Mortgaged Properties, subject to no mortgage, security
interest, pledge, lien, charge, encumbrance or title retention or other security
agreement or arrangement of any nature whatsoever, except Permitted
Encumbrances. Borrower shall, and shall cause each Subsidiary Mortgagor to,
forever warrant and defend the title of their respective Mortgaged Properties
against the lawful claims and demands of all persons whomsoever subject to the
Permitted Encumbrances.
(b) There are no pending or, to the best knowledge of Borrower,
threatened proceedings or actions to revoke, attack, invalidate, rescind, or
modify in any material respect (i) the zoning of any Mortgaged Property or any
part thereof, or (ii) any building or other permits heretofore issued with
respect to any Mortgaged Property or any part thereof, or asserting that any
such zoning or permits do not permit the operation of any Mortgaged Property or
any part thereof or that any improvements located on such Mortgaged Property
cannot be operated in accordance with its intended use or is in violation of
applicable Use Requirements.
(c) The Mortgage covering each such Mortgaged Property creates a valid
and enforceable first Lien on such property described therein, as security for
the repayment of the Indebtedness incurred by the Borrower hereunder and under
the other Loan Documents, subject only to the Permitted Encumbrances applicable
to such property.
(d) The Collateral is now, and so long as the Commitment remains in
effect or any monetary obligation to the Agent or the Lenders hereunder or under
the Promissory Notes or the other Loan Documents shall remain unpaid, will be
owned solely by the Borrower, and said Collateral, including the proceeds
resulting from the sale or other disposition (other than Permitted Transfers of
the Mortgaged Property) thereof, is and will remain free and clear of any Liens
except the Liens granted pursuant to the Loan Documents to the Agent and the
Lenders, which Liens to the Agent and the Lenders shall, at all times, be first
and prior on the Collateral and all proceeds resulting from the sale or other
disposition thereof, and no further action need be taken to perfect said Liens.
(e) Neither the existence of any improvements upon a Mortgaged
Property nor the intended use or condition of any Mortgaged Property violates in
any material respect any Use Requirements. With respect to each Mortgaged
Property, neither the zoning nor any other right to carry on the use of such
Mortgaged Property as an extended stay facility, is to any extent dependent upon
or related to any other real estate. Each Mortgaged Property may be operated as
an extended stay facility and the Borrower has received no written notices from
any
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Governmental Authorities alleging any violation by any Mortgaged Property of any
Requirement of Law, including but not limited to applicable Use Requirements.
(f) There are no pending or, to the knowledge of the Borrower,
threatened proceedings relating to any (i) taking by eminent domain or other
condemnation of any portion of any Mortgaged Property, (ii) condemnation or
relocation of any roadways abutting any Mortgaged Property and (iii) denial of
access to any Mortgaged Property from any point of access to such Mortgaged
Property, in any such case not accounted for in the Plans and Specifications.
(g) Each Mortgaged Property has adequate and permanent legal access to
water, gas, and electrical supply, storm, and sanitary sewerage facilities,
other required public utilities (with respect to each of the aforementioned
items by means of either a direct connection to the source of such utilities or
through connections available on publicly dedicated roadways directly abutting
such Mortgaged Property), parking, and means of access between such Mortgaged
Property and public highways over recognized curb cuts, and all of the foregoing
comply with all applicable Use Requirements.
(h) Each Mortgaged Property constitutes a legally subdivided lot under
all applicable Use Requirements (or, if not subdivided, no subdivision or
platting of such Mortgaged Property is required under applicable Requirements of
Law), and for all material purposes each Mortgaged Property may be mortgaged,
conveyed, and otherwise dealt with as an independent parcel.
Section 4.19 Full and Accurate Disclosure. No statement of fact made
by or on behalf of the Borrower in this Agreement or in any of the other Loan
Documents (other than any Loan Documents to which neither the Borrower nor any
Affiliate is a party), or any certificate or financial statement furnished by
the Borrower to the Agent when made or deemed made or the date as of which such
certificate or statement speaks or is deemed to speak, as the case may be,
contains any untrue statement of a material fact or, to the best of Borrower's
knowledge, omits to state any material fact necessary to make statements
contained herein or therein not misleading.
Section 4.20 Solvency. Within the meaning of Section 548 of the
Bankruptcy Code, the Uniform Fraudulent Transfer Act and the Uniform Fraudulent
Conveyance Act as in effect in any relevant jurisdiction, and any similar laws
or statutes, and after giving effect to the transactions contemplated hereby:
the fair saleable value of the Borrower's assets exceeds and will, immediately
following the making of the Advances, exceed the Borrower's total liabilities
including, without limitation, subordinated, unliquidated, disputed, and
contingent liabilities; the fair saleable value of the Borrower's assets is and
will,
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immediately following the making of each Advance, be greater than the Borrower's
probable liabilities, including the maximum amount of its contingent liabilities
on its debts as such debts become absolute and matured; the Borrower's assets do
not and, immediately following the making of the Advances will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted; and the Borrower does not intend to, and does not believe that
it will, incur debts and liabilities (including without limitation contingent
liabilities and other commitments) beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be received by the
Borrower and the amounts to be payable on or in respect of obligations of the
Borrower).
Section 4.21 Not Foreign Person. The Borrower is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.
Section 4.22 Assessments. Subject to the provisions of Section 5.5
hereof, except as set forth in the Budget with respect to the applicable
Mortgaged Property, there are no pending or, to the Borrower's knowledge,
proposed special or other assessments for public improvements or otherwise
affecting any Mortgaged Property, nor, to the Borrower's knowledge, are there
any contemplated improvements to any Mortgaged Property that may result in such
special or other assessments.
Section 4.23 Flood Zone. Except as disclosed by a survey delivered
pursuant to Section 3.3(a)(iii), no Mortgaged Property is located in a flood
hazard area as defined by the Federal Emergency Management Agency.
Section 4.24 Physical Condition. Subject to the provisions of
Section 5.5 hereof, except for portions of any Mortgaged Property which are to
be demolished in the course of construction of an extended stay facility
thereon, each Mortgaged Property is free of material structural defects and all
building systems contained therein are in good working order subject to ordinary
wear and tear.
Section 4.25 Operation of Premises. Subject to the provisions of
Section 5.5 hereof, except for portions of any Mortgaged Property which are to
be demolished in the course of construction of an extended stay facility
thereon, each Mortgaged Property is being operated and maintained in accordance
with the Borrower's usual and customary business practices.
Section 4.26 Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying any
margin stock or margin securities (within the meaning of Regulations G, T, U and
X issued by the Board of Governors of the Federal Reserve System), and no
proceeds of any Advance will be used, directly or indirectly, to
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purchase or carry any margin stock or margin securities or to extend credit to
others for the purpose of purchasing or carrying any margin stock or margin
securities. None of the transactions contemplated by this Agreement will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended.
Section 4.27 Hazardous Materials. Subject to the provisions of
Section 5.5 hereof, except as disclosed in the Studies, to the best of the
Borrower's knowledge, no Hazardous Materials are located on or about the
Mortgaged Properties, and the Mortgaged Properties do not contain any
underground tanks for the storage or disposal of Hazardous Materials. Further,
subject to the provisions of Section 5.5 hereof, except as disclosed in the
Studies, (i) the Borrower has not, and to the knowledge of the Borrower no other
party has, (A) stored or treated Hazardous Materials on the Mortgaged
Properties, (B) disposed of Hazardous Materials or incorporated Hazardous
Materials on the Mortgaged Properties, and (C) permitted any underground storage
tanks to exist on the Mortgaged Properties, (ii) no complaint, order, citation
or notice with regard to air emissions, water discharges, noise emissions, or
Hazardous Materials, if any, or any other environmental, health, or safety
matters affecting the Mortgaged Properties or any portion thereof, from any
person, government or entity, has been issued to the Borrower which has not been
remedied or cured, and (iii) the Borrower has complied with all Requirements of
Law affecting the Mortgaged Properties.
Section 4.28 Representations and Warranties in the Loan Documents.
Subject to the provisions of Section 5.5 hereof, the representations and
warranties in each of the Loan Documents (except with respect to the
representations and warranties expressly provided as being made only as of the
Closing Date) are true, complete and correct in all material respects, and the
Borrower hereby confirms each such representation and warranty as being true,
complete and correct in all material respects as of the relevant dates with the
same effect as if set forth in its entirety herein.
Section 4.29 Loan Documents. The provisions of the Loan Documents
are each effective to create, in favor of the Agent, a legal, valid and
enforceable Lien on or security interest in all of the collateral described
therein, and when the appropriate recordings and filings have been effected in
the appropriate public offices (or, in the case of collateral represented by
certificates, when such certificates have been pledged to and received by the
Agent), the Loan Documents will constitute a perfected first Lien on and
security interest in all right, title, estate and interest of the Borrower in
the collateral described therein, prior and superior to all other Liens except
for Permitted Encumbrances and as otherwise permitted under this Agreement.
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Section 4.30 Balloon Payments. As of the Closing Date, there are no
balloon payments, scheduled balloon amortizing payments or scheduled amortizing
payments required to be paid at any time in respect of any Indebtedness (other
than Permissible Assumed Indebtedness) of the Borrower or its Subsidiaries.
Section 4.31 Subsidiary Mortgagors. Each Subsidiary Mortgagor is a
Subsidiary of Borrower.
Section 4.32 Nature of Business. Neither the Borrower nor any
Subsidiary Mortgagor is engaged in any business other than the ownership,
construction, development, operation and management of extended stay facilities
(other than businesses incidental to the development, operation and management
of extended stay facilities).
ARTICLE V
COVENANTS
---------
Section 5.1 Certain Affirmative Covenants. So long as the Commitment
remains in effect or any amounts due to the Agent or the Lenders hereunder or
under the Promissory Notes or the other Loan Documents shall remain unpaid, the
Borrower will, and, to the extent any of the following relates to a Mortgaged
Property any portion of or interest in which is owned by any Subsidiary
Mortgagor, the Borrower will cause each such Subsidiary Mortgagor, with respect
to such Mortgaged Property, to (unless expressly waived by the Agent or the
Lenders as provided herein):
(a) Payment. Duly and punctually pay or reimburse when due or,
if there is no specified due date, when demanded, the principal and interest on
the Promissory Notes and all other amounts due under this Agreement and the
other Loan Documents.
(b) Commencement of Construction; Construction. The Borrower shall
commence construction of each extended stay facility to be constructed on a
Mortgaged Property in accordance with the Plans and Specifications therefor not
later than ninety (90) days from the date that Borrower receives the first
Advance for such Mortgaged Property; provided, however, notwithstanding the
foregoing, if either (x) despite the use of commercially reasonable efforts,
such construction cannot be commenced within such 90-day period as a result of
conditions or circumstances outside of the Borrower's control (it being agreed
that conditions or circumstances which can be cured by the payment of money on
commercially reasonable terms shall not be deemed outside of the Borrower's
control), or (y) commencement of construction within such 90-day period shall or
is reasonably likely to result in the Direct Costs or Indirect Costs with
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respect to such Mortgaged Property being materially greater than the amount
thereof set forth in the Budget for such Mortgaged Property, then, in either
such event, Borrower shall not be obligated to commence such construction until
(and Borrower shall commence such construction at such time as), (1) using
reasonable efforts, such conditions or circumstances no longer prevent
commencement of such construction, or (2) commencement of construction shall not
and is not reasonably likely to result in the Direct Costs or Indirect Costs
with respect to such Mortgaged Property being materially greater than the amount
thereof set forth in the Budget for such Mortgaged Property. Borrower shall
continuously and diligently carry on such construction in a good and workmanlike
manner.
(c) Existence, Etc. (i) Preserve and maintain its existence in
Maryland, and (ii) preserve and maintain its rights and franchises in each state
in which there exists a Mortgaged Property (unless the failure to so preserve
and maintain its rights and franchises would not constitute a Material Adverse
Change).
(d) Compliance With Laws, Etc. Subject to the provisions of Section
5.5 hereof, comply with all applicable Requirements of Law, Use Requirements and
all agreements and grants of easements or rights-of-way, permits, declarations
of covenants, conditions and restrictions, disposition and development
agreements, planned unit development agreements, management or parking
agreements, party wall agreements or other instruments affecting the Mortgaged
Properties.
(e) Payment of Taxes and Claims, Etc. Pay (i) all taxes, assessments
and governmental charges imposed upon it or upon its property (other than the
Mortgaged Property), unless the failure to so pay would not constitute or result
in a Material Adverse Change, (ii) subject to the provisions of Section 5.5
hereof and subparagraph (iii) of this Section, all taxes, assessments and
governmental charges imposed upon the Mortgaged Properties, and all claims
(including, without limitation, claims for labor, materials, supplies, or
services) which might, if unpaid, become a Lien upon the Mortgaged Properties or
any of them unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and the Borrower has
maintained adequate reserves with respect thereto, and (iii) all taxes,
assessments and governmental charges imposed upon the Mortgaged Properties which
would, if unpaid, become a Lien senior in priority to the Lien of any of the
Mortgages within 10 days after Borrower's notice of such Lien (unless the taxes,
assessments or governmental charges to which such Lien relates are being
contested in good faith by appropriate proceedings which have the effect of
staying enforcement or execution of such Lien and with respect to which adequate
reserves in conformity with GAAP have been provided on the books of Borrower).
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(f) Keeping of Books. Keep accurate records and books of account in
which full, accurate and correct entries shall be made of all dealings or
transactions in relation to its business and affairs in accordance with GAAP.
Upon reasonable prior notice and during normal business hours, the Borrower
shall permit representatives of any Lender to visit its offices and inspect,
examine and make abstracts from any of its books and records, and to discuss the
business, operations, and financial and other condition of the Borrower with
officers and employees of the Borrower and with its independent certified public
accountants, if any, in the presence of a representative of the Borrower.
(g) Visitation, Inspection, Etc. Permit any representative of the
Agent or the Lenders to visit and inspect any of the Mortgaged Properties, to
examine its books and records and to make copies and take extracts therefrom,
and to discuss its affairs, finances, and accounts with its officers,
accountants, and agents, all upon reasonable notice from the Agent during normal
business hours.
(h) Maintenance of Property. Keep all Mortgaged Properties in good
working order and condition and operate Mortgaged Properties in a manner
consistent with the operation thereof as an extended stay facility and otherwise
consistent with prudent business practices.
(i) Management of Properties. Subject to the provisions of Section
5.5 hereof, Borrower shall directly or indirectly operate and manage the
business of the Borrower at each of the Mortgaged Properties; provided, however,
that with the prior written consent of the Agent, which consent shall not be
unreasonably withheld, the Borrower may hire another Person to operate and
manage any Mortgaged Property.
(j) Hazardous Materials Removal. Subject to the provisions of Section
5.5 hereof, abate and/or remove any Hazardous Materials present in, on or under
any of the Mortgaged Properties in violation of any applicable Requirement of
Law.
(k) Covenants in the Loan Documents. Subject to the provisions of
Section 5.5 hereof, perform all covenants (affirmative and negative) contained
in each of the Loan Documents with the same effect as if set forth in their
entirety herein.
(l) Insurance. Subject to the provisions of Section 5.5 hereof, keep
the Mortgaged Properties insured in the manner and in the amounts set forth in
Section 4.17.
(m) Further Assurances. The Borrower agrees upon demand of the Agent
(i) to do any act or execute any additional documents (including, but not
limited to, security agreements on
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any personalty included or to be included in the Collateral) as may be
reasonably required by the Agent to confirm the Lien of the Loan Documents or to
exercise or enforce its rights under this Agreement, the Promissory Notes or the
Loan Documents and to realize thereon, and (ii) to execute and deliver to the
Agent and/or the Lenders such additional documents and to provide such
additional information as the Agent and/or the Lenders may reasonably require to
carry out or confirm the terms of this Agreement or the other Loan Documents.
This covenant shall survive the termination of this Agreement until payment in
full of all amounts due hereunder or under the Promissory Notes and the Loan
Documents, provided that the covenant shall be reinstated if any payment of all
amounts due hereunder or under the Promissory Notes and the Loan Documents is
required to be returned to the payor or any other party under any applicable
bankruptcy law.
(n) Final Budget; Major Trade Agreements. Subject to the provisions
of Section 5.5 hereof, the Final Budget for each Mortgaged Property shall be
received by Agent no later than 120 days after the first Advance relating to
such Mortgaged Property is made, and all agreements with the general contractor
and all major trade contractors and subcontractors required for the construction
of an extended stay facility on such Mortgaged Property shall be duly executed
and delivered by all parties thereto no later than 120 days after the first
Advance relating to such Mortgaged Property is made and such agreements shall
remain (or substitutes therefor shall be) in full force and effect until such
construction is completed.
Section 5.2 Reporting Covenants. So long as the Commitment remains
in effect or any monetary obligation to the Agent or the Lenders hereunder or
under the Promissory Notes or the other Loan Documents shall remain unpaid, the
Borrower will furnish to the Agent at the Borrower's sole cost and expense
(unless expressly waived by the Agent or the Lenders as provided herein):
(a) Annual Financial Statements With Respect to the Borrower. As soon
as available and in any event within 90 days after the end of each fiscal year
(unless the filing requirements have been extended by the Securities and
Exchange Commission ("SEC"), in which case the 90-day period shall be extended
until the earlier of the date of filing with the SEC or such extended date
granted by the SEC), a consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such year and the related consolidated statements
of income, retained earnings, and cash flow of the Borrower and its Subsidiaries
for such fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and accompanied by a
report thereon of Ernst & Young or other independent public accountants of
comparable recognized national standing acceptable to the Agent, which such
report
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shall be unqualified as to scope of audit and shall state that such consolidated
financial statements present fairly the consolidated financial condition as at
the end of such fiscal year, and the consolidated results of operations and
changes in cash flow for such fiscal year, of the Borrower and its Subsidiaries
in accordance with GAAP.
(b) Quarterly Financial Statements With Respect to the Borrower. As
soon as available and in any event within 60 days after the end of each fiscal
quarter other than the last fiscal quarter of a fiscal year (unless the filing
requirements have been extended by the SEC in which case the 60-day period shall
be extended until the earlier of the date of filing with the SEC or such
extended date granted by the SEC), a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such quarter and the related consolidated
statements of income and cash flow of the Borrower and its Subsidiaries for such
fiscal quarter and/or for the portion of the Borrower's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form the figures
for the corresponding quarter and the corresponding portion of the Borrower's
previous fiscal year, all in reasonable detail and certified by the Controller
or chief financial officer of the Borrower that they are complete and correct
and that they fairly present the consolidated financial condition as at the end
of such fiscal quarter, and the consolidated results of operations and changes
in cash flow for such fiscal quarter and/or such portion of the Borrower's
fiscal year, of the Borrower and its Subsidiaries in accordance with GAAP
(subject to normal, year-end audit adjustments).
(c) Annual Financial Statements With Respect to Operating Mortgaged
Properties. As soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower or at such time as the financial statements
described in Section 5.2(a) above are furnished to the Agent, a statement with
respect to each of the operating Mortgaged Properties for such fiscal year, each
of which statements shall (i) be in the form of Exhibit L attached hereto, and
contain in comparative form the information required to complete such Exhibit in
the manner and detail contemplated by such Exhibit, (ii) set forth the Net
Operating Income of each such Mortgaged Property in comparative form, and (iii)
be certified by the Controller or chief financial officer of the Borrower that
they are complete and correct and that they fairly present the information
required to complete such Exhibit for each such property as at the end of such
fiscal year, in accordance with GAAP and (iv) state that such statement presents
fairly the information required to complete such Exhibit for each such property
as at the end of such fiscal year, in accordance with GAAP.
(d) Quarterly Financial Statements With Respect to the Operating
Mortgaged Properties. As soon as available and in any event within 45 days
after the end of each fiscal quarter
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of the Borrower or at such time as the financial statements described in Section
5.2(b) are furnished to the Agent, a statement with respect to each of the
operating Mortgaged Properties as at the end of such quarter, each of which
statements shall (i) be in the form of Exhibit L attached hereto, and contain in
comparative form the information required to complete such Exhibit in the manner
and detail contemplated by such Exhibit, (ii) set forth the Net Operating Income
of each such Mortgaged Property in comparative form, (iii) be certified by the
Controller or chief financial officer of the Borrower that they are complete and
correct and that they fairly present the information required to complete such
Exhibit for each such property as at the end of such fiscal quarter, in
accordance with GAAP (subject to normal, year-end audit adjustments).
(e) No Default/Compliance Certificate. Together with the financial
statements required pursuant to subsections (a), (b), (c) and (d) above, a
certificate of the President, the Controller or the chief financial officer of
the Borrower to the effect that, based upon a review of the Borrower's
activities and such financial statements during the period covered thereby,
there exists no Event of Default and no Default under this Agreement, or if
there exists an Event of Default or a Default hereunder, specifying the nature
thereof and the Borrower's actions taken or proposed to be taken in response
thereto. The President or the chief financial officer or the Controller of the
Borrower shall complete the form of certificate attached as Exhibit D to this
Agreement and shall certify thereon that the Borrower is in compliance with all
financial covenants under this Agreement.
(f) Notice of Default or Events of Default. Promptly after acquiring
knowledge of the occurrence of a Default or an Event of Default, a certificate
of the president or chief financial officer or the Controller of the Borrower
specifying the nature thereof and the Borrower's proposed response thereto.
(g) Litigation. Promptly after (i) the occurrence thereof, the
Borrower shall deliver notice of the institution of or any development in any
action, suit, or proceeding or any governmental investigation or any
arbitration, before any court or arbitrator or any governmental or
administrative body, agency, or official, against the Borrower or any Mortgaged
Property in writing, (ii) the Borrower receives actual knowledge thereof, the
Borrower shall deliver notice of the threat of any such action, suit,
proceeding, investigation, or arbitration, or (iii) receipt thereof, the
Borrower shall deliver notice of any claims relating to the Lenders' interests
or any proposal by a Governmental Authority to acquire any part of the Mortgaged
Properties (other than any such proceeding or development which, as reasonably
likely to be determined, would not constitute or result in a Material Adverse
Change).
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(h) Adverse Change. Immediately after the Borrower knows of the
occurrence of any Material Adverse Change, a certificate of any Co-Chairman, the
President, any Senior Vice President, any Vice President or the Controller or
chief financial officer of the Borrower specifying the nature of such change.
(i) Shareholder Communications, Filings, Etc. Promptly upon the
mailing or filing thereof, the Borrower shall deliver copies of all financial
statements, reports, and proxy statements mailed to the Borrower's shareholders
generally, and copies of all final registration statements and other final
documents filed with the Securities and Exchange Commission (or any successor
thereto) or any national securities exchange.
(j) Intentionally omitted.
(k) Other Information. With reasonable promptness, such other
information about the Borrower, Realty and the Mortgaged Properties as the Agent
or the Lenders may reasonably request from time to time.
Section 5.3 Certain Negative Covenants. So long as any portion of
the Commitment remains in effect or any monetary obligations to the Agent or the
Lenders hereunder or under the Promissory Notes or the other Loan Documents
shall remain unpaid, the Borrower will not:
(a) Indebtedness. Create, incur, assume, or suffer to exist, any
Indebtedness other than:
(i) the Indebtedness hereunder and under the other Loan
Documents; and
(ii) Indebtedness outstanding on the date hereof which is
reflected in the Borrower's financial statements referred to in
Section 4.5(a) and in Schedule 2;
(iii) unsecured liabilities (not the result of borrowing)
incurred in the ordinary course of business for current purposes and
not represented by any note or other evidence of Indebtedness and
which are not past due more than 90 days;
(iv) non-recourse Indebtedness ("Permissible Assumed
Indebtedness");
(v) liability to a surety under performance bonds or similar
instruments incurred in connection with the Borrower's construction of
extended stay facilities on the Borrower's property; and
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(vi) Indebtedness due and payable solely to a Subsidiary of
Borrower.
(b) Total Debt. Permit there to be aggregate Indebtedness of the
Borrower of more than an amount equal to sixty-five percent (65%) of Gross Asset
Value, or permit there to be aggregate Indebtedness of the Borrower which is
secured by a Lien of more than an amount equal to sixty percent (60%) of Gross
Asset Value.
(c) Debt Service Ratios. Maintain a ratio of EBITDA for any fiscal
quarter to Debt Service for such period of less than 1.30:1.
(d) Available Amount. Permit the aggregate principal amount of all
outstanding Advances at any time to exceed the lesser of (i) the Commitment, and
(ii) the Maximum Availability Amount at such time.
(e) Dividends. Make any dividend or distribution to the shareholders
of Borrower, without the prior written consent of the Agent, which consent may
be withheld in the Agent's sole discretion.
(f) Stockholders Equity. Permit Stockholders' Equity to be less than
$204,000,000.00.
(g) Sales, Transfers. Sell, transfer or enter into any agreement for
the sale or transfer of any of the Mortgaged Properties without the prior
written consent of the Agent, which consent may be withheld in the Agent's sole
discretion, other than a sale or transfer or an agreement for the sale or
transfer of a Release Parcel with respect to which all conditions and
requirements to the Release thereof pursuant to Section 8.11 hereof are (as of
the date of such agreement) capable of being, and upon such sale or transfer
shall be, satisfied.
(h) Liens. Create, incur, assume, or suffer to exist any Lien on any
Mortgaged Property to secure any Indebtedness of the Borrower or any other
Person, other than Permitted Encumbrances.
(i) Mergers, Sales, Etc. (i) Merge into or consolidate with any other
Person; (ii) sell, assign, lease, transfer, convey or otherwise dispose of (in
one transaction or a series of transactions) all or substantially all of the
Borrower's assets to any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act), (iii) the liquidation or dissolution of the
Borrower or the adoption of a plan by the stockholders of the Borrower relating
to the dissolution or liquidation of the Borrower; (iv) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the
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Exchange Act), except for Realty or Affiliates thereof, of a direct or indirect
majority interest (more than 50%) of the voting power of the capital stock of
the Borrower by way of purchase, merger or consolidation or otherwise; or (v)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Borrower (which includes
any new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Borrower was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Borrower.
(j) Changes in Property or Business. Except in connection with the
development of an extended stay facility or with the prior written consent of
the Agent:
(A) Make or allow any material change to be made in the
nature of the use of any Mortgaged Property, or any part thereof
from that in effect on the date hereof or the date acquired, as
the case may be; or
(B) Initiate or acquiesce in any change in any Use
Requirements now or hereafter in effect and affecting any
Mortgaged Property or any part thereof.
(k) Transactions with Affiliates. Purchase, acquire, or lease any
property from, or sell, transfer, or lease any property to, or lend or advance
any money to, or borrow any money from, or guarantee any obligation of, or
acquire any stock, obligations, or securities of, or enter into any merger or
consolidation agreement, or any management or similar agreement with, any
Affiliate, or enter into any other transaction or arrangement or make any
payments to (including, without limitation, on account of any management fees,
service fees, office charges, consulting fees, technical service charges, or tax
sharing charges) or otherwise deal with, in the ordinary course of business or
otherwise, any Affiliate on terms other than arm's-length commercially
reasonable terms (other than (i) any such transactions in effect on the Closing
Date and described in Schedule 7 attached hereto, and (ii) any such transactions
between the Borrower and any of its Subsidiaries and between Subsidiaries of
Borrower).
(l) Use of Proceeds. Use the proceeds of the Advances for other than
any Permitted Purpose.
(m) Change of Business. Make or allow any material change in the
nature or scope of the business of the Borrower or any Subsidiary.
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(n) Hazardous Materials. Subject to the provisions of Section
5.5 hereof:
(i) Use or permit or suffer use of any Mortgaged Property or
any part thereof or any interest therein or conduct any activity or
operations thereon in any manner which:
(A) would involve or result in the occurrence or
presence of or exposure to Hazardous Materials at, upon, under,
across or within any Mortgaged Property or any part thereof not
in the ordinary course of operation;
(B) would violate any Relevant Environmental Laws; or
(C) would result in the occurrence of any
Environmental Discharge.
(ii) Install or suffer or permit installation or Presence
on, in or under any Mortgaged Property or any part thereof of any
underground or above-ground containers for the storage of fuel oil,
gasoline or other petroleum products or by-products, except (i) such
above-ground containers that are required for the operation of the
Mortgaged Property and that are at all times in compliance with all
Relevant Environmental Laws and any other applicable Requirements of
Law and (ii) such underground containers that are required for the
operation of the Mortgaged Property and are at all times in compliance
with all Relevant Environmental Laws and any other applicable
Requirements of Law.
Section 5.4 Material Casualties. The Borrower agrees that if at any
time prior to the repayment in full of the Advances and the termination of the
Commitment (including, but not limited to, at any time, prior to or after an
Event of Default) any Mortgaged Property is damaged by fire, earthquake or other
casualty in such a manner or to such an extent so that it is unlikely, in the
Agent's reasonable judgment, that such Mortgaged Property will be restored on or
prior to the Maturity Date to the same physical, leased and operating condition
as it exists prior to such casualty, the Borrower shall, within twenty (20) days
of the Agent's written request, direct that the insurance proceeds from the
casualty be delivered over to the Agent, to be applied by the Agent to repayment
of or the Borrower's obligations under this Agreement and the other Loan
Documents.
Section 5.5 Effect of Certain Representations or Covenants Being
Inaccurate or Breached. In the event that any of
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the representations and warranties contained in Sections 4.11, 4.17, 4.18, 4.22,
4.24, 4.25, 4.27 and 4.28 of this Agreement (or any representation or warranty
contained in any other Loan Document which is substantially similar to any of
the foregoing representations and warranties) are not accurate when made or
deemed made, or in the event that any of the covenants contained in Sections
5.1(d), (e)(ii), (i), (j), (k), (l) and (n) and 5.3(n) (or any covenant
contained in any other Loan Document which is substantially similar to any of
the foregoing covenants) are breached, then, notwithstanding anything to the
contrary, such breach or inaccuracy shall not constitute or be deemed a Default
or Event of Default, and Borrower shall not be deemed to have made any
misrepresentation, or breached any warranty or covenant unless and until (but
shall, at Agent's option, constitute and be deemed a Default and Event of
Default, and Borrower shall be deemed to have made such misrepresentation, or
breached such warranty or covenant, if and when):
(a) (i) Borrower is given notice of the circumstances which, but for
this Section 5.5, would constitute such misrepresentation,
or breach of warranty or covenant and such circumstances are
not remediated (i.e, the circumstances which would otherwise
constitute such misrepresentation, or breach of warranty or
covenant no longer exist) within (1) in the case of
circumstances which can be remediated by the payment of a
sum of money only, 10 days after such notice is given, and
(2) in the case of all other circumstances, 30 days after
such notice is given plus, if such circumstances cannot
reasonably be remediated within 30 days after such notice is
given and the Borrower has during such 30-day period
commenced to remediate such circumstances and thereafter
diligently pursues all necessary efforts to effect such
remediation, such additional period of time as may be
required to effect such remediation; provided, however, that
if at any time during any cure period described above
regarding circumstances the cost to remediate which are
quantifiable, Borrower shall not have provided evidence
satisfactory to the Agent that the Borrower has available to
it sufficient funds (other than from borrowings pursuant to
this Agreement) to promptly effect any such remediation,
then the cure period provided for above regarding such
circumstances shall immediately expire; and
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(ii) upon the expiration of the applicable cure period described
in Section 5.5(a)(i), if such circumstances have not been
remediated, the aggregate principal amount of all
outstanding Advances at such time exceeds the "Eligible
Maximum Availability Amount", as herein defined, at such
time. The term "Remediation Amount" means the amount which
Borrower certifies to Agent in writing (Borrower hereby
agreeing to so certify such amount promptly upon Agent's
request) as being Borrower's reasonable estimate (determined
in a manner reasonably acceptable to Agent, the basis for
which determination shall be set forth in reasonable detail
in such certification) of the aggregate cost of remediating
all circumstances which would constitute a misrepresentation
or breach of warranty or covenant of any of the
representations, warranties or covenants described above in
this Section 5.5. The term "Eligible Maximum Availability
Amount" means, as of the date of expiration of such
applicable cure period, the Maximum Availability Amount as
of such date recomputed by subtracting from the Eligible
Costs as of such date the amount by which the Remediation
Amount exceeds, if at all, the lesser of (x) $3,000,000.00,
and (y) the greater of (A) $300,000.00, and (B) 3% of the
Eligible Costs as of such date; provided, however,
notwithstanding the foregoing, the aggregate principal
amount of all outstanding Advances shall not at any time
exceed the lesser of (i) the Commitment, and (ii) the
Maximum Availability Amount at such time; or
(b) all circumstances which would constitute a
misrepresentation or breach of warranty or covenant of any of the
representations, warranties or covenants described above in this
Section 5.5, when taken as a whole, constitute a Material Adverse
Change.
In the event that any misrepresentation or breach of warranty or covenant with
respect to one or more Mortgaged Properties occurs which, pursuant to the
provisions of this Section 5.5, constitutes or will constitute a Default and
Event of Default, then, subject to the terms hereof, Borrower shall have the
right to substitute for such affected Mortgaged Properties one or more other
properties of the Borrower or its Subsidiaries, provided that (i) all of such
proposed substitute properties are acceptable in all respects to the Agent in
its sole, absolute and subjective discretion, (ii) all other conditions herein
to a
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property becoming a Mortgaged Property are satisfied and complied with, and
(iii) both before and after giving effect to such proposed substitution, no
Default or Event of Default (other than as a result of such misrepresentation or
breach of warranty or covenant) shall exist.
ARTICLE VI
EVENTS OF DEFAULT
-----------------
Section 6.1 Events of Default. The occurrence and continuance of any of the
following specified events shall constitute an "Event of Default":
(a) Payments. The Borrower shall fail to pay (i) any principal of the
Advances hereunder when due, or (ii) within three (3) days when due (including,
without limitation, by mandatory prepayment) (1) any interest on any of the
Advances or any fees or (2) any other amount payable hereunder or under the
other Loan Documents.
(b) Certain Property Representations and Covenants. Any
misrepresentation or breach of warranty or covenant occurs which, pursuant to
the provisions of Section 5.5 hereof, constitutes a Default and Event of
Default.
(c) Other Covenants. The Borrower shall fail to observe or perform
any covenant or agreement (other than those referred to in Sections 6.1(a) and
(b)) and such failure shall remain unremedied (i) in the case of any amounts
payable hereunder or under the other Loan Documents, for 3 days after notice
from the Agent, (ii) in the case of covenants or agreements contained in Section
5.2(a), (b), (c) and (d) of this Agreement, for 20 Business Days after the
occurrence thereof; or (iii) in all other cases, for 30 days after the
occurrence thereof. In the event that a breach of a covenant described in
clause (iii) above cannot be cured within 30 days after the occurrence thereof
and the Borrower has during such 30-day period commenced to cure such breach and
thereafter diligently pursues all necessary efforts to effect a cure, an Event
of Default shall be deemed only to have occurred if the breach either cannot be
remedied, or remains unremedied, for 60 days after the occurrence thereof.
(d) Representations. Any representation, warranty, or statement
(other than those referred to in Section 6.1(b)) made or deemed to be made by
the Borrower or any other Person (other than the Agent or any Lender) that is a
party to any Loan Document under or in connection with any Loan Document shall
have been incorrect in any material respect as of the date hereof, or as of the
date deemed to have been made.
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(e) Non-Payments of Other Indebtedness. The Borrower shall fail to
make any payment of principal of or interest on any Indebtedness of the Borrower
(other than any Indebtedness under this Agreement or the other Loan Documents
and other than Permissible Assumed Indebtedness) in an aggregate principal
amount of not less than $5,000,000.00 within the applicable cure period or any
event specified in any note, agreement, indenture or other document evidencing
or relating to any such Indebtedness shall occur; and the effect of such failure
or event is to accelerate, or to permit the holder of such aggregate
Indebtedness or any other Person to accelerate, the maturity of such
Indebtedness; or such Indebtedness shall be required to be prepaid (other than
by a regularly scheduled required prepayment) in whole or in part prior to its
stated maturity.
(f) Defaults Under Loan Documents. The Borrower or any other Person
(other than the Agent or any Lender) that is a party to any Loan Document shall
fail to observe or perform any covenant or agreement (other than those referred
to in Sections 6.1(a) and (b)) contained in any other Loan Document, or any
default shall occur under any other Loan Document (other than those referred to
in Sections 6.1(a) and (b)) and such failure or default shall remain unremedied
(i) in the case of any amounts payable under the other Loan Documents, for 3
days after notice from the Agent, (ii) in the case of covenants or agreements
similar to the covenants or agreements contained in Section 5.2(a), (b), (c) and
(d) of this Agreement, for 20 Business Days after the occurrence thereof; or
(iii) in all other cases, for 30 days after the occurrence thereof. In the
event that a breach of a covenant described in clause (iii) above cannot be
cured within 30 days after the occurrence thereof and the Borrower or such other
Person has during such 30-day period commenced to cure such breach and
thereafter diligently pursues all necessary efforts to effect a cure, an Event
of Default shall be deemed only to have occurred if the breach either cannot be
remedied, or remains unremedied, for 60 days after the occurrence thereof.
(g) Bankruptcy. The Borrower shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled "Bankruptcy"
as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code");
or an involuntary case is commenced against the Borrower and the petition is not
dismissed within 90 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or any
substantial part of the property of the Borrower; or the Borrower commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency, or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or
there is commenced against the Borrower any such proceeding which remains
undismissed for a period of 90 days; or the Borrower is adjudicated insolvent or
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bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower suffers any appointment of any custodian
or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 90 days; or the Borrower makes a
general assignment for the benefit of creditors; or the Borrower shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or the Borrower shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
the Borrower shall by any act or failure to act indicate its consent to,
approval of, or acquiescence in any of the foregoing; or any action is taken by
the Borrower for the purpose of effecting any of the foregoing; or any of the
foregoing shall occur with respect to any Subsidiary Mortgagor.
(h) Money Judgement. A judgment or order for the payment of money in
excess of $5,000,000 shall be rendered against the Borrower and such judgment or
order shall continue unsatisfied (in the case of a money judgment) and in effect
for a period of 30 days during which execution shall not be effectively stayed
or deferred (whether by action of a court, by agreement, or otherwise) (or, if
such judgment is covered by insurance, such longer period during which the
Borrower is appealing or otherwise contesting such judgment in good faith).
Section 6.2 Global Remedies. Upon the occurrence and continuation of
an Event of Default, and at any time thereafter, if any Event of Default shall
then be continuing, the Lenders may, by written notice to the Borrower, take any
or all of the following actions, without prejudice to the rights of the Lenders
to enforce its claims against the Borrower: (i) declare the Commitment
terminated, whereupon the Commitment shall terminate immediately; (ii) declare
all or any portion of the principal of and any accrued interest on the Advances
and all other obligations owing hereunder and under the other Loan Documents, to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
hereby waived by the Borrower; (iii) foreclose on any Collateral concurrently or
in such order as the Agent may from time to time see fit; or (iv) take any
action permitted under any Loan Document; provided, that, if any Event of
Default specified in Section 6.1(g) shall occur, the actions specified in
clauses (i) and (ii) above shall be deemed to have immediately and automatically
occurred without the giving of any notice to the Borrower.
Section 6.3 Marshalling; Waiver of Certain Rights; Recapture. Neither the
Agent nor the Lenders shall be under any obligation to marshall any assets in
favor of the Borrower or any other party or against or in payment of any or all
of the obligations of such parties. To the extent permitted by law the Borrower
waives and renounces the benefit of all valuation,
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appraisement, homestead, exemption, stay, redemption, and moratorium rights
under or by virtue of the constitution and laws of the state in which the
Mortgaged Properties are located and of any other state or of the United States,
now existing or hereafter enacted. To the extent the Agent or any Lender
receives any payment by or on behalf of the Borrower, which payment or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to the Borrower or its estate, trustee,
receiver, custodian, or any other party under any bankruptcy law, state or
federal law, common law, or equitable cause, then to the extent of such payment
or repayment, the obligation or part thereof which has been paid, reduced, or
satisfied by the amount so repaid shall be reinstated by the amount so repaid
and shall be included within the liabilities of the Borrower to such party as of
the date such initial payment, reduction, or satisfaction occurred, together
with interest at the Default Rate. The Borrower agrees that (i) the Agent on
behalf of the Lenders shall have the right to pursue all of its rights and
remedies in one proceeding, or separately and independently in separate
proceedings from time to time, as the Agent, in its sole and absolute
discretion, shall determine from time to time, (ii) the Collateral may be sold
at such proceeding or proceedings in one or more sales and in such portions or
combinations as the Agent, in its sole and absolute discretion, shall determine,
(iii) the Agent on behalf of the Lenders shall not be required to marshall
assets, sell any of the Collateral in any inverse order of alienation, or be
subject to any "one action" or "election of remedies" law or rule, (iv) the
exercise by the Lenders of any remedies against any one item of Collateral will
not impede the Lenders from subsequently or simultaneously exercising remedies
against any other item of Collateral, and (v) all Liens and other rights,
remedies, or privileges provided to the Agent and the Lenders under this
Agreement and the other Loan Documents shall remain in full force and effect
until the Agent and the Lenders have exhausted all of their remedies against the
Collateral and all of the Collateral has been foreclosed, sold or otherwise
realized upon in satisfaction of the Promissory Notes and the other obligations
of the Borrower to the Agent and the Lenders. Each Lender and its officers,
directors, shareholders, employees, counsel and agents shall not incur any
liability as a result of the sale of the Collateral, or any part thereof, in
accordance with the provisions of this Agreement or any Loan Document, or for
the failure to sell or offer for sale the Collateral, or any part thereof, for
any reason whatsoever. The Borrower waives any claims against each Lender and
its officers, directors, shareholders, employees, counsel and agents arising
with respect to the price at which the Collateral, or any part thereof, may have
been sold by reason of the fact that such price was less than the aggregate
amount of the indebtedness due under the Promissory Notes, this Agreement and
the other Loan Documents.
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Section 6.4 Application of Proceeds. (a) All proceeds received by the
Agent or the Lenders in respect of the repayment of any sums due hereunder or in
connection with a foreclosure sale of all or any portion of the Collateral after
the occurrence of an Event of Default shall be applied, first, to the costs of
enforcement of the Lenders' rights hereunder and under the other Loan Documents;
second, to pay any accrued and unpaid interest (including all interest owing at
the Default Rate), the principal amount of the Advances and any unpaid fees
payable under this Agreement and the other Loan Documents in such order of
priority as the Agent, in its sole and absolute discretion shall determine but
subject to the rights of the Lenders; and third, if any excess proceeds exist,
to the Borrower or any party entitled thereto as a matter of law. If the amount
of all proceeds received in liquidation of the Collateral which shall be applied
to payment of the indebtedness due in respect of this Agreement, the Promissory
Notes and the Loan Documents shall be insufficient to pay all such indebtedness
or obligations in full, the Borrower acknowledges that it shall remain liable
for any deficiency, together with interest thereon and costs of collection
thereof (including reasonable counsel fees and legal expenses).
(b) The Agent shall have the right, but not the obligation, to deposit
any proceeds in its possession which are available under clause third of Section
6.4(a) above into a court of competent jurisdiction for determination by such
court of the disposition of such excess proceeds and upon such deposit, the
Agent shall have no further liability with respect to such proceeds. All costs
and expenses of the Agent in connection with such action may be deducted or
charged by the Agent against such excess proceeds and shall otherwise be
reimbursed by the Borrower upon demand. The Agent shall have the right, but not
the obligation, to request and rely on the instructions of the Borrower in
connection with the disposition of any such excess proceeds and, upon compliance
with such instructions, shall have no further liability with respect to such
proceeds.
Section 6.5 Attorneys-in-Fact. The Borrower hereby makes,
constitutes and appoints the Agent, and its agents and designees, the true and
lawful agents and attorneys-in-fact of the Borrower, with full power of
substitution, to take any or all of the following actions during the continuance
of an Event of Default: (i) to receive, open and dispose of all mail addressed
to the Borrower relating to the Collateral, (ii) to notify and direct the United
States Post Office authorities by notice given in the name of the Borrower and
signed on its behalf, to change the address for delivery of all mail addressed
to the Borrower relating to the Collateral to an address to be designated by the
Agent, and to cause such mail to be delivered to such designated address where
the Agent may open all such mail and remove therefrom any notes, checks,
acceptances, drafts, money orders or other instruments in payment of the
Collateral in which the Agent
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has a security interest hereunder and any documents relative thereto, with full
power to endorse the name of the Borrower upon any such notes, checks,
acceptances, drafts, money orders or other form of payment or on Collateral or
security of any kind and to effect the deposit and collection thereof, and the
Agent shall have the further right and power to endorse the name of the Borrower
on any documents otherwise relating to such Collateral, and (iii) to do any and
all other things necessary or proper to carry out the intent of this Agreement
and to perfect and protect the liens and rights of the Agent created under this
Agreement, including, without limitation, to claim, bring suit, settle or adjust
any insurance proceeds claims relating to the Collateral. The Borrower agrees
that neither the Lenders nor any of their officers, directors, shareholders,
employees, counsel, agents, designees or attorneys-in-fact will be liable for
any acts of commission or omission, or for any error of judgment or mistake of
fact or law, except for any acts of gross negligence or willful misconduct. The
powers granted hereunder are coupled with an interest and shall be irrevocable
during the term hereof.
ARTICLE VII
AGENCY AND INTERCREDITOR RELATIONSHIPS
--------------------------------------
Section 7.1 Appointment. Each Lender hereby irrevocably designates
and appoints Commerzbank AG, New York Branch, as the Agent of such Lender under
the Loan Documents, and each such Lender irrevocably authorizes Commerzbank AG,
New York Branch, to act as the Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the Loan Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of this Agreement and the Loan Documents, together with such
other powers as are reasonably incidental thereto. The Agent shall not have any
duties or responsibilities, except those expressly set forth in this Agreement
and the Loan Documents, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Agent shall be read into any of the Loan
Documents or otherwise exist against the Agent. The provisions of this Article
VII are solely for the benefit of the Agent and the Lenders, and the Borrower
shall not have any rights as a third-party beneficiary or otherwise under any of
the provisions of this Article VII. In performing its functions and duties
under the Loan Documents, the Agent shall act solely as the agent of the Lenders
and does not assume nor shall the Agent be deemed to have assumed any obligation
or relationship of trust or agency with or for the Borrower or any of such
party's respective successors and assigns.
Section 7.2 Delegation of Duties. The Agent may execute any of its
duties under the Loan Documents by or through
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agents or attorneys-in-fact and shall be entitled to advice of counsel
(including its internal counsel) concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
Section 7.3 Exculpatory Provisions. The Agent shall not be (a)
liable for any action lawfully taken or omitted to be taken by it or any Person
described in Section 7.2 under or in connection with any Loan Document (except
for those actions arising from the Agent's own gross negligence or willful
misconduct), or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower
contained in any Loan Document, or by the Borrower in any certificate, report,
statement or other document referred to or provided for in, or received under or
in connection with any Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of any Loan Document or any such
certificate, report, statement or other document, or for any failure of the
Borrower, or any Lender to perform or observe its respective obligations
hereunder or thereunder. Unless the Agent shall have been requested to do so by
a Lender on such Lender's behalf, the Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of any Loan Document, or to
inspect the properties, or the books or records of the Borrower. This Section
7.3 is intended to govern solely the relationship between the Agent, on the one
hand, and the Lenders, on the other.
Section 7.4 Reliance by the Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
(including by telephone) believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, its internal counsel
and counsel to the Borrower), independent accountants and other experts selected
by the Agent. The Agent shall be fully justified in failing or refusing to take
any action under any Loan Document unless it shall first receive such advice or
concurrence of the Lenders required pursuant to this Agreement or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 7.5 Notice of Default. (a) The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless (i) the Agent has received notice from a Lender or the Borrower referring
to this Agreement,
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describing such Default or Event of Default and stating that such notice is a
"notice of default," or (ii) the Agent, in its capacity as a Lender, has actual
knowledge of such Default or Event of Default. In the event that the Agent
receives such a notice, the Agent shall promptly give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be directed by the Required Lenders; provided that unless
and until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as the Agent shall deem
advisable and in the best interests of the Lenders.
(b) Each Lender agrees that it shall promptly notify the Agent in
writing after it first has knowledge of any Default or Event of Default or of
any matter which in such Lender's judgment adversely affects any Lender's
respective interests in the Commitment, which notice will describe the Default
or Event of Default or matter in reasonable detail. The Agent shall give a copy
of any such notice received by the Agent to the other Lenders if such notice
pertains to a Decision by the Lenders pursuant to Section 7.14 or 7.15 hereof.
Section 7.6 Non-Reliance on the Agent and the Other Lenders. Each Lender
expressly acknowledges that neither the Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Borrower
shall be deemed to constitute any representation or warranty by the Agent. Each
Lender represents and warrants to the Agent that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, (a) made its own appraisal of and
investigation into the business, operations, property, prospects, financial and
other condition, creditworthiness and solvency of the Borrower, (b) satisfied
itself as to the due execution, legality, validity, enforceability, genuineness,
sufficiency and value of all of the Loan Documents and all other instruments and
documents furnished pursuant to any Loan Document, and (c) made its own decision
as to its Percentage of the Commitment pursuant to this Agreement. Each Lender
also represents that it will, independently and without reliance upon the Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analyses,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, prospects, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required pursuant to the Loan Documents to be furnished by
the Agent to the
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Lenders, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, prospects, financial and other condition or creditworthiness of the
Borrower which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
Section 7.7 Indemnification. The Lenders agree to indemnify the
Agent (in its capacity as such) and its officers, directors, employees,
representatives and agents (to the extent not reimbursed by the Borrower and
without limiting the obligation, if any, of the Borrower to do so), ratably in
accordance with their Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for the Agent or such Person
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not the Agent or such Person shall be
designated a party thereto) that may at any time be imposed on, incurred by or
asserted against the Agent or such Person as a result of, or arising out of, or
in any way related to or by reason of, any of the transactions contemplated by
the Loan Documents or the execution, delivery or performance of any Loan
Document (but excluding any such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the gross negligence or willful misconduct of the Agent or such
Person as determined by a court of competent jurisdiction). The agreements in
this subsection shall survive the payment of the Promissory Notes and all other
amounts payable hereunder.
Section 7.8 The Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though it were not the Agent hereunder.
With respect to Advances made or renewed by it and any Promissory Note issued to
it, the Agent shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not the Agent.
Section 7.9 Agent's Resignation. The Agent may resign at any time by
giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall designate within 45 days in writing
another Person as the successor Agent. Provided that no Event of Default shall
have occurred and be continuing, Borrower shall have the right to approve such
successor Agent. If such proposed successor Agent agrees in writing to act as
the Agent in accordance with the terms hereof, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges,
duties and obligations of the resigning Agent, and the resigning Agent shall be
discharged from its duties and obligations as Agent under this
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Agreement. After any retiring Agent's resignation hereunder, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was the Agent under this Agreement.
Section 7.10 Appointment of a Substitute Agent. (a) Commerzbank AG,
New York Branch, shall be the initial Agent under this Agreement and the Loan
Documents until the Loan Documents have been terminated and the Lenders have
been paid in full. In the event that any Agent determines, for good cause
(including, without limitation, a conflict which, in such Agent's judgment, is
material), that it is not in the best interest of the Agent to continue to act
as the Agent, then the Agent may, at its option and upon thirty (30) days' prior
written notice to the Borrower and the Lenders, request a substitute Agent be
selected in accordance with the terms of this Section to act as the Agent with
respect to such matters. Within fifteen (15) days after receipt of such notice,
the Required Lenders shall select a proposed substitute agent and shall notify
the Borrower of the identity of such proposed substitute agent. In addition,
the Required Lenders, on not less than thirty (30) days' notice to the Agent,
may elect to appoint a substitute Agent in the event that the Agent has acted
hereunder with willful misconduct, gross negligence or exhibited a continuing
pattern of negligence with respect to its duties and obligations hereunder.
Provided that no Event of Default shall have occurred and be continuing,
Borrower shall have the right to approve any such proposed substitute agent.
The succeeding substitute Agent shall have all the rights, powers and duties of
the Agent and the term "Agent" shall mean such substitute Agent, effective upon
its appointment. In the event that the substitute Agent wishes to resign, it
may do so upon thirty (30) days' prior notice to the Borrower, the Agent and the
Lenders, and a new substitute Agent shall be appointed in accordance with this
Section. After any retiring substitute Agent's resignation hereunder as
substitute Agent, the provisions of this Section 7.10 and Section 8.4 hereof
shall inure to the benefit of such retired substitute Agent as to any actions
taken or omitted to be taken by it while it was substitute Agent under this
Agreement.
Section 7.11 Loans. Each Lender shall make available to the Borrower
such Lender's portion of the Commitment subject to and in accordance with the
provisions of the Loan Documents. The Borrower shall look solely to each Lender
for the performance of such Lender's obligations, covenants and agreements under
the Loan Documents on the part of each Lender to be performed or observed with
respect to each such portion of the Commitment, subject to and upon the
conditions, limitations and restrictions set forth herein and in the other Loan
Documents, as evidenced by the signature of each such party hereto. In the
event any Lender has not made available its Percentage of any Advance, the Agent
may (but shall not be obligated to), and each Lender authorizes the Agent to,
advance for such Lender's account, pursuant to the
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terms hereof, the amount of the Advance to be made by such Lender and each
Lender agrees to reimburse the Agent in immediately available funds for any
amount so advanced on its behalf. If any such reimbursement is not made in
immediately available funds on the same day on which the Agent shall have made
such amount available on behalf of any Lender, such Lender shall also pay
interest thereon to the Agent at the Federal Funds Rate.
Section 7.12 Priority of Loans. Each Lender's portion of the
Commitment shall be of equal priority with each other Lender's portion of the
Commitment, and no portion of the Commitment shall have priority or preference
over any other portion of the Commitment or the security therefor, except as
provided in Sections 7.20 through 7.24 hereof.
Section 7.13 Books and Records. The Agent will keep customary books
and records relating to the Advances, and such books and records shall be
available at the Agent's office for the Lenders' reasonable inspection during
the Agent's normal business hours. The original Loan Documents shall be kept at
the New York office of the Agent or at such other office of the Agent or at such
other place as may be designated from time to time by the Agent and shall be
made available to any Lender for inspection at such office within a reasonable
period of time following such Lender's written request to inspect same.
Section 7.14 Decisions of the Lenders. (a) Except as expressly set
forth in Sections 7.15 and 7.16 hereof, all decisions, consents, waivers,
approvals and other actions (collectively, "Decisions") authorized to be taken
under or in connection with this Agreement and the other Loan Documents by any
Lender shall be taken by the Agent in its discretion reasonably exercised,
subject to the provisions of Section 7.4 hereof. Except as expressly provided
in Sections 7.15 and 7.16 hereof, the Agent (i) may consent or withhold consent
to any action by the Borrower, (ii) may exercise or refrain from exercising any
power, rights or remedies hereunder or under the other Loan Documents or
otherwise in respect of the Advances, and/or (iii) may waive any conditions in
any Loan Documents, so long as such consent, exercise or waiver would not, in
the Agent's judgment reasonably exercised, represent a departure from the
standards followed by the Agent in the administration of loans held by the Agent
entirely for its own account. The Agent may request a Decision with respect to
matters described in Sections 7.15 and 7.16 hereof at any time by making a
request for such Decision in writing to all of the Lenders. Any such request
(x) shall contain an adequate description together with relevant background
information of the Decision being requested, (y) shall specify the reasons for
such request, and (z) shall state the effect of not responding to such notice as
set forth in this Section. The Agent will provide the Lenders with such
additional information as the Lenders may reasonably request to assist such
Lenders in reaching a Decision, to the extent such information is
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in the Agent's possession or under its control. The requested Decision shall be
deemed approved by the Lenders if and when the Agent receives written approval
from the required percentage of the Lenders as specified in Sections 7.15 and
7.16 hereof, as the case may be. If a Lender does not deliver to the Agent a
written objection thereto within ten (10) Business Days after hand delivery,
mailing or delivery to an express courier service of the request by the Agent,
the Agent shall make a second written request for a Decision from that Lender.
If the Lender does not deliver to the Agent a written objection within five (5)
Business Days after hand delivery, mailing or delivery to an express courier
service of such a second request, such Lender shall be deemed to have approved
the requested Decision. If the Agent is unable to contact the usual
representatives of a Lender for any reason, the Agent will make a good faith
effort to contact other representatives of such Lender as necessary to reach a
Decision within the allotted time. To the extent that the Agent reasonably
deems necessary, any such Decision may also be requested telephonically by the
Agent from each Lender with such telephonic request to be confirmed in writing
by the Agent. Any Decision as to which the Agent has made telephonic requests
for approval shall be deemed approved by the Lenders after the Agent has
received the written approval of the required percentage of the Lenders as
specified in Sections 7.15 and 7.16 hereof. The Borrower shall be promptly
notified of the Decision, if such Decision was made in response to a request by
the Borrower.
Section 7.15 Unanimous Approvals by the Lenders. No written
amendment, supplement, modification or waiver which adds, deletes, changes or
waives any provisions of the Loan Documents shall (i) extend either the Maturity
Date or any installment or required prepayment of any Advances; (ii) reduce the
rate or extend the time of payment of interest on any Advances; (iii) reduce the
principal amount of any Advances; (iv) reduce the fees payable under this
Agreement and the other Loan Documents, or any other fee payable to the Lenders;
(v) change any Lender's portion of the Commitment or the amount of any Advance
of any Lender (except to the extent permitted by Sections 7.18 and 7.19 hereof);
(vii) change any provision of this Section 7.15 or the definition of Required
Lenders; (viii) modify any financial covenants, waive any Default or Event of
Default, or waive or release any lien on any of the Mortgaged Properties or
commence any judicial or nonjudicial foreclosure proceeding, in each case
without the written consent of all the Lenders; or (ix) amend, modify or waive
any provision of any Loan Document, if the effect thereof is to affect the
rights or duties of the Agent, without the written consent of the then the
Agent. Any such amendment, supplement, modification or waiver shall apply to
each of the Lenders equally and shall be binding upon the Borrower, the Lenders,
Agent and all future holders of the Promissory Notes. In the case of any
waiver, the Borrower, the Lenders and the Agent shall be restored to their
former position and rights hereunder and under the outstanding Promissory Notes,
and any
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Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
Section 7.16 Approvals by the Required Lenders. (a) Upon the Agent's
receipt of a notice of default (as defined in Section 7.5(a) hereof) with
respect to an Event of Default, the Agent shall consult with the Lenders in
respect of any such Event of Default to determine a course of action which is
acceptable to the Required Lenders. Subject to Section 7.15 hereof, the Agent
shall pursue any such course of action approved by the Required Lenders in
respect of any such Event of Default, including, without limitation,
acceleration of the Advances. In the event that the Required Lenders cannot
decide which remedies, if any, are to be pursued, the Agent may commence
proceedings on behalf of the Lenders; provided, however, that if at any time
thereafter the Required Lenders shall direct that a different or additional
remedial action shall be taken, such different or additional remedial action
shall be taken in lieu of or in addition to such proceedings.
(b) The Agent shall not, without the prior approval of the Required
Lenders, (i) enter into written amendments, supplements, modifications or
waivers for the purpose of adding, deleting, changing or waiving any of the
provisions of Article V or Section 6.1, except to the extent such amendment,
supplement, modification or waiver requires the unanimous consent of the Lenders
pursuant to Section 7.15 hereof, or (ii) enter into written amendments,
supplements, modifications or waivers for the purpose of adding, deleting,
changing or waiving any provision of the Loan Documents, except to the extent
such amendment, supplement, modification or waiver requires the unanimous
consent of the Lenders (pursuant to Section 7.15 hereof), or (iii) consent to,
approve, or waive the requirement of receipt of, any documents, certificates or
other agreements or statements delivered or to be delivered by the Borrower or
any other Person pursuant to Article III hereof, or (iv) consent to or permit
(if not expressly permitted under the Loan Documents) the assignment or transfer
by the Borrower of any of its rights and obligations under any Loan Document, or
consent to any merger or consolidation or sale, lease or other disposal of all
or a substantial part of the Borrower's property or assets.
(c) All losses, costs, expenses, disbursements, liabilities, fees
(including reasonable attorneys' fees and disbursements), obligations, damages,
suits, actions and penalties of any kind or nature whatsoever (collectively, a
"Loss") incurred by the Agent in connection with the Advances or the enforcement
thereof shall be borne by the Lenders in accordance with each Lender's
Percentage.
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(d) Each Lender shall, upon demand by the Agent, reimburse the Agent
(to the extent not otherwise reimbursed by the Borrower) for such Lender's
Percentage of (i) any out-of-pocket expenses incurred by the Agent in good faith
in connection with any Event of Default under the Loan Documents (including,
without limitation, reasonable fees and disbursements of outside counsel), and
(ii) any other expenses incurred in good faith to the extent not reimbursed by
the Borrower in connection with the enforcement of the Loan Documents.
(e) The Borrower hereby consents and agrees to the provisions of
Sections 7.14 through 7.16 and any modifications thereof entered into by the
Agent and the Lenders of such provisions and specifically acknowledges and
agrees that, notwithstanding any provisions in the Loan Documents requiring
action by the "Lenders" or similar provisions in connection with the declaration
of an Event of Default, the acceleration of the indebtedness evidenced by the
Loan Documents and/or the exercise of any remedies under the Loan Documents, the
Agent is hereby empowered to act on behalf of the Lenders in accordance with the
provisions hereof and the authority of the Agent with respect to any action
taken by the Agent pursuant to and in accordance with this Agreement shall not
be contested by the Borrower by reason of any different or conflicting provision
contained in any of the Loan Documents.
Section 7.17 Participation. Any Lender may at any time after the
execution and delivery of this Agreement, sell to one or more Persons (each a
"Participant") participating interests in any Advance owing to such Lender, any
Promissory Note held by such Lender and/or any other interest of such Lender
hereunder (in respect of any such Lender, its "Credit Exposure").
Notwithstanding any such sale by a Lender of participating interests to a
Participant, unless the Agent shall have agreed otherwise, such Lender's rights
and obligations hereunder shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Promissory Note for all purposes hereunder (except as
expressly provided below), and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.11, 2.13 and 2.15 hereof. Each Lender
agrees that any agreement between such Lender and any such Participant in
respect of such participating interest shall not restrict such Lender's right to
agree to any amendment, supplement, waiver or modification to any Loan Document,
except where the result of any of the foregoing would be to extend the final
maturity of any Advance or any regularly scheduled installment thereof or reduce
the rate or extend the time of payment of interest thereon or reduce the
principal amount thereof.
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Section 7.18 Assignments. (a) Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time after
the execution and delivery of this Agreement and from time to time assign to any
Lender or any affiliate thereof or to any other Person (each a "Purchasing
Lender") all or any part of its Credit Exposure in amounts not less than
$10,000,000. The Borrower, the Agent and the Lenders agree that to the extent
of any assignment, the Purchasing Lender shall be deemed to have the same rights
and benefits under the Loan Documents and the same obligation to share pursuant
to Section 7.24 hereof as it would have had if it had been a Lender which was
one of the original parties hereto. The consent of the Agent and, provided no
Default or Event of Default has occurred, the Borrower shall be required prior
to an assignment becoming effective, which consents will not be unreasonably
withheld, delayed or conditioned; provided that the Agent shall be entitled to
continue to deal solely and directly with the assignor Lender in connection with
the interests so assigned to the Purchasing Lender unless and until such
Purchasing Lender executes a supplement to this Agreement, substantially in the
form of Exhibit M hereto (a "Form of Assignment and Assumption Agreement").
(b) Upon (i) execution of a Form of Assignment and Assumption
Agreement, (ii) delivery of an executed copy thereof to the Borrower and the
Agent, (iii) payment by such Purchasing Lender to such transferor Lender of an
amount equal to the purchase price agreed between such transferor Lender and
such Purchasing Lender, and (iv) payment to Agent of an assignment fee of $2500
for each assignment by any Lender of all or any portion of its Credit Exposure,
such transferor Lender shall be released from its obligations hereunder to the
extent of such assignment and such Purchasing Lender shall for all purposes be a
Lender party to this Agreement and shall have all the rights and obligations of
a Lender under this Agreement to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Lenders or the
Agent shall be required. Such Form of Assignment and Assumption Agreement shall
be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing Lender as a Lender.
Promptly after the consummation of any transfer to a Purchasing Lender pursuant
hereto, the transferor Lender, the Agent and the Borrower shall make appropriate
arrangements so that a replacement Promissory Note is issued to such transferor
Lender and a new Promissory Note is issued to such Purchasing Lender, in each
case in principal amounts reflecting such transfer. The Purchasing Lender shall
furnish to Borrower, at least 10 days prior to the date on which the first
payment to such Purchasing Lender is due, the documents described in Section
2.17(b) hereof.
(c) Commerzbank AG, Los Angeles Branch, agrees that it will not assign
to a Purchasing Lender any part of its
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Credit Exposure such that, after giving effect to such assignment, Commerzbank
AG, Los Angeles Branch's Percentage shall be less than 20%, unless the foregoing
shall (or in Commerzbank AG, Los Angeles Branch's reasonable judgment is likely
to) constitute a violation of any Requirement of Law. Notwithstanding the
foregoing, nothing herein shall restrict or limit Commerzbank AG, Los Angeles
Branch, from selling a participating interest in any portion, or all, of its
Credit Exposure.
Section 7.19 Withholding. Notwithstanding anything to the contrary
herein, no Participant or other assignee of all or any part of the Credit
Exposure of any Lender (each, a "Non-Party Holder"), other than a Purchasing
Lender, shall be entitled to any of the benefits of Section 2.16 hereof.
Section 7.20 Amounts Received by the Lenders. Each Lender agrees
that it shall act as a trustee for the benefit of the other Lenders to the
extent of the respective interests of the other Lenders in the Advances with
respect to all sums of any kind paid to or received by such Lender in payment of
all or a portion of the Advances by or on behalf of the Borrower.
Section 7.21 No Joint Venture. Neither the execution of this
Agreement nor the selling of an interest in the Advances nor any agreement to
share in profits or losses as provided herein is intended to be, nor shall it be
construed to be, the formation of a partnership or joint venture among the
parties to this Agreement.
Section 7.22 Acknowledgment by Parties Hereto. The agreement to and
acceptance of this Agreement by the parties hereto, indicated by the execution
of this Agreement, shall evidence (a) each party's acceptance of all the terms
and conditions of this Agreement and the other Loan Documents and (b) each
party's consent to the Agent's acting as the Agent on behalf of the Lenders with
regard to all aspects of the administration, enforcement and collection of the
Advances and to all matters pertaining to the Loan Documents as provided for
herein.
Section 7.23 Right of the Lenders and the Agent to Transact Business.
The Lenders, the Agent and/or any of their respective 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 other Person without
any duty to account therefor to the other Lenders and/or the Agent, as the case
may be.
Section 7.24 Sharing of Payments. Each of the Lenders agrees that if
it should receive any amount under this Agreement or any of the other Loan
Documents (whether by voluntary payment, by realization upon security, by the
exercise of the right of banker's lien, by counterclaim or cross action,
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by the enforcement of any right under the Loan Documents, or otherwise) which is
applicable to the payment of any Advance of a sum which with respect to the
related sum or sums received by the other Lenders is in a greater proportion
than the total of such Advance then owed and due to such Lender bears to the
total of such Advance then owed and due to all of the Lenders immediately prior
to such receipt, then such Lender receiving such excess payment shall purchase
for cash without recourse or warranty from the other Lenders an interest in such
Advance owing to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount; provided that if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
Section 7.25 Limitation of Liability. No claim may be made by the
Borrower or any other Person against the Agent or any Lender or any of their
affiliates, directors, officers, employees, attorneys or agent of any of such
Persons for any special, indirect or consequential damages in respect of any
claim for breach of contract or any other theory of liability arising out of or
under this Article VII; and the Borrower hereby waives, releases and agrees not
to sue upon any such claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1 Notices. All notices, requests, and other communications
to any party hereunder shall be in writing (including bank wire, telecopy, or
similar teletransmission or writing) and shall be given to such party at its
address or telecopy number set forth on Schedule 3 annexed hereto or such other
address or telecopier number as such party may hereafter specify by notice to
the Agent and the Borrower. No notices, requests, and other communications
given to any Person other than the Agent (including, without limitation, any
Affiliate of the Agent) shall be deemed to have been given to the Agent. Each
such notice, request, or other communication shall be effective (i) when
delivered personally, (ii) if given by telecopier, when such telecopy is
transmitted to the telecopier number specified in this Section 8.1, (iii) if
given by certified or registered mail, return receipt requested, 72 hours after
such communication is deposited in the mails with first-class postage prepaid,
addressed as aforesaid, or (iv) by Federal Express or other recognized overnight
delivery service (provided that, in either such case, such delivery is made with
a request for receipt), on the next Business Day after such communication is
deposited with
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such delivery service, or (v) if given by any other means when delivered at the
address specified in this Section 8.1.
Section 8.2 Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the other Loan Documents, nor consent to any departure by
either party therefrom, shall in any event be effective unless the same shall be
in writing and signed by the party or its agent, if authorized to act on its
behalf, against whom enforcement of such waiver or amendment is sought, and then
such waiver or consent shall be effective only in the specific instance and for
the specified purpose for which given. None of the foregoing shall negate or
vitiate any of the provisions of Sections 7.14, 7.15 or 7.16.
Section 8.3 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Lenders in exercising any right or remedy hereunder or under any
other Loan Document and no course of dealing between the Borrower and the Agent
or the Lenders shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy hereunder or under any other Loan
Document preclude any other or further exercise thereof or the exercise of any
other right or remedy hereunder. The rights and remedies herein and in the
other Loan Documents expressly provided are cumulative and not exclusive of any
rights or remedies that the Lenders would otherwise have. No notice to or
demand on the Borrower not required hereunder or under the other Loan Documents
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Lenders to any other or further action in any circumstances without notice or
demand.
Section 8.4 Payment of Expenses, Etc. The Borrower shall: (a)
whether or not the transactions hereby contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Lenders in the administration
(both before and after the execution hereof and including advice of counsel as
to the rights and duties of the Agent or the Lenders) of, and in connection with
the preparation, execution, and delivery of, preservation of rights under,
enforcement of, and, after an Event of Default, refinancing, renegotiation, or
restructuring of, this Agreement and the other Loan Documents and the documents
and instruments referred to therein; any amendment, waiver, or consent relating
thereto (including, without limitation, the reasonable fees and disbursements of
counsel for the Agent and the Lenders);
(b) to the extent permitted by applicable law, pay and hold the Agent
and the Lenders harmless from and against any and all present and future stamp,
recording, and other similar taxes and fees with respect to the foregoing
matters and save the Lenders harmless from and against any and all
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liabilities with respect to or resulting from any delay or omission to pay such
taxes and fees; and
(c) indemnify the Agent and the Lenders and each of their officers,
directors, employees, Affiliates, representatives, and agents from, and hold
each of them harmless against, any and all costs, losses, liabilities, claims,
damages and expenses incurred by any of them (whether or not any of them is
designated a party thereto) arising out of or by reason of any litigation, or
other proceeding related to any actual or proposed use by the Borrower of the
proceeds of any of the Advances or the Borrower entering into and performing of
this Agreement or the other Loan Documents or resulting from the ownership of
any Mortgaged Property, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation, or other proceeding; provided that the Borrower shall not be
obligated to indemnify any such Person to the extent of any costs, losses,
liabilities, claims, damages, or expenses caused by the gross negligence or
willful misconduct of such Person.
If and to the extent that the obligations of the Borrower under this
Section 8.4 are unenforceable for any reason, the Borrower hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law. The Borrower's obligations under
this Section 8.4 shall survive any termination of this Agreement and the payment
of the sums due hereunder and under the other Loan Documents.
Section 8.5 Right of Setoff. In addition to and not in limitation of
all rights of offset that the Lenders may have under applicable law, the Lenders
shall, upon the occurrence and during the continuance of any Event of Default
and whether or not the Lenders have made any demand or the Borrower's
obligations are matured, have the right to appropriate and apply to the payment
of the Borrower's obligations hereunder and under the other Loan Documents, all
deposits (general or special, time or demand, provisional or final) of the
Borrower then or thereafter held by, and other indebtedness or property then or
thereafter owing by, the Lenders.
Section 8.6 Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided that the Borrower may not assign or
transfer any of its interest hereunder without the prior written consent of the
Lenders.
Section 8.7 Governing Law; Submission to Jurisdiction. (a) This
Agreement and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the law (without giving effect
to the conflict
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of law principles thereof) of the State of New York except as otherwise
specifically provided in the Loan Documents with respect to the perfection,
priority and enforcement of liens upon real property and fixtures not located in
the State of New York.
(b) Any legal action or proceeding with respect to this Agreement or
the other Loan Documents or any document related thereto may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and by execution and delivery of this Agreement,
the Borrower hereby accepts for itself and in respect of its property generally
and unconditionally, the jurisdiction of the aforesaid courts. The Borrower
hereby irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which it may now or hereafter have to the bringing of any such
action or proceeding in such respective jurisdictions. The Borrower agrees that
any process in any proceeding in any such court may be served on the Borrower
through the United States mails in accordance with Section 8.1.
(c) WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE
PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENTS AND FROM ANY COUNTERCLAIM THEREIN.
(d) Nothing herein shall affect the right of the Lenders to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
Section 8.8 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 8.9 Headings Descriptive. The headings contained in this Agreement
are for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 8.10 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof, and all prior discussions, negotiations, term sheets,
commitment letters, agreements, correspondence and document drafts with respect
to such matters are merged herein and therein. Neither the Lenders nor any
employee of the Lenders has been authorized to make any representation or
agreement upon which the Borrower or its Affiliates may rely unless such matter
is set forth in this Agreement or the other Loan Documents.
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Section 8.11 Release of Certain Mortgaged Property. Agent agrees
that, upon Borrower's request (a "Release Request"), it will deliver to Borrower
a form of release, duly executed and acknowledged by the Agent, releasing from
the lien of the applicable Mortgage (a "Release"), any real property
constituting a portion of a Mortgaged Property (a "Release Parcel") but only if
and on the condition that:
(i) each Release Request shall be in writing, shall contain all
information necessary for the Agent to cause a Release in recordable form
to be prepared and shall be given at least five (5) Business Days prior to
the requested date of such Release;
(ii) each Release Request shall constitute Borrower's
representation and warranty that, and shall be accompanied by evidence
demonstrating to the Agent's satisfaction that (a) no portion of the
extended stay facility constructed (or to be constructed) on the Mortgaged
Property from which the Release Parcel is to be Released is (or will be)
located on such Release Parcel, (b) the requested Release shall not cause
or result in the remaining Mortgaged Property and the existence and use of
the extended stay facility constructed (or to be constructed) thereon to
fail to comply with any Use Requirements or Requirements of Law, and (c) no
portion of the Total Costs allocated in a manner satisfactory to Agent to
the Release Parcel is included in the computation of the Maximum
Availability Amount;
(iii) as of the date of such Release Request, and as of the
effective date of such Release (before as well as after giving effect to
such Release), no Default or Event of Default shall have occurred and be
continuing, and each Release Request shall constitute Borrower's
representation and warranty that the foregoing is true, complete and
accurate;
(iv) before as well as after giving effect to such Release,
subject to the provisions of Section 5.5 hereof, all representations and
warranties contained herein (except representations and warranties
expressly provided herein as being made only as of the Closing Date) shall
be true and correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the date of
such Release;
(v) Borrower executes, acknowledges and delivers to Agent, at
Borrower's expense, any and all documents and instruments reasonably
required by Agent to preserve and maintain Agent's and Lenders' rights,
upon and following any such Release, under and with respect to the Loan
Documents; and
(vi) (1) The Agent shall have received payment of all costs and
expenses (other than the legal fees described
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in the following clause (2) of this subparagraph) incurred by Agent in
connection with such Release, including, but not limited to, all title
insurance premiums arising as a result of endorsements required by Agent in
connection with such Release, and (2) receipt of a Release Request for each
Release shall constitute Borrower's agreement and covenant to pay to the
Agent, promptly upon demand (together with a reasonably detailed invoice(s)
in respect thereof), all reasonable legal fees and expenses arising in
connection with the preparation, execution, delivery and review of each
Release, the documents and instruments described in this Section, and all
other documents relating to, and rendering at the request of Agent all
advice respecting, each Release.
In the event that all of the foregoing conditions to a Release have been
satisfied, then, at Borrower's request, the Agent shall furnish such Release for
recordation to the title company insuring the Agent's interest in the Mortgaged
Property affected by such Release or as otherwise designated by Borrower.
Section 8.12 Subordination of Certain Mortgaged Property. Agent
agrees that, upon Borrower's request (a "Subordination Request"), it will
deliver to Borrower a form of subordination, duly executed and acknowledged by
the Agent, subordinating the lien of the applicable Mortgage (a
"Subordination"), to any Development Encumbrances on a Mortgaged Property, but
only if and on the condition that:
(i) each Subordination Request shall be in writing, shall contain
all information necessary for the Agent to cause a Subordination in
recordable form to be prepared and shall be given at least five (5)
Business Days prior to the requested date of such Subordination;
(ii) Agent shall have received an endorsement to the title policy
referred to in Section 3.3(a)(iii) with respect to the applicable Mortgaged
Property indicating that since the date of the last endorsement to such
policy there has been no change in the state of title not theretofore
approved by Agent, providing with respect to such Development Encumbrances
a so-called "comprehensive endorsement" (or equivalent), to the extent
available in the jurisdiction in which such Mortgaged Property is located,
and such other affirmative insurance as Agent shall reasonably require,
which endorsement shall have the effect of redating the title policy to the
date of recordation of, and insuring the lien of the Mortgage as
subordinated pursuant to, the Subordination;
(iii) as of the date of such Subordination Request, and as of
the effective date of such Subordination (before as well as after giving
effect to such Subordination), no Default or Event of Default shall have
occurred and be continuing, and each Subordination Request shall constitute
Borrower's representation and warranty that the foregoing is true, complete
and accurate;
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(iv) before as well as after giving effect to such Subordination,
subject to the provisions of Section 5.5 hereof, all representations and
warranties contained herein (except representations and warranties
expressly provided herein as being made only as of the Closing Date) shall
be true and correct in all material respects with the same effect as though
such representations and warranties had been made on and as of the date of
such Subordination;
(v) Borrower executes, acknowledges and delivers to Agent, at
Borrower's expense, any and all documents and instruments reasonably
required by Agent to preserve and maintain Agent's and Lenders' rights,
upon and following any such Subordination, under and with respect to the
Loan Documents; and
(vi) (1) The Agent shall have received payment of all costs and
expenses (other than the legal fees described in the following clause (2)
of this subparagraph) incurred by Agent in connection with such
Subordination, including, but not limited to, all title insurance premiums
arising as a result of endorsements required by Agent in connection with
such Subordination, and (2) receipt of a Subordination Request for each
Subordination shall constitute Borrower's agreement and covenant to pay to
the Agent, promptly upon demand (together with a reasonably detailed
invoice(s) in respect thereof), all reasonable legal fees and expenses
arising in connection with the preparation, execution, delivery and review
of each Subordination, the documents and instruments described in this
Section, and all other documents relating to, and rendering at the request
of Agent all advice respecting, each Subordination.
Section 8.13 Confidentiality by the Agent and the Lenders. The Agent
and the Lenders agree that, unless otherwise agreed to in writing by us, except
as required by law or regulation or by legal process, to keep all Non-public
Information delivered by the Borrower to the Agent or the Lenders confidential
and not to disclose or reveal any Non-public Information to any person, other
than those employed or retained by the Agent or the Lenders (including, without
limitation, employees, counsel, accountants, engineers, advisers, experts and
consultants to the Agent or the Lenders). Except as provided for in the next
sentence, in the event that the Agent or any Lender is requested pursuant to, or
required by, applicable law or regulation or by legal process to disclose any
Non-public Information, the Agent or such Lender agrees that it shall provide
the Borrower with prompt notice of such request(s) and, unless required by law
or regulation to disclose sooner, shall wait at least forty-eight (48) hours
before disclosing such Non-public information. Notwithstanding the foregoing or
anything else to the contrary herein contained or contained in any of the other
Loan Documents, the provisions of this Section 8.13 shall not apply to (a) the
disclosure or sharing of any non-public information among the Agent and the
Lenders, (b) the disclosure by the Agent or any Lender of any non-public
information to
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federal, state and local bank regulators or other governmental agencies to the
extent required or requested to do so (such disclosure shall not, however, in
and of itself be deemed to render such information public), and (c) the Agent or
any Lender may, in connection with any assignment or participation or proposed
assignment or participation, disclose to the assignee or participant or proposed
assignee or participant under a requirement of confidentiality, any non-public
information relating to the Borrower, the Collateral, the Borrower's assets,
properties or financial condition or information otherwise furnished to the
Agent or the Lenders by the Borrower.
[Signature is on the Following Page]
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
written above.
HOMESTEAD VILLAGE INCORPORATED
By: /s/ David C.Dressler, Jr.
----------------------------------
Name: David C.Dressler, Jr.
-----------------------------
Title: Co-Chairman
----------------------------
COMMERZBANK AG, New York
Branch, as Agent
By: /s/ David M. Schwarz
----------------------------------
Name: David M. Schwarz
--------------------------------
Title: Vice President
-------------------------------
By: /s/ Christine H. Finkel
----------------------------------
Name: Christine H. Finkel
-------------------------------
Title: Assistant Vice President
--------------------------------
COMMERZBANK AG, Los Angeles
Branch, as lender
By: /s/ Christian Jagenberg
----------------------------------
Name: Christian Jagenberg
--------------------------------
Title: Senior Vice President & Manager
-------------------------------
By: /s/ Steven F. Larsen
-----------------------------------
Name: Steven F. Larsen
--------------------------------
Title: Vice President
-------------------------------
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EXHIBIT 15
May 6, 1997
Board of Directors and Shareholders
Homestead Village Incorporated
We are aware of the incorporation by reference in the Registration Statements
(Form S-8, No. 333-17243 and 333-17245) pertaining to the Homestead Village
Incorporated 1996 Long-Term Incentive Plan and Homestead Village Incorporated
1996 Outside Directors Plan of our report dated May 6, 1997 relating to the
unaudited condensed interim financial statements of Homestead Village
Incorporated that are included in its Form 10-Q for the quarter ended March 31,
1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
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